On April 30 2012 the Higher Specialist Court on Civil and Criminal Cases issued a resolution that seeks to ensure the correct and consistent application of the law in cases arising from the conclusion and execution of credit agreements. The resolution reflects the volume of such disputes that have come before the Ukrainian courts since the global financial downturn.

In addition to certain procedural matters, the court has clarified a number of controversial aspects of credit disputes, addressing problems that may arise when parties seek to set aside or terminate credit agreements, as well as questions relating to mortgages and pledged property.

In some respects the resolution significantly undermines the right of debtors to set aside credit agreements. The court confirmed that a credit agreement cannot be set aside because the borrower obtained the loan without his or her spouse's consent. The law requires a spouse's consent only in cases where property is alienated, not where money is acquired on credit.

The court further held that a change in the exchange rate of the currency in which the loan is denominated does not, in itself, constitute sufficient grounds to terminate a credit agreement, as the debtor could reasonably have foreseen the possibility of such a change or could have obtained a loan in hryvnia.

The resolution also clarifies certain aspects of disputes arising from mortgage agreements. Ukrainian law provides substantive protection for the rights of minors who are registered as residing in a mortgaged property - a statement from the child protection authorities is required, certifying their permission for the property to be mortgaged to the bank. Debtors have often sought to exploit this requirement in order to set aside mortgage agreements. The court confirmed that mortgage agreements may be declared null and void if the required statement was not obtained before they were concluded. However, the rule does not apply if the property guarantor took any related actions (eg, registering the child at the address) after the conclusion of the agreement and without the mortgagee's consent.

Aspects of the ruling further provide vital protection for debtors' rights. For example, in debt collection cases the court may not issue an injunction to prohibit the debtor from leaving the Ukrainian territory. Moreover, a court judgment may provide for recovery of the debt or foreclosure of the mortgaged property, but both measures may not be applied simultaneously.

In general, the resolution will be welcomed by legal practitioners, as it goes some way to resolving questions of court practice in this area and protecting the rights of both creditors and debtors in litigation arising from credit agreements.

For further information on this topic please contact Anna Kozhemiachenko or Andriy Pozhidayev at Asters by telephone (+380 44 230 6000), fax (+380 44 230 6001) or email ([email protected] or [email protected]).