Russia collection profile

 

Russia
       

Russia

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Complexity of collecting debt:

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Executive summary

  • The payment behavior of domestic firms is poor and often the businesses have complex legal structures. Payment terms are not fully regulated and interest on late payment is common.​
  • Courts may be fairly efficient when a debt is certain and undisputed, but legal proceedings may otherwise be complex (no default judgments, no fast track proceedings above EUR 6,000 even if the debt is certain and undisputed) and cannot be avoided through Alternative Dispute Resolution methods (which is not relied upon) or through foreign courts (since Russian courts apply extremely strict jurisdictional exclusivity rules).
  • Insolvency proceedings ought to be avoided. A debt renegotiation mechanism is in theory available but it is left unused in practice. Liquidation is therefore the default procedure, but unsecured debtors would in practice have very limited chances of recovering their debt.
 
General Information GENERAL INFORMATION arrow-transparent
 
Collection Practices COLLECTION PRACTICES arrow-transparent
Court Proceedings Court PROCEEDINGS arrow-transparent
 
Insolvency Proceedings INSOLVENCY PROCEEDINGS arrow-transparent
 
General Information 

GENERAL INFORMATION

Days Sales Outstanding (DSO)

The payment behavior of Russian debtors is extremely poor and the law provides no general framework on payment terms. The food sector has a 10 to 45 days payment standard by law but these are not observed in practice. Otherwise contractual terms provide a 30 to 60 days basis on average. In some industries 60-90 days is common. Payment delays are fairly common although difficult to quantify.

 

Late payment interest

The law provides the framework on late payment interest. In accordance to the Civil Code (Article 317.1) the late interest is equal to the refinancing rate approved by the Central Bank of Russia to the corresponding period. This rate applies even if it not stipulated in the contract. However, if a rate is stipulated in the contract and it’s higher, the contract rate applies. In practice however, Russian debtors are not used to paying late payment interest voluntarily.


The law does not regulate collection costs incurred during the amicable phase. When collection is made through court proceedings, the creditor has a right to ask the court to reimburse the cost. The court will award the costs if the decision is in favor of the creditor (Article 110 Civil Code).

 
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collection practice 

COLLECTIONS PRACTICES

Orchestrated negotiation first

In practice, the courts however tend to lack independence and the proceedings may tend to be overly complex, costly and time consuming when the debt is disputed. Therefore, amicable settlement opportunities and international arbitration may represent efficient means to escape complications. Before starting legal proceedings against a debtor, assessment of assets is important as it allows verification as to whether the company is still active and whether recovery chances are at best. In addition, it is essential to be aware of the debtor’s solvency status: if insolvency proceedings have been initiated, it indeed becomes impossible to enforce a debt (see below).

 
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Court Proceeding 

COURT PROCEEDINGS

The Russian legal system is built on Civil Law principles, which means that regulations tend to be codified rather than developed by the courts through the case law. The judicial system is complex as it divides into courts of general jurisdiction (mostly concerned with personal disputes), more than eighty Arbitrazh Courts focusing on commercial disputes, about twenty Appellate Arbitrazh Courts, ten Federal Arbitrazh Courts (acting as cassation courts), a Supreme Court (acting as a supervisory court), and a Constitutional Court. In parallel to this multifacete court hierarchy, the law is divided between the Civil Procedure Code (applicable to the courts of general jurisdiction) and the Arbitrazh Procedure Code (applicable to the Arbitrazh Courts). As an attempt to simplify the system, the Supreme Arbitrazh Court and the Supreme Court of general jurisdiction will now be merged and the law enacted to this effect was ratified by the President on February 6, 2014. A specialized court has also been created in 2012 to deal with intellectual property matters, but it is not clear whether it is operational yet.

Collection attempts ought to start with a registered Demand Letter recalling the debtor’s obligation to pay the principal together with late payment interest. When debts below RUB 300,000 (about EUR 6,000) are certain and undisputed, simplified court proceedings are available. When all the necessary documents are provided to the court, the debtor is duly informed and the court tax duty is paid, these proceedings are fairly efficiently settled. When the debt is disputed, however, it becomes necessary to commence ordinary proceedings which would in practice be complicated to handle. The claim must be submitted to the court, which would then invite the debtor to a preliminary hearing. This is a Russian particularity but failure of the debtor to attend would however not entitle the creditor to obtain a default judgment. The courts would normally award remedies in the form of compensatory damages or injunctions but punitive damages are not available.

 
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insolvency Proceeding 

INSOLVENCY PROCEEDINGS

A debtor in Russia is deemed insolvent when it is unable to settle debts in excess of RUB 100,000 for more than three months. Insolvency in Russia is governed by various regulations, the main of which are the Civil Code and the Federal Law 127-FZ on Insolvency of 2002, whilst proceedings would be dealt with before the Arbitrazh Court. The law provides for a debt restructuration mechanism in addition to the traditional liquidation proceedings. Both can be commenced upon demand of the debtor and creditors alike. At all stages, the proceedings may be interrupted by an amicable settlement. In practice, debt renegotiation remains rare and liquidation remains the default procedure. As a result, it may be estimated that, on average, unsecured creditors could recuperate around 5 % of their debt though insolvency proceedings. Pre-legal action remains the most efficient method of collecting debt.

 
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