The risk of recognizing a writ on an agrarian receipt unenforceable is substantially lower than that in respect of a writ executed for a pledge agreement for the future crop.
Granting a future crop as a pledge to creditors is one of the most common instruments to ensure the obligations of small and medium-sized farmers when they raise funds for high-cost activities, in particular, for spring sowing. The main reason is that these people do not have enough liquid assets, which could be a security that is commensurate with the amount of the loan received.
A debtor’s failure to fulfill the main obligation under the pledge agreement for a future crop grants a creditor the right to turn to a notary for execution of the writ, which is essentially the initial stage of foreclosure on such a crop. The main condition for the implementation of this procedure is the availability of a respective pledge agreement in a notarial form.
At the notary
A creditor has also a similar right under the agrarian receipt. Such receipts are drawn up on established forms and are subject to mandatory notarial certification (Articles 4 and 6 of the Law of Ukraine “On Agrarian Receipts”).
According to the general rule, the prerequisite for execution of a notary’s writ, besides the observation of the notarial form of the transaction, is the indisputability of indebtedness or other liability of a debtor (part 1 of Article 88 of the Law of Ukraine “On Notary”).
The execution of a writ on a pledge agreement for the future crop is carried out according to the standard procedure, including the provision to a notary of an original of the notarized agreement and documents confirming the indisputability of the debtor’s indebtedness, as well as establishing the fact of the delay in fulfilling the obligation (paragraph 1 of the List of Documents for which Debt Collection is Carried Out as an Indisputable Procedure Based on the Notaries’ writs, approved by Decision of the Cabinet of Ministers of Ukraine, dated 29 June 1999, No. 1172).
Now therefore, to execute a writ on a pledge agreement for the future crop, it is necessary to provide only an original of the respective agreement and documents, which a notary deems sufficient proof of the indisputability of the indebtedness. But today the law does not establish an exhaustive list of documents confirming the indisputability of a debtor’s indebtedness, which creates the ground for that unscrupulous debtors could seek legal recourse with claims to recognize the writ unenforceable.
Until recently, the court practice, in cases on the recognition of a writ unenforceable, determined as the sole basis for the satisfaction of the claim the existence of a dispute over the amount of indebtedness at the time of the notarial execution of such a writ (the legal position of the Supreme Court of Ukraine, stated in Decision, dated 4 March 2015, in case No. 6-27tss15 and in Decision, dated 11 March 2015, in case No. 6-141 tss14).
However, later the Supreme Court of Ukraine formed a new position, according to which a court in resolving the dispute on recognizing a writ unenforceable should not limit itself only with examination of the notary’s following formal procedures and the fact whether the claimant has provided documents confirming the indisputability of the indebtedness in accordance with the list of documents established by law (Resolution, dated 5 July 2017, No. 6-887tss17). For the correct application of the provisions of Articles 87 and 88 of the Law of Ukraine “On Notary” in such a dispute, a court shall verify the debtor’s arguments in full, establish and indicate in the decision whether, at the time of the notarial execution of the writ, the debtor had indisputable indebtedness to the creditor, i.e., whether the indebtedness existed at all, whether the indebtedness was in the exact amount as indicated in the writ, and whether there were any outstanding disputes regarding the indebtedness or its amount at the date of execution of the writ.
In other words, the Supreme Court of Ukraine, by making the aforementioned decision, has substantially expanded the range of circumstances that are subject to investigation in the course of a court’s assessment of the indisputability of indebtedness, thus actually increasing debtors’ possibilities in proving the illegality of a writ. At the same time, the new Supreme Court has not yet expressed its opinion on the list of circumstances to be investigated in the related categories of disputes.
The current legislation contains special provisions mentioning the documents required for the execution of a writ on a agricultural receipt, including: an original of the agrarian receipt without a mark of its execution; a copy of the written request to eliminate the violation in fulfilling the obligations certified by the creditor and sent to the debtor; an original of the payment document on the provision of postal services and the description of enclosures that confirm the sending of the written request to eliminate the violation in fulfilling the obligations to the debtor (paragraph 12 of the List of Documents for which Debt Collection is Carried Out as an Indisputable Procedure Based on the Notaries’ writs, approved by Decision of the Cabinet of Ministers of Ukraine, dated 29 June 1999, No. 1172).
In addition, the existence of an agrarian receipt without a mark of its execution serves as sufficient evidence of the indisputability of a creditor’s claims under the agricultural receipt (Part 1 of Article 13 of the Law of Ukraine “On Agrarian Receipts”). That is, the current legislation actually establishes absolute indisputability of claims for an outstanding agrarian receipt, which completely excludes the possibility of challenging a writ executed on it.
Consequently, the risk of recognizing a writ on an agricultural receipt unenforceable is substantially lower than the similar risk in respect of a writ executed under the pledge agreement for the future crop.
The main feature of an enforcement procedure for agricultural receipts is that the property pledged as security for such receipts is subject to mandatory transfer to an execution creditor for safekeeping (if the crop has been harvested) within seven days from the day of the opening of the respective enforcement proceeding (paragraphs 2–3 , 5–6 of Section XI of the Instruction on the Organization of Enforcement of Decisions, approved by Order of the Ministry of Justice of Ukraine, dated 2 April 2012, No. 512/5).
It is worth noting that the refusal of a creditor (a creditor under the agricultural receipt) to take collateral for safekeeping is the basis for the return of the enforcement document to an execution creditor.
Now therefore, the effectiveness of enforcement of an agrarian receipt is directly dependent on the execution creditor’s ability to provide safekeeping of collateral (agricultural products).
According to the general rule, which applies even if foreclosure is taken on the subject of pledge under the pledge agreement for the future crop, the arrested property after its inventory and seizure may remain in the possession of a debtor or be transferred for safekeeping to another person specified by an enforcement official (part 1 of Article 58 of the Law of Ukraine “On Enforcement Proceeding”).
In addition, an agrarian receipt by virtue of the law does not require making changes to it regarding the subject of pledge of agricultural products after harvesting, as it is required by a pledge agreement for the future crop. Accordingly, at the date of harvesting, the subject of pledge under the agricultural receipt is the respective amount of agricultural products harvested, and the obligation to prove the origin of such products is assigned to a debtor under the agrarian receipt (part 3 of Article 7 of the Law of Ukraine “On Agrarian Receipts”).
Now therefore, the use of agrarian receipts in relations related to foreclosure for the future crop of agricultural products simplifies the identification of a subject of pledge in comparison with the pledge agreements and provides additional guarantees for protecting the rights of a creditor while simultaneously demanding from him to ensure the possibility of taking collateral agricultural products for safekeeping.
Yuri Mosunov, Assosiate, Dispute resolution practice,
specially for “Yurydychna praktyka” №14, 03.04.2018