Parliament has adopted a law improving the protection of creditors' rights in Ukraine

On 3 July 2018, Parliament adopted the law which resolves a number of long existing issues in connection with Ukrainian law-governed security (the "Law"). Before becoming effective, the Law needs to be signed by the President and published.

The Law will begin to apply in three months following its effective date. However, most of the provisions of the law will also apply to agreements executed before its effective date.

The most important amendments are set out below.

Mortgages

  • Out-of-court enforcement of the mortgage will no longer result in an automatic discharge of all outstanding secured obligations (provided that there is nothing to the contrary stated in the mortgage or loan agreement). This means that following an out-of-court enforcement, the secured obligations will be deemed satisfied only in the amount received as a result of such enforcement.
  • Liquidation of an obligor (either of the mortgagor itself or, if they are different persons, of the borrower) will not cause the termination of the mortgage, provided that the mortgagee has made a claim to the mortgagor before the completion of the liquidation. Previously, this ground was often used by unfriendly obligors to invalidate mortgages.
  • The list of enforcement procedures which may be used by the court in case of the court enforcement of the mortgage will not be exhaustive. In addition, the Law cancels the obligation of a court to establish an initial price of a mortgaged property. This will speed up the court enforcement, as no specific appraisal expertise will be required during the court proceedings.

Ukrainian law-governed suretyships

  • If a surety does not consent to an increase in the amount of the underlying obligation in relation to which it has provided the suretyship, this will no longer result in the termination of the suretyship. The suretyship will remain valid in respect of the amount of the underlying obligation which existed before the increase.
  • Liquidation will not cause the termination of the suretyship, provided that the creditor has made a claim to the surety before the completion of the liquidation.
  • Sureties which granted suretyships in relation to the same obligations of the same debtor (whether in a single suretyship agreement or in separate suretyship agreements), shall be automatically considered as joint and several sureties.
  • The term during which the termless suretyship can be enforced has been extended to three years (instead of the present one year), running from the underlying obligation final maturity date.

Vehicles pledges

  • The Law cancels the requirement to notarise the pledge of vehicles. This will allow parties to reduce transactional expenses and to speed up execution.

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