The Amendments to the Registered Pledge on Movables Act (“Movables Pledge Act“), which became applicable on 7 May 2019, introduce, inter alia, new provisions on bank account pledge. The change was motivated by a desire to create legal basis for constitution of pledge on project accounts. However, the wording of the new provision raises some concerns.
Prior to the Amendments, the Pledge on Movables Act did not contain specific provisions on the pledge on bank accounts. However, the legislation allows constitution of pledge on existing and future receivables. This general provision should be, in our view, sufficient to allow for registration of pledge on any and all existing and future receivables the pledgor may have against its account bank under an agreement for the operation of a particular bank account. Nonetheless, it has been the practice of the Pledge Registry not to allow registration of a floating charge on a bank account but only of a pledge on a specific balance existing on the bank account as of the date of the pledge agreement. The Ministry of Economy (“Ministry“), which supervises the Pledge Registry, issued an opinion in 2011, which it reiterated in 2013, that the principle that a collateral must be at least determinable prevents registration of a pledge on a bank account. According to the Ministry, receivables against a bank arising from an account opening and maintenance agreement cannot be pledged because various individual payments into the account all merge into one single receivable against the account bank, and thus lose their individuality. This reasoning is hardly convincing. The receivable an account holder has against its account bank arising from an agreement to operate the account is sufficiently determinable, and thus pledgeable, because everything of relevance, except for the amount of the receivable, is a known at the time of the pledge registration (debtor, i.e. the account bank; creditor, i.e. the account holder; specific agreement as a legal basis for the receivable, i.e. the relevant account agreement; account type and number; due date i.e. the deadline within which the bank must pay the funds from the account to the account holder or pursuant to the account holder’s order). The exact amount of the receivable is not essential for the pledge to be registered, because the pledge will be in any event enforceable only on an amount that may exist on the account at the time of the foreclosure (if the balance on the account is zero at the relevant time, there will be nothing to collect). The real reason behind the Ministry’s position that a floating charge on a bank account is not permitted does not seem to reside in law but in the professed concern that banks could insert a provision on pledge into their bank account opening and maintenance agreement templates and thus secure a privileged position over other creditors of the account holder when it comes to the funds on the bank account.
The foregoing reasoning of the Ministry and the Pledge Registry created problems particularly in project financing, which the Amendments now seek to rectify. The relevant provision of the Amendments is entitled “pledge on the funds on a special bank account”. However, what the provision actually says is that: (i) the pledgor’s receivables which are, in accordance with the relevant underlying agreement, to be paid into a special bank account of the pledgor, may be pledged; (ii) this is called pledge of funds on a special bank account; and (iii) the subject-matter of the pledge in this case is the receivables of the pledgor under the relevant underlying agreement, whereas the data on the special bank account into which those receivables are to be paid shall be inscribed in the Pledge Registry.
The foregoing provisions of the Amendments suffer from internal contradictions. The legislator has mixed up two distinct types of receivables: the receivables the pledgor may have against its commercial partner under an agreement (e.g. supply agreement) that correspond to the price or other payment obligation of the counterparty under the relevant agreement, and the receivables the pledgor may have against its account bank that correspond to the available funds credited to the pledgor’s bank account. It is uncontroversial that the receivables against a defined or definable contractual counterparty under a defined or definable agreement (or other source of payment obligation) can be pledged. For that pledge to be constituted and enforced, it is irrelevant whether the receivables are supposed to be paid into a special bank account, into a current account or somehow else. Once the debt corresponding to the receivables is paid by the debtor into the pledgor’s bank account, the debt to the pledgor is discharged (if the debtor of the receivables was not notified that it may discharge the debt only by paying it to the pledgee) and the corresponding receivables of the pledgor ceases to exists. What comes into existence at that point is a distinct receivable of the recipient against its account bank for the amounts standing on the credit of the account. It is to be hoped that the courts will interpret the relevant provision according to its intended meaning, which is that a pledge on the pledgor’s receivables under a particular agreement transforms into a pledge on the funds available on the “special” bank account into which the debt corresponding to those receivables was discharged by payment.
It remains to be fleshed out what constitutes “special” bank account within the meaning of the foregoing provisions. An account opened solely for the receipt of payments owed to the pledgor under a specific contract is likely to qualify as a “special” account. However, because the relevant pledge is labelled by the law not as a pledge on the receivables against the account bank under a particular bank account operation agreement, but as a pledge on the receivables against a particular contractual counterparty of the pledgor (which is, the law implies, transformed into a pledge on the funds siting on the “special” account), the question is whether there is a presumption that all funds on the designated bank account are to be deemed pledged and if yes, whether this presumption is rebuttable, i.e. whether the pledgor may prove that certain funds on the bank account in fact do not originate from the originally pledged receivables but from another source.