13.10.2017 — Supreme Court: Buying Property at Low Price Is Convincing Evidence of Purchaser’s Bad-Faith
In the case, adjudicated by the Supreme Court, the courts examined a widely-spread scheme of transferring the assets out of the company on the verge of bankruptcy, when the property is resold multiple times so that the last owner is an innocent purchaser. However, the Supreme Court, in order to prevent this practice, decided that the purchaser buying assets at the price that is substantially lower than their fair market price cannot claim that he is an innocent purchaser. Therefore, the Supreme Court granted the bankruptcy manager’s claim and ordered that the purchaser transfers the assets to the bankrupt estate.
In the case adjudicated by the court (case No. А32-29459/2012) the bankruptcy manager challenged the sale of the immovable property of the insolvent company and claimed that it is returned to the bankrupt estate. The claim was based on the fact that the property was sold out just two months before the company’s bankruptcy to the company’s affiliate (the general director’s relative) at the price that was three times lower than the fair market price. Afterwards the immovables were resold to another company.
The courts of all three instances declared that the sale of the immovable property between the insolvent company and the affiliates was a void transaction. Still, the courts’ views on whether the assets should be returned from the last purchaser to the bankrupt estate, differed. The purchaser claimed that while it bought the property at a low price, it still was an innocent purchaser, since it purchased the property for value and reviewed the documents in respect of the immovable property. However, the Supreme Court dismissed these arguments and decided that the price that was substantially lower than the fair market price should have casted doubt upon any reasonable party. Consequently, the Supreme Court ruled for the bankruptcy manager and ordered that the purchaser transfers the assets to the bankrupt estate.
12.10.2017 — Ministry of Justice Has Developed Bill on Class Actions
In the beginning of October the Ministry of Justice published a bill introducing amendments to the Code of Civil Procedure, Code of Arbitrazh Procedure, and Code of Administrative Procedure of the Russian Federation. These amendments allow to the groups of more than 40 persons to file class actions to the courts. The bill provides for the legal mechanism to file class actions on the disputes on the protection of consumer rights and in other cases, provided by law.
According to the bill, in order to initiate a class action the following conditions shall be met:
- more than 40 individuals shall join the claim;
- subject matter and grounds for the dispute shall be the same;
- claims shall be filed against the same respondent (co-respondents);
- participants of the class actions shall use the same remedy.
Individuals may join the class action either by signing the claim or by filing a separate application on joining the claim after the claim has been filed. The court determines the timeframes during which individuals may join the class action. Moreover, the participants of the class action shall determine the person that will represent their interests on their behalf.
The resolutive part of the adopted court decisions shall contain the decisions on each particular individual. The decision shall be binding on all the members of the group and deprives them of the right to file an individual claim on the same matter in the future.
The bill is available at the Federal Portal of the Legislative Bills. The possibility of filing class actions will strengthen the position of claimants, especially consumers, in disputes against large companies and retailers.
11.10.2017 — Overdue Interest for Late Payment of Taxes Has Doubled from October 2017
The amendments to the Tax Code of the Russian Federation took effect on 1 October 2017. These amendments changed the procedure for the calculation of overdue interest for late payment of taxes for legal entities. In particular, the newly adopted provisions stipulate that starting from the 31st day of delay the default interest rate doubles from 1/300 of the Central Bank rate to 1/150. Thus, late payment of taxes will result in 10% default interest rate per annum during the first month of such a delay, and in 20% default interest rate per annum for subsequent period of delay.
Previously the overdue interest rate used to be uniform and amounted to 1/300 of the Central Bank rate regardless the period of delay. According to the amendments, the overdue interest rate depends on the duration of delay. Particularly, the default interest rate of 1/300 of the Central Bank refinancing rate applies during the first 30 days of late payment, while starting from the 31st day the increased 1/150 rate applies. Therefore, taking into account the current Central Bank rate amounting to 8.5% the default interest in the latter case will be 20% per annum.
The new procedure for the calculation of overdue interest for late payment of taxes shall be applicable to the payments due after 1 October 2017.
10.10.2017 — Supreme Court Approved Amendments to Procedural Rules
On October, 3 Plenum of the Supreme Court approved the amendments to the Code of Civil Procedure, Code of Arbitrazh Procedure and Code of Administrative Procedure of the Russian Federation. The amendments are aimed at reducing the judges workload and acceleration of the adjudication of the disputes. The amendments provide for abolishing the statement of reasons in the majority of the cases. At the same time, the requirements to the statements of reasons were toughened in the disputes, where it is mandatory due to the complexity of the case. Further, the new legal developments stipulate that the litigant’s representatives shall have a degree in law. Other persons may only participate in the proceedings as proxy, and their capacity is much narrower. Another important amendment is the abolishment of contractual jurisdiction. Moreover, the amendments provide for the unification of the procedural rules, in particular, a number of provisions of the Code of Arbitrazh Procedure are introduced to the Code of Civil Procedure.
One of the most important legal developments proposed by the Supreme Court is the provision stating that as a general rule the legal acts shall be comprised of the introductory part and the decision itself, with no statement of reasons. This amendment was induced by the fact that in most standard cases (on the recovery of tax debts, utility payments, etc.) the reasons behind the decisions are obvious and are not of interest to the litigants. Should the amendments be adopted, there will be a statement of reasons only in the decisions on the certain matters: decisions adopted in the absence of the respondent, on corporate disputes and bankruptcy cases, some socially significant matters (on the personal injury, on children). The statement of reasons may also be included in the decision at the party’s request or upon the initiative of the court. At the same time the amendments suggest that the requirements to the statement of reasons, in those cases where it is a mandatory part of the court decision, shall be improved.
Furthermore, the bill provides that the representatives of the litigants shall have a degree in law. Yet upon the representative’s request the proxy may also take part in the proceedings. It is not mandatory for the proxy to have a degree, but his capacity is limited to making statements on the dispute and receiving documents. Another amendment of principal importance is the abolishment of contractual jurisdiction. While at the moment the parties are free to choose the territorial jurisdiction, if the bill is adopted, contractual jurisdiction will be only available in the disputes with foreign party.
Moreover, the bill provides for the unification of the rules of the Code of Arbitrazh Procedure and the Code of Civil Procedure. Particularly, the amendments propose to include the provisions of the Code of Arbitrazh Procedure on notifications, evidence disclosure, and amicable settlement agreement to the Code of Civil Procedure as well. Please see the draft amendments at the following link.
09.10.2017 — Supreme Court Develops Court Practice on Procedural Estoppel
In a case recently adjudicated by the Supreme Court the judges assessed the respondent’s steps in the process. Initially the respondent had no objections against the claim, but after the court of the first instance adopted the decision against him, he changed his legal standing dramatically and appealed. The Supreme Court ruled that contradictory and inconsistent behavior of the litigant shall be assessed for the purpose of determining whether the litigant acted reasonably and in good faith. Should the court decide that the litigant abuses his procedural rights, he shall be deprived of his right to adduce the respective arguments or refer to the respective facts to justify his legal standing.
In this dispute (case No. 18-КГ17-68) initially in the court of the first instance the respondent did not argue against the claim, and the court ruled for the claimants. Yet afterwards the respondent changed his legal standing and appealed. In the petition of appeal he objected to the claim and adduced new legal arguments that he never presented in the court of the first instance, in particular, the respondent brought new arguments against the legal qualification of the claimants’ claims. Therefore, the appellate court overruled the decision. However, the claimants challenged the decision of the appellate court in the Supreme Court.
The fact that the respondent changed his legal standing dramatically after the court of the first instance resolved the case, was a matter of particular concern of the Supreme Court. In these circumstances the Supreme Court noted that the lower courts should have assessed whether when the respondent changed his legal standing he acted in good faith, and remanded the case for the re-examination in the appellate court.