10.11.2017 — Russian Central Bank Lowered Key Rate to 8.25%

On 27 October the Board of Directors of the Central Bank decided to lower the key rate from 8,5% to 8.25% per annum. The primary reason for the reduction is the stable deflation at a rate of 4%. The respective information letter of the Central Bank was published on 30 October – from this day it shall be applied for the calculation of late payment interest, statutory interest in bankruptcy, and for determining the maximum limit for the reduction of contractual penalties. 

The Bank of Russia lowered the key rate by 25 points, and currently it amounts to 8,25% per annum (please see the Central Bank’s notice as of 30 October 2017). This is the fifth time the Central Bank lowers the key rate since the beginning of the year. The decision to lower the key rate is determined by the fact that the inflation level is lower than expected, therefore the Bank of Russia decided to progressively move from stringent monetary policy to moderate monetary policy.

The Central Bank noted that it may gradually reduce the key rate further at the next board meetings. The next meeting of the Board of Directors of the Central Bank where this issue will be considered is scheduled for 15 December 2017. 

09.11.2017 — New US Sanctions Against Russia

On 27 October the US Department of State published the list of Russian companies and institutions of defense industry complex and intelligence sector, cooperation with which may result in the imposition of US sanctions.

The list of sanctioned companies and institutions includes intelligence agencies (the Federal Security Department, the Foreign Operations Directorate, the Main Intelligence Directorate) and 39 companies of defense industry (in particular, Rosoboronexport, Izhmash, Kalashnikov, Rostec, Russian Aircraft Corporation MiG, Sukhoi, Tupolev). Most of the companies have already been sanctioned earlier.

According to the new document the US President is entitled to introduce indirect sanctions against the US nationals and companies, as well as nationals and companies from other countries that consummate significant transactions with Russian companies and institutions from the list.

The new sanctions against Russia are effective from 28 November 2017.

08.11.2017 — Supreme Court: Shares in Bankruptcy Estate Cannot Be Sold Without Tender

In one of the recent cases the Supreme Court was to decide whether shares in the bankruptcy estate can be sold according to a simplified procedure without e-auction. In the case resolved by the Supreme Court according to the independent appraiser’s report the shares had zero value, therefore the creditors’ meeting decided to sell them to a third party for a token payment as a low-value asset, in respect of which the bankruptcy law exception from the general rule on the sale on the e-auction applies. One of the bankrupt company’s creditors disagreed with such a decision and challenged it in court, since according to the information in the Uniform State Register of Legal Entities the value of the shares amounted to Rub. 250 mln., and the shares could not be considered a low-value asset. The Supreme Court agreed with the claimant and declared illegal the decision of the creditors’ meeting on the sale of the shares to a third party under a direct sale and purchase agreement.

In this case (case No. А40-46798/2013) the creditors’ meeting decided that the shares in the bankruptcy estate shall be sold to a third party for a token payment (Rub. 2 for the whole stock of shares). Despite the fact that according to the information in the Uniform State Register of Legal Entities the value of the shares amounted to Rub. 250 mln., according to the report of the independent appraiser engaged by the bankruptcy manager the shares had zero value, therefore the creditors’ meeting decided that the shares shall be sold to a third party as a low-value asset without tender.

One of the company’s creditors objected and challenged the decision of the creditor’s meeting in court. The courts of the three instances dismissed the claim. The judges argued that the claimant had not challenged the independent appraiser’s report, while the bankruptcy law establishes a special exception for the assets worth less than Rub. 100 000, namely such low-value assets may be sold without tender if the respective decision is taken by the creditor’s meeting.

Still, the Supreme Court disagreed with the decisions of the courts of lower instances, granted the claim and declared the decision of the creditor’s meeting illegal. The Supreme Court pointed out that contrary to the lower court’s findings the claimant was under no obligation to challenge the appraiser’s report. The Supreme Court explained that it was enough for the claimant to present evidence of the fact that the fair market price of the share was higher than the value determined by the appraiser in the report. Moreover, the Supreme Court mentioned that even if the share were a non-liquid asset, as the appraiser stated in the report, in accordance with the bankruptcy law it should have been transferred to the creditors as a cancellation compensation, but in no event it should have been sold to a third party under a direct sale and purchase agreement for a token payment. 

07.11.2017 — Unauthorized Construction: Improving Guarantees of Rights of Their Owners and Increase of Fines for Their Operation

The Government has developed several regulatory reforms concerning unauthorized constructions and submitted them for consideration of the State Duma. Changes include improving guarantees of the rights of the owners of the unauthorized constructions. In particular, from now on the constructions that are registered in the public register can only be demolished under the court decision. At the same time, innocent purchasers will be paid compensation from the state budget amounting to the market value of the construction and the losses from the impossibility to operate them. Meanwhile, if the violation is not gross the owners of unauthorized constructions will have the right to bring them in line with the regulatory requirements instead of demolishing them. Besides, the Government intends to increase the fines for the operation of unauthorized constructions and for the failure to perform a court decision on the demolition of unauthorized construction or bringing it in line with the regulatory requirements.

The first bill drafted by the Russian Government introduces the long-awaited legislative amendments aimed at guaranteeing the protection of the rights of the owners of unauthorized constructions, including the innocent purchasers of the constructions, which were declared unauthorized at a later stage.

First of all, since the registration of title to property in the register does not eliminate the risk that it may be declared unauthorized construction at some point in the future and the decision on its demolition may be taken, the bill provides additional guarantees for the owners of registered unauthorized constructions. In particular, the bill prohibits non-judicial demolition of such constructions. In other words, the decision on their demolition can only be adopted by the court, but not by administrative bodies. In accordance with the bill innocent purchasers will be paid compensation from the budget equal to the market value of the construction, as well as the losses, including the lost profit due to the impossibility to operate them, in particular, due to impossibility to rent out the construction under the lease agreements.

The bill also provides not only for the demolition of the unauthorized construction, but also gives the owner the right to bring it in line with the regulatory requirements if the violations may be remedied. In addition, the bill establishes that if the owner of the real estate did not know and could not have known about the established restrictions on the use of the land plot at the moment the construction was erected, the construction cannot be declared unauthorized.

Simultaneously with the above-mentioned bill, the State Duma will consider a bill on the introduction of administrative fines for unauthorized construction in the Code of Administrative Offenses:

  • fine for the operation of unauthorized construction located on the leased land plot or on the land plot purchased in public auction with the obligation to demolish the construction or bring it in line with the regulatory requirements – Rub. 500 thousand – 1 mln. (approx. USD 8,400-17,000), alternatively the company’s operations may be suspended for the term up to 90 days;
  • fine for the failure to perform decision on  the demolition of the construction or bringing it in line with the regulatory requirements Rub. 100-300 thousand (approx. USD 1,700-5,000).

If the bills are adopted, the amendments will enter into force in July 2018.

06.11.2017 — Russia Rises 5 Places and Moves Up To 35th Position In Doing Business 2018

According to the rating Doing Business 2018 recently published by the World Bank, Russia moved up from 40th position to 35th position among 190 countries. The experts acknowledged such traditional strengths as the ease of registering property (9th position) and starting a business (registration of a legal entity) (26th position). Russia also has major improvements in trading across borders due to the simplification of the customs procedures (moved up from 140th position to 100th position), and in getting electricity (Russia ranked top-10 in this indicator). At that the key weaknesses are dealing with construction permits (115th position) and paying taxes (52th position).

The three leaders according to the ease of doing business index are New Zealand (1th position), Singapore (2th position) and Denmark (3th position). Russia ranked 35th and managed to be in advance of all the Euroasian Economic Community member states, including Kazakhstan (36th position), Belarus (38th position), and BRICS countries – China (78th position), India (100th position), Brazil (125th position).

The improvement of Russia’s position in the rating is explained by its achievements in implementing reforms aimed at creation of a better investment climate, among which the experts emphasized:

  • greater access to credit due to the improvement of the register on the notices on pledge of movables;
  • reduction of term of processing documents for the state registration of the transfer of title;
  • simplification of the procedure for payment of customs duties due to their centralized filing in an electronic system.

Meanwhile the experts admit that for a long time the traditional shortcomings of doing business in Russia are the complicated procedure for dealing with construction permits, namely in Russia it takes twice as much time to obtain a construction permit than on the average in the world (Russia is still ranked 115th in this indicator) and the complex and time consuming procedure of paying taxes (Russia descended from 45th position to 52th position).