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New pledge system

On January 7 2000 Congress enacted Law N° 17.228 aimed at updating the Uruguayan Pledge System.

The Act puts an end to an outdated security system which highly restricted access to credit, by setting forth a long list of limitations as to the creditor companies entitled to benefit from a pledge security (only credit or banking institutions), the interest rate of the secured obligation (which was not supposed to exceed 8%), and the goods or items which were apt to serve as pledge (only a closed list of items).

The Act applies to those pledges which do not involve a transfer of possession over the pledged assets; pledges implying such a displacement continue to be governed by the existing provisions of the Civil Code.

The Act provides that any type of rights or assets are pledgeable, as long as they are clearly identifiable. Therefore, any of the following items can be pledged under the Act: continuing commercial or industrial business; cattle; agriculture products and mines; the right to demand the performance of obligations; intellectual property rights; vehicles; etc.

To become fully effective and enforceable, pledge agreements must be recorded in writing and filed with the appropriate registry. Pursuant to the Act, pledged assets secure full payment of the guaranteed obligation including applicable interest.

Under criminal liability, pledged goods cannot be concealed or removed, to avoid their enforcement, nor effectively sold, nor abandoned by the grantor of the pledge.

Under the Act, payment demand is to be effected by court, or by notary public or by telegram. Enforcement request must submit relevant documents (evidencing unfulfilled obligations, payment demand, and registered pledge agreement); and creditor is entitled to request advanced delivery of the pledged asset, by offering appropriate bond, to secure eventual damages which may be caused to the propietor of the goods.

Rosina Corvetto

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