Under Russian law, pledge is a common way to secure a supplier's interests and involves granting the pledgee preference in obtaining payment from the value of pledged goods if the debtor defaults. Pledge can be in the form of transferred possession to the pledgee or retained possession by the pledgor. The law provides an automatic pledge on supplied goods if payment is delayed or by installments. A written pledge contract is required, indicating the pledged goods and secured obligations. The pledgor normally uses the goods but cannot transfer them without consent. If the secured obligation is breached, the pledgee can claim enforcement by selling the goods at a court-supervised public auction, with the debtor retaining rights to pay the debt and stop the

1. Pledge
under Russian Law

2. Pledge and retention of title
under Russian Law
Pledge is a common solution for securing the
supplier’s interests under Russian law and it is
generally easier accepted by the Russian customers
if compared to the retention of title on the goods
supplied.

3. Pledge’s definition
under Russian Law
The Russian law qualifies the pledge as a security
interest granting to the Pledgee the right to obtain
payment of the amounts due from the value of the
pledged goods with preference in respect of other
creditors, in case of failure of performance on the
part of the debtor.

4. Forms of Pledge
under Russian Law
The Russian lawexpressly provides for2different forms ofpledge:
• pledge with transfer ofthe possession ofthe goods to the Pledgee;
• pledge where the possessionof the goods remains with the Pledgor. This type
of pledge is defined by the law as “hard pledge” in case there are marks on
the pledged property attesting the pledge. However, the law does not
regulate the “hard pledge” and therefore general rules onpledge apply.
The pledge can be created on any type of movable property (whilst in case the
security is made on animmovable property the lawon hypothecs applies).

5. Legal pledge
on the goods supplied
The Russian law provides a legal pledge in favour of the seller on the
goods supplied, in case of delayed payment and payment by
installments, until the complete payment of the contract price (such
provisions apply only in casethe contractis governed by Russian law).
However, it is advisable to stipulate a separate pledge contract, in order
to include a number of provisions finalized to a stronger protection of
the Pledgee’s interests.

6. Pledge contract
and related formalities
The pledge contract is valid if stipulated in written form (unless additional formalities
requested bythenature ofthesecured contract).
The pledge contract shall indicate the subject matter of the pledge and its value, the content
of the secured obligations and the relevant amounts due, the terms of performance of the
obligations, aswellastheindication ofthepartywhichshallhold thepledged goods.
In case the pledge is referred to machinery and equipment, no registration is requested by
thelawandthere isnopossibility toobtain sucharegistration neither onavoluntary basis.
In case the Pledgor is a company/business it shall keep a special register of the pledged
goods andshowsuchregister toanythirdparties, upon request.

7. The parties’ rights under the pledge obligation
The Pledgor can normally use the pledged goods according to its
normal economical destination, unless otherwise provided by
the pledge contract.
The Pledgor is not entitled to sell, rent or otherwise transfer the
pledged goods without the Pledgee’s consent.
The risk of loss or damages to the pledged goods is borne by the
Pledgor, if the latter holds the pledged goods.

8. Enforcement of pledge: right to claim
The Pledgee has the right to claim for the enforcement of the pledge in case the
securedobligationisnotperformedorisimproperlyperformedontheduedate.
However, the enforcement is not possible in case the contractual breach under the
secured obligation is of small importance and the amount claimed is too low if
compared with the value of the pledged goods. In case the secured obligation shall be
performed by periodical payments, the enforcement of the pledge is possible in case
of“systematicbreach”ofthetermsofpayment.
The Pledgee has the right to request the Pledgor the performance of the secured
obligations before the due date (and consequently to request the enforcement of the
pledge), in case of an unauthorized transfer of the pledged goods on the part of the
Pledgor.

9. Enforcement of pledge: the procedure
The Russian law provides a detailed procedure of sale of the pledged goods
in case of default.
The general rule is that the sale of the pledged goods is carried out before the
court. However, the parties can agree (also in the pledge contract) for an out
of court sale procedure.
The pledge contract may also provide the right for the Pledgee to (i) become
the owner of the pledged goods in case of default, or (ii) sell the goods
directly to a third party. However, in both cases the Pledgee shall pay to the
Pledgor the difference between the current market value of the goods, as
estimated by the expert, and the amount due under the secured obligation.

10. Enforcement of pledge: public auction
Ifthepledgecontractprovidesforanoutofcourtsaleprocedure,thepledgedgoodsshallbe
sold by public auction, at the initial price amounting to the 80% of the market price as
estimated bytheexpert (unless otherwise agreed bytheparties inthepledge contract).
The public auction is not valid if (i) less than 2 bidders participate to the auction or (ii) the
initial price does not increase. In such case, a second public auction shall be held within a
month, withaninitial price reduced ofthe15%ofthepriceofthefirst auction.
Incase the second public auction is not valid, the Pledgee is entitled to become the owner of
the pledged goods for a price reduced of the 10% of the initial price of the second auction
(provided that if such amount is higher than the amount of the secured obligation then the
Pledgeeshall paythedifference tothePledgor).
In case the second public auction is not valid and the Pledgee does not buy the pledged
goods, thenthepledge contract isterminated.
.

11. Enforcement of pledge: debtor’s rights
In any moment before the transfer of the ownership of the goods,
the debtor is entitled to interrupt/terminate the enforcement
proceedings by performing the overdue secured obligation
(even though the Pledgor has other pending secured obligation
which are not expired vis-à-vis the Pledgee).
Any waiver on the part of the Pledgor of the above right to
interrupt/terminate the enforcement proceedings by performing
the overdue secured obligation is null and void.

12. Pledge
under Russian Law