In May 2017 Azerbaijan enacted the Law on the Encumbrance of Movables (2nd May 2017), which followed the UNICITRAL model law and functional approach to secured transactions. It governs the creation, priority and enforcement of all private security interests. The security interests are defined in accordance with the UNICITRAL unitary approach of including all types of rights over moveable property in order to secure payment or performance of an obligation, regardless of the form of that transaction. This will therefore include retention-of-title sales and certain finance leases, among other forms of security.
The 2017 law requires that the security interest is publicised either through registration, or otherwise possession of the collateral or control over the collateral. The publication governs the priority of security interests. However, non-publication will not affect the validity of the security interest, only its priority. For private security interests, publication is not necessary to perfect the security (this is compared to the position of certain state security interests under public law codes on tax and customs, which must be publicised).
The priority rules are first in time providing that the security interest holder has publicised their security interest in the prescribed methods. Those who have not disclosed their security interest will come second, with all other claims below security interests. Exceptions to this rule exist for acquisition finance, proceeds and purchases in the ordinary course of business, among others. The law also protects a secured creditor’s interest in property which does not retain its original state, utilising the value of property prior to commingling.
The new registry will be operated by the Financial Markets Supervisory Authority and will be an online registry.
The text of the 2017 law (in Azerbaijani) is available here.