03.08.2018 — State Duma Reviews Bill on Freezing Companies’ Assets for Corruption


The bill developed by the President has been introduced to the State Duma, which provides for asset freeze of the companies, prosecuted for corruption offenses. The bill amends the Code of Administrative Offenses by adding the legislative framework for the assets freeze mechanism while the administrative proceedings are in place in relation to companies suspected in providing unlawful consideration to state officials.

It is proposed to introduce new provisions in the Code of the Russian Federation on Administrative Offences that stipulate the legal mechanism for freezing assets of the company that is being prosecuted for corruption offenses, in particular under Art. 19.28 of the Code of Administrative Offenses “Unlawful Consideration on behalf of a Legal Entity” (see the text of the bill No. 430595-7 for the second session). It is suggested that the asset freeze will be imposed by the court at the request of the prosecutor, while the value of the frozen assets should not exceed the maximum amount of the administrative fine established for the respective offense (the amount of the fine under Article 19.28 of the Code of Administrative Offenses may range from a threefold to a hundred times the amount of a bribe).

According to the bill, the asset freeze may be imposed on any assets belonging to a legal entity, including bank accounts, if the offender has no other property. Such a measure, according to experts, will solve the problem of recovery of the fines foreseen in Art. 19.28 of the Code of Administrative Offenses of the Russian Federation, most of which are currently not recoverable.

In addition, the bill provides for the possibility of releasing a legal entity from liability if it actively assitsts in identifying, disclosing or investigating the events of receiving unlawful consideration.

02.08.2018 — Supreme Court Protected Public Order During Enforcement Of Arbitration Award

In thedispute that arose out of the claim to issue the writ of execution on the decision of the International Commercial Arbitration Court at the Chamber of Commerce and Industry of the Russian Federation (ICAC) the Supreme Court sided with the appellant and agreed with his arguments that it is inadmissible to enforce the ICAC decision in the light of the violation of public order of the Russian Federation, namely, the principles of fair and proportional penalty, the res judicata principle and the principle of good faith.

In this case (case No. А40-118786/2017) the Russian company (the creditor) claimed that the state court issues a writ of execution for the enforcement of a decision of international commercial arbitration against a foreign company. In turn, the foreign company (the debtor) requested that the application shall be dismissed. The foreign company argued that the execution of this decision would violate such principles of public order, as the preclusion of repeated proceedings when there is a final decision on the mater (also known as res judicata principle) and the fact of violation of the principle of good faith by the Russian company. The lower courts found out that the plaintiff filed an application with the ICAC under the Russian Federation CCI after another arbitration decision on this matter, as well as judicial acts of state courts of the Russian Federation had been adopted, and consequently, after the matter has been exhausted.

The court of first instance and the court of cassation rejected the above arguments and issued a writ of execution. Disagreeing with these judicial acts, the debtor filed an appeal to the Supreme Court. The Judicial Chamber on Economic Disputes of the Supreme Court of the Russian Federation granted the appeal, reminding the lower courts of their duty to consider the arguments on the refusal to issue the writ of execution on the decisions of international commercial arbitration on the basis of their contradiction to the public order, and remanded the case for a new trial.

01.08.2018 — Simplification of Registration of Foreign and Domestic Arbitration Institutions in Russia

The State Duma reviewed in the first session the bill on simplifying the registration procedure of permanent arbitration institutions under non-profit organizations. The proposed amendments provide for changes in the mechanism of granting the right to act as a permanent arbitration institution both for domestic and foreign arbitration institutions. 

Currently, the right to act as a permanent arbitration institution in the Russian Federation is granted by a Government decree, adopted on the basis of the recommendations of the Council for the development of the arbitration proceedings. The right to act as foreign arbitration institution in the territory of the Russian Federation is granted on condition that the non-profit organization has a universally recognized international reputation. However, the criteria for determining such a reputation are not established by federal legislation.

As provided by the bill (see the text of the bill No. 350176-7 for the first session) the granting of the right to act as a domestic and foreign arbitration institutions will be based on the recommendations of the Council for the development of the arbitration proceedings.

In relation to foreign arbitration institutions, it is also envisaged to create a list of institutions authorized to exercise the functions of permanent arbitration institutions, approved by the Ministry of Justice on the basis of the recommendation of the Council, which appraises the foreign arbitration institutions, taking into account, among others, the widely recognized international reputation. Furthermore, in accordance with the amendments, the refusal to grant to a non-profit organization the right to act as a permanent arbitration institution and the refusal to include a foreign arbitration institution in the list of foreign arbitration institutions recognized as permanent arbitration institution in the Russian Federation may be appealed in court.

31.07.2018 — Court State Duties Will Rise Significantly

The Supreme Court suggested that the state duties for adjudicating the claims in court shall be increased significantly. Since the amount of court cases steadily increases and the expenses for the judiciary cannot be recovered on the basis of the current amount of state duties, this is a reasonable measure. In these circumstances, the increase of court state duties would help to reduce the amount of manifestly unreasonable claims and improve the financing of the judiciary.

At the meeting of the Club for expert support of judicial reform, the Secretary of the Plenum of the Supreme Court Viktor Momotov suggested that court state duties shall increase by more than 10 times. In support of his proposal he adduced statistical data proving that the judicial burden increases significantly (the number of court cases is increasing by 10% annually). In his view, the steady growth of court claims can be explained by the inadequately low state duties. For example, when a commercial claim is filed, the state duty in any case will not exceed RUB 200,000 (approximately EUR 2,700), regardless of the amount claimed, and when a claim of non-monetary nature is filed, the state duty for companies is RUB 6,000 (EUR 80). This amount of state duties effective at the present time does not allow recovering the expenses of the judicial system.

In response to the possible objections, the Secretary of the Plenum of the Supreme Court noted that the majority of litigants are entrepreneurs (and not individuals), and for them the increase of the state duty will not impede access to justice. In addition, the availability of a judicial mechanism for resolving disputes with low entry costs deprives the parties of any incentives for the amicable settlement of disputes. To mitigate the possible negative consequences of the increase of the state duty, the Supreme Court proposed the following measures: discounted state duties under certain circumstances, deferred payment, as well as attracting investments in litigation and putting an end to the courts’ practice of recovering legal expenses only in part.

30.07.2018 — Supreme Court Allowed Future Claims to Be Included in Bankruptcy Creditors’ Register

In one of the recent bankruptcy proceedings, the courts were to decide whether the tax authorities shall have the right to include their claims in the creditors’ register before the tax audit of the debtor is completed, that is, before the existence and amount of outstanding tax arrears is confirmed by the decision rendered as a result of the relevant tax audit, and whether this shall be a ground for the suspension of bankruptcy proceedings. The Supreme Court sided with the tax authorities, explaining that based on the principle of equality of creditors, the tax authorities as a potential creditor should have all the rights of the person involved in a bankruptcy case (to participate in court proceedings, to oppose against the other creditors’ claims, etc.). Thus, the Supreme Court included the tax authorities’ claims to the creditors’ register and suspended the bankruptcy proceedings until the decision rendered as a result of the tax audit of the debtor enters into force.

In this bankruptcy case (case No. A11-9163/2015), the tax authorities claimed that the company’s tax arrears shall be included in the register of the creditor’s claims in bankruptcy. Still, at the time the respective claim was submitted, the tax audit in respect of the debtor has not yet been completed, therefore, it was not known exactly whether there were any tax arrears and what their amount was, thus the tax authorities requested the court to suspend the bankruptcy proceedings. The tax authorities argued that since tax control measures are of continuing nature, the decision on charging additional tax and imposing liability could not objectively be taken before the expiry of the deadline established by law for submitting the claims in the creditor’s register.

The courts were of different views on the issue, and the Supreme Court was to render the final decision. The Supreme Court decided that although from the legal point of view the claim of the tax authorities arises only after the respective decision on the results of the tax audit is taken, the tax authorities as a third-priority creditor cannot be discriminated against other creditors. Thus, the tax authorities, along with other creditors, should have the right to participate in bankruptcy proceedings, to object against some creditors’ claims, and to appeal against the relevant court decisions. The Supreme Court emphasized that the tax authorities shall not be deprived of such rights arising from the applying for the inclusion of its claims in the creditors’ register is filed with the court and, consequently, declared that such a claim is admissible regardless of the fact that the tax audit has not been yet finished. At the same time, the Supreme Court suspended the bankruptcy proceedings until the decision rendered as a result of the tax audit enters into force.