The courts of three instances found foreign currency swap transactions concluded between PAO “BM-Bank” and OOO “Platinum Nedvizhimost” invalid as they have become unprofitable for the bank’s client due to the sharp currency devaluation in Russia (case No. А40-168599/15). In the courts’ view, the client was misled by the bank, an investment professional, in respect of the transactions’ profitability. In particular, the bank was found to have failed to inform the client of the relevant risks in violation of the principle of good faith. This approach of the courts creates significant risks for the banks as the financial market participants.

The decision is primarily based on the principle of good faith (bona fides) and the associated duty of banking institutions to safeguard their clients’ best interests (the duty of care). Despite the fact that the foreign currency swap transactions did not formally breach the legislation and standard banking requirements, they posed a significant economic risk for the client.

Due to this, the bank, being an investment professional, was obliged to take all necessary steps to explain the transactions’ underpinnings to the client and to clarify its legal and economic nature as well as possible consequences and risks. In violation of this obligation the bank did not provide its client with calculations of possible consequences and, contrarily, marketed the transactions as more beneficial than an ordinary currency loan. Moreover, the transaction’s conditions were aimed at safeguarding the bank’s position in the event of currency devaluation and failed to take into account the client’s interests. 

The aforesaid factors in their totality led the courts to the conclusion that the transactions entered into between the bank and the client are invalid as contrary to the principle of good faith (Articles 1 and 10 of the Russian Civil Code). Although similar practice is known to most developed legal systems, the experts note that it may cause instability in the financial market. Due to this, it is very likely that the courts’ decisions will be appealed by the bank to the Supreme Court. 

On 2 October 2016 a new law entered into force, establishing a new type of a non-profit unitary organization “Public legal entity” (PLE). The new type of legal entities is supposed to help the Government to achieve its objectives efficiently using free market mechanisms.

According to the new law a PLE is a unitary non-profit organization, established by the Russian Federation, empowered with functions and powers of a public character, acting for the interest of the state and society.

A PLE can be established by the Federal Law or the President’s decree. Moreover, it can be incorporated by restructuring a private corporation fully owned by the Russian Federation (being its sole shareholder). However, although a PLE is empowered with public functions, the Russian Federation is not liable for PLE’s obligations and vice versa.

Amendments to the Labor Code of Russia will enter into force on October 3, 2016. The amendments will change the procedure of salary pay-out and increase the fines for delaying salaries. According to the new rules, salaries must be paid within the first 15 days of each calendar month. The exact day of salary pay-out can still be specified in a company’s internal regulations.

If, however, salary pay-out is delayed, the company and its officials may be subject to administrative fines, which will be increased under the amendments. Company’s officials may therefore be liable to a fine up to 20 thousand rubles, and the company itself may have to pay up to 50 thousand rubles. In case of repetitive violations the fines will be even higher, amounting up to 30 thousand rubles for the responsible officials and to 100 thousand rubles for companies.

Employers should also be aware that interest accrues to all delayed salaries. Thus, each employee whose salary was delayed is entitled to statutory interest of at least 1/150 of the Central Bank’s key rate (currently 10%) per each day of delay.

The Ministry of Economic Development proposed to clarify the procedure of maintaining the state register of federal property leasable at reduced rates. The novelties will enable small and medium-sized businesses to nominate desired real estate objects owned by the state for their inclusion into the register.

Currently, the federal register of leasable property contains a negligible amount of property that can be used by small and medium-sized businesses. At the same time, the register is updated on the basis of state-aggregated data with no input from entrepreneurs.

Thanks to the proposed amendments, it will be possible for entrepreneurs to provide their opinion as to the real estate objects they are interested in leasing. To nominate an object entrepreneurs are expected to submit proposals to the Federal Agency for State Property Management (Rosimushchestvo), which is obliged to consider each proposal within 10 days.

The amendments also establish a new procedure of maintaining the register of leasable property. The Federal Agency for State Property Management will be obliged to conduct auctions for property lease at a reduced price within a year from the date of inclusion of property on the list. Otherwise, if a listed object is not leased within 2 years, it is subject to exclusion from the register. 

The Ministry of Finance has prepared draft “Principal directions of the taxation policy for 2017-2019”, according to which property taxes will be imposed on land plot owners even if the residential premises located on such land plots were not registered in the state register.

Under the legislation currently in force, it is impossible for the tax authorities to charge property taxes in respect of unregistered premises, even if they are fully constructed and functioning. Due to this, many land plot owners construct residential buildings without officially registering ownership rights in order to save up on taxes.

The Ministry of Finance proposed to stop this practice by subjecting unregistered buildings to taxation. This initiative is a logical continuation of the approach proposed a year ago, aimed at increasing land taxes by 6 times for those land plots, which were granted for the purposes of residential construction, but the construction works were not finished after five years.