Pledge agreement and legal relations in Ukraine

There are two principle legislative acts covering pledge relations in Ukraine, they are accordingly the Civil Code of Ukraine and the Law of Ukraine "On Pledge" effective as of November 11, 1992 with numerous subsequent amendments, which are continuously included into the same by Ukrainian Parliament.

Thus, clause 572 of the Civil Code of Ukraine provides that on the grounds of a pledge the creditor (holder of the pledge) has the right to satisfy his claims at expense of the pledged property before all the other creditors of the same debtor in the event if such debtor (supplier of the pledge) has not fulfilled his obligation, which was secured with the pledge.

Subsequently the Law of Ukraine "On Pledge", namely clause 1 of the same, provides the same definition of pledge.

Clause 3 of the Law of Ukraine "On Pledge" provides the possible uses of pledge in Ukraine and namely provides that the pledge can secure any valid existing or future claim, which does not contradict with Ukrainian legislation, namely the claim, which appears from loan, credit contracts, sale and purchase contract, rental (leasing) contract, carriage contract, etc. The pledge as well can be used in order to secure the future claims, which may appear in future, on condition that there is an agreement of the parties as regarding the amount of securing fulfillment of such claims.

The descriptive list of pledgeable assets is given in clause 4 of the Law of Ukraine "On Pledge", which provides that the pledgeable assets include property and property rights as well. Property, which in accordance with Ukrainian legislation can be aliened and used in order to satisfy claims of the claimant, can be pledged.

Property, which will be acquired by the pledger in future after making of the pledge agreement, including production, fruits and other incomes (future crop, animal yield, etc.) if the same is provided by the pledge agreement, can be pledged as well.

The national cultural and historical valuables, which are state owned and included into the state registry of national cultural valuables, cannot be pledged.

Claims of the personal nature as well as other claims prohibited to be pledged, cannot be pledged. State objects prohibited from privatization cannot be pledged as well.

The required form of the pledge agreement is provided by clause 13 of the Law of Ukraine "On Pledge", which provides that the pledge agreement is to be made in the written form. If the pledged property includes the real estate objects then the pledge agreement is to be notarized as well. Therewith parties of the pledge agreement can agree notarization of the same even when such notarization is not imperatively required by Ukrainian legislation.

Clause 16 of the Law of Ukraine "On Pledge" provides that the pledge title appears at the moment of making the pledge agreement and if notarization of such pledge agreement is required then the pledge title appears at the moment of notarization of such agreement.

Procedure of satisfying claims of the creditor, when the pledged property is not enough to cover claims of the creditor, is provided in clause 24 of the Law of Ukraine "On Pledge", which states that in the case if the pledged property is not enough to cover claims of the creditor in full, the creditor has the right to satisfy his claims from the other property of the debtor on the rotation basis, which is provided by Ukrainian legislation, if otherwise is not provided by the law or agreement.

If the amount, which was collected in the result of sale of the pledged property is higher then the amount of creditor's claims, the rest of the same, which exceeds amount of creditor's claims, is to be returned to the pledger. This rule is provided by clause 25 of the Law of Ukraine "On Pledge".

And finally the grounds for termination of the pledge relations are provided accordingly by clauses 28 and 29 of the above mentioned law. Thus, the basic grounds for termination of the pledge relations are:

- termination of the principal obligation, which is secured with the pledge;

- in the event of asset destruction;

- in the event if the holder of pledged property becomes the owner of such property;

- in the event of forced sale of the pledged property.

Termination of pledge legal relationship is also possible through depositing appropriate amount of money at notary's office in event if the creditor refuses to accept due fulfillment of the money obligation by the debtor.

The above information is provided herein in educational and informative purposes only. It is provided that you have to get appropriate legal advice as regarding the legal and other issues of your interest in Ukraine in order to have the exact, extensive and up-to-date legal and other related information.

Do not hesitate to contact us if you have any questions or issues of legal nature, our Law Firm is working for you and our experienced legal specialists are always ready to help providing the client with appropriate legal consultations, legal reports and summaries, reasonable legal advices and all the other required legal support, assistance, coverage and protection.

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