International rolling stock financing in Russia

Under Russian law the proper security over rolling stock is a pledge, which can either take the form of a pledge over moveable property (zalog dvizhimogo imuschestva), or a pledge over goods in turnover (zalog tovarov v oborote). The difference between these forms of pledge is that the composition of the pledged assets is fixed in the pledge over moveable property, while the pool of pledged assets may change over time as long as the value of the pledged assets remains the same in the case of the pledge over goods in turnover. 

The pledge will normally be created in a written security document signed by the relevant parties.

There are no specific perfection requirements set by Russian law in respect of the pledge over rolling stock.

However, as the priority of the pledge depends on its registration in the register of notices of pledge over moveable property maintained by the Russian federal notarial chamber (the “Moveable Property Register”), it is advisable to register the pledge with the Moveable Property Register in order to give the pledgee priority over unregistered pledges or subsequently registered pledges. 

The registration application for the pledge may be submitted by either the pledgor or the pledgee. For the initial registration, the notary, who procures the registration, must be provided with a registration application identifying each moveable asset to be pledged together with the relevant pledge agreement in Russian (the pledge agreement itself does not require notarisation). The registration triggers registration costs which are, however, not substantial. 

Security over receivables would be created by a pledge under Russian law. Russian legislation does not recognise a concept of a security assignment as assignments are not designed for the purposes of security and do not provide for any priority upon insolvency.

The pledge will normally be created in a written security document signed by the relevant parties.

A pledge of receivables is not subject to any specific requirements for the perfection, but it is advisable that it be registered in the Moveable Property Register for the same reasons as the pledge over rolling stock. The registration triggers registration costs which are, however, not substantial.

Notification of the pledge to the debtor under the underlying agreement is not mandatory for the validity of the pledge; however, it is recommended to be done upon enforcement of the pledge since otherwise the debtor may (in theory) continue to make payments to the pledgor under the underlying agreement.

The assignability of the underlying agreement does not affect the validity of the pledge of receivables itself, however, in the case of an assignment prohibition therein, the pledgor may be held liable for the breach of the underlying agreement by its counterparty.

Russian law provides for the possibility to pledge all present and future receivables of a pledgor. A universal security instrument, which might secure all assets of a company, is also available. However, this instrument remains untested since pledges over some assets require registration (e.g. pledges over shares or immoveable property) and the common approach in the Russian market is to pledge different classes of assets (receivables) by way of separate pledge agreements.

Security of shares in a Russian joint stock company or participation interests in charter capital of a Russian limited liability company is normally created by way of pledge.

A pledge of shares in a joint stock company must be registered in the joint stock company’s register (which must now be held by an independent licensed registrar company). If the shares are held through a Russian depository (custodian), then the pledge is registered in the books of the depository. Upon execution of a share pledge agreement, the pledgor and the pledgee must sign a pledge order in order to register the pledge of shares in the shareholders’ register or in the books of the depository, depending on whether the relevant shares are held directly in the shareholders’ register or through the relevant depository. The share pledge agreement is not subject to notarisation.

For the pledge of participation interests in the charter capital of a limited liability company, the relevant pledge agreement must be notarised before a Russian notary. A special form of a pledge application is to be filled in by the pledgor in the notary’s presence and submitted to the tax authorities by the notary to be recorded in the Russian unified state register of legal entities which is available publicly.

A security over the shares or participation interests may be enforced by way of a court or an out-of-court enforcement procedure.

For enforcement by the court, the pledgee must file a claim together with the pledge of shares/participation interests agreement confirming the right of the pledgee to enforce the pledge. Court enforcement procedure is carried out by way of:

•  a public sale in accordance with the procedure conducted by the court bailiffs as provided by Russian law
•  a court-sanctioned sale directly to any third party, or
• by assumption of title to the security by the pledgee at the market value.

An out-of-court enforcement over the shares/participation interests will only be possible with a notarial endorsement to be obtained before the enforcement process can commence. The out-of-court enforcement is to be done in the same way as a court enforcement except that the public sale conducted by the court bailiff is replaced by an auction to be conducted in accordance with the terms agreed between the parties.

Provided that the rolling stock is located in Russia and is owned by the Russian entity, Russian law would apply to the transfer of ownership or creation of the security.

There is no uniform approach to the recognition of foreign law security in Russia, so it may be the case that foreign law security will not be recognised as such under Russian law. The market standard is that the security over assets located in Russia should be governed by Russian law for the purposes of enforcement through the Russian courts.

As stated above, there is no uniform approach to the recognition of foreign law security in Russia, so it may be the case that foreign law security will not be recognised as such under Russian law.

The law of the place of incorporation (or the place of business, if applicable) of the pledgor applies to the creation of security over receivables.

There is no uniform approach to the recognition of foreign law security in Russia, so it may be the case that foreign law security will not be recognised as such under Russian law.

Such structures are not used in Russia.

Not applicable as such structures are not used in Russia.

Not applicable as such structures are not used in Russia.