Secured Transactions: New Possibilities

Law on Encumbrance of Movables, dated 2 May 2017, came into effect on 28 May 2017. According to it, creditors (obligees) are given tools for prioritising their claims in movables by making encumbrances public. To place claims into the public domain, creditors can record them in the encumbrances' register, have them into possession, acquire control of the encumbered items (such as moneys in bank accounts), and, also, use a combination of those options.

The Law deals with contractual and non-contractual (e.g., seizure by court order) encumbrances on a "first- come, first-served" basis save for some exceptions. The ranking of contractual encumbrances may be altered by the security holders' agreement though.

As opposed to non-contractual encumbrances, making contractual encumbrances public is not mandatory and depends on a security provider's consent.

The register of encumbrances of movable property (the Register) will, when established, be maintained by the Financial Market Supervisory Authority (chamber) of the Republic of Azerbaijan. It would serve to record, on a fee basis, encumbrances in movable property (other than securities), including claims and rights, not registered in any of the existing official title registers (e.g., an official register for vehicles with engine capacity 50 cubic centimetres and more and designed maximum speed above 50 km/h). It will be run in an electronic form only and used to record the creation of an encumbrance, changes and objections to it, and also its termination.

Contractual (consensual) encumbrances, to include, among others, pledges, leases, and liens, would be recorded by creditors (obligees or beneficiaries) subject to a consent of a security provider. This notwithstanding, encumbrances existing by the effective date of the Law can be recorded upon a notification to a security provider within nine months of the Register's launch.

The validity of the online recordings in the Register will last from the entry becoming visible to others for a period specified in the entry.

Entries made to record contractual encumbrances would have to specify, among others, the parties to a contract, detailed description of concerned property, secured obligation, and whether the security provider is a new customer or not, and, should the customer be individual, his/her gender.

Besides recordation, encumbrances can be made public by:

taking possession of cash, jewellery, unregistered securities, warehouse certificates...