Differences between pledge and transfer of title for security

• 17 October 2022
• Local News
• 7069 Views

Pledge (pawning) and transfer of title for security are somewhat similar in the act that the debtors use their property as collateral to borrow money from creditors under an agreed period and interest rate.

However, there are some differences that frequently cause trouble for debtors and creditors.

Pledge or pawning can be done with collateral that is both movable and immovable properties. In case of defaulting debt, the creditor cannot sell the collateral property even permission with permission from the debtor. (article 827 of the Civil Code). The creditor must file a lawsuit in court for forced sales of that property. (Read more)

On the other hand, the transfer of title for security can be done only when collateral is movable property. In case of default, the creditor can sell the movable property in exchange for debt payment without going through the court process.

Therefore, as a debtor, one must read the contract carefully to know whether it is a pledge or transfer of title for security.

According to Prakas on the management of Pawnshops and Transfer of Title for Security Business, all medium and large pawnshops and transfer of title for security businesses must apply for the license at the Ministry of Economy and Finance.

Meanwhile, the small enterprise of pawnshop and transfer of title for security must apply for a permit at the Municipal or Provincial Department of Economy and Finance.

Capital investment of pawnshop and transfer of title for security enterprise is divided as follows:

1.  Small enterprise of pawnshop and transfer of title for security must hold from 20 to 40 million riels of capital investment
2.   Medium enterprise of pawnshop and transfer of title for security must hold from 40 to 200 million riels of capital investment
3. The large enterprise of pawnshop and transfer of title for security (Type 1) must hold from 200 to 800 million riels of capital investment
4. The large enterprise of pawnshop and transfer of title for security (Type 2) must hold up from 800 million riels of capital investment.

In addition, pawnshops and transfer of title for security business must make a business guarantee deposit of 10% of the capital investment in a single account of the National Treasury or National Treasury branch.

After obtaining the license or permit from the competent authority, the lending of a transaction to the mortgagor or the grantee shall not exceed 20% of the declared business capital.

A licensed pawnshop can provide loans for the legal immovable property of not more than 20 million riels and not more than 4 million riels by a permitted pawnshop per transaction.

For the interest, it must be agreed upon between the debtor or grantee and the pawnbroker or grantor in accordance with the law in force.

The above Prakas has determined that a pawnshop and transfer of title for a security business without a license is subject to a fine of 10,000,000 riels and a fine of 5,000,000 riels if no permit, and the must be closed the business immediately.

• Laws and Regulation