Agrarian Notes: A New Instrument to Finance Agrarian Business

On 22 February 2024, the Parliament of Ukraine adopted bill No. 9266 “On Agrarian Notes”, which will introduce a new financial instrument to the Ukrainian market: an agrarian note, previously presented as an “electronic agrarian receipt”. It is supposed to gradually replace the existing instrument with similar functional purpose, called an agrarian receipt. Although the bill is yet to be finalised, it will most probably be adopted as a law in the near future, after the President signs it.

The introduction of agrarian notes is a significant step towards the digitalisation of the Ukrainian economy. Thanks to its easier transferability and traceability, it is expected to further facilitate and open new opportunities for the financing of agrarians.

Agrarian notes will be a non-issuable security that will serve as a quasi-security for obligations under an underlying agreement: buyers (creditors) of the notes will obtain encumbrance rights under the notes and hold these instruments until the sellers (debtors) perform their obligations under the secured agreement, such as the repayment of a loan or the delivery of goods under a sales contract. If a certain condition is fulfilled, the noteholder will be entitled to foreclose the property pledged under the note. Practically, the agrarian note will work as a securitised pledge agreement.

The main differences between the new agrarian note and the old agrarian receipt based on the current version of the bill are as follows:

1. The agrarian note is a security, unlike the agrarian receipt. It will be obtained via the Central Depository, which should facilitate the process of issuing of a note. Notaries will not participate in this process (as is the case for the agrarian receipt) and, hence, all checks regarding, e.g. the existence of a pledged harvest or title to a land plot, will have to be done by the creditor itself.
2. Agrarian notes will exist only in a digital form, while agrarian receipts in documentary form. As the agrarian note is a non-issuable security, it will exist only as a record in the register. In practice, creditors will be able to form extracts from the register of agrarian notes, which could be used as full-fledged enforcement documents. On the accounting side, agrarian notes will be displayed on a balance sheet, while agrarian receipts can be displayed on an off-balance account.
3. Agrarian notes will have an extended list of assets subject to pledge and flexible enforcement opportunities. For example, they will allow animals and products of animal origin to be used as a pledge, penalties to be imposed, and an obligation to deliver goods converted into a monetary obligation.

As long as agrarian receipts are still in demand in the market, the Law “On Agrarian Receipts” will remain in force. Currently, there are no plans to discontinue it. Hence, both instruments will co-exist as alternatives.

The agribusiness and financial communities are looking forward to utilising the new instrument, so we expect that the almost year-long process of adopting the bill should end positively in the near future.

For more information please reach out to the authors of this article: Ihor Olekhov , Kateryna Chechulina .