Security over Collateral. PHILIPPINES Romulo Mabanta Buenaventura Sayoc & de los Angeles

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1 Security over Collateral PHILIPPINES Romulo Mabanta Buenaventura Sayoc & de los Angeles CONTACT INFORMATION Herminio S. Ozaeta Marie Camille L. Bautista Romulo Mabanta Buenaventura Sayoc & de los Angeles 30th Floor, Citibank Tower, 8741 Paseo de Roxas, Makati City, Philippines Can assets be charged, liened and/or encumbered in your jurisdiction? Please insert any exemptions, if any. Yes. Generally, all assets can be charged, liened and/or encumbered. There are certain exceptions, however, provided under special laws, and there are limitations that can be imposed through a contractual stipulation against the creation of any encumbrance. Generally, future property cannot subject of a pledge or mortgage because the law provides that a party cannot legally pledge or mortgage property he does not yet own. Jurisprudence, however, has provided for an exception in the case of a mortgage over goods in retail stores, whereby after-acquired property in renewal of, or in substitution for goods on hand was deemed covered by the original chattel mortgage. 2. In your jurisdiction, under what circumstances may security arrangements be subjected to choice of law and/or choice of forum clauses (does it matter, whether the security itself is located abroad and/or governed by foreign law [e.g. a pledged claim])? What is the market practice in your jurisdiction? Is there a treaty on this in your jurisdiction, whether bilateral or multi-lateral? Are there any requirements for enforcement in your jurisdiction? Under the principle of autonomy of contracts (Article 1306 of the New Civil Code of the Philippines), contracting parties may establish such stipulations, clauses, terms and conditions as they may deem convenient, provided, they are not contrary to Philippine laws, morals, good customs, public order and public policy. Thus, if the parties (including a Philippine national) agree that an agreement be governed by a law other

2 than Philippine law, such choice is legal and valid, and the validity of the terms and conditions of the agreement will depend on the laws of the jurisdiction chosen, provided the terms and conditions in the agreement do not contravene Philippine laws, morals, good customs, public order and public policy. It would not matter if the security is located abroad and/or governed by foreign law. However, Philippine conflict of law rules follows the law of the country where the property is situated for cases involving property. Thus, we would follow the laws of the country where the property is situated to determine perfection of a security over specific property, When a judgment is obtained in foreign courts, it is a foreign judgment as far as Philippine law is concerned. As a rule, foreign judgments may be enforced in the Philippines In case of a judgment or final order upon a specific thing, the judgment or final order is conclusive upon the title to the thing. In case of a judgment or final order against a person, the judgment or final order is presumptive evidence of the right as between the parties and their successors in interest by a subsequent title. In either case, the judgment or final order may be enforced without retrial or re-examination of the merits. However, such judgment or final order may only be repelled by evidence of want of jurisdiction, want of notice to the party, collusion, fraud or clear mistake of law or fact (Section 48 Rule 39 of the 1997 Rules of Civil Procedure). Generally, the principles attendant to the recognition of enforcement of foreign judgments, which the Philippines also observes, are as follows: 1. The foreign judgment was rendered by a judicial or a quasi-judicial tribunal which had jurisdiction over the parties and the case in the proper judicial proceedings. 2. The judgment must be valid under the laws that rendered it. 3. The judgment must be final and executory to constitute res judicata in another action. 4. The state where the foreign judgment was obtained allows recognition or enforcement of Philippine judgments. 5. The judgment must be for a fixed sum of money. 6. The judgment must not have been obtained by fraud, collusion, mistake of fact or mistake of law. 1 New developments in the recognition and enforcement of foreign judgments or orders, particularly those arising out of arbitration, are now widespread in this jurisdiction. Aside from being a party to the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards, the Philippines also enacted fairly recently Republic Act No. 9285, more popularly known as the Alternative Dispute Resolution Act of 2004, Section 42 of which expressly recognizes the recognition and enforcement of foreign arbitral awards and prescribes the procedure therefor. 2 1 Id. at The recognition and enforcement of such arbitral awards shall be filed with the Regional Trial Court in accordance with the rules of procedure to be promulgated by the Supreme Court. Said procedural rules shall provide that the party relying on the award or applying for its enforcement shall file with the court the original or authenticated copy of the award and the arbitration agreement. If the award or agreement is not made in any of the official languages, the party shall supply a duly certified translation thereof into any of such languages.

3 3. In your jurisdiction, are floating charges or security over the overall assets of an entity accepted, and if so in what terms? Yes in mortgage trust indentures, but these are not binding on third parties, unless each asset comprising the security is perfected under Philippine law. 4. In relation to the following types of assets, please explain in your jurisdiction the types of security that can be created or granted, if the security requires any type of registration or perfection requirements, an estimate of cost (including applicable taxes and any other duties/ costs) and timing for granting such security, and any special considerations regarding the asset type: Before discussing the specific requirements for each asset described below. We shall discuss the general types of securities and the perfection requirements for the same. The general types of securities allowed in the Philippines would include (i) a chattel mortgage, (ii) a pledge, (iii) a real estate mortgage, and (iv) an assignment by way of security, as discussed in Supreme Court Case of Manila Banking Corp. v. Teodoro, G.R. No (January 13, 1989). (i) Chattel Mortgage A chattel mortgage will be validly executed and perfected by the registration of the personal property subject of the mortgage in the Chattel Mortgage Registry. If the personal property or moveable is situated in a different province from where the mortgagor resides, the registration must be in both registers, otherwise, the chattel mortgage is void. Also, there may be additional requirements for perfection of vehicles, vessels and aircrafts as will be discussed below. An affidavit of good faith stating that the parties swear that the mortgage is made for the purpose of securing the obligations specified in the conditions thereof, and for no other purposes, and that the same is a just and valid obligation and not one entered into for purposes of fraud, is also required under the law, but the absence of such affidavit vitiates a mortgage only as against third persons without notice. Jurisprudence has held that if the chattel mortgage is not recorded, it is nevertheless binding as between the parties. (ii) Pledge To constitute a pledge binding against third persons, a description of the thing pledged and the date of the pledge must appear in a public instrument (i.e. a notarised instrument). Furthermore the thing pledged must be delivered to the creditor or a designated third party. (iii) Real Estate Mortgage

4 In order to be validly constituted and bind third persons, a real estate mortgage should be recorded in the Registry of Deeds. 3 A duly recorded real estate mortgage is a right effective against third persons and is a lien inseparable from the property mortgaged. Until discharged, it follows the property. It subsists notwithstanding changes of ownership and all subsequent purchasers of the property must respect the mortgage whether or not the transfer to them was with the consent of the mortgagee. In a contract of real estate mortgage, the mortgagor-debtor, as a general rule, retains possession of the property mortgaged as security for the payment of the sum borrowed from the mortgagee-creditor. It is not, however, an essential requisite of the contract of mortgage that the property mortgaged remains in the possession of the mortgagor, so the mortgagor may deliver said property to the mortgagee without altering the nature of the contract. (iv) Assignment by way of security An assignment of rights, receivables, title or interest under a contract to guarantee an obligation is, in effect, a pledge or mortgage and not an absolute conveyance of title which confers ownership on the assignee. In the Supreme Court Case of Manila Banking Corp. v. Teodoro, G.R. No (January 13, 1989), the Court noted that in order that a deed of assignment which is in form an absolute conveyance of title to the property being assigned, may be qualified and treated as a security arrangement, language to such effect must be found in the document itself and that language, precisely, is embodied in the deed of assignment in the instant case. Specific Assets that may be Secured: (a) Aircraft; Generally, a security over an aircraft may be created in the Philippines in the form of either: (i) chattel mortgage; or (ii) pledge. A chattel mortgage is perfected by the registration of the mortgage deed together with the Affidavit of Good Faith in the Philippine Air Transportation Office and the chattel mortgage register of the place where the Aircraft is located (i.e. the province where the principal place of business of the Airline is located). The Chattel Mortgage Law specifically provides that the chattel mortgage is not valid if it is not properly recorded in the appropriate registry. However there is jurisprudence to the effect that such unregistered chattel mortgage is still binding on the parties to the contract, though it cannot be enforced against third parties. Filipinas Marble Corp. v. Intermediate Appellate Court, 142 SCRA 180 (1986). To constitute a valid and binding pledge, the aircraft pledged must be delivered to the creditor or a designated third party (such as the operating airline). Alternatively, the airline may also be considered to hold the aircraft as trustee for the lenders if such delivery is subject to the control of the lenders. (b) Bank Accounts; 3 CIVIL CODE, Art

5 Security over bank deposits are created by executing a document that such account is subject to a charge, and with notice to the depository bank. Under Republic Act No. 6426, foreign currency deposits can be used as collateral in a loan. Under the Manual of Regulations for Banks, loans can be secured by certificates of time deposits issued by banks. The following rules shall govern the grant of loans secured by hold-out on and/or assignment of certificates of time deposit ( CTDs ) issued by the lending bank, as well as its branches or subsidiaries abroad: 1. The original copy of the CTDs subject to hold-out or assignment shall be surrendered to the lending bank; 2. The depository bank, other than the lending bank, shall be furnished a copy of the Deed of Assignment or hold-out agreement on the deposit used as collateral; 3. If the term of the CTDs subject to hold-out or assignment is shorter than the term of the loan, there shall be an agreement in writing that renewal of the time deposit upon maturity shall be made at least co-terminus with the term of the loan; 4. There shall be no predetermination of the time deposit without the consent of the lending bank and unless an acceptable substitute collateral for the loan has been made; 5. The lending bank shall keep a complete record of all pertinent loan documents, such as, but not limited to, the original copy of the CTDs subject to assignment or hold-out agreement; deed of assignment or hold-out agreement; and written waiver of the depositor required in Item "f" below, which shall be made available for inspection and/or examination by the appropriate supervising and examining department of the BSP; and 6. The loan documents shall include a waiver on the part of the depositor of his rights under existing law to the confidentiality of his deposits. 4 (c) Animals, Crops (in ground and severed) and Timber; Securities over animals and crops could take the form of either a pledge, a chattel mortgage or assignment by way of security. A chattel mortgage will only cover what is specifically described in the chattel mortgage registry. In case of a pledge of animals, their offspring shall pertain to the pledgor or owner of animals pledged, but shall be subject to the pledge, if there is no stipulation to the contrary. (d) Equipment; There are no special considerations for creating a security over equipment. (e) Intellectual Property; 4 BSP Manual of Regulations for Banks X315.

6 There are no specific provisions under the law regarding the mortgage of intellectual property and it is uncommon to create a mortgage on intellectual property rights. In order to create a pledge on intellectual property rights, the instrument proving such right must be delivered to the creditor. (f) Inventory; It is possible to create a security over inventory, which could take the form of either a pledge, chattel mortgage or assignment by way of security. Generally, in case of a chattel mortgage, the security will only cover the assets specifically described. However, as discussed above, jurisprudence has provided for an exception in the case of after acquired-properties, in renewal of, or in substitution for, goods on hand when the mortgage was executed, or in the case of after-acquired goods that are purchased with the proceeds of the sale of the originally mortgaged goods, such as in the case of inventory. (g) Leases; There are no specific provisions under the law regarding the mortgage of incorporeal property such as leasehold rights and it not very common to create a mortgage on a leasehold right. A leasehold right would be regarded as an incorporeal or intangible right, the instrument proving the right pledged must be delivered to the creditor. Assignment of leasehold rights could also be created as a security, provided the same does not amount to a pactum commisorium. (h) Mineral Interests, including Hydrocarbons; There are no special considerations for creating a security over mineral interests. (i) Promissory Notes and Chattel Paper; Promissory notes and chattel paper can be subject of a chattel mortgage, pledge or assignment by way of security as discussed above. However, in order to create a pledge on an incorporeal or intangible right, the instrument proving the right pledged must be delivered to the creditor, and if negotiable, must be indorsed. (j) Real Estate; See discussion on real estate mortgages above. (k) Receivables (credit rights under contracts or invoices);

7 Security is created over receivables generally through an assignment of receivables. A transfer or assignment of credit is an agreement by virtue of which the owner of a credit as the assignor, by any legal means, such as a sale, dation in payment, exchange or donation transfers his credit and its accessory rights to another as the assignee, without the need of the consent of the debtor, and the assignee acquires the power to enforce the credit to the same extent as the assignor could have enforced it against the debtor. However, note that an assignment of a credit, right or action shall produce no effect as against third persons, unless it appears in a public instrument. Further, a debtor who, before having knowledge of the assignment, pays his creditor shall be released from the obligation. (l) Rights under Contracts (excluding Receivables); As discussed above, an assignment of rights under contracts can be created as a security. However, there are no specific laws regarding the creation of such security. Thus, it is possible for parties to agree that rights under a contract would be assigned to a creditor upon an event of default. However, such right is only enforceable upon the happening of the event of default and is not binding upon third parties. (m)shares (in book-entry and certificate form and other securities); Shares of stock in a corporation can be mortgaged; but if the owner of the shares is not domiciled in the same province where the corporation is domiciled, the registration must be made in both provinces. In order to create a pledge on a share of stock, the certificate of stock must be delivered to the creditor. In the case of listed shares, the Philippine Depository and Trust Corporation can block the shares through an EQPledge in order to perfect the pledge over such listed shares. (n) Vessels; Generally, a vessel may be subject of a pledge or chattel mortgage. In the latter case, in addition to the requirements for perfection of a chattel mortgage discussed above, no mortgage, which at the time such mortgage is made, includes a vessel of domestic ownership, or any portion thereof, as the whole or any part of the property mortgaged, shall be valid, in respect to such vessel, against any person other than the mortgagor, his heir or assign, and a person having actual notice thereof, until such mortgage is recorded in the office of the Philippine Coast Guard of the port of documentation of such vessel. (o) Vehicles; Generally, a vehicle may be subject of a pledge or chattel mortgage. In the latter case, in addition to the requirements for perfection of a chattel mortgage, mortgages over motor vehicles must be recorded with the Land Transportation Office in order to be valid against third parties. With respect to vehicles used for public cservice, the mortgage must also carry the approval of the Land Transportation Franchising and Regulatory Board ( LTFRB ) to make it effective against the public and the LTFRB. (p) Business as an ongoing concern.

8 There are no specific laws regarding the creation of a security over businesses as ongoing business concerns. It is possible for parties to provide that the business entity would be assigned to a creditor upon an event of default; however, such would be difficult to enforce. The right would only be subject to the happening of the event of default and is only a contractual obligation between the parties and shall not be binding upon third parties. Furthermore, the transfer of a going concern to a creditor would be subject to any ownership restrictions relating to such business; as well as the transfer of all relevant permits and licenses relating to the operation of such business. 5. Please explain briefly for each type of assets the procedure for enforcement (judicial and extra-judicial). Is it possible to enforce security governed by another jurisdiction? If yes, what is the procedure? Enforceability of a Chattel Mortgage Note, that upon an event of default, the mortgagee cannot automatically appropriate the chattel as such would constitute pactum commissorium which is prohibited under Philippine law. Upon default of the borrower, the mortgagee must generally foreclose the mortgage, and go through the process of a public auction. Upon the occurrence of an event of default under the loan secured by the mortgage, and the creditor decides to foreclose, the right of the mortgagee or its representative to take possession of the chattel may be implied from the provision which gives him the right to sell. For the avoidance of doubt, provisions entitling the mortgagee to take immediate possession of the chattel upon default are usually included in the mortgage deed. Generally this can be done without need of judicial proceedings. However, if the mortgagor or person in possession of the chattel refuses to surrender possession, replevin proceedings (i.e. proceedings to obtain possession of personal property) must be instituted in the judicial courts. Enforceability of a Pledge Upon the event of a default, the pledge may proceed before a Notary Public to the sale of the thing pledged. The sale shall be made at a public auction, and with notification to the debtor and the owner of the thing pledged in a proper case, stating the amount for which the sale is to be held. If at the first auction, the thing is not sold, a second one with the same formalities shall be held; and if at the second auction there is no sale either, the pledge may appropriate the thing pledged. In this case, the pledgee shall be obliged to give an acquittance for his entire claim. Enforceability of a Real Estate Mortgage The general procedures for the extrajudicial foreclosure of a real estate mortgage are as follows:

9 (a) (b) (c) (d) (e) (f) (g) (h) The mortgagee must be specially empowered to initiate extrajudicial foreclosure proceedings in the mortgage agreement. The mortgagee files the application for extrajudicial foreclosure with the office of the Executive Judge of the proper Regional Trial Court, through the Clerk of Court. The application for foreclosure is posted and published. A public auction must be conducted in the place of auction of the province or city where the property is located. A certificate of sale is issued to the highest bidder, which is then annotated on the title to the foreclosed property. Within one year from such registration of the certificate of sale, the debtor (or other redemptioners) may redeem the property. In the meantime, the winning bidder may apply for a writ of possession. After the lapse of the one-year redemption period, no redemption having been made, the mortgagee consolidates title to the property in its name, and a new title is issued to the mortgagee; the winning bidder is entitled to a writ of possession. The general procedures for the judicial foreclosure of a real estate mortgage are as follows: (a) (b) (c) (d) (e) A judicial foreclosure under the Rules of Court can be done by bringing an action in court for that purpose, in the proper court which has jurisdiction over the area wherein the real property involved or a portion thereof is situated. If the court finds the complaint to be well-founded, it shall order the mortgagor to pay the amoutn due upon the mortgage debt or obligation with interest and other charges within a period of not less than 90 days nor more than 120 days from the entry of judgement. If the mortgagor fails to pay at the time directed in the order, the court, upon motion, shall order the property to be sold to the highest bidder at public auction. Th sale, when confirmed by an order of the court, also upon motion, shall operate to divest the rights of all parties tot he action and to vest their rights in the purchaser subject to such right of redemption as may be allowed by law. The proceeds of the sale shall be applied to the paymetn of the costs of the sale, the amount due the mortgagee, claims of junior encumbrancers or persons holding subsequent mortgages in the order of their priority, and the balance, if any, shall be paid to the mortgagor.

10 (f) The foreclosure is not complete until the sheriff s certificate is executed, acknowledged and recorded. Enforceability of other securities The enforceability of other securities would depend on the terms provided in the security document. 6. Can a trustee or security agent be used in your jurisdiction, or must security be granted in favour of all lenders? Yes, a trustee or security agent may be used. 7. In bankruptcy or insolvency scenarios, what are the suspect periods, is clawback possible, and what other types of rights (tax debts, employees, etc.) have preference over security granted? Under the Insolvency Law, a transfer is presumed fraudulent if the insolvent transferred the property within 30 days prior to the filing of a petition in insolvency by or against him. A showing that the transfer was made in good faith and for a sufficient and valuable consideration may rebut this presumption. In addition, the Civil Code allows creditors to bring actions to annul the acts or rescind contracts executed by the debtor to defraud creditors. Payments made by the debtor in a state of insolvency for obligations that are not yet due may likewise be rescinded. The foregoing remedies are also applicable to proceedings for suspension of payments and rehabilitation. Pertinently, the Interim Rules of Corporate Rehabilitation specifically provide that any transfer or conveyance made in violation of a stay order may be voided. In insolvency proceedings, credits are paid in accordance with the order of preference set forth in the Philippine Civil Code. The specially preferred credits must be discharged first out of the proceeds of such property to which they relate, before ordinary preferred creditors may be satisfied. These are credits enumerated in Articles and of the Civil Code which are specially preferred because they constitute 5 CIVIL CODE, Article Article With reference to specific movable property of the debtor, the following claims or liens shall be preferred: Duties, taxes and fees due thereon to the State or any subdivision thereof; Claims arising from misappropriation, breach of trust, or malfeasance by public officials committed in the performance of their duties, on the movables, money or securities obtained by them; Claims for the unpaid price of movables sold, on said movables, so long as they are in the possession of the debtor, up to the value of the same; and if the movable has been resold by the debtor and the price is still unpaid, the lien may be enforced on the price; this right is not lost by the immobilization of the thing by destination, provided it has not lost its form, substance and identity; neither is the right lost by the sale of the thing together with other property for a lump sum, when the price thereof can be determined proportionally; Credits guaranteed with a pledge so long as the things pledged are in the hands of the creditor, or those guaranteed by a chattel mortgage, upon the things pledged or mortgaged, up to the value thereof; Credits for the making, repair, safekeeping or preservation of personal property, on the movable thus made, repaired, kept or possessed; Claims for laborers' wages, on the goods manufactured or the work done;

11 liens (tax or non-tax) on specific properties and take precedence over ordinary preferred credits in relation to the property to which the liens have attached. Taxes, duties and fees due on specific property take precedence over other credits. All other special preferred credits are to be satisfied, pari passu and pro rata, out of any residual value of the specific property to which such other credits relate. The pro rata rule, however, does not apply to credits annotated in the Registry of Property in virtue of a judicial order, by attachments and executions which are preferred as to order of time. 8. In your jurisdiction, can borrowers or guarantors subordinate their claims and if so in what terms? Yes. Borrowers and guarantors are free to stipulate amongst themselves the terms and priority of their respective claims. 9. What are the consequences of a transfer, assignment or novation of an underlying credit in your jurisdiction (is new security necessary, is the security automatically transferred, etc.) For expenses of salvage, upon the goods salvaged; Credits between the landlord and the tenant, arising from the contract of tenancy on shares, on the share of each in the fruits or harvest; Credits for transportation, upon the goods carried, for the price of the contract and incidental expenses, until their delivery and for thirty days thereafter; Credits for lodging and supplies usually furnished to travellers by hotel keepers, on the movables belonging to the guest as long as such movables are in the hotel, but not for money loaned to the guests; Credits for seeds and expenses for cultivation and harvest advanced to the debtor, upon the fruits harvested; Credits for rent for one year, upon the personal property of the lessee existing on the immovable leased and on the fruits of the same, but not on money or instruments of credit; Claims in favor of the depositor if the depositary has wrongfully sold the thing deposited, upon the price of the sale. In the foregoing cases, if the movables to which the lien or preference attaches have been wrongfully taken, the creditor may demand them from any possessor, within thirty days from the unlawful seizure. 6 CIVIL CODE, Art With reference to specific immovable property and real rights of the debtor, the following claims, mortgages and liens shall be preferred, and shall constitute an encumbrance on the immovable or real right: 1. Taxes due upon the land or building; 2. For the unpaid price of real property sold, upon the immovable sold; 3. Claims of laborers, masons, mechanics and other workmen, as well as of architects, engineers and contractors, engaged in the 4. construction, reconstruction or repair of buildings, canals or other works, upon said buildings, canals or other works; 5. Claims of furnishers of materials used in the construction, reconstruction, or repair of buildings, canals or other works, upon said buildings, canals or other works; 6. Mortgage credits recorded in the Registry of Property, upon the real estate mortgaged; 7. Expenses for the preservation or improvement of real property when the law authorizes reimbursement, upon the immovable preserved or improved; 8. Credits annotated in the Registry of Property, in virtue of a judicial order, by attachments or executions, upon the property affected, and only as to later credits; 9. Claims of co-heirs for warranty in the partition of an immovable among them, upon the real property thus divided; 10. Claims of donors or real property for pecuniary charges or other conditions imposed upon the donee, upon the immovable donated; 11. Credits of insurers, upon the property insured, for the insurance premium for two years.

12 The general rule is that the assignment of a credit includes all the accessory rights, such as a guaranty, mortgage, pledge, or preference. The assignment of a credit, therefore, has the effect of (1) transferring to the assignee the right to collect the full value of the of the credit, even if he paid a price less than such value; (2) transferring also all the accessory rights thereto; and (3) giving the debtor the right to set up against the assignee the defenses he could have set up against the assignor. However, in order to perfect the security against the assignee, it would be advisable that the formalities for such perfection be repeated to reflect the assignee as the new creditor. Otherwise, the assignment of the security will still be valid as against the assignor and the assignee, and the assignee can implead the assignor as a party in cases of an action for enforcement against such security. 10. Can you have on top of a security in your jurisdiction, another layer consisting of an assignment of the collateral concerned conditional upon default by the debtor? We note that under the law, a stipulation providing that the mortgaged property shall be considered in full payment of the credit without further action in court is prohibited. The said stipulation is a pactum commissorium which enables the mortgagee to aquire ownership of property turned over to him as security, without need of foreclosure, and is deemed void. However, there is jurisprudence that has ruled that there is no prohibition against providing a promise to assign or sell property in payment of an obligation, if upon its maturity, it is not paid, because the title of the security remains with the debtor. Such promise, however, is a personal obligation of the mortgagor and does not in any way bind the property. A deed of assignment by way of security avoids the necessity of a public sale imposed by the rule on pactum commisorium, by in effect placing the sale of the collateral up front. Note, however, that the remedies of a creditor to foreclose on the property, or ask for the assignment of the property are alternative, and cannot be pursued simultaneously. 11. Are step-in rights lawful in your jurisdiction or does any action to take control require the creditors to go through a court process? There are no specific laws that would govern step-in rights and the same should be provided for by contractual stipulation fo the parties, which may be enforced by a court action. Note, however, that the right of a creditor to step into the rights of a debtor would also depend on whether there are any regulatory or third party consents required to allow such assignment.