Under Article 308 of the Civil Code 2015, where all secured transactions relating to the same assets are not enforceable against a third person (unenforceable secured transactions), the order of payment will be determined according to the order in which the unenforceable secured transactions were established. Article 47a of Decree 163/2006 contains a similar provision governing the order of payment priority between the beneficiary of a guarantee and other unenforceable secured transactions. In particular, the order of payment priority among the beneficiary of a guarantee and other unenforceable secured transactions will also be determined according to the order in which these transactions are established.
These provisions give rise to the following issues:
- if an unenforceable secured transaction is not enforceable against a third party then logically, such transaction should not be enforceable against other unenforceable transactions as well. However, Article 308 of the Civil Code 2015 makes an unenforceable secured transaction enforceable against other unenforceable secured transactions which are entered into after such unenforceable secured transaction;
- it is not clear if an unenforceable secured transaction can have priority order over other unsecured transactions which are entered into after the date of the unenforceable secured transaction. Technically, an unenforceable secured transaction is not enforceable an unsecured creditor. Therefore, the unsecured creditor when enforcing its claim against the borrower should be able to seize the relevant secured assets to satisfy its claim without being bound by earlier unenforceable secured transaction concerning such asset; and
- the beneficiary of a guarantee is in essence also an unsecured creditor of the guarantor. Accordingly, the provision of Decree 163/2006 gives an unsecured creditor priority right over unenforceable secured creditors of the guarantor who enter into the relevant unenforceable secured transaction after the issuance of the guarantee. This makes the position of unenforceable secured creditors of the guarantor worse off than that of other unsecured creditors. This seems to be an illogical position.