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Effectiveness Under Insolvency Proceedings

In short, a charge over a mortgaged means of transport remains effective in all insolvency proceedings discussed in the previous section. In enforcement and bankruptcy proceedings, this effectiveness means that a charge entitles a secured creditor to payment out of the realisation proceeds with a high priority position.[1] Under Section 1(2) of the Act on the Ranking of Claims (1578/1992), which applies in both types of proceedings, a claim secured by a charge over a mortgaged means of transport, or a higher ranking claim, will be satisfied out of the value of the means of transport ahead of other claims, as separately enacted. That is, these secured claims rank above other claims mentioned in the Act on the Ranking of Claims, including child maintenance claims, claims secured by enterprise mortgage, and unsecured claims. As noted in Sect. 12.5, certain claims referred to in the mortgage acts, and elsewhere in legislation, take priority over claims secured by a charge over a mortgaged means of transport. Other higher ranking claims include enforcement costs and the like (Enforcement Code, Chapter 5 Section 33; Bankruptcy Act, Chapter 17 Section 7).

In restructuring of an enterprise or adjustment of the debts of a private individual, claims secured by a charge over a mortgaged means of transport may count as a “secured debt”, which has a special position. In these types of proceedings, the court is generally allowed to alter the content of debt relations. This is done in an instrument called a “payment plan”. Generally, the payment schedule can be altered, it can be decided that payments primarily amortise the principal amount and only after that credit costs, costs concerning the rest of the credit period can be lowered, and the outstanding principal amount can be lowered. By contrast, the special position of a secured debt means, in slightly simplified form, that the principal amount of that debt cannot be lowered (Restructuring of Enterprise Act, Section 45; Act on the Adjustment of the Debts of a Private Individual, Section 26).[2]

Section 3(1) of the Restructuring of Enterprise Act and Section 3(1) of the Act on the Adjustment of the Debts of a Private Individual define a secured debt as follows: a debt where the creditor holds a proprietary security right, which is effective against third parties, over property that belongs to or is in the possession of the debtor, insofar as the value of the security (the encumbered asset) at the commencement of the proceedings would have sufficed to cover the amount of the creditor’s claim after deduction of liquidation costs and claims with a higher priority.

  • [1] See also the remarks in Sect. 12.10 on a charge or pledge holder’s “separatist position” in relationto the bankruptcy estate.
  • [2] See Tepora, Kaisto and Hakkola 2009, 262-268.
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