On July 3, 2018, the Verkhovna Rada of Ukraine adopted in the second reading draft of 6027-d law on the resumption of lending. The adoption of the law was met with “applause” mainly by the representatives of the financial community. The rest of the population didn’t take the innovations so unquestionably positive. Olena Dynnik,the senior lawyer at Ario Law Firm, investigated the pros and cons of innovations for two eternally opposite camps – lenders and borrowers, in her author’s column specifically for Finance.ua.
Back to basics
First of all, we should refer to the basic concepts, namely: what is an obligation, a loan agreement, its proper performance. Thus, Article 509 of the Civil Code of Ukraine contains the concept of an obligation, i.e. legal relations where one party (the debtor) is obliged to carry out in favor of the other party (creditor) an action (transfer property, perform work, provide a service, pay funds, etc.) or refrain from performing a certain action (negative obligation), and the creditor has the right to demand from the debtor the performance of such obligation.
In addition, the legislator has clearly defined that the obligation should be based on the principles of good faith, rationality and fairness.
Part 2 of Article 19 of the Economic Code of Ukraine provides for the obligation of each party to take all necessary measures required for the proper fulfillment of its obligations, taking into account the interests of the other party and ensuring the general economic interest.
At the same time, breach of the obligations makes a basis for application of sanctions provided for by codes, other laws or a contract. It is worth remembering about the need to fulfill the obligation properly on time, which is regulated in Articles 526, 530 of the Civil Code of Ukraine.
According to Article 1054 of the Civil Code of Ukraine, under a loan agreement, one party (lender – bank or other financial institution) undertakes to provide funds (loan) to the borrower in the amount and on the terms stipulated by the agreement, and the borrower undertakes to repay the loan and pay interest. That is, the lender’s obligation is to issue funds, which, according to the contract, correspond to the borrower’s obligations to return funds with all accrued interest.
Current situation
The current practice in our country shows that having signed a loan agreement, having received money (loan) from a bank (lender), using them, the borrower does not always aim at fulfilling its obligations and returning borrowed funds to its lender.
In theory, the borrower (debtor) should understand and be aware at the moment of the loan agreement conclusion that in one way or another it will have to repay not only the loan amount but also all charges to it, provided for by agreement and / or by the law, and for late payment as well.
The Unified State Register of Judicial Decisions is literally overfilled with a huge number of decisions on recovery of debt (loan) from borrowers and foreclosure of property as its security, which testifies to unfairness of a large number of Ukrainian debtors.
Changes introduced by the Law
In my opinion, the Law “On the Resumption of Lending” adopted by the Rada is primarily aimed at radical change of the aforementioned situation, namely, at protecting the interests of creditors from unfair borrowers. Therefore, those who pay on time, fulfill their obligations fully, in general, will not feel the rules of the new law.
In addition, this draft law provides for a number of effective changes.
For banks.
When changing the size of the principal obligation, for which the guarantor provided its guarantee first, the guarantee does not stop but on the contrary, it lasts only in the amount of the obligation initially assumed as security – that is, the amount of the obligation (loan) previously discussed and agreed in the guarantee agreement.
In addition, in the event of liquidation of a debtor – legal entity, the guarantee does not stop if, prior to the day the relevant entry is made in the Unified State Register of Legal Entities, individual entrepreneurs and public organizations, on its termination as a legal person, the creditor appealed to the court to the guarantor on breach by such debtor of its obligations.
In simple words, the bank, in one way or another, will be able to collect what is stipulated in the agreement. Opportunities to evade fulfillment of obligations, as it happens so often now, will be minimized.
For banks and borrowers. Changes are made directly to the content of the pledge agreement regarding the possibility of indicating in it only reference to the agreement that establishes the basic obligation. This simplifies the process of making the appropriate changes.
For banks and borrowers. Financial institutions get access to the Registry of civil status acts which, in essence, will simplify and make cheaper (in terms of payment for extracts from them) for borrowers the process of loan agreements registration.
It is important to note that this happens only with the consent of the persons concerned.
For borrowers. It is proposed to conclude vehicle pledge agreements in a simple written form and not notarial, which is also a “bonus” for the borrower to reduce costs and enter into agreements for securing obligations.
For banks. Banking institutions will be able to make their demands for debt (loan) returning to the heirs from the moment when they have learned about accepting of the inheritance or receiving a certificate of inheritance.
For banks. Banks and other financial institutions will have access to information in open form – to the State Register of Proprietary Rights to Real Estate, including archive components, the Register of Titles to Real Estate, the Unified State Register of Prohibitions on Alienation of Real Estate Objects, the Unified Register of Mortgages, the Unified Register of Powers of Attorney.
For banks. All changes made to the subject of the mortgage, for example, reconstruction, restructuring, construction, causing a change in the area of the property, first transferred to the mortgage, still remain the subject of the mortgage.
Accordingly, for the bank, this will reduce the number of refusals to register in out-of-court and judicial procedures as means of repossession of mortgage property.
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It is worth noting individually that this draft law does not violate the retroactivity of the law provided for by the Constitution of Ukraine.
Fundamentally, it will apply to obligations that primarily arise from new agreements, as well as in existing old agreements.
But if the dispute between the borrower and the lender is already at the stage of consideration in the court, then it is considered on the basis of the rules in force at the time of filing t o the court a lawsuit on protection of violated or disputed rights and interests.