legal insight
January 2024
George Kefalas, L.LM. mult., M.Sc.
Summary: An important asset, from which a creditor can be satisfied in case of enforcement, is the securities owned by the debtor. The modern economy has, in fact, necessitated, to a considerable extent, the dematerialisation of securities traded on an organised market, such as the Athens Stock Exchange. The issue we address in this article is the possibility of a creditor seizing such intangible securities owned by the debtor, which may represent a significant value from which the creditor can be satisfied.
1. Introduction
If the debtor does not voluntarily comply, the creditor is obliged to initiate enforcement proceedings in order to satisfy the debtor's claim. The most common means of enforcement are the seizure of immovable property and the seizure of third-party claims, in particular bank deposits that the debtor may hold with a credit institution.
A further asset that is subject to seizure is any securities (e.g. shares, bonds, etc.) owned and held by the debtor. With the development of technology and the expansion of transactions carried out on regulated markets, the trading of securities both internationally and domestically has ceased to be in paper form and the mandatory dematerialisation of securities traded on a regulated market has been introduced.
Therefore, while in the case of paper securities, the seizure is carried out in accordance with the procedure for the seizure of securities as laid down in the Code of Civil Procedure (either in the debtor's or in the third party's hands), in the case of intangible securities, the seizure procedure has certain differences. In this article, we examine the procedure to be followed by the creditor in order to inform and finally impose a seizure on intangible titles that may be owned by the debtor.
2. Intangible securities and the holders of such securities
As their name implies, intangible instruments have the characteristic that they are not in paper form but are instead kept in specialised registers in book-entry form. As mentioned above, these are securities traded on a regulated market, which are necessarily intangible, or securities which the issuer has voluntarily chosen to be intangible.
The most important of these securities are intangible shares, intangible bonds, Greek Certificates and Depository Receipts, intangible securities of the Greek State, units of mutual funds, etc.
Intangible securities, as mentioned above, are kept in book-entry form in intangible securities registers (systems), where they are recorded and monitored. The two main systems that exist in our country are the Securities System (S.A.T.) managed by the Hellenic Central Securities Depository S.A. (EL.K.A.T. S.A.) and the Transaction Accounting System (TCS) managed by the Bank of Greece. In the S.A.T., which is the most basic system, intangible shares, bonds, EL.P.I.S., etc. are monitored, while in the S.L.P.S. intangible securities of public borrowing (bonds, treasury bills, etc.) are monitored.
Transactions in the STS are carried out through account operators, which are in particular its members and custodians, i.e. investment firms and credit institutions. Intangible securities are held and monitored by opening units and individual or collective accounts in the system. Consequently, in each case there is a third party (the operator of the individual account or, in the case of a collective account, the relevant intermediary) who holds the account concerned and in whose name the seizure of the debtor's intangible securities can be enforced.
3. The procedure for the seizure of intangible property
The seizure of intangible instruments against the debtor and in the hands of the system operator or the relevant intermediary shall be carried out in accordance with the procedure described in the Code of Civil Procedure (CCP) for the seizure of movable property in the hands of a third party. In particular, Article 991A of the CCP provides that: "If the object of the seizure is securities or financial instruments held in intangible form and sold on a stock exchange or other regulated market operating in the country, the provisions of Articles 983 et seq. The seizure shall be deemed to be a seizure of property in the hands of a third party. The sale of the seized securities or financial instruments shall be carried out in a public compulsory auction in accordance with the procedure provided for in decisions of the Securities and Exchange Commission.
Accordingly, the seizure is effected by the service of a writ of attachment by the creditor on the third party operator or intermediary (depending on whether it is an individual or collective account) and on the debtor, while the third party (operator or intermediary) is then required to submit a declaration to the competent Magistrates' Court, in which it states whether the seized securities exist, specifying them by type, issuer, nominal value and quantity.
In order to facilitate the seizure procedure, Article 22 of the Regulation on the operation of the SST provides for the obligation of the SST to inform the creditor with an enforceable title. In particular, upon request of the creditor, the SSS is obliged to inform the creditor of the operators of the investor's accounts in which securities are held and the type and issuer of such securities. In this procedure, the creditor is informed and can then serve the seizure notice on the specific operator of the debtor's account. Otherwise, the creditor would be obliged to serve seizure notices on all the operators of securities accounts in the SSS, which would result in a disproportionate increase in the costs of the procedure.
A similar information obligation applies to the intermediaries managing collective securities accounts, who must disclose to the creditor either the details of the last intermediary managing the securities accounts for the investor or at least the details of a subsequent intermediary up to the last intermediary.
From the moment the seizure is enforced, the seized securities are legally and materially frozen, i.e. they can no longer be disposed of by the debtor, nor can they be liquidated, and the operator now holds them as a bailee.
It should be noted that the conservative seizure of intangible securities in the hands of the system operator or the relevant intermediary is also possible, which has the advantage of surprising the debtor, as it is not necessary for the creditor to issue a check for execution beforehand and to wait for three days for any voluntary compliance by the debtor. Thus, for example, a creditor who has succeeded in obtaining a payment order may, even before serving the payment order on the debtor, levy an attachment in the hand of the operator on the debtor's intangible securities.
In the case, in particular, of the seizure of the ownership or usufruct of intangible shares, the seizure shall automatically extend to the shareholder's claim against the public limited company for payment of the dividend, which shall henceforth be publicly deposited with the Deposit and Loan Fund.
4. Auctioning of intangible securities
The seizure of the intangible securities by the system operator or intermediary is followed by a compulsory auction, through which the creditor's ultimate satisfaction will be achieved. The sale of the securities is carried out by means of a public compulsory auction on the relevant regulated market.
For this purpose, in addition to the other conditions of the auction, a member of the auction, selected by the administrator of the relevant trading venue, shall be appointed at the request of the enforcing creditor.
The forced auction shall be conducted electronically and shall be carried out by the appointed member of the negotiating venue in public before the notary appointed for the auction.
5. Instead of a postscript
In today's economy an extremely important asset that a debtor may own are securities traded on the regulated market. This article has outlined the procedure to be followed by a creditor wishing to foreclose on the debtor's intangible securities and in the hands of the third party entity that undertakes to hold and monitor them. This procedure presents certain differences with respect to the ordinary procedure for the enforcement of writs of execution on movable property, in particular because of the nature of the subject matter of the execution. Of particular importance is the obligation of the system administrator to inform the creditor of the identity of the operator or intermediary holding the debtor's securities, so that the creditor avoids the unnecessary costs that would be involved in serving seizure notices on all these entities. Thus, another important weapon is added to the quiver of the creditor seeking to obtain satisfaction of his claim, namely the compulsory and conservative seizure of the debtor's intangible assets.
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