13.01.2017 — Creditors Will Be Entitled to Recover Debts from Beneficiaries of Inactive Companies

Starting from June 2017, creditors will have a direct right of claim to controlling persons (including beneficiaries) of inactive companies, if such controlling persons are at fault for the company’s insolvency. It will not be necessary to initiate bankruptcy proceedings, since inactive companies generally have no assets. This approach will enable creditors to engage liability of unfair controlling persons and beneficiaries more actively, and reduce the number of ineffective bankruptcy proceedings.

In December 2016, legislative amendments were passed, under which company creditors, including the Federal Tax Service in relation to tax debts, will be entitled to file lawsuits directly against inactive companies’ controlling persons. Prior to such lawsuits, it is necessary for the company in question to be recognized inactive due to unfair acts or omissions of its controlling persons (Federal Law dated 28 December 2016 No. 488-FZ). Thus, the legislative amendments inter alia will entitle the Federal Tax Service to recover tax debts directly from beneficiaries of inactive companies.

In particular, creditors will have the right of claim to the following controlling persons:

  • company directors, if they breached the requirements of good faith and business reasonability,
  • board members, except those who voted against the decision causing losses to the company, or refrained from taking part in such vote in good faith;
  • other controlling persons with de facto powers to determine the company’s activities, including through the ability to give directions to its management.

These changes enter into force on 28 June 2017.

12.01.2017 — Execution Can Be Levied upon Property Significantly More Expensive than the Debt Amount If No Other Property Is Identified

The Supreme Court has recognized that the bailiffs can levy execution upon expensive property, if the debtor has no other assets, even if the debt under recovery is much smaller. This approach is an efficient incentive for voluntarily repayment of debt under the pain of losing a valuable asset.

In the case considered by the Supreme Court, the creditor (a bank) initiated debt recovery proceedings for 700.000,-- rubles. The bank also asked to levy execution upon the debtor’s only asset – a major real estate object worth 8.5 million rubles. Lower courts decided that such an execution would be inconsistent with the debtor’s rights and rejected the bank’s request.

However, the Supreme Court reversed the judgment and ruled in favor of the bank. The decision is primarily motivated by the fact that the bank managed to prove that no other assets are available to levy execution upon. Official replies from state authorities (the Pension Fund of Russia, The Federal Service for State Registration, Cadastre and Cartography, the Federal Tax Service, etc.) were presented to the court to prove the absence of other assets belonging to the debtor (money on bank accounts, other real estate objects, transport facilities, etc.). This allowed the bank to levy execution upon the sole asset of the debtor despite its value being several times higher than the debt amount.

The Supreme Court also noted that the debtor’s rights in this case are protected by the rule obliging the bank to return to the debtor the difference between the debt amount and the money raised in selling the real estate object. 

11.01.2017 — Supreme Court: Debt Release during Debt Restructuring Does Not Violate the Prohibition of Gifts between Commercial Entities

The Supreme Court of Russia has upheld a contractual provision, under which the contractor released its customer from the obligation to repay 36 million rubles, part of the customer’s larger debt under the construction contract. Lower courts invalidated this provision as contrary to the prohibition of gifts between commercial entities. The Supreme Court, however, disagreed with this opinion, stating that debt release does not necessarily imply a gift.

As the construction progressed, the customer failed to pay for the works that had already been performed. The parties signed a debt restructuring agreement, under which the customer received an extension for 6 million rubles, while the contractor waived its claim to 36 million rubles (the remaining sum). Nonetheless, the contractor filed a lawsuit against the customer for the full amount of money, despite its own waiver. Lower courts ruled in favor of the contractor, awarding the debt in full. They argued that the debt restructuring agreement violated the statutory prohibition of gifts between commercial entities (Art. 575(4) of the Russian Civil Code).

However, the Supreme Court reversed this judgment, and agreed with the previously established practice of the now-dissolved Supreme Arbitrazh Court. It emphasized that debt restructuring agreements can only constitute a prohibited gift if a will to that effect is manifest from the parties’ conduct. In the present case, the contractor’s will was not aimed at gratuitously enriching the customer, but was intended at incentivizing timely payment of money through a payment extension, reducing the debt and refraining from applying penalties/damages.

Therefore, according to the Supreme Court waiver of claim/debt release can only be invalidated as a prohibited gift if there is no economic explanation behind it, manifesting the parties’ intention to gratuitous enrichment rather than business.  

10.01.2017 — Real Estate and Land Occupants Can Initiate Integrated Development of Territory to Obtain Tax Breaks and Reduce Rent

Starting from 2017, persons who either own land plots (or lease public land plots) and real estate objects can initiate the procedure of integrated development of the respective territory. Integrated development includes development of documentation for efficient utilization of the territory, including by locating such objects as residential buildings, offices and industrial facilities, as well as creating the necessary infrastructure.

In order to initiate this procedure, it is necessary to conclude a contract to this effect with the municipal authorities. The contract will envisage the parties’ responsibilities in the project, including its financing. The private investor is expected to finance the construction of principal buildings (residential, office or industrial objects), while the municipal authorities will be responsible for transport and social infrastructure as well as public utilities.

Participation in integrated development of the territory will enable land/real estate occupants to receive tax breaks or receive a discount for land plot rent (if the land plot is publicly owned).

09.01.2017 — Investments into Russian Real Estate Increased By 74% Over 2016

According to JLL, an international broker, the aggregate investment amount into Russian real estate has increased by over 74% in 2016. The total value of investment transactions in this sphere has reached 4.2 billion USD as a result of 2016. Office premises and retail space have seen the highest demand growth.

58.5% of investment deals that took place in 2016 concerned office premises. Retail space objects, which were previously in the highest demand among investors, are at the second place as of 2016, amounting to 13.3% of the realized demand. The rest of the funds invested in 2016 concerned hotels (11.8%), residential premises (7.6%) and industrial facilities (5.7%).

Real estate transactions continue to predominantly take place in Moscow. However, the popularity of Moscow real estate has decreased by 10% since 2015 (accounting for 80% of the transactions down from 90%). At the same time, real estate in other regions has become more appealing for investors, with Saint Petersburg accounting for 6% of transactions (up from 4% in 2015) and other Russian regions contributing 14% up from 6%.