Uzbekistan is on the way of improving investment climate. On the basis of the best international experience, it is going to implement large-scale reforms in order to liberalize the banking and financial system, further global improve the investment climate, and attract direct investment to the economy. These processes, of course, do not bypass collateral relations.
The development and transparency of market saturation is a very important issue. This requires not only creating favorable conditions for the use of financial resources but also increasing the demand for them.
The collateral registry creates the conditions for priority rights of the creditor on the mortgaged property, by simplifying the loan secured by collateral reduces the risks, but rather the losses arising from bad loans. The reform of the regulatory framework for the use of the movable and immovable property as collateral allows businesses to use the property as collateral for loans that can be obtained for the development of their activities.
The pledge register creates conditions for expanding the possibilities of financing through the use of movable property, including equipment, inventory, and raw materials, receivables, intellectual property, expected agricultural yield, as well as for speeding up the lending process.
According to the Civil Code of the Republic of Uzbekistan, obligations performance might be ensured by the following types of security:
Types of security
- Retention of the property of the debtor;
- Surety; and
The most widely used types of securities are pledge, penalties, and guarantee.
- Amount of money that must be paid to a creditor as a result of non-performance of the debtor's obligations;
- Applies in case of late payment as well;
- Either fixed amount or percentage over the non-performed payment;
- When enforcing the penalty, the creditor does not have to prove that losses;
- The amount of the penalty must be agreed in written form;
- Provides for only an actual claim; and
- Might be in the form of forfeiture or a fine.
- Forfeiture is a penalty calculated in a fixed amount of money.
- Fine is a penalty calculated in percentage to non-performed part of the obligation per every day of delay.
- The creditor has a right to obtain satisfaction for the non-fulfilled obligations from the value of the pledged property;
- Pledge might be in the form of a mortgage or a pledge of various rights. The subject of a pledge might be any property, including things and property rights (or claims) with the exception of things excluded from circulation or other claims which assignment is prohibited by law.
- The right over the pledge arises from the time of making the agreement or after notary certification of the agreement if the later is subject to notarial certification which is the best way to detect whether property or things is under the pledge or not.
The mortgage, the pledge of movable property/rights must be notarized in order to be perfected.
Guarantee and surety
- Guarantor becomes jointly liable before creditor for duly performance of obligations in full or in part;
- Guarantor shall, at the request of the principal, give a written obligation to pay the beneficiary an amount of money upon presentation by the beneficiary of a written request for its payment;
- The principal shall pay the guarantor a fee for issuing the guarantee;
- The guarantee might not be revoked by the guarantor unless it provides otherwise;
- The right of claim under the guarantee might not be transferred unless otherwise provided in the guarantee;
- The guarantee comes into force from the date of its issue, unless otherwise provided in the guarantee;
- The beneficiary's claim for payment of the amount of money under the guarantee shall be submitted to the guarantor in writing with the application of the documents specified in the guarantee. In the claim, the beneficiary must indicate the principal's breach of the obligation for which the guarantee is issued; and
- The beneficiary's claim must be submitted to the guarantor before the end of the period specified in the guarantee for which it is issued.
- Type of security pursuant to which a surety provider becomes subsidiary liable with a debtor before its creditor; and
- A surety agreement might also be executed to secure an obligation that arises in the future.
- Both guarantee and surety agreements must be made in writing. Otherwise, they will be deemed void.
- Advance money is an amount of money issued by one of the contracting parties to prove the conclusion of a contract and to ensure its execution. The agreement on the advance money regardless of the amount thereof must be made exclusively in writing to resolve any disputes in the future, and if possible – officially notarized.
The law of Uzbekistan provides for several ways of enforcement of the collateral:
- via court; or
- pre-trial settlement.
A penalty can be enforced legally, where the creditor has the right to demand payment of the penalty defined by the law (legal penalty) irrespective of whether the obligation of its payment is provided by the agreement of the parties.
Foreclosure on the pledged property to meet the requirements of the pledgee (the creditor) might be applied in case of default or improper performance by the debtor secured by the pledge obligations under the circumstances for which he is responsible. The court might refuse to foreclose on the pledge if the debtor's breach of the obligation secured by the pledge is extremely insignificant and the size of the pledgee's claims, as a result, is clearly disproportionate to the value of the pledged property. The requirements of the mortgagee (the creditor) are satisfied with the value of the mortgaged real estate by a court decision.
The claim of the pledgee at the expense of the pledged immovable property without recourse to court is allowed if provided for in the pledge agreement or on the basis of a notarially certified agreement of the pledgee with the pledger concluded after the grounds for foreclosure on the collateral. Such an agreement might be declared invalid by a court at the suit of a person whose rights are violated by such an agreement.
The requirements of the pledgee shall be satisfied at the expense of the pledged movable property under the judicial act unless otherwise provided by the agreement of the pledger with the pledgee. On the subject of pledge transferred to the pledgee, recovery can be addressed in the order established by the agreement on a pledge.
Foreclosure on the subject of collateral might be applied only by a court decision in cases where:
- the law requires the consent or permission of another person or body to enter into a pledge agreement
- the subject of a pledge is the property having historical, scientific, artistic or other cultural value;
- the pledger is absent and it is impossible to establish his location.
Whichever provision the parties have agreed upon; the subject matter of a pledge might only be sold through a public auction. Uzbek law, therefore, does not contemplate the transfer of ownership rights in relation to almost all types of pledged property upon default by a debtor as some Western jurisdictions do. Rather, the discharge of secured obligation shall be made at the expense of proceeds received from the sale of the pledged property. The rights to a pledged property, however, can be transferred to a pledge holder in case of the missed public sale. The foregoing is not applicable to the enforcement of the pledge over money on a bank account and contractual rights which should be performed through the transfer of that money or rights to a pledge holder.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.