Bakhromjon Mukhammadiyev

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1. Introduction

      The analysis of statistical data on cases related to debt collection shows that the number of conflicts in this category in court practice is increasing year by year. For example, in 2020, the judge of civil courts heard a total of 11,105 cases related to debt recovery, while in 2021, this figure was increased to 26,066, and in 2022, it reached 29,796. Therefore, life itself demands that people shall increase their legal awareness and literacy on this matter.

      While during the lending, many creditors(lenders) think that the problem will be solved if the borrower signs in the debt agreement that proves his or her debt and when a time for its return. My argument is following: when the creditors lends for someone, first of all they should consider the borrower’s ability to repay the debt, and in the process of formalizing the debt in the agreement, they should mark pledges or guarantees that are considered a measure to ensure the obligation in the contract. In this blog post, I will explain what aspects citizens should pay attention to when concluding a debt agreement, introduce pertinent legal system, and the latest court practices.

      2. Debt issues in the legislation of Uzbekistan

      The following explanation is given in the chapter on arranging debt issues under the Civil Code.According to the debt agreement, the creditor gives the money or items indicated by number, measurement, and weight (for example, 25 pieces of slate or 100 kg of wheat) as property to the borrower, and the borrower undertakes to return the debt to the creditor all at once or in installments. In this case, the borrower does not have to return the borrowed items that are exactly the same as the previous ones, but he or she can return items that are equal to their type, quality, and quantity.

      The debt agreement must be made with writing form in two cases:

            a) if citizens conclude a debt agreement between each other and the amount of this debt is more than ten times the amount of the basic calculation (minimum wage);

            b) if one of the sides is making the debt agreement with a legal entity, it must be made with writing form, regardless of the amount.

      This agreement is considered to be made in written form if the borrower receives a receipt stating that he has taken a debt or another document confirming that he has taken a debt. The borrower must return the amount of the received debt to the creditor within the period and in the order specified in the debt agreement. If the date of repayment of the debt amount is not specified in the contract, the borrower must return it within thirty days from the moment the creditor makes a demand for repayment. Failure to comply with the normal written form of the agreement does not render it invalid, but when a conflict arises between the sides, they do not have the right to use the testimony of witnesses to express the content of the contract.

      3. What should we do to avoid problems that may arise from a debt?

        3.1.Determining the borrower’s financial ability

        While lending, we should also take into account whether the borrower has the financial ability to repay the debt when the due date comes.

        If a lender gives a loan to a person who does not have any material or non-material finance, then the same lender may not be able to recover debt within the specified period. The issue of determining a person’s financial situation is explained in the law “On Insolvency“. According to it, the borrower’s financial situation, property, accounts, and deposits, including credit cards, electronic balances, and electronic money transfers, are determined by asking for information from individuals and legal entities (including credit organizations), the state tax service, customs authorities, and organizations that register real estate documents. Furthermore, in this situation, attention is paid to the fact that the borrower has a real source of income and a job.

        3.2. Making the loan agreement in written form

        The legislation does not deny making the loan agreement in oral form, but if a conflict arises, it will be difficult for the lender (creditor) to prove that the agreement was made due to the fact that the agreement was concluded orally. Because both sides of the loan relationship are deprived of the right to confirm the conclusion, content, or execution of the contract with the testimony of witnesses according to the law. If the person named A lends 3 million soums to a person named B and he or she does not make a written contract, it will be very difficult for him/her to get the debt back. In this situation, if the borrower returns the loan, the problem will be solved. Otherwise, the lenders will not be able to return their funds. At the same time, if the borrower does not deny the fact that he or she received money or goods, it is not required to confirm it with written evidence.

        In general, when people lend to each other, regardless of the amount, whether it is 500 thousand or 5 million soum, he or she should receive at least a receipt from the borrower. Because, according to the norms of the Civil Code, the borrower’s receipt is the basis for considering that the loan agreement was concluded in writing form, and the judge at courts accepts the receipt as evidence and evaluates it as a means of proof. Therefore, when making a loan agreement, it is advisable to make the agreement in written form.

        A relevant court practice

        Here, I will introduce a court case related to the topic. Torayeva Gulzodakhon applied to the Izboskan Inter-District Court for civil cases with a lawsuit about “debt recovery” from a limited liability company named Izzatbek Trade Capital LLC and additional defendant Yuldashev Usarboy. According to tha facts of the case, On September 16, 2020, Torayeva Gulzodakhon signed a contract with Izzatbek Trade Capital LLC.  They agreed to buy a house from a residential building which was under construction for the total cost of 265,600,000 soums and handed over 26,800,000 soums in advance to Usarboy Yuldoshev, who is the manager of the company. She asked several times Usarboy Yuldashev to return the money, but when she could not receive the money, she applied to the court for recovery of his 26,800,000 soums.

        M.A. Toshmatova, who is the chief judge of the Izboskan inter-district court, got acquainted with court case documents and evidence, and she gave a legal assessment of how much they followed the rules of the loan contract (about the loan agreement having to be made in writing) during the loan agreement between the sides. Due to the borrower’s failure to fulfill his obligations, the chief judge decided to collect 26,800,000 soums in favor of the plaintiff, Torayeva Gulzodakhan, from the account of the defendant, Izzatbek Trading Capital LLC, and the additional defendant, Usarboy Yuldashev.

        3.3. Demand to be placed on the pledge.

        Careful lender shall need to take some of the borrower’s property as a pledge and get it notarized. This gives the lender the right to be the first among other creditors of the borrower to recover his or her fund from this pledge in case of future problems.

        3.4. Demand the third side’s guarantee.

        Lender should also require the borrower’s guarantee to be placed on his side. This gives the lender the right to demand the appropriate money or material from the guarantor who has taken obligation along with the borrower. This legal mechanism makes lender easier to restore his or her funds from the borrower in case of unfulfillment of the contract.

        3.5. Preservation of the evidence of lending.

        Let’s imagine that the lender failed to make a contract with a borrower in a writing form. In such cases, to prove the relationship between lender and the borrower, a lender can use (from other sources) the audio of phone conversation or correspondence with the borrower, which proves that borrower truly received a loan from a lender.

        4. If there is nothing in the borrower’s name, how will the debt to be collected?

        4.1. Recovery is focused on the rights of the borrower on the third side.

        In this situation, the creditor must be active together with the executor. If the debtor has neither money nor property in his name, and the creditor proves with documents that the borrower has a right to an individual or legal entity, the executor can apply that debt to the rights of the borrower’s third-party’ fund without the borrower’s permission (The Law on the Execution of Court Documents and Documents of Other Organs). To explain more, lets imagine that a borrower has no money or property, but he or she has rights on the third party (the third party can be an enterprise, organization, or the borrower’s office; wages or rewards may be gathered; or another citizen; for example, the borrower sold property to this citizen and did not receive the money, which means that in these cases, the borrower has rights over the 3rd parties). If the creditor proves that the borrower intentionally transferred his property to someone else in order to avoid paying the debt, he has the right to apply in civil court and demand that the contract on the removal of the property from the borrower’s disposal be canceled.

        4.2. The recovery can also focus on the borrower’s salary, stipend, and pension.

        If the borrower has neither property, nor rights on the other three sides, the recovery can be focused on the borrower’s salary, stipend, and pension. But in this situation, the money collected should not exceed 50% of the total value of the debtor’s salary, stipend, and pension. Because the borrower needs the remaining 50% for his or her living needs.

        4.3. By banning the borrower from going abroad.

        If there is no income, the borrower does not work anywhere, he or she does not have a stipend, does not study, and does not receive a pension, the executor prohibits the borrower from going abroad. And in this case, the execution is stopped, but that does not mean that the execution is completed. If the creditor or the executor becomes aware of the existence of property in the name of the borrower, the execution will be resumed immediately, and the execution will continue.

        In conclusion

        In this blog post, I have discussed the issues arising from the debt agreement. During the analysis, based on various legal sources and judicial practice related to debt agreements, attention was paid to not only the aspects of the process of making a debt agreement in written form but also to pledges and guarantees, which are considered measures to ensure the obligation. In addition to making it up in written form, I also came to the conclusion that it is necessary to take into account the financial situation of the borrower.

        Cite as:  Bakhromjon Mukhammadiyev, “Problems surrounding the loan agreements and debt recovery in Uzbekistan”, Uzbekistan Law Blog, 17.04.2024.