The terms of a loan agreement dictate the circumstances in which a lender can enforce its loan, guarantee, or security interest. In North Macedonia, a lender can usually demand loan acceleration (repayment before a scheduled maturity date) if the borrower defaults under the loan agreement. Security documents state when the lender can enforce the security, usually following a default under the loan agreement or the lender’s demand for repayment when due. A lender can generally demand payment under a guarantee as soon as the borrower fails to pay any guaranteed obligation when due. However, the claim under a guarantee will be limited to the overdue amount. A lender will therefore often need to accelerate the loan before it can make a full claim against a guarantor. Typically, under the finance and the security documents, lenders have the right to accelerate and enforce loans when borrowers become insolvent.
If a borrower is insolvent for more than 30 days, it must commence a restructuring process. The restructuring process involves negotiating a restructuring plan between the borrower and its unsecured creditors to provide more favorable terms for settling the creditors’ claims than they would obtain through insolvency proceedings. Unless they waive their claims, secured creditors are excluded from the restructuring process, since they have the right to settle their claims from their security interests before unsecured creditors.
Once a borrower becomes insolvent, all existing claims against the borrower become due and payable, and any debt recovery proceedings are suspended with immediate effect. A lender’s security interests are not affected by the commencement of insolvency. The security interests are not included in the borrower’s insolvency estate, and secured creditors have the exclusive right to settle their claims from the net sale proceeds of the security interest. If a security interest has not been validly perfected, the creditor will be deemed to be an unsecured creditor, and its claim will be subject to ranking together with the claims of all the unsecured creditors. If two security interests over a particular asset are equal, the first created will have priority. Lenders can enforce their security interest freely within the insolvency proceedings. If lenders wish to participate in the distribution of the insolvency estate together with unsecured creditors, they can do so only if they waive the right to separate settlement of their claims. Also, secured creditors may lose the right to separate settlement of the object of their security interest if they fail to settle their claim from their security interest.
Lenders who have a security interest over a particular group of assets can enforce their security with the assistance of an enforcement agent, a real estate agent, a stock exchange, or a notary public. Typically, lenders and borrowers agree on the method of enforcement and on the entity that will be authorized to enforce the security interest in the security documents. In the absence of these provisions, the lender is free to choose the entity which will enforce the security interest. The lender’s choice of the entity which will enforce the security will dictate the methods of enforcement to be used. For example, a notary public must follow the specific rules for enforcement set out in the Contractual Pledge Act of Republic of North Macedonia of 2003; an enforcement agent must follow the specific rules set out in the Enforcement Act of Republic of North Macedonia of 2016, and a real estate agent must follow its sector-specific rules. In any case, enforcement methods available to lenders include a public auction or a direct sale. If a sale cannot be completed within the enforcement proceedings, the lender has the option to obtain title over the real estate or assets.
Lenders typically choose to enforce a security interest with the assistance of an enforcement agent – a public officer appointed by the Ministry of Justice of the Republic of North Macedonia who has the authority to enforce security interests, in particular through the confiscation, appraisal, and sale of assets. Before commencing the enforcement, lenders must obtain a certificate of enforceability of the security documents from a notary public, certifying the security documents as a deed. To that end, lenders must provide the notary public with a statement indicating that the borrower has defaulted under the loan agreement and a statement on the maturity of the secured claims. Once the certificate of enforceability is obtained, lenders can apply for enforcement to an enforcement agent.
By Ana Stojanovska, Partner, ODI Law