“A new tool, which is an improved version of agricultural receipts, will start working in January. What are its advantages?”, — write: www.epravda.com.ua
Supporting the agricultural sector plays an important role in the economic development of Ukraine, stimulating the growth of domestic production and strengthening the nation’s food security. Simplifying the access of farmers to financing can increase the productivity and profitability of the industry, provides an opportunity for producers of agricultural products to invest in the latest technologies and innovative solutions, which contributes to increasing the efficiency of production.
In Ukraine, the tool of agricultural receipts has proven itself effectively. It records the debtor’s unconditional obligation, which is secured by a pledge, to deliver agricultural products or pay money under the conditions specified therein.
Introduced by the law “On Agrarian Receipts” in 2013, this tool allowed farmers to attract financing in the amount of more than 2.4 billion dollars. Creditors who finance agricultural receipts are usually suppliers, distributors, banks, traders and processors.
Users (debtors and creditors) of agricultural receipts in Ukraine assessed the advantages of this tool for attracting credit resources. At the same time, ideas arose regarding its improvement, in particular, the simplification of mechanisms for issuing agricultural receipts, their circulation and forced fulfillment of obligations. These ideas, dictated by the practice of their use and response to the needs of farmers and creditors, became the basis for legislative changes.
Thus, in February 2024, the law “On Agrarian Notes” was adopted, which will enter into force on January 1, 2025.
Agrarian receipts continue to exist as usual. Agrarian receipts and agrarian notes are two instruments that have the same purpose (to attract financing to the agricultural sector against the collateral of agricultural products), but different legal nature and other differences. The following principle applies – choose what is optimal for you, but it is important that an agrarian note cannot be used simultaneously with agrarian receipts by the same debtor and in relation to the same collateral.
The main differences between agricultural notes and agricultural receiptsFirst, the list of agricultural products that can be subject to a pledge has been expanded. An agrarian note allows you to pledge crops, livestock and/or primary processing products, which provides opportunities for financing a much larger range of agricultural producers.
The second difference is that the agricultural receipt by its legal nature is a commodity document, and therefore has limited use. And the agrarian note is a non-issued security and, accordingly, an independent object of civil rights. This means that such an instrument can be the subject of a pledge, contracts on the transfer of property into ownership, inheritance, etc.
Also, an agrarian note can be used to make payments under current contracts (if this is provided for in the terms of the contract).
The third is that the agricultural receipt is paper, its execution requires a notary certificate. The agrarian note is drawn up and exists in electronic form, which is convenient and technological. At the same time, the performance of control functions during the issuance of an agrarian note is ensured in the mode of electronic exchange of information of the Register of Agrarian Notes with state registers.
The following difference follows from this – Frthe agrarian receipt is kept in the Register of Agrarian Receipts, and the agrarian note is recorded in the securities account in the depository system with information about its details and other information displayed in the Register of Agrarian Notes.
What does this mean? Accounting in the depository system opens access to organized capital markets, providing the possibility of concluding transactions regarding agrarian notes on the organized market and potentially greater opportunities for access by non-resident creditors through the correspondent relations of the Central Securities Depository. Also, servicing of the agrarian note will be carried out “next to” other securities owned by the creditor, which provides convenience and simplifies management of the investment portfolio for the creditor-investor.
Finally, the fifth difference is athe agricultural note has an improved enforcement mechanism – the creditor generates a special extract from the Register of Agrarian Notes (electronic, is an executive document) and the Central Depository presents it for execution through an automated system of executive proceedings. Agrarian receipts are subject to compulsory execution through the executive inscription of a notary public.
How the Register of Agrarian Notes will functionThe holder and administrator of the Register of Agrarian Notes will be the Central Depository of Securities, which will also ensure the daily exchange of information between the Register and the depository accounting system. This exchange is aimed at prompt display of current information in the Register, ensuring the cycle of functioning of agrarian notes (in particular, issuing, changing details, conducting operations, fulfilling obligations under this instrument), as well as implementing certain control functions to ensure the implementation of the spirit of the law.
The Register of Agrarian Notes will ensure interaction and exchange of information with state registers, as well as interaction with the automated system of executive proceedings to ensure prompt presentation of a special extract from the Register for enforcement.
It is assumed that the Register of Agrarian Notes will have electronic offices for all participants of relations under agrarian notes, which will have the functionality necessary for them to realize their rights and obligations.
Who can issue an agrarian noteThe right to issue agrarian notes belongs to persons who own the land plot for agricultural purposes or the right to use it, in particular, for the production or processing of agricultural products.
In the event that the ownership of a plot of land or the right to use it belongs to two or more persons, the agrarian note is issued jointly by such persons, they bear joint responsibility for non-fulfillment of obligations.
An agricultural cooperative that does not own or use a plot of land for agricultural purposes may issue agricultural notes if at least one member of such a cooperative owns a plot of land for agricultural purposes or has the right to use such a plot of land. Such a member of an agricultural cooperative must consent to the issuance of an agrarian note and is jointly and severally liable for the obligations on such an agrarian note.
Article 4 of the Law “On Agrarian Notes” prohibits certain categories of persons from being participants in relations based on agrarian notes (in particular, persons associated with the aggressor state or to whom sanctions have been applied, included in the list of persons associated with the conduct of terrorist activities or to which applied international sanctions and others). The Regulation on the Register of Agrarian Notes, approved by the NCCPFR, establishes the legal consequences of violating the above requirements.
What is required in order to issue an agricultural noteSince the agrarian note is a security, in order to ensure its depository accounting, it is necessary to carry out preparatory actions:
- the creditor must take care in advance of concluding an agreement with a depository institution and opening an account in securities, to which the agrarian note will be credited in the future (unless he has such an account);
- the debtor must enter into an agreement with the Central Depository (unless he has such an agreement). It will also be necessary to submit the appropriate order and documents for operations related to the inclusion of an agrarian note in the depository accounting system.
To fill in and agree the details of the agrarian note, as well as to initiate the process of issuing it, the debtor and the creditor must open electronic offices in the Registry of Agrarian Notes. The central depository verifies the details of the agrarian note through electronic interaction with state registers, after that transfers information about the details of the agrarian note to the depository system and ensures the crediting of the agrarian note to the creditor’s securities account.
Launch of agricultural notes: final preparationThe launch of the new tool is less than two months away. State bodies are completing work on the implementation of a complex legislative framework for the regulation of agrarian notes, the Central Depository is working on technological implementation and building a business process, farmers and creditors are researching a new tool for themselves and considering the possibilities of its use already next year.
We are waiting for the first agar notes to appear and cheer for the success of the project.
EY in Ukraine acts as a consultant to the Project of the International Financial Corporation (IFCWorld Bank Group) “Development of access of the agricultural sector of Ukraine to capital markets”, which is implemented in partnership with the Swiss Confederation, regarding the development of a regulatory framework for the implementation of the law “On Agrarian Notes” from January 1, 2025.