Secured financing: pledges and mortgages in Tajikistan

Classification of security interests

Security interest in Tajik law (zalog) is an interest, which gives a creditor the right to satisfy its claims from the value of the secured property, in priority to other creditors of the debtor. Sometimes the law provides for other priority rules. As a general rule, it restricts debtor’s freedom to dispose of the property free from the interest. A secured creditor may satisfy its claims in priority to unsecured creditors. Some preferential claims rank ahead of secured interests.

Registered security interest over immovables is called mortgage (ipoteka).  Pledge is a security interest over movables. Security interest may be created over deposit accounts, over inventory and over future assets, future obligations, receivables and other rights. Security interest is secure mostly by a contract; however, some arise by operation of law (e.g. vendor, airport or customs liens). Land use rights can be given as security only if they are alienable. Land use rights in respect of lands beneath the buildings and other immovable object is only possible if the respective objects are mortgaged too. Land use rights must be valuated prior to being mortgaged.

Creation of security interest

Creation of security is done by way of an agreement and will be valid as between the parties. For its validation vis-à-vis third parties it will need to be perfected, i.e. registered in a public register.

Other interests or encumbrances can also be registered to give public notice about their existence for the benefit of third parties. These include claims supported by a court ruling on levy of execution, servitude, a restriction to conduct banking operations, arrest of assets, tax claims, factoring, lease over one year, commission, etc. which effectively have the same function to secure obligations of the debtor).

In Tajik law, a security interest is created upon conclusion of the agreement in writing and assuming that debtor owns the property.  A requirement for notarisation of the security agreement will depend on whether the secured obligation itself is subject to notarisation. But usually security agreement covering movables and intangibles will not necessitate notarisation. Security over immovables (mortgages) must be notarised.

Registration of security interests

Registration is a step that have to be taken in addition to creation, in order to advance priority position of the secured creditor. Perfection is designed to provide public notice to third parties about the existence of the security interest and also to determine priorities between competing security interests.

With the exception of mortgages (where registration is a condition to validity of the security interest), registration of security interest over an movable asset is voluntary and its purpose is to obtain priority. For movables, a centralised registration system with the Ministry of Justice is established to keep the register. Applications for registration are accepted, for a fee, online and filed by a security giver or a creditor (with debtor’s consent) and, in some cases, by other applicants concerned. For immovables, registration of security interest is done by the special facility of the Land Committee.

The information that is required to be included in the pledge notice will indicate: name and address of the security provider and its taxpayer number; the same information for the security holder; description of the secured asset that will allow for its identification. The government can establish additional requirements as regards the contents of the notice.

Registration is confirmed by an abstract issued by the registrar. The registrar holds no responsibility for the contents and credibility of the notice, as the role of the registrar is to process the notice. Details of the information could be accessed and changed and even deleted by the applicant by accessing the register online. Registration remains valid for five years and will need to be extended beyond that period.

Priority rules

The purpose of registration is to identify priorities between the competing security interests in the same property. The basic rule is that registered interest wins unregistered security interest. Where competing security interest in the same secured property are registered, priority turns on the date of the registration. Priority among unperfected security interests will be determined by the date of creation of the security interest.

Priority generally depends on the time of registration of the security interest, but there are some exceptions.

Employee claims generally rank ahead of claims of secured creditors. Thus, outside the insolvency, superior status is given to (listed roughly as follows in priority order):

1. Claims secured by withholding of property for which payment is due including related expenses and costs of the creditor;
2. So called money purchase interests and interests arising from leasing, loan, retention of title and sale with deferred payment;
3. claims secured by property which was produced with funds of the creditor or with the property provided by the creditor;
4. tax claims;
5. claims supported by court decisions;
6. unpaid salaries of the staff of security giver for up to three months.

Insolvency essentially retains the priority ranks. The position is therefore as follows:

1. Secured creditors and tort claimants
2. Employee and copyright claims
3. Tax claims
4. Unsecured claims

 Enforcement

 In Tajik law, an out-of court enforcement is available for both the pledges and mortgages if that was provided in the contract or subsequently agreed between the parties. Default is defined through and open-ended list of events with parties being free to provide for additional grounds constituting default and to agree on the manner of execution. The debtor may object to enforcement which will not suspend the enforcement, however all the proceeds will be accumulated at court’s account until the decision is issued.

Where application was made to court for enforcement of the mortgage, the court may reject the enforcement if default is ‘highly insignificant’ and the resulting amount of claims is ‘clearly exceeding’ the value of the secured property.

There is a 30 days-notice period that has to be observed by the mortgagee before commencement of the enforcement measures.

There is a general obligation on the security holder to act in good faith with the overarching duty owed to all parties concerned. This also includes a requirement to obtain a ‘fair price’ for the realised secured property. Sale takes place in the form of an auction. A security holder may not purchase secured property at a private sale. Security holder may delay the sale for the maximum period of three months  Security giver can request the court to postpone the execution.