Tag Archives: Project Finance

Exercising the Right to Enforce Sale of Collateral without a Court Order



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Our Mongolian lawyers have recently assisted a client in connection with the planned sale of collateral by auction without obtaining a court decision.  

Mongolian law provides for this type of out of court enforcement procedure where stipulated in a mutual agreement. In order to start this process, the Pledgee is required to notify the Pledgor in writing as to the demand for performance of the contractual obligation. The notice period required in 30 days. If there is no reply within 30 days, the enforcement may be registered directly with the national pledge registry which will initiate a sale of the pledged collateral.

The law provides that the auction price shall be agreed upon by the parties to the contract, and if no agreement is reached, it shall be set at 70 percent of the market value determined as determined by an appraisal.

If there is no competition during the auction, or if the winner does not deposit the price offered by him/her in the designated account within the time specified in the contract, the auction will be deemed not to have taken place and a new auction will be held.

A Pledgee is entitled to negotiate an agreement with the Pledgor within 10 days after an announcement that no auction has taken place to have the collateral transferred to its ownership at the first price of the auction.

If the collateral is sold, or the Pledgee takes possession of the collateral as satisfaction of its demand, or the Pledgee does not finally to exercise its right to purchase the collateral the security interest on the collateral shall be terminated.

Can Immovable Property be Pledged Twice?



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A owner of immovable property (usually real estate or buildings) is entitled to dually promise collateral to others as a pledge on satisfaction of debt. Previously, double collateral was not allowed, if it was prohibited by the agreement between parties. The Constitutional Court made a resolution #11 to repeal this regulation in 2015. Therefore, it is now possible to dual pledge the collateral several times.

When concluding a contract with a subsequent pledgee, the pledgor is obliged to inform the pledgee that the pledge item has already been pledged. If not informed, pledgor should liable for the damage that a subsequent pledgee suffers. A subsequent pledgee has the right to terminate the pledge agreement and may demand compensation for damages. As a best practice, it is recommended to describe the initial pledge within the pledge documentation for a subsequent pledge.

If the previous pledge agreement states terms and conditions of a subsequent pledge agreement, such terms and conditions must be included in a later pledge agreement. If these terms and conditions are not reflected in the next pledge agreement and the previous pledgee submits a claim to the court to invalidate the subsequent pledge agreement, the court will likely consider the later pledge agreement as invalid regardless of whether the secondary pledgee knew or did not know about the original pledge. If the original pledgee and the secondary pledgee are the same, this regulation will not apply.

A dual pledge must be registered at the Mongolian State Registration Office. All subsequent pledges of such property shall be recorded along with the original pledge.

In case collateral is somehow pledged by several persons, a pledgee’s demand will be satisfied via the collateral in the order registered with the State Registration Office. In other words, in satisfying the pledgee’s demand, the pledge item shall be secured in the order registered in the state registry.

If a previous pledgee did not enjoy a preemptive right to demand the secured obligation, first priority right over the collateral will be transferred to next pledgee. A Pledgee shall be obliged to notify other pledgees prior to demanding to satisfaction of a secured obligation from such property. The reason for notifying to other pledgee is, if any of pledgees demanded to satisfy secured obligation from the collateral, other pledgees may demand simultaneous satisfaction although previous and next security period is not due. If other pledgees approve, each secured demand shall be satisfied in order of its performance date.