23.12.2016 — Commercial Courts Can Now Reject Lawsuits At the Filing Stage

The President of Russia has signed into law legislative amendments into the Russian Commercial Procedure Code, under which commercial courts are entitled to reject lawsuits at the stage of their filing into court. This option will enable the courts to refuse considering those claims that are manifestly inconsistent with the procedural rules. This will in turn decrease the workload on the commercial courts and improve the quality of their work.

These changes were first proposed by the Supreme Court, which noted that previous procedural rules in the 1992 and 1995 Commercial Procedure Codes had a rule on rejection of filed lawsuits. This option was always available to the courts of general jurisdiction. However, commercial courts did not have the powers to reject lawsuits at the filing stage before.

In order to unify the civil procedure, these powers have been provided to the commercial courts. According to the legislative amendments’ developers, the efficiency of this mechanism has been proven in the practice of the courts of general jurisdiction, and will contribute to reducing the workload of commercial courts as well. 

22.12.2016 — Creditor May Lose Pledge of Receivables If Money Is Transferred Into Debtor’s Regular Bank Account

The Supreme Court held that if a pledged debt has been repaid by money transfer to a current, rather than earmarked (pledged) bank account, it is deemed to be discontinued, and the pledger has no pledge rights to the money received. Pledge of receivables is therefore only possible if a special pledged bank account is opened. Thus, obtaining money from counterparties to regular bank accounts will lead to discontinuation of the pledge rights of the creditor to the respective part of a debt. 

As a security for a loan, the bank accepted pledge of the debtor’s receivables under a number of contracts. The debtors’ counterparties transferred the money thereunder to the debtor’s regular bank account. Afterwards, the debtor went bankrupt, and the bank filed an application with the commercial court to obtain the money under the pledged receivables.

Lower instance courts granted the bank’s claim, since the law establishes that the pledgee may levy execution on property obtained by the pledger under the pledged receivables (Art. 334(2) and Art. 358.6(2) of the Russian Civil Code).

However, the Supreme Court disagreed with this position, stating that pledge of money is only possible as long as the money is on a special pledged bank account. However, since in the case at hand the pledged receivables were performed by regular money transfers, the pledger has no pledge rights over such money (Ruling of the Supreme Court dated 17.10.2016 No. 305-ЭС16-7885 on case no. A40-57347/2015). 

21.12.2016 — Importers under Government Contracts May Have to Partially Invest Their Revenue in Russia

The Ministry of Economic Development has proposed to implement offset agreements in Russia. Under such agreements, importers of foreign goods will be obliged to invest a portion of their revenue into the Russian economy. It is planned that this investment requirement will be imposed on foreign importers under government contracts worth more than 100 million rubles.

According to the proposal, the precise list of goods and services subject to the requirement is to be adopted via a federal law. These measures will primarily aim at supporting Russian producers of metal semimanufacture, which will be enabled to sell their products to foreign suppliers of vehicles and industrial facilities.

Offset agreements are currently widespread in a number of European countries, such as the Netherlands, Norway and Italy. However, implementation of this proposal in Russia will require a number of legislative amendments into the rules on state procurement and the recently passed import substitution acts.

20.12.2016 — Pledge Enforcement May Lead to the Obligation to Pay the Debtor’s Taxes

Tax authorities have revealed a new method for asset withdrawal for tax avoidance. Being subject to a tax inspection, the company transferred through affiliated persons its main asset (a building) to the bank in performance of its loan obligations. Afterwards, all of the company’s business was relocated to a newly created “clean” legal entity. Given the affiliation between all involved parties, the courts supported the tax authorities’ claim against the bank, ordering that the bank should repay the company’s tax debts having received its main asset.

Afterthetaxinspectionwasstarted, thedebtor (“Avtoritet-Avto” LLC) stopped repaying its loan before an affiliated bank (PJSC SKB “Primsotsbank”), thus creating a debt equal to the price of its primary building (its main asset). The building was charged in favor of the bank. However, the bank did not make use of the statutory procedure of levying execution on the charged real estate. Instead, the bank assigned its rights under the loan agreement with the company to another affiliated legal entity, which in turn obtained the building as compensation for release from obligations. The building was thereafter transferred back to the bank. The tax debtor’s business activity was simultaneously relocated to a newly created legal entity with an identical company name (“Avtoritet-Avto+” LLC), which leased the same building from the bank and continued its operations in the same premises as before, without having to pay taxes.

Given the same address, same staff of the companies, and the fact that the charter capital of the new “clean” legal entity was formed by a bill of exchange issued by the creditor bank, the courts found the bank to be interdependent with the debtor. Asaresult, the courts recovered the tax debts from the bank, despite its objections.

Currently, the bank has appealed the decision to the Supreme Court. Depending on the outcome of this dispute, it will be possible to judge whether the banks risk being subject to close scrutiny from the tax authorities in the future. In particular, a decision of this kind may give rise to a trend under which all banks receiving charged real estate from debtors at a last minute before or during tax inspections will risk being considered affiliated with the debtor in assisting it with asset withdrawal. 

19.12.2016 — Supervisory Authorities to Implement Risk-Oriented Approach in Scheduling Inspections

Starting from 2017, a number of supervisory authorities will stop the practice of indiscriminate inspections, instead utilizing the risk-based approach. Thus, hazardousness and other risks associated with companies’ activity and the premises used by companies will be the primary factor in scheduling inspections. It is planned that by 2018 this approach will be fully implemented in respect of scheduled inspections of businesses.

Amendments to the legislation on state supervision of business activity are to enter into force on 1 January 2018, implementing the risk-oriented approach in scheduling inspections.

Intensity (form, duration and frequency) of inspections will depend on the category of risk or hazardousness assigned to each company and the objects it uses. Thus, in companies deemed to be risk-intensive (1-3 classes of hazardousness), scheduled inspections will be mandatory once per inspection period. However, scheduled inspections will be less frequent in companies with moderate risks (4-5 classes of hazardousness), whereas companies associated with low risk will not be subject to scheduled inspections. The criteria for assigning the classes of hazardousness are approved by the Government of Russia (see Decree of the Government of Russia No. 806 dated 17.08.2016).

The authorities will start preparing for implementation of this system already in 2017. For instance, fire inspectorates and sanitary inspectorates (the Ministry of Emergency Situations, Rospotrebnadzor and Federal Medical and Biological Agency) as well as communications oversight (Roskomnadzor) will use this system since 2017.

Risk-oriented approach is a logical continuation of the measures adopted by the Government of Russia to support businesses. Among other implemented measures are the tax breaks for newly established manufactures, and a three-year moratorium on scheduled inspections of small and medium entrepreneurs.