Ukraine

Law on Securing Creditors’ Claims and Registration of Encumbrances

(entered into force on 1 January 2004)

Important Disclaimer This does not constitute an official translation and the translator cannot be held responsible for any inaccuracy or omission in the translation. The text should be used for information purposes only and appropriate legal advice should be sought as and when appropriate.

Chapter I – General Provisions Article 1 - Scope of the Law This Law shall establish a legal regime for regulation of encumbrances imposed on movable property to secure performance of obligations as well as legal treatment for creation, publicity and enforcement of other rights of legal entities and individuals in relation to movable property. Article 2 - Definitions For the purpose of this Law, the terms below shall have the following meanings:

“debtor” shall mean a person, who must perform in an encumbrancer’s favor an obligation secured with encumbrance, or a property guarantor under such an obligation; a person who has possession of property belonging to an encumbrancer; a person who must perform in encumbrancer’s favor an obligation under a contract giving rise to contractual encumbrance; assigner of a claim that is subject to encumbrance; “authorized agency” shall mean a governmental authority or an officer thereof that is vested by law with powers to impose encumbrances upon movable property owned by a legal entity or an individual;

“encumbrancer” shall mean an authorized agency in case of a public encumbrance; a creditor under an obligation secured with movable property; an owner of movable property possessed by a debtor; any other person for whose benefit a contractual encumbrance has been imposed; a person who manages movable property in the interests of a creditor;

“priority” shall mean a preferential right of an encumbrancer with respect to a right of another person to the same movable property;

“higher priority” shall mean a preferential priority of one encumbrancer in respect of another encumbrancer’s priority to satisfy its rights or claims against the same movable property;

“lower priority” shall mean one encumbrancer’s priority that is subordinated to another encumbrancer’s priority to have its rights or claims satisfied against the same of movable property;

“movable property” shall mean a separate movable thing, a totality of movable things, money, foreign currency valuables, securities, as well as property rights and obligations;

“seizure of an object of encumbrance” shall mean undertaking by an encumbrancer of measures envisaged by law against an object of encumbrance for satisfaction of his rights or claims resulting from the substance of a encumbrance’;

“court decision” shall mean a decision, decree, and order of a court, a commercial court, an arbitration tribunal, a foreign court or arbitration.

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Chapter ІІ - Encumbrance of Movable Property Article 3 - Definition of Encumbrance Encumbrance shall constitute any right of an encumbrancer to a debtor’s movable property or limitation of the right of a debtor or an encumbrancer to movable property arising from law, contract, court decision or resulting from other actions of individuals or legal entities, with which the law associates creation of rights and obligations with respect to movable property.

Under encumbrance, an encumbrancer and a debtor shall assume rights and obligations specified by law and/or contract.

Law shall prescribe requirements to a legal deed giving rise to encumbrance.

Article 4 - Types of Encumbrances Encumbrances can be public or private.

Public encumbrance shall be an encumbrance of movable property that is created pursuant to law or a court decision. Private encumbrances can be secured or other contractual encumbrances. Secured encumbrance shall be an encumbrance created in order to secure performance of an obligation of a debtor or a third person to an encumbrancer. Other contractual encumbrances shall be encumbrances not referred to as secured or public and created as a result of transfer of movable property belonging to an encumbrancer into a debtor’s possession, or on other grounds that limit the right of an encumbrancer or a debtor to dispose movable property. Article 5 - Object of Encumbrance Any movable property, which is not removed from civil turnover and may be seized pursuant to law, can be an object of encumbrance. Depending on a nature of encumbrance, an object of encumbrance must belong to a debtor or an encumbrancer as ownership or on the right of commercial management. If movable property is held by a person on the right of commercial management, these relations shall be treated on the same grounds as if this property belongs to this person as ownership.

When capacity to dispose the movable property is subject to another person’s consent, the same consent is required in order to encumbrance such movable property.

Movable property that will be owned by a debtor in the future may be an object of encumbrance.

Movable property may be an object of several encumbrances, unless otherwise provided by law or a legal deed, establishing the prior registered encumbrance. A contract establishing a private encumbrance cannot prohibit creation of a public encumbrance.

Article 6 - Scope of Encumbrance Unless otherwise provided by law or contract, encumbrance shall extend to:

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1) inseparable accessories of a movable thing being an object of encumbrance; 2) products, fruits and incomes that are manufactured, extracted or received from use of an

object of encumbrance; 3) any movable property that is a substitute for initial object of encumbrance and which can

be identified as such; 4) proceeds from alienation of an object of encumbrance if they can be identified as such; 5) insurance proceeds received upon occurrence of an insurance accident with respect to an

object of encumbrance, in case such an object is due to insurance pursuant to law or a contract; or any other reimbursements obtained by a debtor as a result of seizure or loss of an object of encumbrance.

Unless otherwise provided by law or contract, the right under encumbrance shall be transferred to a third party, who has performed the debtor’s obligation under the obligation secured by movable property. Article 7 - Description of an Object of Encumbrance A legal deed pursuant to which or in connection with which encumbrance is established shall contain a description of an object of encumbrance. If no description of an object of encumbrance is available or an existing description does not allow identifying an object of encumbrance, such encumbrance shall be void.

If an object of encumbrance is an individual object, its description shall be made on the basis of its individual characteristics. If an object of encumbrance is a universality of objects of movable property, its description can also be made on the basis of generic characteristics. In both cases description of an object of encumbrance shall be sufficient to permit for identification of movable property as an object of encumbrance.

A description of an object of encumbrance on the basis of its generic characteristics may, among others, indicate the following:

1) all existing or future assets of movable property or a separate type of movable property

of a certain person;

2) all or a separate part of inventory of a subject of entrepreneurial activity;

3) accounts receivable of a subject of entrepreneurial activity. Article 8 - Use and Preservation of an Object of Encumbrance

Unless otherwise provided by law or legal deed that served as a ground for creating encumbrance, a debtor in possession of an object of encumbrance shall be entitled to use it for the designated purposes as well as receive products, fruits and incomes from an object of encumbrance. While using an object of encumbrance, a debtor shall prevent deterioration of its state or ungrounded decrease in its value to be beyond its depreciation rate.

A debtor shall timely notify an encumbrancer about any danger of loss, damage, wreckage or deterioration of an object of encumbrance. In the event when a debtor is found guilty of loss, damage, wreckage, deterioration of state or shortage of an object of encumbrance, a debtor shall

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renew or replace it at his own expense. If a debtor failed to renew or replace an object of encumbrance, an encumbrancer shall have the right to claim the compensation for losses incurred and/or early performance of the obligation secured by encumbrance.

At any time within the term of encumbrance and subject to prior written notification of a debtor, an encumbrancer shall have the right to conduct off-site or on-site inspection of the availability, state, conditions of preservation and use of an object of encumbrance.

If an object of encumbrance is owned by a debtor and, in accordance with contractual terms, has been transferred into possession of an encumbrancer, the latter shall take measures to ensure proper preservation of an object of encumbrance. In this case an encumbrancer shall be entitled to use an object of encumbrance in accordance with terms of relevant contract. Unless otherwise stipulated by an agreement, an encumbrancer shall be also entitled to receive products, fruits and incomes from an object of encumbrance, which shall be accounted as debtor’s performance of an obligation, secured by encumbrance.

Article 9 - Alienation of an Object of Encumbrance

An object of encumbrance owned by a debtor can be alienated by the latter, unless otherwise provided by law or a contract. If law or a contract require the encumbrancer’s consent for alienation by a debtor of movable property being an object of encumbrance, such consent is not required if ownership right to movable property is transferred by virtue of inheritance, legal succession or allotment of a part in joint property.

In case of alienation of an object of encumbrance by a debtor, he/she shall immediately and in writing notify an encumbrancer thereof. An encumbrancer shall within five days upon receipt of such notice register relevant changes in the data about encumbrance pursuant to Article 13 of this Law.

Unless otherwise provided by law, registered encumbrance shall remain valid for the new owner (purchaser) of movable property being an object of encumbrance, except for the following cases:

1) an encumbrancer gave his consent for alienation of movable property by a debtor without preservation of encumbrance;

2) alienation of movable property owned by a debtor is carried out within his ordinary course of business, which reprsent systematic sale and purchase transactions or other methods of alienation of given category of movable property.

Article 10 - Alienation of Movable Property or Transfer thereof as Collateral by a Debtor who did not have the Right to do so In the event of alienation of movable property by a debtor, who did not have a right to alienate it, a person, who has acquired such property under a contract tp which a value ws given, shall be deemed to be a bona fide purchaser pursuant to Article 388 of the Civil Code of Ukraine, provided that the State Registry of Encumbrances of Movable Property (hereinafter referred to as the “State Registry”) contains no data on encumbrance of the respective movable property. The bona fide purchaser shall acquire ownership right to such movable property free of any unregistered encumbrances.

In the event of transfer of movable property as collateral by a debtor, who did not have a right to do so, such collateral shall be effective if the State Registry does not contain any data on previous encumbrance of respective movable property.

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An encumbrancer, whose rights have been violated as a result of the debtor’s actions specified in this Article, shall be entitled to claim the debtor to reimburse for losses caused. Chapter ІІІ - Registration and Priority of Encumbrances Article 11 - Registration of Encumbrances Encumbrances of movable property shall be registered in the State Registry in accordance with procedures established by this Law. Article 12 - Legal Effect of Registration of Encumbrance Unless otherwise provided by law, mutual rights and obligations under legal deed that created an encumbrance shall become effective in relations between an encumbrancer and a debtor on the day this legal deed entered into force. Registration of encumbrance makes a relevant encumbrance opposable against third parties, unless otherwise stipulated by this Law. A non-registered encumbrance shall be valid in relations between a encumbrancee and a debtor, but it is not opposable against third parties, unless otherwise stipulated by this Law.

Registration shall constitute a ground for establishing priority of encumbrance, unless other grounds for establishment of a priority are stipulated by this Law. Satisfaction of rights or claims of several encumbrancers, in whose favor encumbrances in the same movable property were established, shall be made in accordance with priority ranking to be determined per the procedure established by this Law.

Article 13 - Changes of Data about Encumbrance Changes of data about registered encumbrance shall be registered pursuant to the procedures established by this Law under condition that such changes are related to:

1) replacement of an object of encumbrance or any change in composition of an object of

encumbrance, including those that occurred as a result of processing, accession, separation, detachment or other type of transformation of one type of movable property into another;

2) change of an encumbrancer resulting from an assignment of rights under legal deed that created encumbrance or due to other grounds;

3) change of a debtor resulting from the transfer of an object of encumbrance to a new owner per the procedure established byArticle 9 of this Law or due to other grounds;

4) change in substance or value of an obligation secured by encumbrance;

5) assignment of priority in the same movable property from one encumbrancer to another.

An encumbrancer shall register change of data about a registered encumbrance within five days from the date when legal deed that constituted grounds for such changes entered in effect. A debtor or other persons whose rights were infringed as a result of failure to perform this obligation shall have the right to claim from an encumbrancer compensation for losses incurred.

If change of data about encumbrance occurred upon the debtor’s initiative and without an encumbrancer’s knowledge, an encumbrancer shall register such change of data within 5 days upon receipt of a debtor’s written notice of the respective change. If such notice was not received by an encumbrancer, he/she shall not be liable for absence of registration of change in data about encumbrance.

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Article 14 - Priority of Encumbrance Determined on the Basis of Registration Unless otherwise provided in this Law, a registered encumbrance shall enjoy a higher priority over non-registered encumbrances. The priority of registered encumbrances shall rank in the order of their registration, subject to exclusions specified in this Law. Encumbrancers, who have registered encumbrances simultaneously in the same movable property, shall have equal rights for satisfaction of their rights or claims.

An encumbrancer with higher priority shall enjoy a preferential right to enforce against an object of encumbrance. If under law an encumbrancer has a right to retain movable property of a debtor in order to secure its claim, the priority of such right shall rank as of the date of its registration. If the right to retain movable property has not been registered, such right shall have no priority over registered encumbrances, but shall have a higher priority over non-registered encumbrances. Article 15 - Priority of Encumbrances of Movable Things Being the Object of Purchase and Sale on Credit An encumbrancer (seller) of movable things, which are subject to sale and purchase on credit with deferred payment arrangements or payment by installments, shall obtain priority as of the date of registration of this encumbrance. Such encumbrance shall have higher priority over any other encumbrances of the debtor’s property imposed in favor of the other encumbrancers even if such encumbrances were registered earlier. Priority rule set up in this Article shall apply under condition that encumbrance imposed by a seller of goods on credit has been registered within 5 days following the date of the sale, and the respective encumbrancer has served within a said period a written notice about his higher priority to all registered encumbrancers of the debtor’s property. Article 16 - Priority of Encumbrances Created as a Result of Transfer of Rights to Securities

Priority of encumbrances that were created by an assignment of rights under debt securities or documents of title, including bonds, promissory notes, mortgage notes, warehouse receipts, bills of lading, shall be determined by the moment of its registration, unless respective rights were granted to an encumbrancer by transferring such securities into his possession.

If rights were assigned by transfer of such securities into encumbrancer’s possession, priority of such encumbrance shall rank as of the moment of such transfer into encumbrancer’s possession, and this encumbrance is opposable against third parties without need to register. In this case an encumbrancer shall have higher priority over all other encumbrances, including those that have been previously registered.

Encumbrances over registered securities issued in documentary or electronic book-entry form shall become effective and their priority shall rank as of the moment when the respective entry has been made to the register of owners of securities maintained by an authorized registrar or custodian.

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Article 17 - Registration and Priority of Encumbrances in Future Movable Property of a Debtor Encumbrance of movable property, which will become ownership of a debtor in the future, can be registered at discretion of an encumbrancer at any time following entry into force of a legal deed that gave rise to this encumbrance. Priority of encumbrance in future property shall rank as of the moment of registration, but such encumbrance shall become effective in relations with third parties as of the moment when a debtor obtained a title to respective movable property. Article 18 - Registration and Priority of Encumbrance in whole Property Unit of an Enterprise Encumbrance in a property that constitutes the whole property unit of an enterprise shall be registered in the State Registry of Rights in Immovable Property. Priority of this encumbrance shall be determined pursuant to rules envisaged by law for ranking of priority of rights in real estate. Article 19 - Priority of Encumbrances in Movable Property that undergone Transformation

If, after registration of encumbrance, respective movable property was transformed into another type of movable property with different characteristics as a result of processing, accession, separation, detachment or any other method of transformation, encumbrance of initial movable property shall extend to movable property resulted from such transformation or movable property, the part of which it became, subject to registration of change of data about encumbrance according to the procedure, stipulated in Article 13 of this Law. Priority of such encumbrance shall rank as of the moment of registration of respective changes on data about encumbrance.

If after registration of encumbrance respective movable property as a result of accession became a non-detachable part of real estate, encumbrance of movable property shall be terminated. In this case an encumbrancer shall be entitled, on the ground of a legal deed that created encumbrance of movable property, to register on the same terms in the register of rights in immovable property an encumbrance of respective real estate, to which a movable property that was used as initial object of encumbrance was attached. Priority of such encumbrance shall rank as of the moment of registration in the state register of rights in immovable property. Article 20 - Assignment of Priority

If an encumbrancer assigned its rights under legal deed that created an encumbrance, the assignee shall acquire all assigned rights in an object of encumbrance, including established priority, provided that the data on change of an encumbrancer are registered in the State Register within five days after assignment.

An encumbrancer with higher priority shall have the right to assign his/her priority to a lower-ranking encumbrancer, provided such assignment does not cause damage to another registered encumbrancer and a relevant change of data about encumbrance is registered within five days after a day when priority was assigned.

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Chapter ІV - Secured Encumbrances Article 21 - Types of secured encumbrances Secured encumbrances shall include:

1) pledge of movable property established by a contract in accordance with Paragraph 6,

Chapter 49 of the Civil Code of Ukraine; 2) pledge right for movable property in accordance with Article 694 of the Civil Code of

Ukraine; 3) right of retention of movable property in accordance with Paragraph 7, Chapter 49 of the

Civil Code of Ukraine; 4) other encumbrances in movable property that can be qualified as secured.

Contents of certain types of secured encumbrances shall be specified by law and/or contract. Article 22 - Claims secured with Encumbrances Encumbrance may secure a debtor’s performance of an existing claim or a claim that may arise in the future. Anencumbrancerand a debtor must reach an agreement as to the maximum value of the claim secured with the encumbrance. An encumbrancer shall be entitled to satisfy its claim under the obligation secured by encumbrance in full or partially as provided by the contract. The value of a claim secured by encumbrance shall be determined as of the date of satisfaction of such claim, and shall include:

1) reimbursement of expenses related to claim and enforcement against the object of

encumbrance;

2) payment of interest and penalties;

3) payment of principal amount of a debt;

4) reimbursement of losses caused by debtor’s breach of secured obligation or terms of encumbrance;

5) reimbursement of encumbrancer’s expenses related to maintenance and preservation of an object of encumbrance.

If a debtor and an encumbrancer have reached an agreement as to increase of maximum value of the claim secured by encumbrance, such an increase shall be subordinated to the priority of another encumbrance registered prior to the registration of data about change of the value of an obligation secured by encumbrance. Article 23 - Rights of an Encumbrancer under Secured Encumbrance Pursuant to secured encumbrance, an encumbrancer shall be entitled, in the event of a debtor’s default on an obligation secured by encumbrance or breach of a contract giving rise to secured

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encumbrance, to receive satisfaction of its claim at the expense of an object of encumbrance according to priority rankings.

In the event of assignment of a claim secured by encumbrance, the assignee shall be entitled to all rights of the initial encumbrancer with respect to an object of encumbrance.

Irrespective of maturity of a claim, an encumbrancer shall be entitled to request performance of a claim secured by encumbrance in the following cases:

1) the other person has acquired a right to enforce against an object of encumbrance;

2) initiation of proceedings to restore the debtor’s solvency or to declare it bankrupt;

3) decision has been taken to liquidate the legal entity, whose movable property is an

object of secured encumbrance.

If an object of secured encumbrance consists of two or more movable property items, an encumbrancer shall be entitled to receive satisfaction of its claim for account of such number of items as might be sufficient to satisfy in full secured claim. In such case, an encumbrancer shall independently select the movable property to be seized. Article 24 - Enforcement against an Object of Secured Encumbrance Enforcement against an object of secured encumbrance shall be performed either pursuant to a court decision under procedures provided by law or using extrajudicial remedies provided for in this Law. Use of extrajudicial remedies shall not prevent a debtor, an encumbrancer or third parties to undertake court action. An encumbrancer, who initiates enforcement, shall be obliged to register information on initiation of enforcement procedure in the State Registry prior to it’s commencement. Article 25 - Sale of an Object of Secured Encumbrance pursuant to a Court Decision An encumbrancer, who starts a court action aimed to enforce against an object of secured encumbrance, shall be obliged to notify in writing all registered encumbrancers of the same movable property about commencement of this court proceeding prior to filing respective claim to the court. If the court satisfies the encumbrancer’s claim and enforces against an object of secured encumbrance, the court decision shall state the following:

1) total value of claims and all its components to be paid to the encumbrancer from the value

of an object of secured encumbrance; 2) description of movable property at the expense thereof the encumbrabcer’s claims are

subject to enforcement; 3) measures aimed to ensure preservation of an object of secured encumbrance or to transfer

it in management for a period until it is sold, if such measures are needed;

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4) a method of sale of an object of secured encumbrance whether through public auction or

according to one of the procedures as specified in Article 26 of this Law; 5) priority and value of the other claims of registered encumbrancers in whose favor a

registered encumbrance is established and is due to satisfaction from the value of secured encumbrance;

6) initial price for sale of an object of secured encumbrance at public auction held under

executive procedures.

Unless otherwise specified in the court decision, an object of secured encumbrance shall be sold at public auction per the procedure as prescribed by law.

At any time before the date of sale of an object of secured encumbrance at public auction, a debtor shall be entitled to perform in full the encumbrancer’s secured claim together with reimbursement for the expenses incurred by an encumbrancer in connection with a claim and preparation for public auction. Such performance shall serve as a ground for termination of sale proceeding of an obkject of secured encumbrance through public auction. Article 26 - Extrajudicial Remedies of Seizure of an Object of Secured Encumbrance An encumbrancer shall be entitled at its own discretion to select one of the following extrajudicial remedies, which might be used to seize an object of secured encumbrance:

1) transfer of movable property being an object of secured encumbrance into

encumbrancer’s ownership for account of performance of secured obligation pursuant to the terms of this Law;

2) sale by an encumbrancer of an object of secured encumbrance either by entering

purchase and sale contract with any purchaser or at a public auction; 3) in case a right of monetary claim is an object of secured encumbrance - assignment to an

encumbrancer of a right to receive satisfaction on such claim; 4) in case cash or securities are an object of encumbrance - transfer to an encumbrancer of a

corresponding cash value, including under contractual write-off procedures.

In case the movable property being an object of a few encumbrances is seized, an encumbrancer with higher priority shall have preferential right to seizure. In case seizure is initiated by an encumbrancer with lower priority, within 30 days following the date of initiation thereof an encumbrancer with higher priority shall be entitled, by sending written notice, to terminate the seizure initiated by an encumbrancer with lower priority and to initiate its own. Article 27 - Notification of Default Unless otherwise provided in this Law, an encumbrancer that intends to seize an object of secured encumbrance using extrajudicial remedies shall serve written notice of default on secured obligation to the debtor and to all other registered encumbrancers. This notice shall be sent simultaneously with the registration in the State Registry of data on initiation of enforcement.

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The notice shall contain the following information:

1) description of a default committed by a debtor;

2) total value of the secured claim, which was not dully performed by a debtor;

3) description of an object of secured encumbrance;

4) reference to the right of the other registered encumbrancer to perform a default obligation of

a debtor prior to sale of an object of secured encumbrance or prior to transfer of ownership thereto to an encumbrancer;

5) definition of an extrajudicial remedy to seize the object of secured encumbrance that an

encumbrancer intends to use;

6) request to a debtor either to perform an obligation in default or to transfer an object of secured encumbrance into the encumbrancer’s possession within 30 days following the registration in the State Registry of information on initiation of enforcement.

Article 28 - Legal Effect of Non-compliance with Encumbrancer’s Claim Enforcement against an object of secured encumbrance may be terminated by a debtor or a third party through performance of secured obligation in default or the part in delay thereof together with reimbursement to an encumbrancer of the expenses born in connection with a claim and/or enforcement. Such performance can be done at any time prior to the date of sale by an encumbrancer of an object of secured encumbrance or prior to transfer of ownership thereto to an encumbrancer. In such case, an encumbrancer shall not be entitled to claim payment of any other amounts in excess from the debtor or any other person who has performed secured obligation in default.

If within 30 days after registration of data on initiation of enforcement in the State Registry a secured obligation in default remains non-performed and in case an object of secured encumbrance is in the debtor’s possession, the latter shall pass immediately at the encumbrancer’s request an object of encumbrance into encumbrancer’s possession. Untill enforcement is completed an encumbrancer shall undertake measures aimed to preserve respective movable property in accordance with requirements specified in Article 8 of this Law. If a debtor in possession of an object of secured encumbrance failed to pass it in the encumbrancer’s possession, enforcement shall be effected based on court decision. Article 29 - Transfer to an Encumbrancer of Ownership to an Object of Secured Encumbrance Unless otherwise provided by law or contract, upon receipt of an object of encumbrance into possession an encumbrancer shall have a right to satisfy its claim under secured obligation by acquisition of ownership to an object of secured encumbrance. In such case, an encumbrancer pursuant to Article 27 of this Law shall serve a notice to a debtor and other registered encumbrancers of respective movable property about intention to acquire ownership to an object of secured encumbrance.

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Within 30-days period specified in part two, Article 28 of this Law a debtor or other registered encumbrancers may object against transfer of ownership to an encumbrancer who initiates enforcement. Such objection shall be delivered in writing to an encumbrancer that initiates enforcement and to the other registered encumbrancers. Under such circumstances an encumbrancer that initiates enforcement must satisfy its secured claim by selling an object of secured encumbrance per the procedure specified in Article 30 of this Law.

If an objection against transfer of ownership has come from another registered encumbrancer, an encumbrancer that initiates enforcement can acquire ownership to an object of secured encumbrance only in case if he satisfies secured claim of an encumbrancer that objects. If an objection has come from a debtor, an encumbrancer may get ownership to an object of secured encumbrance only pursuant to a court decision.

If an encumbrancer has acquired ownership to an object of secured encumbrance, respective secured obligation shall be deemed to have been paid in full, and an encumbrancer shall not raise any additional claims to a debtor in connection with performance of this obligation. If an encumbrancer has acquired ownership to an object of secured encumbrance, all encumbrances of respective movable property with higher priority shall remain effective and encumbrances with lower priority shall terminate. Article 30 - Encumbrancer’s Right to Sell an Object of Secured Encumbrance An encumbrancer shall have a right to satisfy its claim under secured obligation through sale of an object of secured encumbrance to any third person. In such case, an encumbrancer shall be obliged pursuant to Article 27 of this Law to serve a notice to a debtor and other registered encumbrancers of respective movable property of its intention to exercise such a right, specifying selected method of sale, place and time of sale. An encumbrancer shall be entitled to sell an object of encumbrance toany other person – purchaser or through a public auction.

Another registered encumbrancer shall be entitled to preferential right to purchase an object of secured encumbrance, provided that such encumbrancer has served within a period specified in Article 28 of this Law a written notice to an encumbrancer who initiates enforcement of its intention to purchase respective movable property. If such notices have come from several encumbrancers, an encumbrancer with higher priority shall be entitled to purchase respective property. Purchase price of an object of secured encumbrance for any encumbrancer must not be lower than the price offered by any third person in the course of sale proceeding.

If an encumbrancer intended to purchase an object of secured encumbrance does not take actions to enter into purchase contract within 5 days after the date of sale, the right to purchase shall belong to another encumbrancer, who has declared his intention to purchase, in accordance with his priority. Such an encumbrancer shall also be granted a 5-days period to enter into a purchase contract, breach of which shall deprive this encumbrancer of the right to purchase.

If registered encumbrancers did not enjoy their right to purchase an object of secured encumbrance, an encumbrancer who initiates enforcement shall sell an object of secured encumbrance to any person who offered the highest price.

Purchase and sale contract shall be entered by an encumbrancer on behalf of a debtor and shall serve as a legal ground for a purchaser to obtain ownership right to respective movable property.

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A purchaser shall obtain ownership right to respective movable property free of any secured or public encumbrances as well as contractual encumbrances with lower priority.

Within 10 days of the date of sale an encumbrancer-seller shall serve written report on results of sale to a debtor and other registered encumbrancers. Article 31 - Distribution of Proceeds from Sale of an Object of Secured Encumbrance An encumbrancer shall distribute proceeds from sale of an object of secured encumbrance in the following order of priority:

1) reimbursement of expenses related to arrangement of sale; 2) satisfaction of secured claims of encumbrancers with higher priority; 3) satisfaction of its own secured claim; 4) satisfaction of secured claims of encumbrancers with lower priority; 5) excess is credited to a debtor.

Sale of an object of encumbrance shall be a legal ground for termination of all existing secured and public encumbrances in respective movable property as well as of contractual encumbrances with lower priority.

Rules set out in this Article shall also apply in case of sale an object of secured encumbrance at public auction based on court decision. Article 32 - Enforcement against Receivables Being an Object of Secured Encumbrance If receivables are an object of secured encumbrance, enforcement shall be made by assignment to an encumbrancer of respective right. Pursuant to Article 27 of this Law an encumbrancer shall serve a notice to a debtor and other encumbrancers of such receivables of its intention to have assignment made in his favour. Within a period specified in part two Article 28 of this Law other registered encumbrancers may notify in written an encumbrancer, who initiates enforcement, of their intention to obtain satisfaction of their claims secured with an encumbrance for account of an object of secured encumbrance. Following the term specified in part two Article 28 of this Law an encumbrancer with higher priority, who has expressed an intention to enforce against an object of secured encumbrance, shall provide written notice to all persons who are to pay the debtor’s debt being an object of secured encumbrance. This document shall contain:

1) notification of assignment of respective debt;

2) reference to the ground for assignment of a debt to an encumbrancer;

3) registration number of secured encumbrance;

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4) data about an encumbrancer, including name, address and bank account;

5) request to pay a debt to an encumbrancer;

6) ranking of priority of other registered encumbrancers, whose claims must be paid out of the same receivables.

As of the date of delivery of the said notice, an encumbrancer with higher priority shall be deemed to be a creditor in obligation, debt whereby was assigned to him. An encumbrancer shall enjoy creditor’s rights under such obligation until its claim secured with encumbrance has been fully paid. Within 5 days after being fully paid an encumbrancer shall provide a report on all payments received to a debtor and all other encumbrancers who have expressed intentions to enforce against given receivables. Cash proceeds that exceed the value of secured claim of an encumbrance shall be transferred to other encumbrancers in accordance with their priority ranking for payment of their secured claims. If there are no such encumbrancers, the balance must be credited to a debtor within the said 5-days period.

If secured claim has been fully paid, and provided compliance with requirements specified in part 3 of this Article, respective receivables shall be deemed to have been assigned to other encumbrancers, who have expressed their intention to enforce against such receivables, in accordance with ranking of their priorities. If there are no such encumbrancers, the given receivables shall be assigned back to a debtor. Article 33 - Enforcement against Money or Securities Being an Object of Secured Encumbrance Requirements set out in Article 27 of this Law shall not apply in the event of enforcement against an object of secured encumbrance that represents either money or debt instruments with due maturity or payable on demand. An encumbrancer, who enforces against such object shall be obliged to serve a notice thereof to a debtor and other registered encumbrancers. If an object of secured encumbrance consists of money, encumbrancer’s secured claim shall be paid via transfer to an encumbrancer of cash sum sufficient for payment of the claim in full. Such transfer may be effected by a bank under contractual write-off procedure. If, at the time of enforcement, encumbranced money is in encumbrancer’s possession, and this sum exceeds the value of secured claim, an encumbrancer shall return exceeding amount to a debtor. If an object of secured encumbrance consists of debt instruments, which are in encumbrancer’s lawful possession, provided that such instruments have due maturity or they are paid on demand of a holder, an encumbrancer shall satisfy its secured claim by presenting respective debt instrument for payment. If recovered amount exceeds the value of secured claim, an encumbrancer shall return exceeding amount to a debtor.

Provisions of this Article also may apply in case of enforcement against stock or derivative securities (instruments), which are in the encumbrancer’s possession, provided that they are traded on organized securities market. An encumbrancer shall sell such securities at a price not lower than their market value on organized securities market as of the date of sale. If an encumbrancer has not sold such securities within two trading days as of the date of notice

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specified in part 1 of this Article, an encumbrancer shall lose the right to sell such securities pursuant to the terms of this Article. Chapter V – Other Contractual Encumbrances Article 34 - Types of Contractual Encumbrances Contractual encumbrances shall include:

1) transfer of movable property to an agent or a broker under an agency contract or a

brokerage contract (consignments); 2) transfer of movable property by an owner into other person’s timely possession and use,

including under a hire contract (rent, leasing etc); 3) transfer of movable property into management, if property management contract

prohibits a manager to alienate such property; 4) purchase and sale of movable property with a right or an obligation of redemption; 5) purchase and sale of movable property under conditions described in Article 697 of the

Civil Code of Ukraine; 6) an obligation of a debtor to transfer ownership to movable property to an encumbrancer,

provided that a certain event occurs in the future;

7) assignment of claim right;

8) other encumbrances in movable property that are qualified as contractual.

Procedures for entering into as well as the content of certain types of contractual encumbrances shall be prescribed by law and/or contract. Article 35 - Rights of a Debtor under Contractual Encumbrances If enforcement has been made against movable property under any other encumbrance with lower priority, registered contractual encumbrance of this movable property with a higher priority shall enable a debtor to enjoy the same rights with respect to such movable property as this debtor had in accordance with the contract, on the basis of which the contractual encumbrance was created. In case of enforcement against movable property under public or secured encumbrance with lower priority, contractual encumbrance with higher priority shall remain effective and ownership right to respective movable property shall be transferred to a new owner being encumbered by such contractual encumbrance. Article 36 - Encumbrancer’s Rights under Contractual Encumbrances Encumbrance under a contract, which provides for a transfer of movable property owned by an encumbrancer into debtor’s possession, shall entitle an encumbrancer to vindicate respective movable property from debtor’s possession if such debtor is in a default of obligations under this

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contract. An encumbrancer shall also be entitled to vindicate movable property from debtor’s possession under a contract that stipulates debtor’s obligation to transfer ownership to movable property to an encumbrancer if certain event occurs in the future.

If in accordance with sale contract with a right or an obligation of redemption or conditional sale contract an object of encumbrance appeared to be in encumbrancer’s possession, and in case of debtor’s default under such contracts, an encumbrancer shall be entitled to refuse to transfer to a debtor ownership right to an object of encumbrance. Rights of an encumbrancer under parts 1–2 of this Article shall be exercised subject to requirements specified in Articles 27 and 28 of this Law. If a debtor has assigned its right of claim and such assignment has been registered, any legal deed of a debtor intended for subsequent assignment of this right shall be null and void. Chapter VІ - Public Encumbrances Article 37 - Types of Public Encumbrances Public encumbrances shall include:

1) tax lien;

2) lien on movable property based on court decision for securing civil lawsuit or in case

of initiation bankruptcy proceedings against an individual – entrepreneur;

3) seizure of movable property pursuant to court decision intended to satisfy creditor’s unsecured claims;

4) pledge of movable property pursuant to Article 1541 of Ukrainian Code on Criminal

Procedure;

5) arrest of movable property pursuant to resolutions of authorized agencies as and when specified by law;

6) other encumbrances in movable property that are qualified as public.

Procedures for entering into and content of particular types of public encumbrances shall be prescribed by law. Public encumbrance shall become effective as of the date of its registration in the State Registry. Article 38 - Rights under Public Encumbrance An authorized agency shall be an encumbrancer under a public encumbrance. Rights and duties of persons related to public encumbrances shall be prescribed by law.

Unless otherwise provided by law and it does not contradict to the substance of public encumbrance, an encumbrancer under pubic encumbrance or any beneficiary under public encumbrance shall enjoy rights specified in Article 23 of this Law for encumbrancers under secured encumbrances.

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If movable property being an object of public encumbranc, is also subject to other encumbrances, encumbrancer’s or other beneficiary’s rights under public encumbrance shall be satisfied in the order of priorities of such encumbrances.

If an object of public encumbrance consists of two or more items, an encumbrancer shall enforce against such number of items that are sufficient for full satisfaction of secured claim. In such case an encumbrancer shall independently select the movable property to be seized. Article 39 - Registration and Priority of Public Encumbrance Public encumbrance shall be subject to registration in accordance with procedures specified in this Law within 5 days upon adoption of a relevant resolution that serves as a basis for creation of this encumbrance. Duty to accomplish registration shall belong to the authorized agency or a person specified in the respective resolution of the authorized agency. Priority of public encumbrance shall be determined as of the date of its registration. Registered public encumbrances shall have no priority over encumbrances in the same movable property, which were registered prior to the date of registration of public encumbrance, as well as over encumbrances that have higher priority in accordance with rules set out in Chapter ІІІ of this Law. Article 40 - Enforcement against an Object of Public Encumbrance Enforcement against an object of public encumbrance shall be made in accordance with procedures provided by law. If another encumbrance with higher priority was registered in respect to an object of public encumbrance, an encumbrancer or beneficiary of public encumbrance must serve written notice to an encumbrancer with higher priority of initiation of enforcement under pubic encumbrance pursuant to Article 27 of this Law. In such case an encumbrancer with higher priority shall have a preferential right to take control of enforcement in accordance with provisions of Chapter IV of this Law. Article 41 - Termination of Public Encumbrance Public encumbrance shall terminate pursuant to authorized agency resolution as of the date of entry into force of such resolution. Public encumbrance shall also terminate as a result of exercise of rights arising out of public encumbrance. Information on termination of public encumbrance shall be subject to registration within 5 days as of the date of termination. Duty to register the information on termination of public encumbrance shall be imposed on authorized agency or a person designated by it. Authorized agency shall bear liability according to law for violation of a duty to register information on termination of public encumbrance.

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Chapter VIІ - State Registry of Encumbrances in Movable Property Article 42 - Holder of the State Registry Authorized central agency of executive power shall be a holder of the State Registry. Procedures for the State Registry keeping shall be defined by the Cabinet of Ministers of Ukraine.

Information on creation, change and termination of encumbrances as well as on enforcement under encumbrances shall be recorded into the State Registry. The information recorded into the State Registry shall be open for any legal entities or individuals.

Holder of the State Registry shall fulfill the following functions:

1) organize keeping of the State Registry;

2) accept applications and record entries into the State Registry on creation, change and

termination of encumbrances as well as on enforcement under encumbrances;

3) ensure free access for any persons to information on encumbrances recorded into the State Registry 24 hours a day, seven days per week;

4) provide abstracts from the State Registry on existence or absence of encumbrances in

movable property;

5) collect payments for recording entries into the State Registry and furnishing extracts from the State Registry.

Under prescribed procedures, the holder of the State Registry may delegate registrator’s functions to other persons who shall provide services related to: recording entries into the State Registry on creation, change and termination of encumbrances as well as on enforcement under encumbrances; furnishing abstracts from the State Registry to any state-owned legal entities. Holder of the State Registry, registrators and their officers shall be liable pursuant to law for violations of the State Registry maintenance procedures, for recordation or furnishing untrue information. Article 43 - Grounds for Recording Entries into the State Registry Encumbrances shall be registered on the basis of an application filed by an encumbrancer, wherein the following shall be indicated:

1) information on a encumbrancee and a debtor:

for legal entities-residents – the name, address and identification code in the Single Registry of Enterprises and Organizations of Ukraine; for legal entities – non-residents – the name, address and the country of incorporation;

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for individuals – Ukrainian citizens – the last name, first name and patronymics, address of permanent residence and the individual identification number in the State Registry of Natural Persons – Payers of Taxes and other Mandatory Payments; for individuals – foreign nationals and persons without citizenship – the last name, first name and patronymics (if any), the address of permanent residence outside Ukraine;

2) reference to a ground of encumbrance creation and content of encumbrance. With respect to

secured encumbrances there shall also be indicated the value of encumbrancer’s claim and the time for its performance. With respect to encumbrance, which was created on the basis of court decision to collect monetary sums, and encumbrance, pursuant to which an arrest is imposed upon movable property to secure a civil lawsuit, there shall be indicated the value of encumbrancer’s claim;

3) description of movable property subject to encumbrance as sufficient for its identification;

4) information on a ban or restriction on debtor’s right to alienate an object of encumbrance.

Holder of the State Registry or registrator shall record entries into the State Registry about information that is contained in the encumbrancer’s application. All entries shall be numbered with registration numbers.

An encumbrancer may at any time register a change in data about encumbrance by filing to the holder of the State Registry or registrator an application that indicates the registration number of an entry, the name of a debtor, identification code of a debtor in the Single State Registry of Enterprises and Organizations of Ukraine or the individual identification number of a debtor in the State Registry of Natural Persons – Payers of Taxes and other Mandatory Payments, and requisite entry details that are subject to change. On the basis of this application, the holder of the State Registry or registrator shall make respective changes to the previous entry on encumbrance.

Information on enforcement against an object of encumbrance pursuant to Article 24 of this Law shall be registered by the holder of the State Registry or registrator on the basis of an application from an encumbrancer that indicates the registration number of an entry, the name of a debtor, identification code of a debtor in the Single State Registry of Enterprises and Organizations of Ukraine or the individual identification number of a debtor in the State Registry of Natural Persons – Payers of Taxes and other Mandatory Payments, and a reference to commencement of enforcement under encumbrance.

Information on termination of encumbrance shall be registered by the holder of the State Registry or registrator on the basis of court decision or an application from an encumbrancer that indicates the registration number of an entry, name of a debtor, identification code of a debtor in the Single State Registry of Enterprises and Organizations of Ukraine or the individual identification number of a debtor in the State Registry of Natural Persons – Payers of Taxes and other Mandatory Payments, and information on termination of encumbrance. Entries on invalidated encumbrances shall be deleted from the State Registry database in six months following the registration of information on terminations of respective encumbrance.

Applications on creation, change and termination of encumbrances as well as on enforcement under encumbrances must be signed by an encumbrancer. If an encumbrancer is a legal entity,

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the signature of its authorized officer shall be attested by seal. If an application is filed in electronic form, it must contain encumbrancer’s electronic signature.

The holder of the State Registry and registrators shall be prohibited to request from applicants to file any additional documents or information, and to verify the authenticity and validity of information contained in applications. An encumbrancer shall bear liability pursuant to law for authenticity of information contained in the application. Article 44 - Procedures for Recording Entries into the State Registry Entries in the State Registry shall be recorded by the holder of the State Registry or registrators within the business day on which an encumbrancer filed an application. The moment of registration of encumbrance shall be the day, hour and minute when the given entry was recorded into the State Registry, and the moment of termination of encumbrance registration shall be the day, hour and minute when information on termination of encumbrance was registered in the State Registry.

Entries shall be kept in the State Registry for five years from the moment of recording thereof. An encumbrancer shall be entitled to file at any time an application for termination of encumbrance and further deletion of an entry or an application for extention of the registration term for further not more than a five-year period.

Upon termination of encumbrance, an encumbrancer shall, on its own or at a written request of a debtor or a person, whose rights have been violated as a result of existence of the entry on encumbrance, file within 5 days to the holder of the State Registry or registrator an application for termination of encumbrance and further deletion of the given entry from the State Registry. If failed to comply with this duty, an encumbrancer shall be held liable to reimburse for losses caused. Article 45 – Furnishing Abstracts from the State Registry At a request of any individual or legal entity, the holder of the State Registry or registrator must provide dully certified abstract from the State Registry. Search in the State Registry may be carried out by the registration number of an entry and/or the name of a debtor, the identification code of a debtor in the Single State Registry of Enterprises and Organizations of Ukraine, or by the individual identification number of a debtor in the State Registry of Natural Persons – Payers of Taxes and other Mandatory Payments.

Abstracts from the State Registry shall evidence either the fact of recording respective entry on encumbrance in the State Registry or absence thereof. If encumbrance exists, an abstract shall indicate all existing entries and information contained therein.

An abstract shall be provided within a period not exceeding 3 business days from the date of receipt by the holder of the State Registry or registrator of the respective request. It shall be permissible to refuse to furnish an abstract from the State Registry only in the event that an applicant has failed to pay a fee for furnishing an abstract. Article 46 -Fees for Services of the State Registry Fees shall be payable in amounts and under procedures prescribed by the Cabinet of Ministers of Ukraine for recording into the State Registry of entries on creation of or changes in

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encumbrances as well as for furnishing abstracts from the State Registry. A fee shall not be paid if a given entry is recorded into the State Registry pursuant to an application from authorized agency or abstracts are furnished at its request. Information on terminations of encumbrances shall be registered and access to the information in the State Registry shall be ensured on a free-of-encumbrance basis. Chapter VІІІ – Encumbrances in International Transactions Article 47 - Law applicable to Encumbrances in International Transactions Encumbrance that was created in international transactions shall become effective in accordance with laws of a state, on whose territory movable property subject to encumbrance is located as of the date on which this encumbrance became effective.

Requirements for registration of encumbrances and legal consequences of registration shall be governed by laws of a state, on whose territory movable property subject to encumbrance is located. Procedures for enforcement under encumbrances shall be governed by laws of a state on whose territory movable property subject to encumbrance is located. Article 48 - Registration of Encumbrances in International Transactions If laws of a state on whose territory movable property was located as of the date on which encumbrance was created do not provide for requirements for registration of encumbrances, such encumbrance shall be deemed to have been registered in Ukraine as of the date on which it was created, provided that this encumbrance has been dully registered pursuant to this Law within 30 days of the date of importation of the given movable property into the territory of Ukraine.

Encumbrance registered in accordance with laws of a state on whose territory movable property was located on the date on which this encumbrance was created shall also be deemed to have been registered in Ukraine as of the date of its registration abroad, provided that:

1) encumbrance was registered in the State Registry within 30 days of the date of importation

of the given movable property into the territory of Ukraine; 2) relevant registration of encumbrance abroad was not terminated on the date on which the

encumbrance was registered in the State Registry.

Prior to the date of registration of the given encumbrance in the State Registry, legal consequences of such encumbrance shall not extend to a purchaser of the given movable property that has been acquired in the ordinary course of the seller’s business consisting of systematic sale-purchase transactions or other methods of alienation of respective movable property. Chapter ІХ – Final and Transition Provisions 1. This Law shall enter into force as of January 1, 2004.

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2. Legislative and other regulatory acts enacted prior to the entry into force of this Law shall apply to the extent they are consistent with this Law.

3. Relations involving encumbrances upon movable property, which arose prior to the entry

into force of this Law, shall be governed by the legislation in force on the date on which such encumbrances were imposed. This Law shall apply to rights exercised under encumbrances that arose prior to the entry into force of this Law. If seizure of the subject matter of encumbrance was initiated prior to the entry into force of this Law, such seizure shall proceed in accordance with the legislation in force at the time of commencement of the seizure procedure.

4. Non-registered encumbrances upon movable property, which were imposed prior to the

entry into force of this Law, may be registered pursuant to this Law within 90 days following the commencement of State Registry functioning. In the event of compliance with this requirement, the given encumbrance shall acquire priority as from the date of its arising and shall become effective in relations with third parties in accordance with this Law.

5. If, prior to the entry into force of this Law, an encumbrance upon movable property was

registered in the State Registry for Pledges of Movable Property, the corresponding entry shall be transferred to the State Registry for Encumbrances upon Movable Property. Such encumbrance shall enjoy priority as of the time of its registration in the State Registry for Pledges of Movable Property.

Maintenance of the State Registry for Pledges of Movable Property established pursuant to the Law of Ukraine “On Pledges” shall be discontinued upon commencement of State Registry functioning pursuant to this Law.

6. Within six months after the date of the entry into force of this Law, the Cabinet of Ministers

of Ukraine shall:

- approve the procedure for maintenance of the State Registry for Encumbrances upon Movable Property;

- ensure that the State Registry for Encumbrances upon Movable Property functions;

- prescribe amounts of fees for entering records into the State Registry for Encumbrances

upon Movable Property as well as for the furnishing of extracts from such State Registry;

- submit to the Supreme Rada of Ukraine draft laws on bringing of Ukrainian legislative

acts into conformity with this Law;

- bring its rules and regulatory acts into conformity with this Law. 7. Amend the following Ukrainian legislative acts:

1) in the Code of Commercial Procedure of Ukraine (Vidomosti Verkhovnoji Rady Ukrainy, 1992, No. 6, page 56; 1997, No. 25, page 171; 2001, No. 36, page 188; 2003, No. 30, page 246, No. 35, page 271):

а) add the following Part 5 to Article 16:

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“Cases involving disputes, in which the defendant is a non-resident that has no representative office in Ukraine, shall be heard at the place of location of the plaintiff”; b) restate Item 2 of Part 2 in Article 54 as follows: “2) the corporate name (for legal entities) or the name (last name, first name and patronymics, if any, for individuals) of parties, their registered addresses (for legal entities) or places of residence (for individuals), business-entity identification codes if any (for legal entities), or individual identification numbers if any (for individuals – taxpayers)”; c) in Part 1 in Article 79, replace the words “by the body that resolves commercial disputes‚ or a relevant matter by competent authorities” for the words “that is considered by another court”; d) delete paragraph 4 in Part 2 of Article 84; e) add the following Article 111-22 to Chapter ХІІ-2:

“Article 11122 - Cassation Complaints against Decrees of the Highest Commercial Court of Ukraine”

Decrees of the Highest Commercial Court of Ukraine, whereby cassation complaints are returned, may be challenged under cassation procedures in the Supreme Court of Ukraine”; f) in Article 124: in Part 1, delete the words “if the defendant’s whereabouts in Ukraine”; supplement Part 2 with the following words “and if the defendant has no representative office in Ukraine, territorial jurisdiction shall be determined by the place of location of the plaintiff”; 2) in the Civil Code of Ukraine (Vidomosti Verkhovnoji Rady Ukrainy, 2003, No. 40 - 44, p. 356):

а) in Article 330, replace the words and figures “in Article 390 of this Code” for the words and figures “in Article 388 of this Code”; b) in Article 577: in Part 3, replace the words “into the State Registry of Pledges upon Movable Property” for the words “into the State Registry for Encumbrances upon Movable Property”; add the following Part 4: “4. The moment of registration of a pledge shall be the date and time of recordation of the given entry into the State Registry for Encumbrances upon Movable Property.”; c) delete the second sentence in Part 4 of Article 588;

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3) in the Law of Ukraine “On Pledges” (Vidomosti Verkhovnoji Rady Ukrainy, 1992, No. 47, page 642; 1994, No. 27, page 223; 1995, No. 1, page 3, No. 14, page 93; 1998, No. 2, page 3; page 42, page 259; 2000, No. 50, page 436; 2001, No. 10, page 44; 2003, No. 30, page 247):

а) restate Part 1 in Article 3 as follows: “The pledge may secure any actually existing or future claim consistent with Ukrainian law, in particular such claims as arise out of a loan agreement, a credit agreement, a sale and purchase agreement, a lease agreement, a freight carriage agreement etc.”; b) add the following Part 7 to Article 4: “The subject matter of pledges of state-owned enterprises, whose privatization is prohibited by legislative acts, and of structural divisions thereof, which undergo a process of corporatization, may be their goods in circulation or processing”; c) restate Article 10 as follows: Article 10 - Insurance of Subject Matter of the Pledge

If the subject matter of a pledge is not subject to mandatory insurance, it may be insured by consent of the parties for an agreed-upon amount. In the event of occurrence of an insured event, the right of claim against the insurer shall become the subject matter of the pledge”; d) restate Part 1 in Article 12 as follows: “The pledge contract shall state the essence, amount and time of performance of an obligation secured with the pledge, a description of the subject matter of the pledge, as well as other conditions, with respect to which agreement must be reached at a request of one of the parties”; e) in Part 2 of Article 13, delete the words “motor vehicles”, “of motor vehicles and” and “vehicles and”; f) restate Article 15 as follows: “Pledges of movable property may be registered pursuant to law. Duties of state tax authorities to effect registration shall extend onto the arising of, and changes in rights under, tax pledges, subject to the requirements of tax law”;

g) delete Article 151; h) restate Part 2 in Article 16 as follows: “Registration of a pledge shall not be connected with the moment of arising of a lien and shall not affect the validity of the pledge contract”; i) in Part 2 of Article 17, delete the words “provided that the principal amount of the debt secured with the pledge has been transferred to a new pledgor”;

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j) in Article 18: in Part 5:

restate the second sentence as follows: “Preferential rights of pledgees to the same property that were registered on the same day shall be determined by the moment of registration of the pledge”; replace in the third sentence the words “of the date” for the words “of the moment”; k) in Article 21: restate Part 2 as follows: “If the first auction (pubic auction) is declared as such that did not take place, the next auction shall be held. The initial price at the second and subsequent auctions shall be deemed a price that is lower by 30 per cent in relation to the initial price offered at the previous auction”; add the following Part 3: “If the second and subsequent auctions (public auctions) are declared as such that did not take place, the pledgee shall be entitled to retain the pledged property at the initial price that was offered at the last auction (public auctions). If the pledgee has refused to retain the pledged property, such property shall be sold in accordance with prescribed procedures‚ unless otherwise provided by the contract”; l) in Article 28: in Paragraph 1, replace the words “The lien” for the words “The pledge”;

add the following paragraph: “in other cases of termination of obligations provided by law”; m) restate Article 41 as follows: “Article 41 - Terms and Conditions of the Contract for the Pledge of Goods in Circulation or in Processing A contract for the pledge of goods in circulation or in processing must individualize the subject matter of the pledge through specification of goods in the pledgor’s possession or their location at a certain workshop, warehouse, other premises or otherwise as is sufficient for identifying the totality of movable things as the subject matter of the pledge”; n) delete Paragraphs 4 and 5 of Part 1 in Article 62;

4) restate Part 1 in Article 55 of the Law of Ukraine “On Notaries” (Vidomosti Verkhovnoji Rady Ukrainy, 1993, No. 39, page 383) as follows:

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“Agreements for the alienation and pledge of property that is subject to registration shall be attested on condition that documents are presented that confirm the right of ownership to the property that is alienated or pledged. In the event that future property is pledged or a security interest is granted in the future property, the notary shall be provided with documents that evidence the existence of rights to acquire such property in the future”; 5) in the Law of Ukraine “On Judicial Enforcement” (Vidomosti Verkhovnoji Rady Ukrainy, 1999, No. 24, page 207; 2001, No. 44, page 226; 2002, No. 14, page 96, No. 30, page 202; 2003, No. 5, page 46; as amended by Law of Ukraine No. 1095 – IV, dated 10 July 2003):

а) in Article 3: restate the title as follows: Article 3. “Documents that are subject to Enforcement by the State Enforcement Service”; delete Item 5; add the following Item 18: “18) a claim recognized in accordance with prescribed procedures”; b) restate Item 3 of Part 1 in Article 19 as follows: “3) the corporate name (for legal entities) or the name (last name, first name and patronymics, if any, for individuals) of a creditor and a debtor, their registered addresses (for legal entities) or place of residence (for individuals), business-entity identification codes for the collector and the debtor if any (for legal entities), the individual identification numbers of the collector and the debtor if any (for individuals –taxpayers), as well as other information – if such information is known to the court or another authority that issued an enforcement document, and if such information identifies the collector and the debtor or may facilitate enforcement proceedings such as the date and place of birth of the debtor and his place of work (for individuals), location of the debtor’s property etc.”; c) in Part 1 in Article 34: supplement Item 8, after the words “in bankruptcy proceedings against a debtor”, with the words “if at a request of the collector a moratorium imposed by a commercial court extends its effect pursuant to law”; add the following Item 14: “14) availability of funds belonging to the debtor in the debtor’s deposit, current and other similar bank accounts, from which the debtor may not demand a withdrawal or write-off of funds until a certain time period has lapsed, in the event of absence of the debtor’s other property that may be seized”; d) in Paragraph 3 of Part 2 in Article 36, replace the words and figures “by Items 3, 9, 12 and 13 of Article 34” for the figures and words “by Items 3, 9, 12, 13 and 14 of Article 34”;

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e) supplement Item 5 of Part 1 in Article 40 with the following words “as well as enforcement documents, under which monetary funds or other property have to be seized, and other enforcement documents that may be enforced without the debtor’s immediate participation”; f) in Article 43: in Part 1, replace the words “whereupon an enforcement fee imposed onto the debtor in the process of enforcement of the decision shall be paid” for the words “not covered by an advance payment of the parties or other persons, claims of the collector shall be satisfied and the enforcement fee shall be collected in the third-line turn. The enforcement fee shall be collected in proportion to the satisfied claims of the collector”; restate Part 2 as follows: “Monetary sums shall be allocated in the order of sequence specified in Part 1 of this Article as they are collected”; add the following Parts 3 and 4: “The sum that remains upon full performance of the decision shall be used to pay penalties imposed onto the debtor in the course of enforcement proceedings. The sum that remains after the payment of the penalties shall be returned to the debtor”; g) restate Part 1 in Article 46 as follows: “In the event that a decision is not executed within a time period set for its voluntary execution, an enforcement fee in the amount 10 per cent of the actually collected sum or value of the debtor’s property transferred to the collector under an enforcement document shall be collected from the debtor pursuant to a resolution of the state enforcement officer approved by the head of the applicable division of the State Enforcement Service, and in the event that a decision of a non-property nature is not executed within a time period set for its voluntary execution, upon full execution of the decision an enforcement fee shall be collected from the debtor in the amount of 20 non-taxable minimum citizens’ incomes, if the debtor is a natural person, and in the amount of 50 non-taxable minimum citizens’ incomes, if the debtor is a legal entity, under the same procedures”; h) add the following new Parts to Article 50 after Part 5: “If an enforcement document on collection of monetary funds does not indicate a certain number of the account, from which funds must be collected, then – if the debtor does not have funds and valuables sufficient for satisfaction of the collector’s claims – the state enforcement officer shall issue a resolution to seize the debtor’s property, which resolution must be provided to the parties not later than within 3 days. If an enforcement document on collection of monetary funds indicates a certain number of the account, from which funds must be collected, if no funds are in such an account the state enforcement officer shall file with the authority, which issued the enforcement document, a petition to change the method and procedure of enforcement of the decision by way of seizure of the debtor’s property or through prescription of some other method and procedure of enforcement of the decision”;

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In connection therewith, consider Part 6 as Part 8; i) supplement Part 6 in Article 64 with the words “except for the conduct of proceedings aimed to seize the pledged property”; j) in Article 76: in the second sentence in Part 2, replace the words “the double amount of expenses incurred for the conduct of enforcement proceedings shall be collected from the debtor” for the words “the state enforcement officer shall impose onto the debtor a penalty totaling the double amount of expenses incurred for the conduct of enforcement proceedings in accordance with the procedures as are laid down in Part 2 of Article 87 of this Law”; supplement Part 3, after the words “without the debtor’s participation it is impossible”, with the words “the state enforcement officer shall apply penalty sanctions or other measures specified in Article 87 of this Law against the debtor, whereupon”. 6) in the Law of Ukraine “On Procedures for Repayment of Taxpayers’ Obligations before Budgets and Special-Purpose Funds” (Vidomosti Verkhovnoji Rady Ukrainy, 2001, No. 10, page 44; 2002, No. 17, page 117; 2003, No. 24, page 154, No. 30, page 247):

а) restate Item 1.17) in Article 1 as follows: “1.17) a tax pledge means a method to secure a taxpayer’s tax obligation that has not been repaid on time. The tax pledge shall arise by operation of law. Under the tax pledge, in the event of non-performance of the tax obligation secured with the tax pledge the tax authority shall be authorized to obtain satisfaction against the value of the pledged property over other creditors under procedures specified by law. The pledgee’s priority to satisfy claims against the pledged property shall be determined in accordance with law”; b) restate Item 8.4. in Article 8 as follows: “8.4. Tax Priority The priority of a tax pledge with respect to priorities of encumbrances (including other pledges) shall be determined in accordance with law”; c) restate Paragraph 3, Clause “а”, Sub-item 9.3.1. in Item 9.3. of Article 9 as follows: “payment of a debt under enforcement documents or under satisfied claims in accordance with dispute pre-trial settlement procedures, if such enforcement documents or claims entered into legal force prior to the state registration of the tax pledge”; 7) in paragraph 8 of Part 2 in Article 7 of the Law of Ukraine “On Evaluation of Property, Property Rights and Professional Evaluation Activities in Ukraine” (Vidomosti Verkhovnoji Rady Ukrainy, 2001, No. 47 page 251; 2003, No. 38, page 313; as amended by Law of Ukraine No. 980 – IV, dated 19 June 2003), delete the words “and the determination of the amount of a state duty”;

8) to supplement sub-item “c” of Item 3 in Article 3 of the Decree of the Cabinet of Ministers of Ukraine, dated 21 January 1993, under No. 7-93, “On State Duties” (Vidomosti Verkhovnoji Rady Ukrainy, 1993, No. 13, page 113; 1999, No. 25, page 211, No. 44, page 380; 2000, No. 29,

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page 229, No. 38, page 317; as amended by Law of Ukraine No. 980 – IV, dated 19 June 2003), after the words “of the subject matter of the pledge”, with the words “but not more than one hundred minimum citizens’ incomes”.