3.4. The legal consequences of registration

The main legal consequence of registration under the pledge registration law is the priority among competing claimants. Priority is extremely important as, where the debtor cannot pay all its creditors, payment of a creditor will depend on the order of its priority. Unfortunately, only two priority conflicts are dealt with in the new Russian pledge registration law, the conflict between competing pledges and the conflict between a pledge and the rights of a transferee of the pledged assets.

If the competition is between a registered and an unregistered pledge, the one that is registered prevails <1>. If the competition is among registered pledges, the time of submission of a application or an electronic notice to the notary determines the order of priority <2>. In the case of a transfer of pledged assets, the transferee acquires them subject to the pledge, except if the information on the registry record is incomplete and a person was not and could not be aware of the existence of the pledge <3>.

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<1> Article 22.3.

<2> Article 22.4.

<3> Article 18.1.

As already mentioned, the pledge and the pledge registration provisions need to be integrated, now or later, or, at least, closely coordinated. In addition, priority conflicts with all possible competing claimants should be addressed (among secured creditors, whether they have registered or not, and between a secured creditor, on the one hand, and a transferee of the encumbered assets, a retention-of-title seller, a judgment creditor or the administrator in the insolvency of the grantor, on the other) <1>. This would enhance certainty and transparency in the law.

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<1> See definition of the term "competing claimant" in the Introduction, section B of the Guide.

Moreover, the time of effectiveness of the notice should be changed to the time the notice becomes available to searchers <1>. This means that searchers may rely on the registry and need not delay extending credit to a grantor. If a third party searches the registry record, registers a notice, concludes a security agreement and extend credit, it should not lose its priority simply because another notice was registered earlier but became available to searchers later. Otherwise, no searcher could rely on the registry record or delay a transaction until all notices would become available to searchers (assuming that all notices submitted one day would be made available the next day). Alternatively the law should permit advance registration and require the notary to enter the information in the record in the order it was submitted. After submitting a notice, a third party would have to wait a reasonable period of time for all registered notices to become available to searchers, make sure that it had the expected order priority and then extend credit.

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<1> Recommendation 70.

Finally, some exceptions to the registration-based priority rules need to be introduced In the Guide, there are detailed rules about the various methods of third-party effectiveness (including by registration in a specialized registry, such as a ship, aircraft, patent or trademark registry, possession and control) and corresponding priority rules. The reason for this approach is that registration is not the best way for pledges in all types of asset. For example, giving priority to a registered pledge in a negotiable document over a pledge held by a person in possession of the document would undermine the negotiability of the document. Similarly, giving priority to a registered pledge in a bank account over a pledge in favour of the depositary bank could undermine bank financing and be unrealistic as in any case the depositary bank's set-off rights would normally have priority.