Securing claims

Securing receivables – or how to protect yourself against the debtor’s dishonesty?

Everyone would like to be sure that the contract to which they are a party will be performed on time and in a proper manner. The same conclusions can be drawn from the fear of late payments of debts. In order to protect against this, the parties to the contract often require specific securities to be provided so as not to expose themselves to losses or long-term court cases.

As a rule, security for receivables is granted at the time of conclusion of the contract, which is the basis for the disputed receivable. However, the legislator does not limit the granting of security only to the moment of concluding the contract, but also provides such a possibility in the event of the existence of a claim, for example as a result of becoming aware of the debtor’s poor financial condition. The collateral itself does not have to apply only to unilaterally binding contracts,

more and more often in bilaterally binding contracts, the parties want to mutually secure their claims against the other party. The collateral itself may be included in the contract, but it is more common to conclude a separate contract and mention the resulting collateral in the first one. The legislator himself often requires specific actions to make the security legally binding, such as an entry in the land and mortgage register – without it, the mortgage is not considered valid.

Personal protection

Collateral for receivables is divided into two groups – personal and tangible. Personal collateral fulfills its function by providing collateral by a person who is not a party to the secured liability. The most commonly used personal security is a surety agreement, in which a person who is not a party to the liability, i.e. the guarantor, undertakes to repay the liability if the debtor fails to settle his liability towards the creditor. Other methods of personal security include: • Promissory note • Blank promissory note • Assignment of receivables • Voluntary submission to enforcement by the debtor • Bank guarantee • Insurance guarantee

Property security

Tangible collateral performs its function in a way that is significantly different from personal collateral. They are not related to a specific person, but to a thing, and subsequent subjective changes on the part of the owners of the thing are irrelevant. Material collaterals are much more often used than personal collaterals. The most common types of tangible collateral are pledges and mortgages. In both of these cases, the creditor may demand satisfaction of his claim from a specific item – in the case of a mortgage, it is usually real estate. Moreover, among tangible collaterals, we also distinguish a registered pledge and transfer of ownership for security.

Creditors often do not know how to properly secure their claim against the debtor. In addition, you should be aware of the number of court cases that are a consequence of the debtor’s dishonesty or insolvency. It’s worth it to prevent this

before concluding the contract, consult it with a lawyer to avoid problems with the recovery of receivables in the future. If you want to properly secure your future liability or consult the possibility of securing a claim that has already arisen, please contact the Law Firm.