New law on agrarian notes introduced in Ukraine

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New law on agrarian notes introduced in Ukraine

On 5 March 2024, the President of Ukraine signed the Law of Ukraine “On Agrarian Notes” that was passed by the Parliament of Ukraine on 22 February 2024 to become effective on 1 January 2025 (“Law”). The Law is a significant step forward towards further development of agricultural lending in Ukraine.

The Law introduces a new instrument for financing agricultural business in Ukraine – agrarian notes that will be an alternative to, and will co-exist with, the existing agrarian receipts.

New agrarian notes will differ from old agrarian receipts as follows:

  • issued in an electronic (non-documentary) form only (while old agrarian receipts exist only in a documentary form);
  • issued, transferred, and redeemed through the depository system (i.e., unlike old agrarian receipts, no certification by a notary will be required);
  • may be instantly issued for several periods of future crops (marketing periods); and
  • provide broader types of collateral for pledging, such as livestock and animal products (in addition to future crops available for security under old agrarian receipts).

The introduction of agrarian notes will have the following benefits:

  • agrarian notes will (i) evidence an unconditional secured obligation of a borrower to repay a loan/other due amounts (or supply certain amount of agricultural products) to a lender and (ii) entitle the latter to enforce the pledged collateral when the borrower fails to make required payments as outlined in such agrarian notes;
  • agrarian notes provide a greater level of reliability and protection of creditors’ rights allowing enforcement on the basis of a special extract from the register of agrarian notes having the force of an enforcement document (i.e., without submission to court or a notary);
  • agrarian notes will be a new type of securities available for trading in the capital markets providing lenders with a much more liquid financial instrument; and
  • issuance of agrarian notes will be done online without a need to involve intermediaries (such as notaries) which will allow to (i) streamline documentation and execution processes, (ii) reduce transaction costs, as well as (iii) make it easier for agricultural producers to receive access to financing.

All information on issued agrarian notes will be recorded in a separate register of agrarian notes that is intended to automatically interact with other public registers, including the State Register of Encumbrances over Movable Property, the State Register of Property Rights to Immovable Property, the Register of Agrarian Receipts, and the State Land Cadastre. This will allow to efficiently verify relevant information in the course of transactions with agrarian notes.

For additional information on the Law and other issues related to the pledge of agricultural products in Ukraine, please contact senior partner Glib Bondar.

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