Trust ownership as a way of securing obligations

The Law of Ukraine “On making amendments to Certain Acts as regards Encouraging Investment Activity in Ukraine”, adopted by the Verkhovna Rada of Ukraine on September 20, 2019, introduced into Ukrainian legislation the concept of trust ownership as a way of ensuring fulfillment of obligations, which is a type of property right  property for which the creditor who has received the property in the trust ownership (the trustee) is not entitled to dispose of such property independently, except for the purpose of recovering it, as well as redeeming it for public needs in the order established by the law.

Under the agreement establishing the trust ownership, one party (the trust founder) transfers the property to the other party (the trustee) based on the right of the trust ownership to secure the debtor’s obligations under the credit contract, the loan agreement.  In this case,  the property right of the person who has transferred his property into the trust ownership shall be terminated from the moment of establishing the trust ownership.

It is also possible to obtain property into trust ownership under a contract for the acquisition of property in trust ownership from a third party in the interests and upon the recommendation of the other party.

The main characteristics of trust ownership as a way of securing obligations are:

  • The object of trust ownership may be any property that may be alienated and enforceable, except for securities and corporate rights, unless otherwise provided by law.
  • Transfer of ownership of the property to the trustee.
  • The right to dispose of trust property is restricted for the trustee. He is entitled to sell the property or recover the cost only after the breach of the principal liability by the trusted founder.
  • The right to use the property transferred to the trust deed may be restricted by the contract. Both the trust founder and a third party may use the property in accordance with the contract.
  • The emergence of trust ownership is possible only on the basis of a written contract, and regarding real estate it is also possible from the moment of registration in the State Register of Real Property Rights for real estate.
  • A return of charging over a trust deed object is made by selling it to any person, who is the buyer, by the trustee. The contract may establish the right of the trustee to receive the object of trust deed into his ownership (without restrictions on use and disposal) at the expense of the debtor’s obligations.
  • The termination of the trust ownership occurs due to the termination of the basic obligation by transferring the property based on the statement of transfer and acceptance.

Trust ownership as a way of securing obligations has a lot in common with a mortgage, but it also has its own peculiarities.  Time will tell the benefits inherent in this institute and the risks it will bring to the Ukrainian legal system.

– Oleg Zheryobkin, attorney at Dynasty Law Firm.

 

Publications 2 January, 2020

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