Uzbekistan improves the legal protection of creditors

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On November 23, 2018, the President of Uzbekistan, Shavkat Mirziyoyev, signed the resolution “On measures to strengthen the legal protection of creditors and improve financing mechanisms for entrepreneurial activities”. This resolution seeks to foster effective enforcement of creditors’ rights and improve the investment climate in Uzbekistan.

The resolution establishes a new procedure from January 1, 2019. According to the new procedure:

  1. In case of non-fulfilment or improper fulfilment of obligations by the debtor, the claims of creditors, secured by a pledge, are satisfied from the value of the pledged property in calendar order of the date of making an entry on their rights over the debtor’s property in the pledge registry. However, this procedure is not applicable to the sequence of writing off monetary assets from the debtor’s account if these assets are insufficient to meet all the claims made to it.
  2. Creditors (pledgees) who have made entries on their rights over the debtor’s property in the pledge registry have a preferential right to satisfy their claims before the creditors (pledgees) who have not made such entries in the registry.
  3. A creditor who financed the acquisition of property under its security enjoys a preferential right to satisfy his/her claims at the cost of this property if he/she made a relevant entry in the pledge registry.
  4. Subsequent pledge is permitted without the previous pledgee’s consent, provided that a relevant entry is made in the pledge registry.
  5. The lease of the pledged property by the pledgor is permitted without the need to obtain the pledgee’s consent. However, there is a requirement to make a relevant entry in the pledge registry and notify the pledgee.

Furthermore, the resolution introduces the following novelties:

  1. Unless otherwise provided by the contract, the preferential right of a creditor extends to the fruits and income (revenue) obtained as a result of the use or sale of the debtor’s property that was provided as a security for the performance of obligations.
  • According to the existing procedure (article 272 of the Civil Code of Uzbekistan), the preferential right of a creditor extends to the fruits, products and income (revenue) obtained as a result of the use of the debtor’s property only in cases specified by the contract.

2. The procedure established for levy of execution on pledged property also applies to property (property right) that is an object of the lease agreement, instalment sales contract, rental agreement and other contracts in which this property serves as a security for performance of obligations.   

3. Provided that there is a written contract, execution against movable property, which serves as a subject of pledge or as a security for the performance of the creditor’s obligations, can be levied on the basis of a court order.

  • According to the existing legislation, unless otherwise provided by the agreement between a pledgor and a pledgee, claims of a pledgee are satisfied on account of a pledged movable property on the basis of a court decision (article 280 of the Civil Code of Uzbekistan).

Moreover, the resolution allows:

  1. To identify an obligation secured by property by indicating the maximum amount of the obligation that can be satisfied from the value of this property.
  2. To conclude contracts that involve property security for performance of obligations, including a pledge agreement, by a general description of the property without going into details. 
  3. To sell a pledged property, which secures rights of claims of creditors and other pledgees, for credit, through instalment sales, leasing or other transactions not prohibited by law as well as to lease this property. However, this rule does not apply to the cases of a forced sale of property in the execution of judicial acts and acts of other bodies.

The resolution provides instructions for government bodies related to effective implementation of the above-mentioned changes and novelties. In particular, the Central Bank of Uzbekistan is assigned to put forward proposals to amend legislation in accordance with the at least twofold reduction of fees for making entries in the pledge registry and issuance of an extract from the registry.

 

DISCLAIMER: Because of the generality of this update, the information provided herein may not be applicable in all situations and should not be acted upon without specific legal advice based on particular situations.

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