The Law of Ukraine
Date of Entry into Force:
November 11, 1992
Pledge is a method of securing liabilities. Due to pledge a creditor (pledgee) shall have the right to be satisfied from the value of pledged property prior to other creditors, in case a debtor (pledger) does not fulfill liabilities secured by pledge. Pledge arises from an agreement or the law.
Pledge secures any real or future liability. Pledge is derivative from the liability secured thereby.
The subject of pledge shall be property and property rights. The subject of pledge shall not be:
- personal demands;
- demands which pledge is prohibited by the law;
- objects of state property, which privatization is prohibited;
- property compounds of state enterprises and their structural departments, which are in the process of corporatization.
Pledge of property includes its accessories and inseparable benefits, unless otherwise is stipulated by law or agreement. Pledge of property may include separable benefits only in cases, within the limits and according to the procedure set by law or agreement.
Jointly owned property may be pledged only on agreement of all co-owners.
According to the Law, pledged property may be owned by the pledger, the pledgee or the third person.
Parties to pledge agreement (the pledger and the pledgee) may be natural persons, legal entities and the state. The pledger may be the debtor itself, as well as the third party (property guarantor). During pledge of property the pledger may be its owner that has the right to alienate pledged property on grounds stipulated by law, as well as the person, whom the owner has transferred property and the right to pledge for this property according to the established procedure.
Pledge agreement shall be concluded in writing. In cases when subject of pledge is real estate or space objects pledge agreement shall be notarized on the basis of respective legal documents.
The right to pledge shall arise from the moment of concluding pledge agreement, and in case when a pledge agreement shall be notarized - from the moment of its notary attestation. If subject of pledge according to law or agreement shall be held by the pledgee, the pledge right shall arise at the moment of transfer to it the subject of pledge. If such transfer had been performed before the agreement was concluded, the right shall arise from the moment of its concluding.
According to the Law, the pledger retains the right to dispose of pledged property, but to alienate such property consent of the pledge is required.
The Law determines the procedure of pledged property levy.
Sale of pledged property shall be performed by specialized organizations through auctions (public tenders), if otherwise is not provided for by agreement. Pledged property of state enterprises and public joint-stock companies established during incorporation, which shares fully belong to the state shall be sold exclusively through auctions (public tenders). If the first auction (public tenders) is announced as such which did not take place, the next auction shall be held. Starting price of the second and next auctions shall be the price decreased for 30% in relation to the starting price of the previous auction. If the second and subsequent auctions (public tenders) are announced as such that did not take place the pledgee has the right to retain the pledged property for the starting price which was proposed on the last auction (public tenders). In case if the pledgee refused to retain the pledged property, this property shall be sold according to the set procedure, if otherwise is not stipulated by agreement. While pledging property rights, sale of object of pledge shall be performed through the pledger conceding to the pledgee requirement arising from the pledged right.
The pledge shall be stopped in case of:
- stopping liabilities secured by it;
- destruction of the pledged property;
- purchase by the pledgee of ownership rights to the pledged property;
- forced sale of pledged property;
- expiry of validity term of the right that makes the object of pledge;
- in other cases stipulated by law.
The object of pledge of goods in circulation or in processing may be raw materials, semi-finished goods, as well as component parts, finished products and other. While pledging goods in circulation or in processing, the goods sold by the pledger shall not be the object of pledge starting from the moment of their transfer to the purchaser, or a transport organization for delivering them to the purchaser, or transfer to post-office for mailing them to the purchaser. The goods acquired by the pledger and envisaged in pledge agreement shall become the subject of pledge from the moment of arising ownership rights to them. The agreement on pledge of goods in circulation or in processing shall individualize the object of pledge by indicating their ownership by pledger or their location in some workshop, warehouse, other premises, or in other way which is enough for identification of totality of movable things as the object of pledge.
According to the Law, pawn is a pledge of movable property, when property making up object of pledge is transferred by the pledger into ownership of the pledgee. On agreement between pledgee and pledger the object of pledge may be left with the pledger under lock and seal of pledge (hard pledge). Individually determined item may be left with the pledger and marked with the signs that confirm pledge.
Pledge of bill of exchange or other security, which may be transferred through making transfer notation (endorsement), shall be performed through endorsement and handing over the endorsed security to the pledgee. Pledge of security, which is not transferred through endorsement, shall be performed according to agreement between the pledgee and the person, in whose name securities were issued. On agreement of parties the pledged securities may be transferred deposited with state notary's office, private notary or bank.
The form of pledge agreement shall be determined by law of the country, where this agreement is concluded. The form of agreement on pledging buildings, constructions and other real estate, located in Ukraine, and also rights to it, as well as the form of agreement on pledging property in circulation, concluded by the pledger, which is established, resides or operates mainly in Ukraine, shall be determined by Ukrainian legislation. Rights and liabilities of parties to pledge agreement shall be determined by law of the place, where the agreement is concluded, unless the parties agree otherwise.
The Law also sets guarantees of parties' rights during pledge.
If international agreements of Ukraine establish rules other than those provided in this Law rules of international agreements shall apply.