Sequestration — Forced Property Management for Creditor's Benefit

Introduction and Service Overview

In enforcement law, it is not always justified to immediately sell the debtor's property at a public auction. When the seized property is an income-generating, operating business (for example, a hotel, a commercial rental space, an agricultural plantation, or a functioning factory), its forced realization often leads to business closure, job losses, and a sharp drop in market value. This harms both the debtor and the creditor. The best legal solution for such complex situations is sequestration—forced property management for the creditor's benefit. Sequestration means that the execution officer revokes the debtor's right to manage the property and transfers it to a specially appointed, independent professional manager (sequester). The manager continues to operate the property (business), and the net profit generated is directed toward paying off the creditor's debt.

Sequestration is a unique instrument: it preserves the integrity and functionality of the asset, guarantees a stable financial inflow for the creditor, and at the same time leaves the debtor a chance to reclaim their business intact once the debt is fully paid. However, appointing a sequester, selecting a manager, and distributing the income is a highly complex legal and financial procedure that requires professional legal involvement.

What the Forced Property Management Service Covers

The forced management service is complex and encompasses a wide range of legal-administrative procedures. First, the creditor's lawyer prepares a reasoned motion addressed to the National Bureau of Enforcement or a private execution officer requesting the appointment of sequestration. The motion must substantiate that the property's income is sufficient to cover the debt within a reasonable time and that an auction is less advisable. The execution officer reviews the motion and, if satisfied, issues a decree to transfer the property into forced management.

The next stage is selecting a competent manager (sequester). The manager can be a legal entity, an auditor, or a crisis manager who takes responsibility for business continuity. The service covers the physical and legal handover of the property to the manager, including the transfer of documentation, stamps, and accounts. The manager is obliged to act in good faith: pay current taxes, disburse salaries, cover operating expenses, and transfer the generated net profit to the enforcement bureau. The service also includes monthly legal monitoring of the manager's activities and auditing of financial reports to protect the interests of the creditor or the debtor.

Common Situations and Practical Examples

In practice, sequestration is most commonly used in the management of commercial real estate. For example, a debtor owns a shopping center leased to 50 different stores, generating a monthly rental income of 100,000 GEL. The debtor owes 500,000 GEL to a bank. Selling the shopping center at auction is unprofitable for the bank (the creditor) and would scare away the tenants. Sequestration is appointed; the manager takes over the lease agreements, collects rent from the tenants, and fully pays off the bank's debt in 5 months, after which the shopping center is returned to the debtor.

A second example involves agriculture. A vineyard or hazelnut plantation is seized a month before the harvest. Holding an auction would disrupt the harvest cycle and the property would spoil. The creditor requests forced management. A manager is appointed who ensures the harvest is collected, sold on the market, and the proceeds are used to cover the enforcement obligation. This is an effective win-win situation for both the creditor and the economy, as wealth creation is not hindered.

The Georgian Legal Framework

In Georgia, the institution of sequestration (forced property management) is regulated by the Law of Georgia on Enforcement Proceedings (specifically, the chapter on the transfer of property into forced management) and the Civil Code. The legislation clearly stipulates that the transfer of property into forced management occurs at the creditor's request, and the manager is appointed by the execution officer in agreement with the creditor. The debtor is deprived of the right to manage and dispose of the property, though they remain the legal owner and have the right to request financial reports from the manager.

The law strictly regulates the priority of income distribution: from the revenues generated through forced management, current expenses related to management (including the manager's fee) are covered first, followed by enforcement proceedings costs, and the remaining amount is directed to satisfy the creditor's claim. If the manager acts in bad faith or negligently, the legislation imposes full property liability on them for the damage caused. Forced management is terminated when the creditor's claim is fully satisfied, or if it is determined that the management is economically unprofitable and the property must go to auction.

Step-by-Step Process

The process begins after the property is seized. The first stage is the creditor's lawyer analyzing the property's profitability and submitting a motion to the execution officer requesting sequestration. In the second stage, the execution officer issues a decree and, in consultation with the creditor, selects and appoints the manager (sequester).

The third stage is the physical and legal handover of the property (business) from the debtor to the manager. A detailed inventory act is drawn up. In the fourth stage, the manager begins operational activities, collects revenues (e.g., rent), and pays current expenses. In the fifth stage, the manager transfers the net profit monthly to the deposit account of the enforcement bureau, from where the funds are forwarded to the creditor. In the sixth and final stage, when the debt reaches zero, the execution officer cancels the sequestration, and the manager returns the property and the reins of the business back to the debtor.

Why legal.ge and the Need for a Lawyer

Requesting and implementing sequestration is a multidisciplinary task requiring legal, financial, and corporate knowledge. If the wrong manager is selected, they might bankrupt the company or artificially inflate operating expenses, causing the creditor not to receive their money. For the debtor, it is critically important to provide constant legal monitoring of the manager so their property is not squandered.

The legal.ge platform gives you access to the best enforcement and business law specialists in Georgia. The lawyers gathered in our directory will help you appoint sequestration flawlessly, strictly control the manager's activities, and protect your financial interests—whether you are a creditor or a debtor. Do not allow a profitable business to be sold for peanuts at an auction—find a lawyer on legal.ge and utilize the effective mechanism of forced management.