Uzbekistan Improves The Legal Protection Of Creditors

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:

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. 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. 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. Subsequent pledge is permitted without the previous pledgee's consent, provided that a relevant entry is made in the pledge registry. 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:

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...