Secured Transactions Sector Assessment

In Albania security over movable assets is governed by the Law No. 8537/1999 on Securing Charges Law and the established regime reflects most of the modern secured transactions principles. It provides that a charge can be created over present or future intangible or tangible movable property as a security for one or more present or future obligations of the chargor or another third party. The secured obligation may be conditional and need not be a monetary obligation but must be capable of being valued in money. The charge agreement must be concluded in writing and contain a description of the collateral. The law has been recently amended by Law no 10185/2008 and Law no 10185/2009.

Amendments introduced the possibility to authorise private entities to serve as administrators (intermediaries) of the Albanian Register of Securing Charges and made the register fully accessible to the public. In general, the law is clear, comprehensive, and provides the right flexibility to accommodate relatively sophisticated transactions. A drawback lies with the priority of secured creditors as priority may be lost to some employee, social security and state claims.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Albania.

Improving access to finance, especially for SMEs and MSMEs as well as to the rural sector is an important part of the current EBRD strategy for Azerbaijan. Improving the enforcement of secured creditors’ rights, removing ambiguities and limitations of the present secured transaction system (especially for pledge over movable property) and crating legal underpinning that could facilitate credit bureau operations would contribute to enhancement of the access to finance in Azerbaijan.

Security rights over movable and immovable assets in Azerbaijan are primarily governed by the Civil Code, which entered into force on 1 September 2001, and the Mortgage Law of 2005. The 1998 Pledge Law was repealed at the end of 2006 and its progressive features, such as the possibility to take a mortgage over the whole or part of a business’ enterprise and the possibility for the chargeholder in case of default of the chargor to take possession of the charged assets, have now disappeared.

The Civil Code makes a fundamental distinction between pledges and mortgages. According to the Code pledges can be of various kinds: the charged assets can (but need not) be given in possession to the creditor, and can cover intangible assets (e.g. account receivables). Pledges are mostly not registered. Mortgages must be registered in the relevant official registry. For movable assets, this refers to existing asset-based registries, such as motor vehicles registry, ship registry, etc.

Improving the enforcement of secured creditors’ rights, removing ambiguities and limitations of the present secured transaction system (especially for pledge over movable property) and creating legal underpinning that could facilitate credit bureau operations would contribute to enhancement of access to finance in Azerbaijan.

IFC is currently partnering with USAID and the Central Bank to work on a draft secured transaction law. A conference was organised in Baku in December 2012 to raise awareness of the current work and the importance of the secured transactions reform among the potential users and recipients.

Credit Bureau

There is currently no operational credit bureau in Azerbaijan apart from the Central Credit Register run by the Central Bank which serves more as a statistical tool, appears not to allow for credit scoring and is not built in accordance with the modern credit bureau standards. Creation of a modern credit bureau is currently supported through IFC-realized project of Azerbaijan-Central Asia Financial Markets Infrastructure (ACAFI) with financial support of the Swiss State Secretariat for Economic Affairs (SECO). According to the recent press release (30 April 2013) the Memorandum of Understanding for participation in the establishment and in the equity stakes in the national credit bureau has been signed by 10 banks - AccessBank, AG Bank, DemirBank, PASHA Bank, ASB Bank, Mugan Bank, TuranBank, Bank Respublika, YapiKredi Bank Azerbaijan, and UniBank. By signing the MoU, they undertook a commitment to establish a bureau after the national legislation allows it.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Azerbaijan.

Belarus has made progress towards adopting modern principles of mortgage lending. However, significant improvements of system of taking pledge over movable assets are needed in order to create a system that would satisfy the needs of modern financial transactions.

Taking security is generally governed by the provisions of the Civil Code (Article 315 – 338). It sets general principles of taking mortgage and regulates pledge over movable property.

In 2008, the Law on Mortgages was adopted, which provides a systematic regulation of mortgages (especially of residential real estate) and legal basis for long-term mortgage lending.

Almost conversely to the state of the development of the system of taking mortgages is the state of the system of taking security over movable property. Security over movable property is subject to the 1993 Pledge Law, which is meant to apply as far as it does not contradict the Civil Code provisions. Because both sets of provisions have not been harmonised, it creates considerable uncertainty for the market. The Civil Code generally allows taking non-possessory security over movables but there is no general registration system of such security in place. The borrower, if a legal entity, is required to keep a record of all pledges on its books. However, even this limited rule does not seem to be respected in practice. These limitations leave potential creditors without certainty of their priority rights when considering movable property as collateral. Furthermore, the system does not allow businesses to grant a security right in a single category of movable assets (without requiring a specific description of collateral), security right cannot extend to future or after-acquired assets and a general description of debts and obligations is not permitted in collateral agreements. Hence the system is not able to sufficiently support neither simple nor sophisticated financing transactions (relying on taking security over a fluctuating pool of assets or securing a changing amount of debt - credit line).

The most significant recent amendments in the field of secured transactions were introduced by the Decree of the President of the Republic of Belarus ‘On Certain Issues of Pledge’ No. 3 of 1 March 2010. The Decree liberalised pledge enforcement procedures. In particular, the non-judicial enforcement of pledges and mortgages has been made possible upon fulfilment of certain conditions (notarisation of security agreement, etc.). This change should help in solving problems of debtor obstructions that were reported as the problem in the past.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Belarus.

Bosnia and Herzegovina is composed of two autonomous Entities: the Federation of Bosnia and Herzegovina (“FBH”) and the Republika Srpska (“RS”). Corporate governance in the FBH is regulated by the Law on Companies; the Law on Banks and the Law on Accounting and Audit. To note also a Joint Stock Company Regulation issued by the Securities Commission and a number of Decisions and Guidelines issued by the Banking Agency of the Federation of Bosnia and Herzegovina. In 2009, the Sarajevo Stock Exchange issued its own Corporate Governance Code to be implemented under the “comply or explain” approach. Corporate governance in the RS is regulated by the Law on Companies, the Law on Banks and the Law on Accounting and Audit. In 2006 the Securities Commission issued the Standards of Corporate Governance, which were revised in 2011. The Standards can be considered the Corporate Governance Code in place in RS, and are to be implemented on a “comply or explain” basis.

Joint stock companies in the FBH and banks in both Entities are organised under a two-tier board system. Companies in the RS are organised under a one-tier board system, however if there are more than two executive directors, then a separate executive board must be established. Boards appear to be small, with limited gender diversity and possibly lacking the appropriate mix of skills. It appears that, in contrast to banks, there are no requirements for qualification of companies’ board members. In FBH, companies are recommended to have independent directors; in the RS, this is a legal requirement. There are different definitions of independence in both Entities. In FBH and in banks in both Entities audit committees are obligatory (in RS, the audit committee is optional), but members of that body cannot be board members. In both Entities the law provides for fiduciary duties, conflicts of interest and for board member liability.

Companies are required to publish annual reports including non-financial information; however, disclosures are generally patchy. Financial statements are prepared in line with IFRS. In both Entities, companies are required to have independent external auditors and to disclose their names and reports. Provision of non-auditing services by the external auditor is allowed but restricted. In both Entities, companies and banks are required to have an internal audit function. Related party transactions and conflicts of interest are regulated in both Entities; however, it seems that related-party transactions remain an issue. A new law on whistleblowing protection has recently been approved.

Basic shareholders rights are granted by law. Shareholders agreements are not regulated by law or subject to any formalities.

Stock exchanges exist in both Entities and trade on both exchanges is organised in different segments with different transparency requirements. Corporate Governance Codes exist in both Entities; however their implementation is very limited. We could not find any evidence of monitoring in place on how companies comply with the Codes. International organisations indicators reveal that the framework is in need of reform, since corruption is still perceived as a problem.

The legal framework for secured transactions in Bulgaria has been one of the most advanced in the region since the enactment of the 1997 Law on Registered Pledges and its subsequent amendments. This law allows for security interests to be taken over a wide range of movable (tangible and intangible) assets. It can be granted by a "merchant", as defined in article 1 of the Commerce Act (natural or legal person engaged by occupation in any of the commercial transactions listed in the article), or any of the persons listed in article 2 Commerce Act (that is mainly farmers, artisans and members of the professions). As the law on registered pledges is generally seen to be modern and efficient, the main recommendations for reform involve the law relating to mortgages, which could be updated. Specifically, the basic legal function of a mortgage law is not met because enforcement is uncertain and proceeds on realisation are significantly below market value. The mortgage creation procedure could be simplified by relaxing onerous documentation requirements and further improvements to the land registration system will improve the certainty of the mortgage framework.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Bulgaria.

Applicable legislation on the topic includes Law on Ownership and Other Real Rights, the Land Registry Law, the Enforcement Law, the Law on the Registry of Court and Notary Public created Security, and the Leasing Law.
Improving access to finance, especially for SMEs, is an important part of the EBRD’s mission. The Ministry of Finance is currently working on introducing a factoring law and the EBRD is providing them with technical assistance.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Croatia.

At present the legal regime for secured transactions in Egypt is too limited in terms of the type of collateral that borrowers can offer. The EBRD’s assessment of the secured lending framework highlighted challenges in relation to the registration and enforcement of collateral. Reform is particularly needed with respect to the land registration system where it appears that most real estate property is not duly registered. In addition, the current regime for the grant of security over movable assets has been found to be significantly restrictive. A key drawback of the overall framework is that the enforcement of security can only be achieved through a heavily supervised, lengthy and costly court procedure.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Egypt.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Estonia.

Applicable legislation in the sector includes the Civil Code of Georgia, dated 26 June 1997; the Law on Public Registry, dated 19 December 2008; and the Law on Payment Systems and Payment Services, dated 1 July 2012:

A modern secured transactions framework for taking pledges over movables was first introduced in 2005 by amending the Civil Code. The new provisions provided for flexible, efficient and modern legal means for the creation, perfection and enforcement of a pledge. Since then the Civil Code saw several amendments of the provisions for regulating the taking of both mortgages over immovable and pledges over movable property and rights (e.g. 2006, 2007 and 2008) with the last ones taking place in 2011 (9 March 2011 and 1 July 2011).

The law now allows for a general definition of collateral and of the secured debt (a credit line of a revolving loan can now be secured). Notarisation of the charge agreement is not required, but parties may find that they have an interest in executing the agreement as a notarial deed in order to benefit from expedient enforcement procedures. The amendments in 2011 allow parties to limit the right to pledge only to parts of movable things or rights (non-material property wealth). When the object of pledge is described generally as “all the movable assets of the pledge”, it is not necessary to describe these assets in the pledge agreement. The 2011 amendments also provide that the right to pledge automatically extends to the fulfilment of a pledged claim or insurance payment, even if such provision is not provided for by the parties in the agreement. The law also now regulates in detail the effects the processing and mixing of the pledged assets have on the pledgee’s rights.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Georgia.

Since 1996, Hungary had equipped itself with a comprehensive, flexible and modern system for charging all kinds of assets. Registered charges over movable (tangible) assets have been registered in the centralised electronic Charges Registry, which has been operating since May 1997 by the Hungarian National Chamber of Public Notaries.
From the EBRD’s perspective, one of the most significant challenges in the secured transactions system concerns charges over immovable property (mortgages). Although they are, by and large, governed by a set of market-oriented provisions working efficiently, there are serious bottlenecks to the system, in particular:
- the time required to register a mortgage, which is unduly long
- the costs associated with the creation of a mortgage, again comparatively high for the region
- the inefficiency of the enforcement process, due to the enforcement costs (again, very high) and the fact that the property is rarely sold at market value.

EBRD Legal Reform Projects

In 2005 the EBRD assisted the Ministry of Justice with the preparation of new decrees on registration and non-judicial enforcement following amendments to the Civil Code provisions on pledges. The Bank also reviewed and made recommendations on the pledge registry’s operation, and is participated in an education campaign for banks, lawyers, courts, and the general public.

Assistance in Implementing Registration under New Law for Charges over
Moveable Assets I

The EBRD provided technical assistance for the establishment of the first nation-wide computerised registration system for charges over movable property in the Bank's countries of operations, in accordance with Civil Code charge provision requirements.

Assistance in Implementing Registration under New Law for Charges over
Moveable Assets II

The EBRD provided follow-up assistance after the successful launch of the computerised registration system that the Bank helped to establish, monitored its functioning and helped to resolve implementation issues. The EBRD also discussed amendments to certain Civil Code provisions with the Ministry of Justice; revision took place in December 2000.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Hungary.

The Jordanian legal framework allows for the creation of a wide range of security interests over a broad range of assets. The system recognises both possessory and non-possessory pledges over movable assets and rights as well as registered mortgage over real-estate. A new law was enacted in Jordan which became effective in February 2012 for Placing Moveable Property as Debt Security. However, the law is rather recent and there is still no relevant court or market practice to confirm its applicability in Jordanian business practice.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Jordan.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Kazakhstan.

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The primary sources of corporate governance legislation in the Kyrgyz Republic are the Law on Joint Stock companies; the Law on Banks and Banking Activity (as amended in 2016 and replaced by a new law in 2022 which introduces no new provisions in the area of corporate governance); the Law on Securities Market, the Law on Business Partnerships and Companies, the Violations Code and the Resolution N32/7 of the National Bank of the Kyrgyz Republic on Principal Requirements for the Audit Committee. A National Corporate Governance Code (“CG Code”) was enacted in December 2012 and approved by the Order of the Executive Council of the State Service for Regulation and Supervision of the Financial Market in the Kyrgyz Republic. The Code is voluntary and does not seem to be widely taken as a reference.

Joint stock companies are organised under a two-tier board system, where members of the executive body cannot sit on the board. Companies with less than 50 shareholders can decide not to establish a supervisory board. The boards of the ten largest companies are small, with very limited gender diversity (albeit slightly improved from the previous report). There are no qualification requirements for board members in companies and limited ones for banks. Only banks are required to have independent directors, but the practice is rare.

In companies, there is no requirement to have “board” committees. Companies are required to have a revision commission appointed by the general shareholders’ meeting. In banks, the audit committee must be made of independent board members. The Law on joint stock companies does not refer to all the key functions that should be performed by the board. The banking law is more comprehensive, as it assigns all these roles to the banks’ board. The legal framework on directors’ duties is not developed. Liability of board members and conflict of interest are regulated by law; nevertheless, legislation does not seem to be comprehensive. Also the judicial practice and case law in this area are limited.

The law requires companies to prepare and disclose their annual report, which should include both financial and non-financial information. The corporate governance section in the annual reports is very limited though and disclosure is often limited to the names of board members and management. Companies and banks are required to have an external audit and to disclose the auditors’ name and report. Auditors are allowed to provide non-auditing services.

Only banks are required to establish an internal audit function. There is no requirement for banks to create a standalone compliance function. Companies are not required to have board level audit committees. Banks are required to have an audit committee composed of three independent board members. However, in our sample, only one bank discloses having such committee in place.

Basic shareholder rights seem to be well regulated. Significant ownership variations must be disclosed. Shareholder agreements are not regulated by law. Registration of shareholding by an independent registry is required by law. Free transferability of shares of open joint stock companies cannot be restricted.

The institutional framework supporting good corporate governance needs improvement. The stock exchange has limited capitalisation and liquidity. A Corporate Governance Code exists since 2012. The Code recommends companies to adopt their own corporate governance code taking into consideration the Code’s recommendations. In practice, there is no evidence of the Code’s implementation. Indicators by international organisations show a framework under a need for reform, where corruption is still perceived as a critical problem.

The Latvian Civil Code of 1937 (adopted 23 January 1937, effective 1992) governs the creation, registration and enforcement of security rights. There is no specific mortgage law in Latvia, but several special pledges are covered by specific laws and recent legal reforms have affected the enforcement of security rights. Mortgages are registered with the Land Register departments of the regional courts. The electronic database is centralised and freely searchable via the Internet.
On 1 January 2008, the Credit Register of the Bank of Latvia was launched. Without a public registry or private credit bureau in operation, credit histories of only 2.8 per cent of the Latvian population were available in 2008. The new public registry has increased the coverage rate significantly to 57.2 per cent according to the World Bank’s Doing Business 2011 report. The Credit Register is allowing participants to better assess the credit worthiness of borrowers and manage credit risks more efficiently.

Latvia was not included in the 2014 assessment.

Secured transactions reform has been on the agenda since 2006 and the EBRD has provided the Mongolian government with technical assistance for drafting the pledge law based on the principles of a modern secured transactions legal regime. Unfortunately, the reform has been stalled and no evident progress has been shown by the government since 2009 when the draft pledge law was finished. However, the new government has sent signals that they would like to see the reform taken further and the EBRD as well as the IFC (that has offered to help with the establishment of the pledge registry) will be waiting for the official invitation and presentation of the government’s strategy before deciding on future steps.
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Mongolia.

Montenegro’s legislation regulating secured transactions includes the Law on Property Rights, Official Gazette of the Republic of Montenegro, No 88/02, the Law on Secured Transactions, Official Gazette of the Republic of Montenegro, No 38/02, and the Law on Enforcement and Securing, Official Gazette of the Republic of Montenegro, No 36 /11. There are no currently reported reforms in the sector.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Montenegro.

The framework for collateral and liens remains complex in Morocco. This is mainly attributable to a difficulty in determining priority in ranking classes and liens. Banks usually resort to pledges and mortgages. In addition, banks typically apply debt discounting, factoring and assignment of claims techniques. One of the key challenges that are cited in the overall framework for secured lending in Morocco is the inefficiency of the judicial system which hinders effective enforcement and recovery.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Morocco.

Improving access to finance, especially for SMEs and MSMEs especially involved in the rural sector is a key part of the EBRD’s country strategy for FYR Macedonia (2010 – 2013).
Although a general secured transactions system is functioning well, some modifications of the Law on Contractual Pledges would be welcome in order to reflect the needs of modern business transactions (e.g. pledge over bank account). In addition, facilitating factoring transactions by the implementation of regulations and legislation for factoring might help to improve overall access to finance by making factoring services more transparent and legally certain.
FYR Macedonia is an example of an EBRD country of operations where access to finance would benefit from targeted legal changes in order to further develop into a system that would fully cater for the needs of modern financial transactions.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for FYR Macedonia.

Within the warehouse receipts law reform, the EBRD, together with the UN FAO, has been supporting the Ministry of Agriculture with the development of a long overdue legal framework for grain warehouse receipts. The reform’s objective is to enable grain producers to safely store their crops in public warehouses that are properly managed and financially sound and, if they wish so, mobilise the grain as collateral to raise finance.

The EBRD is also discussing with the Ministry of Agriculture the launch of a new legal reform initiative within crops receipts, aiming at providing a legal framework for the issuing of a so-called ‘crops receipts’ by farmers – a note undertaking the delivery of agricultural products or a financial obligation vis-à-vis a creditor secured by a pledge over future crops. This instrument, inspired by the very successful Brazilian experience, would represent an important alternative mode of financing for crops producers in Russia. The Ministry of Agriculture has expressed an interest and it is hoped that work will start in the second half of 2012.

The EBRD has also been advocating the need to reform secured transactions (also referred to as pledge law) in Russia for many years and with various counterparts, in particular with the Central Bank, the Ministry of Finance, and more recently the Duma’s Committee on Credit Organisation and Financial Markets, with limited success. It is also, as a member of the Foreign Investors Advisory Council (“FIAC”), drawing the attention of Russian policy-makers to the importance of such reform.

As part of the secured transaction reform in Russia, the EBRD commissioned the writing of a legal commentary on the new provisions, written by the eminent Russia law professor, Roman Bevzenko. The article was originally published in Private Law Review (2015, No 2.) and has been republished here with permission of the author.

Between December 2010 and April 2012, the EBRD thus supported the MED by providing detailed comments on the draft Civil Code provisions related to pledge (and mortgage), putting forward alternative provisions, and discussing with a number of key stakeholders, in particular the relevant working group of the influential Moscow as International Financial Centre, for amending the draft. The draft Civil Code is now before the Duma and has passed the first reading. A number of key concerns remain.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Russia.

In 2001, with EBRD technical assistance, Serbia undertook to reform its secured transactions and a Law on Registered Charges over Movable Property was adopted by the Serbian parliament in May 2003. It provided for the first time in the country the legal means by which lenders, investors and borrowers could secure their operations with non-possessory pledge over movable property and rights. After ten years of usage it can be said that the reform proved to be a very successful one as the introduced system is highly appreciated and used by the market players which consider it reliable. The quality of the law is also reflected in the fact that no amendments were needed or proposed since its introduction, a rare case for Serbia.
In July 2013, the Serbian Ministry of Finance has officially requested EBRD’s assistance for the reform of the Mortgage Law. The request is being considered. In addition, EBRD is currently conducting a feasibility study with the aim to establish the feasibility and marketability of a national reverse factoring programme and is assisting Serbian Ministry of Agriculture to introduce crop receipts – a pre-harvest financing tool based on taking collateral over future agricultural production.

EBRD Legal Reform Projects in Serbia:

Secured Transactions Legal Reform

The project, completed in 2006, assisted the Republic of Serbia in adopting a modern legal framework for security over movable assets and implementation. The Law on Registered Charges, adopted in May 2003 closely adopts the EBRD Core Principles on Secured Transactions, and enables security to be taken over a variety of asset classes.

Agrarian Receipt Programme

Financial Law Unit of the EBRD Legal Transition team is providing legal support to EBRD Agribusiness team and local consultants in preparing new legislation on pre-finance of agricultural production and taking security over future agricultural products requested by the Ministry of Agriculture.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Serbia.

The primary sources of corporate governance legislation in Slovenia are the Companies Act, the Banking Act, the Market in Financial Instruments Act and the Auditing Act. In 2004, the Ljubljana Stock Exchange adopted the Slovenian Corporate Governance Code (revised in 2009), which is to be implemented on a “comply or explain” basis.

Companies in Slovenia can operate under a one- or two-tier board system, which is prevalent in practice. The board size seems adequate and gender diversity at the board is one of the highest in the EBRD region. Employee representation at the board is mandatory. The law is silent on the board authority of approving the company’s strategy, budget and risk appetite/profile. The Corporate Governance Code recommends that at least half of the board members in listed companies are independent, however its definition of independence provides only for negative “non-affiliation” criteria. Adequate qualification for companies’ board members is merely recommended while in banks, board members are subject to fit and proper requirements. Listed companies are required to set up audit committees that must include at least one independent expert on accounting and audit. It seems that this “independent expert” is meant as being an “outsider” (i.e., not a board member). We have some reservations about this solution, as we believe that “board” committee should be composed exclusively of board members. In banks, audit committees must be composed entirely of board members. Banks are also required to set up risk committees and - depending on their size - nomination and remuneration committees.

Companies are required to prepare and disclose annual reports including financial (in line with IFRS) and non-financial information. Annual reports of listed companies must include a corporate governance statement and explain deviations from the Corporate Governance Code’s recommendations. This is adhered to in practice, although some explanations are very formalistic and not much explanatory. Listed companies and banks disclose names and opinions of external auditors in their annual reports.

Companies are merely recommended to create an internal audit function while banks are required to establish it, but it seems to report to the management board, rather than to the board via the audit committee. Banks are also required to establish a standalone compliance function. The law assigns to the general shareholders’ meeting the exclusive authority to appoint the external auditor, upon recommendation of the supervisory board, based on audit committee’s recommendation. The law requires the external auditor to be independent and it is the audit committee that runs the “independence test”. The law requires auditors’ rotation after a maximum of seven consecutive years, which is in line with best practices.

Shareholders with at least 5% of company’s shares can call a general shareholders’ meeting (GSM) and add items to the GSM agenda. Supermajority is required to approve major corporate changes. Self-dealing is regulated and insider trading is forbidden. Derivative action is regulated by law, but procedurally difficult to pursue and it seems that there are no instruments that enable minority shareholder representation at the supervisory board. There is no requirement to disclose shareholders agreements and it is not clear whether they are enforceable.

The institutional framework supporting good corporate governance in Slovenia is relatively advanced. The Ljubljana Stock Exchange seems to be actively monitoring the securities market and promoting good corporate governance. Indicators provided by international organisations rank Slovenia moderately well with regard to corruption and investor protection perceptions, but reforms are needed to improve the country’s competitiveness levels.

Tajikistan’s legal framework for secured transactions encompasses the following acts: the 2006 Law on Pledge of Movable Property, the 2008 Law on Mortgage and the Civil Code (Part 1) of 30 June 1999, which entered into force on 1 January 2000 and contains provisions directly applicable to secured transactions.
The new Laws were a considerable improvement against the former regime, which was broadly modelled against the Russian regime and comprised many deficiencies.

EBRD Legal Reform Projects

Assistance in Developing a Secured Transactions Law

The EBRD's Secured Transactions Project produced an extensive analysis of existing laws in order to identify necessary reforms and the best ways of implementing them. The Tajik Government has yet to act on the Bank's recommendations.
 

Security rights on movable and immovable assets in Turkmenistan are governed by the Civil Code of 1 December 1998 (arts 267-299, 325-329), enacted on 1 March 1999, and the Law on Pledge (Pledge Law) of 1 October 1993. The Pledge Law can only apply to the extent that it does not contradict the Civil Code. The Civil Code primarily covers security over immovable assets (mortgages), possessory pledge (i.e. when the debtor must transfer possession of the collateral to the creditor or a third party) and also the rules of enforcement. The Pledge Law provides more detailed provisions on non-possessory charges and envisages the establishment of a registration system through which non-possessory charges would be publicised. Despite attempts to create a modern system for secured transactions, the legal regime remains very limited in many respects. EBRD is not aware of recent attempts to modernise the legal framework, although the current developments of micro and SME lending (assisted by organisations such as the EBRD) may create momentum for such reform.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Turkmenistan.

Improving the business environment is critical. The high cost of doing business severely constrains foreign investment and competitiveness. In the World Bank Doing Business 2015 report, Uzbekistan moved up 8 places, but the country still has one of the lowest ratings for ease of doing business, ranking 141st out of 189 countries. A key initiative in the country has recently been headed by a partnership of The IFC, the Central Bank of the Republic of Uzbekistan, and the Institute of Forecasting and Macroeconomic Research to develop the credit information-sharing system in Uzbekistan and expand access to finance for entrepreneurs and smaller businesses.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Uzbekistan.