October 20, 2020
Credit. Loan. Securities (surety, insurance, pledge)
1. Civil Code of the Republic Of Uzbekistan;
2. Tax Code of the Republic Of Uzbekistan;
3. Law of the Republic of Uzbekistan of 09.12.1992 No. 736 – XII “On Pledge»;
4. Law of the Republic of Uzbekistan of 23.10.13 no. ZRU-356 “On the Pledge Register»;
5. Law of the Republic of Uzbekistan of 04.10.06 No. ZRU-58 “On Mortgage»;
6. Resolution of the Plenum of the Supreme Economic court of the Republic of Uzbekistan dated 15.06.07 No. 163 “On Certain Issues of Application of Civil Legislation Acts on Property Liability for Non-Performance or Improper Performance of Obligations»;
7. Resolution of the joint Plenum of the Supreme court of the Republic of Uzbekistan and the Supreme Economic court of the Republic of Uzbekistan dated 22.12.06 No. 13/150 “On Certain Issues of Application of Civil Legislation on Ensuring the Fulfillment of Obligations Arising from Credit Agreements»;
8. Resolution of the Plenum of the Supreme court of the Republic of Uzbekistan dated 24.09.99 No. 16 “On Certain Issues Arising in Judicial Practice in Connection with the Application of the Civil Code”;
9. Regulation approved by the Board of the Central Bank of the Republic of Uzbekistan dated 22.02.2000 No. 429 “On Requirements to the Credit Policy of Commercial Banks”.
Before we consider the loan agreement and the credit agreement separately and in detail, it is important to know that both agreements have significant differences, in particular:
- The loan agreement comes into force from the moment the loan is granted by the lender. This means that the borrower will not be able to force the lender to provide a loan. At the same time, under the credit agreement, the lender is obliged to provide a credit;
- In the credit agreement in the role of lender may act only banks and other credit institutions. In the loan agreement the lender can be either an individual or a legal entity;
- The credit agreement is always paid, what means that the loan is always issued at interest (percentage). At the same time, the loan agreement can also be free of charge, that is, it does not assume that the lender receives interest;
- The credit agreement must, of course, be concluded in writing, otherwise the agreement will be considered null and void. At the same time, the loan agreement is concluded in a simple written form with the conditions that if it is concluded between individuals and the amount exceeds 10 basic estimated value amount; (b) between legal entities.
The loan can be interest-free or interest-bearing. An interest-free loan can be repaid ahead of time, while an interest-bearing loan can only be repaid ahead of time if it is stipulated in the contract or with the lender’s consent.
It is important to distinguish between the interest charged on the loan amount provided for in article 734 of the Civil Code of the Republic of Uzbekistan and the interest charged under article 327 of the Civil Code. They are of different nature, since the interest provided for in article 327 is a liability measure, and the interest set on the loan amount is charged (unless otherwise stipulated in the agreement) regardless of whether the borrower has failed to fulfill or improperly fulfilled the obligation (paragraph 10 of the Resolution of the Plenum of the Supreme economic Council of the Republic of Uzbekistan dated 15.06.07 No. 163).
Thus, unless otherwise specified in the contract, if the loan amount is not returned, the interest provided for in article 327 is payable on it. This interest will be charged along with the interest established by article 734 of the Civil Code of the Republic of Uzbekistan (article 736 of the Civil Code of the Republic of Uzbekistan).
Also, unless otherwise stipulated in the contract, the interest provided for in article 327 is charged only on the loan amount. In other words, the interest provided for in article 327 cannot be charged on the interest established for the use of monetary funds. This eliminates the use of “double interest”. However, the agreement may provide for “double interest” (paragraph 9 of the Resolution of the Plenum of the Supreme economic Council of the Republic of Uzbekistan No. 163 of 15.06.07).
Moreover, if the contract provides for non-performance or improper performance percentages provided by article 327 and penalties, according to judicial practice, whether penalty? Whether the percentages would be levied (paragraph 10 of the Resolution of the Joint Plenum of the armed forces and Supreme economic court of the Republic of Uzbekistan on 22.12.06 No. 13/150).
The lender may demand early return of the debt and the interest due in cases of:
- if an installment plan is provided, then if the repayment period for part of the loan is violated by the borrower;
- if the payment of interest is provided for earlier than the repayment of the loan itself, then in case of violation of the terms of this payment;
- if the agreement provides for the repayment of the loan, but the borrower does not fulfill this condition, or if the security is lost or its conditions are worsened (for which the lender is not responsible);
- if the intended use of the loan is provided, and the borrower violates this requirement.
According to the law “On External Borrowing”, external borrowing is the attraction of loans by legal entities (residents of the Republic of Uzbekistan) in the form of loans, for which the borrower is obliged to:
- Fulfill obligations arising from concluded contracts;
- Submit reports to the Central Bank of the Republic of Uzbekistan on concluded agreements on external borrowings and operations on them:
Namely, agreements on attracting foreign funds (without a guarantee of the RUz) must be registered with the Central Bank of the RUz. Such registration is carried out by commercial banks of the Republic of Uzbekistan by notification of these agreements. Upon notification of Central Bank of Uzbekistan, such agreements are registered (Regulation of the Board of the Central Bank of the Republic of Uzbekistan of 17.12.13 No. 2536).
- To inform the Central Bank of Uzbekistan on the full repayment of the external debt in relation to each individual loan.
Cross-border loans and credits are also currency transactions, namely, they relate to capital movement operations (Law No. 841-XII of 07.05.1993 “On currency regulation”).
Moreover, the following operations can only be performed if there are resolutions of the President of the Republic of Uzbekistan, the Cabinet of Ministers or international agreements:
- Investment activities in excess of US$10,000 – transfer of funds from resident accounts in banks of the Republic of Uzbekistan to form (or share) enterprises abroad, replenishment of their branches abroad with working capital;
- provision by residents of the Republic of Uzbekistan of loans and money, loans in the form of goods (services) and leasing to non-residents;
- Transfer of funds from accounts of residents of the Republic of Uzbekistan in commercial banks of the Republic of Uzbekistan to foreign accounts (deposits) and purchase of real estate.
Thus, the legislation provides for banking control over currency transactions carried out by residents of the Republic of Uzbekistan. In particular, each currency transaction must be justified. Moreover, it provides for accounting and monitoring of foreign economic transactions through the unified electronic information system for foreign trade operations.
Interest-free loans are not taxed, since the lender does not generate income. In the case of an interest-bearing loan, the lender’s income arises and as a result, as total income, is subject to income tax and turnover tax (Tax Code of the Republic of Uzbekistan).
As mentioned earlier, under a credit agreement, a bank or other credit institution undertakes to provide a credit within the terms stipulated in the agreement, and the borrower undertakes to repay this credit and pay interest on it.
This agreement must be concluded in writing, otherwise it will be considered null and void.
Also, a characteristic feature of such an agreement is that both the lender and the borrower have the right to refuse to provide a loan and to receive a loan in full or in part, respectively (article 746 of the Civil Code of the Republic of Uzbekistan).
It is important to note that interest for using a loan can be calculated by a Bank or other credit institution for the entire period of lending, including the period of delay of funds, even if the loan is transferred to the status of non-repayment (paragraph 5 of the Resolution of the Joint Plenum of the Supreme court and the Supreme court of the Republic of Uzbekistan on 22.12.06 No. 13/150).
Also, at the same time as the interest for using the loan and repayment of the loan amount, the penalty stipulated in the agreement may be collected. The same rules apply to interest provided for in article 327 of the Civil Code of the Republic of Uzbekistan as for loans.
Moreover, in the credit agreement, the interest provided for in article 327 is charged both on the credit amount and on the interest for using the loan.
In case of default or improper performance by the debtor of its obligations (for example, under a loan agreement), the pledge allows the creditor to obtain satisfaction from the value of the pledged property primarily to other creditors.
The pledger can be either the debtor or a third party.
As a general rule, the pledge is made without transferring the property to the pledgee, but remains with the pledger.
The grounds for the right to pledge may be:
- The pledge agreement;
It is important to note that the invalidity of the pledge agreement does not entail the invalidity of the main agreement under which the security measure is executed. However, the invalidity of the main contract (e.g. credit) shall entail the invalidity of the pledge agreement (paragraph 6 of the Resolution of the Joint Plenum of the armed forces and Supreme economic court of the Republic of Uzbekistan on 22.12.06 No. 13/150).
The agreement on pledge of movable property or rights to property must be notarized/registered, if the main agreement, under the obligation of which the security is performed, must be notarized/registered (article 11 of the law of the Republic of Uzbekistan dated 09.12.92 No. 736-XII “On pledge”).
When a pledge occurs, the debtor and the creditor must keep the record in the pledge register of the Republic of Uzbekistan (law ff the Republic of Uzbekistan dated 23.10.13 No. ZRU-356 “On the Pledge register”). Moreover, the maintenance of the collateral registry requires the introduction, amendment and deletion of records. The record is made in the register:
- on the rights of the creditor to the debtor’s property;
- Restriction of the debtor’s rights to dispose of property;
- On claims for repayment of debt on mandatory payments of the debtor;
- Other information.
The record in the pledge register allows all persons to check for encumbrances of property with the rights of third parties in the form of a pledge.
The pledgee has the right to foreclose on the pledged property in the following circumstances:
- in case of non-performance or improper performance of the obligation secured by the pledge;
However, if the non-performance or improper performance of the obligation was caused by force majeure, then the foreclosure on the pledged property is unacceptable (paragraph 20 of the Resolution of the Plenum of the Supreme court of the Republic of Uzbekistan dated 24.09.99 No. 16).
- in the case when the pledger – a legal entity is reorganized or liquidated, regardless of whether the main obligation has been fulfilled (article 26 Of the law of the Republic of Uzbekistan dated 09.12.92 No. 736-XII “On pledge”).
It is important to note that in the event of a minor breach by the debtor of a secured obligation, the claim for which is clearly disproportionate to the value of the pledged property, the foreclosure may be refused.
In addition, it is important to keep in mind that the pledgee has the right to receive compensation from the value of the pledged property, which indicates that the recovery may be transferred not the collateral itself, but the value commensurate with the requirements of the pledgee (article 264 of the Civil Code of the Republic of Uzbekistan). Therefore, in the event of the loss of the pledged object, and if it is possible to replace the actual or legal subject of the pledge, the pledge is retained. However, the agreement may provide otherwise.
The pledge can be in the form of a chattel mortgage (pledge of real estate), a mortgage and a pledge of rights.
In case of a mortgage, the pledged property is transferred to the custody of the pledgee. In the case of a martgage, the pledgee is liable for full or partial loss or damage to the pledged property, unless he proves that he can be released from such liability (law of the Republic of Uzbekistan of 09.12.92 No. 736-XII “On pledge”).
In addition to things, the subject of the pledge may be the rights of ownership and use, lease rights, and other property rights. The pledger must notify the debtor of the pledge of rights. Unless the agreement provides otherwise, the debtor will be liable to the pledgee.
When pledging a right certified by a security, the paper itself is transferred to the pledgee for storage or to a notary’s office. Unless otherwise stipulated in the contract or by law, the proceeds from securities belong to the pledger.
It should be noted that the pledge of securities rights is registered in the Central Depository of the Republic of Uzbekistan (law of the Republic of Uzbekistan dated 03.06.15 No. ZRU-387).
A chattel mortgage arises on the basis of a mortgage agreement or on the basis of a law.
In the case of a chattel mortgage established as security for the performance of an obligation under a loan agreement or credit agreement, such mortgage also ensures the payment of interest for the use of the loan. And also, unless otherwise stipulated in the contract, provides for the payment of losses, penalties, court costs, expenses for the sale of the pledged property, as well as other expenses.
The chattel mortgage agreement must always be notarized (except for the chattel mortgage agreement when purchasing real estate on the primary market) and is subject to state registration (paragraph 54 of Annex 1 to the Decree of the Cabinet of Ministers of the Republic of Uzbekistan dated 29.12.18 No. 1060). The chattel mortgage agreement comes into force and is considered concluded only after its state registration.
The grounds for state registration of a chattel mortgage are:
- Basing on contract – a mortgage agreement;
- Basing on law – a loan agreement or credit agreement that leads to the emergence of a mortgage.
The basis for foreclosure on the mortgaged property under the chattel mortgage agreement may be non-performance or improper performance of the obligation secured by the mortgage. Namely, non-payment or late payment of the debt amount in full or in part. However, the chattel mortgage agreement may provide otherwise (law of the Republic of Uzbekistan dated 04.10.06 No. ZRU-58 “On chattel mortgage”).
Under the surety agreement, the surety (third party) is obligated to be liable to the creditor of another person for the latter’s performance of the obligation in full or in part. Such an agreement must be concluded in writing, otherwise it will be declared invalid (paragraph 4 of the Civil Code of the Republic of Uzbekistan).
A surety agreement is concluded between the surety, the creditor and the debtor. It should be noted that the creditor has the right to make its claims both to the surety and to the debtor, separately and jointly. Responsibility cannot be assigned only to the surety or only to the debtor, they must be jointly and severally liable to the creditor (paragraph 30 of the resolution of the Joint Plenum of the Supreme court and the Supreme court of the Republic of Uzbekistan on 22.12.06 No. 13/150).
The surety has the right to raise objections to the creditor’s claim, regardless of whether the debtor has recognized the debt under the main obligation or refused any objections to the creditor’s claims.
Moreover, unless otherwise stipulated by the contract or law, the surety who has fulfilled the obligation receives the rights of the creditor under this obligation (to the extent that it has fulfilled). This means that in this case the surety can make claims against the debtor.
In addition, the debtor who has fulfilled the obligation must notify the surety of this. In case of non-compliance with this rule, if the surety fulfills the obligation after the debtor, he has the right either to make recourse claims against the debtor, or to recover from the creditor what was unreasonably received.
Also, if the main obligation is changed and thereby entails an increase in liability or other adverse consequence for the surety, the surety is terminated from the moment of making such a change (Resolution of the Joint Plenum of the Supreme court and the Supreme court of the Republic of Uzbekistan No. 13/150 of 22.12.06).
It has become a common practice to use insurance as a security measure for credit and loan obligations. Namely, the Central Bank regulation No. 905 of 02.03.2000 states that the full cost of the loan includes payments “in favor of the insurance company, if the beneficiary under the insurance contract in the event of an insured event is the Bank“. This provision indicates the practice of applying insurance as a measure of securing credit obligations.
Thus, the risk of liability under the loan agreement can be insured. It is important to note that according to article 919 of the Civil Code of the Republic of Uzbekistan, under the contract of insurance of the risk of liability for violation of the contract, the risk of liability can only be insured by the policyholder, otherwise such a contract will be considered null and void. The risk of liability is insured in favor of the party to which the policyholder is liable – in favor of the beneficiary (Bank). Despite the fact that such a contract is concluded in favor of the beneficiary, the policyholder must fulfill the obligations under this contract. Namely, there are legal obligations, such as, for instance, to infrom the insurer of all circumstances that are essential for risk assessment.