Enterprise mortgages - detailed description

1. Legal bases and purpose

The Enterprise Mortgage Affairs Unit was established in 1985 to administer enterprise mortgage affairs (also called business mortgage or floating charge) referred to in the Finnish Enterprise Mortgage Act which, together with the Enterprise Mortgage Decree, entered into force on 1 January 1986. The new law replaced the Chattel Mortgage Act from 1923. The Enterprise Mortgage Act and the decree have been amended once. The amendments entered into force on 1 March 1991.

The Enterprise Mortgage Act aimed at improving the mortgage system for chattels, with the purpose of improving the possibility of enterprises to use their own chattels as a collateral security for their loans and thus creating better preconditions for them to operate. Special weight was laid on improving the financing possibilities of small and medium-sized companies. At the same time the law aimed at securing the position of the loan-giver better than does the chattel mortgage system (Enterprise mortgage has higher priority than did the chattel mortgages).

The Enterprise Mortgage Act widened the circle of the traders that may use the property of the enterprise as a loan guarantee. All traders recorded in the Finnish Trade Register have the possibility to use this form of guarantee. Enterprise mortgage is as a general rule directed towards all movable fixed, current, and liquid assets belonging to the business activity owned by the trader. However, enterprise mortgages do not apply to such property on which a mortgage may be registered under some other law (for example the Finnish Ship Register Act and Act on Mortgages on Aircraft). Movable property is bound by mortgage regardless of the whereabouts of the property at any time (territorial principle applied to chattel mortgage).

2. Organisation

Although mortgage cases, such as chattel mortgage and real estate mortgage, have traditionally been dealt with regionally in general courts of first instance, it was deemed sensible to locate enterprise mortgage cases under the national registering authority, the Finnish Patent and Registration Office (PRH), as the Finnish Trade Register provides most of the information needed about traders and enterprises applying for a mortgage.

Enterprise mortgages are dealt with by the PRH, which maintains the Finnish Register of Enterprise Mortgages. Applications and notifications relating to mortgage matters are submitted to the PRH, either by post or by visiting the PRH Customer Service in person.

At the Customer Service, forms are kept available and advice and guidance is given in enterprise mortgage affairs.

The PRH has a computer-aided system with a program for the processing of the applications and for producing abstracts of the register of mortgages. The abstract shows the enterprise mortgages registered on the property of a particular trader, and other relevant information.

3. Description of enterprise mortgages

Traders recorded in the Finnish Trade Register have a possibility to use all the movable assets belonging to their business activity as a guarantee for their loans by giving a mortgaged promissory note secured by a pledge as a security to the creditor.

Movable assets include fixed, current and financial assets such as facilities and buildings constructed on rented property (if not mortgaged as real estate), machines and other industrial equipment on the business premises. Only tax refund claims and those assets for which there is a special register security (ships and aircraft) are not included.

Mortgage can also be limited to the movable assets of independent business branches or of business premises situated in particular administrative sectors or municipalities. Limited mortgage has only been used on rare occasions.

The movable property lodged as security will remain in the possession of the enterprise and the mortgaged property may, notwithstanding the enterprise mortgage, be conveyed and used in any way called for by the regular business activity of the enterprise. Within the scope of regular business operations, the trader may freely sell mortgaged objects. After that they are no longer subject to the mortgage. On the other hand, newly acquired assets automatically fall under it.

An application for an enterprise mortgage must be made in Finnish or in Swedish using the PRH application forms and promissory notes available on this site.

On granting an enterprise mortgage, the PRH enters it in the Enterprise Mortgage Register. In addition, to serve as a document in a case in which an application has been approved, the applicant is given a mortgage certificate containing information about the registered mortgage to be attached to the promissory note secured by a pledge. The Register of Enterprise Mortgages is maintained in the order of the Business ID of the traders.

A previously filed mortgage application enjoys higher priority than does a later filed one. Mortgage applications with the same filing date produce equal priority unless otherwise stipulated.

Amendment applications concerning mortgages in force may relate to:

• extension of the scope of the mortgage
• combining of mortgages (combining into one mortgage of two or more mortgages granted on the property of the same trader). A combined mortgage enjoys the same priority as the mortgage in the lowest position among the mortgages to be combined.
• changes in the mutual priority of the mortgages
• redemption of the mortgage
• assumption of liability on the mortgage.

In addition to the circumstances mentioned above, entries are made in the Register of Enterprise Mortgages on the basis of different notifications, such as the notification to be made by a new holder of the mortgage.

Likewise, execution authorities submit notices of seizures, confiscations, levies of executions, total prohibitions of transfer, and compulsory auctions.

In addition, cases of filing a bankruptcy petition or surrendering one’s property into bankruptcy, placing in liquidation, merger, etc. concerning a trader are, ex officio, transferred from the Finnish Trade Register into the Register of Enterprise Mortgages whenever the trader has a valid mortgage or a pending mortgage application.

An enterprise mortgage is valid without renewal until it is redeemed.

The meaning of the enterprise mortgage comes out in the case that the enterprise in the position of a debtor is not capable of paying its debt. If the creditor in this case has an enterprise mortgage as a security, they enjoy a certain priority in the debt recovery procedure and bankruptcy to obtain a payment of their claim from the value of the mortgaged movable property. Should an unsecured third party attempt to enforce an execution of judgment on the mortgaged assets, the secured party is in principle the first in line for satisfaction from the proceeds realized from these assets.

Decisions by the Finnish enterprise mortgage authority may be appealed to the Helsinki Court of Appeals.