New regime needs tweaks

Author: | Published: 1 Jun 2009

When a creditor takes security the two most important goals are first, obtaining a proprietary interest in the secured assets that will remain effective if the security provider becomes insolvent, and second, enforcing the security to discharge secured indebtedness at the time, and in the manner, it deems appropriate.

Until recently, the biggest practical difficulty with enforcing Russian security was that a creditor was in practice unable to avoid recourse to the courts. And any secured assets had to be sold at a public auction. The priority of the secured creditor was also curtailed if the security provider becoming insolvent. This placed Russian companies at a disadvantage when competing for international financing.

A new federal law (effective January 11 2009) amended a number of acts to improve these issues. It should be noted that Russian law sets out specific regimes for enforcing security against certain assets (such as residential apartments...