Taking security over the bank account in Tajik law

As weird as it may sound, to date, Tajik law does not offer a straightforward option for lenders to take security over the bank accounts of the borrower. This article briefly explores the exiting legal framework, its limits and the options that are available currently in the Tajik law to provide comfort to those lenders who would still consider taking security over the bank accounts.

Current law on pledges of movables allows explicitly only for taking security over the cash amounts which can be either “locked in” in a bank account or with a notary (as a deposit). The security can take place only by way of the security holder taking possession of that money making this form of security a traditional “mortgage”.

Obviously, this type of security may not be rational from the perspective of both the security provider and the security holder where the very cash needs to be flowing to allow for business to operate especially where the security provider is a credit institution. In an English law this would be a “floating charge”. In Tajik law, however, such floating charge can be said to have very limited existence – in the form of a goods in circulation – and does not extend to moneys. And it would not be legally possible to go and attach the accounts simply by exercising a notification to the bank and taking possession of them. The enforcement would have to go through a normal enforcement process through private or public sale/auction, in or outside the court proceedings.

Moreover, the enforcement procedures do not easily lend themselves to accommodating the interests of the security holder when it comes to security over moneys on the bank account. A common approach for enforcement (be it with or without court leave) would be to sell the assets. In the case with the moneys, this would seem impossible. Hypothetically, if the security is a foreign currency money, then it might be sold, i.e. converted into a local currency (and this would perhaps work the other way around, too), but the exchange losses may make this unattractive an enforcement, besides that the fact that the whole process would seem far from being commonly accepted. Ultimately, this existing enforcement procedures were not designed with moneys in the mind as their subject matter.  

Outside these legal obstacles, there is one more fundamental one that relates to the enforcement itself. In an out-of-court proceedings to which parties may opt into contractually, there is always a possibility for the security provide to involve a court with the latter potentially being unfettered in its abilities to delay or hamper the process and thus watering down the essence of what would otherwise be a quick release for the security holder.

Finally, since legally this is a borrower’s account, it remains open to the borrower to close the account if it wishes to do so.

Against all these legal hurdles, there are still tools which may be relied upon and invoked to provide certain security to the interests of the financier. These include:

• Sticking to the security agreement over the bank accounts more as a way to retain control over the disposition of money on the bank account. This would be effected if the bank was properly notified of the created security over the accounts by both the security provider (whose accounts are held with that bank) and security holder;
• Having the borrower/security provider issue an irrevocable power of attorney in favor of the financer/security provider in respect of the accounts both for the purposes of exercising control over the bank accounts ad during the enforcement (when and if the time comes) which would potentially provide security provider with maximum powers. This would also provide a contractual prohibition on the Borrower’s ability to manage money on the secured bank accounts;
• An additional tool would be to have the security provider act as a joint-signatory on the bank accounts - this can be opted into as a separate or in addition to the previous option(s).

While these tools are not security interest in the original sense they may be said to be quasi- security instruments with almost the same effect (if not potentially grating the security holder a wider leverage against the borrower).

Besides, in line with spirit of Article 9 of the Uniform Commercial Code (UCC) Tajik law since some time introduced the possibility to register any security-like interests which have the same effect of a traditional security. Thus, essentially, any encumbrance or interest can be registered thereby outing third parties on notice of the existence of some sort of interest of a secured party. This means that broadly speaking any of the above measures, while not being a security in a strictest sense of word, can be registered and, at least legally, have the same legal effect.