New instruments for bank's protection from unfair debtors

On November 3, 2018 the text of the Law of Ukraine “On Amending Certain Legislative Acts of Ukraine Regarding the Resumption of Lending” (hereinafter referred to as the “Law”) was officially published. Thus, on November 4, 2018 the Law entered into force, however, it will be effective only from February 4, 2019.

The published text of the Law generally corresponds to the text of the draft law No. 6027-d, prepared for the second reading. Our company has already provided the detailed analysis of this draft law in ourueuk article “New mechanisms adopted to protect banks from unfair debtors” (please follow this link https://bit.ly/2AVMYx2).

Basically, only editorial amends were made to the text of the Law.

In particular, the provisions allowing the mortgagee – bank to register a title to the real estate irrespective of the presence on any encumbrances/arrests on such real estate were excluded from the Law of Ukraine “On Mortgage (amending Article 37).
At the same time, very similar provisions protecting the banks’ rights were introduced to the Law of Ukraine “On State Registration of Real Rights to Real Estate and Their Encumbrances”.

According to mentioned amendments refusal of state registration of rights based on the existence of registered encumbrances of real rights to real estate, does not apply in case of the state registration of the title to the real estate at the mortgagee – a financial institution in the manner established by articles 33-38 of the Law of Ukraine “On Mortgage”. The presence of encumbrances or other real rights, including mortgage, registered after the state registration of mortgage regarding the property transferred to the mortgage is not a ground for refusal in the state registration of the title at the mortgagee (paragraph 4 of Article 24 of the Law of Ukraine “On State Registration of Real Rights to Real Estate and Their Encumbrances”).

Therefore, the financial institution will be able to foreclose on the collateral even if there are encumbrances on such collateral registered after the state registration of mortgage regarding the property transferred to the mortgage.

We consider such amendment as very positive step forward that will enhance export credit financing to Ukraine and provide additional mechanisms for protection of banks’ rights from unfair debtors.