Practical Guide To International Debt Collection in Russian Federation

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Russia

Is there a minimum amount to start a legal action?

In Russia, there is no minimum amount required to start a judicial process. Even so, the costs to carry it out may cause it to be inconvenient. In general, it is considered that a claim below €2,000 is uneconomical due to the expenses involved in its recovery.

Will the amount due condition the type of procedure?

There are three possible procedures conducted by the commercial courts taking into account the amount involved and documents submitted by the parties:

  1. Writ proceedings - the claims arise from the non-fulfillment or improper fulfillment of the contract and are based on the documents submitted by the claimant establishing monetary liabilities if the amount of the declared claims does not exceed 500,000 rubles.

  2. Simplified proceedings - the claims for recovery of funds, if the price of the claim does not exceed 800,000 rubles for legal entities and for individual entrepreneurs 400,000 rubles. Regardless of the price of the claim, the claims must be based on the documents submitted by the claimant, establishing the monetary obligations of the defendant, which are recognized but not performed by the defendant, and (or) on documents confirming the debt under the contract.

  3. General proceedings – all other proceedings not covered by the above proceedings. The most common way to start a recovery claim is the General proceeding if the amount exceeds 800,000 rubles. Even when the amount substantially exceeds 800,000 rubles but the documents submitted by the claimant expressly confirm the debt under the contract (signed by both parties, including all originals of supporting delivery documents, waybills, delivery notes, invoices, etc.), the court, at its own initiative, may consider the case in a Simplified procedure. The decision, in this case, is rendered by the judge based solely on the submitted documents, with no oral hearings.

In practice, in order to increase the possibilities of success, we always recommend providing certified copies of the originals of contracts, waybills, delivery notes, and invoices to show that the debt under the contract is not disputed.

The court rules on the consideration of the case under the General proceeding, if in the course of consideration of the case under the Simplified procedure:

  • the application of a third party making independent claims regarding the subject matter of the dispute is satisfied by the court,
  • filed and accepted a counterclaim, which cannot be considered under the rules established for Simplified procedure,
  • if the court, including at the request of one of the parties, has concluded that:
    1) Simplified proceedings may lead to the disclosure of state secrets;
    2) it is necessary to find out additional circumstances or examine additional evidence, as well as to examine evidence at the place of its location, appoint an expert examination, or hear testimony;
    3) the claim is related to other claims, including against other persons, or the court decision, in this case, may violate the rights and legitimate interests of other persons.

The usual litigation approach of the active defendant, in this case, is to file objections to Simplified proceedings and/or file counterclaims in order to try to persuade the court to consider the case under General proceedings and respectively delay the payment of the debt, since, under Simplified proceedings, the decision is rendered by the judge within a maximum of 2 (two) month from the date of the filing of the claim with the court. Under the General proceedings, the case might be considered up to 6 (six) months or even longer, depending on the complexity of the case and/or experts/witnesses/third parties involved.

Is it mandatory to send a warning letter before taking legal action to collect a debt?

Russian procedural law sets forth a general rule that the civil disputes on the collection of debts on claims arising from contracts, other transactions, due to unjustified enrichment, can be considered by the commercial court only after the parties take measures for pre-trial settlement, after 30 (thirty) calendar days from the date of sending the demand (demand letter) unless other terms and (or) the procedure is established by law or contract.

In practice, it is essential to send the demand letter to the other party with a return receipt and a list of enclosures to be able to show to the court full compliance with pre-trial settlement procedures.

The demand letter should be sent to the legal address of the other party and any other address specified in the contract. Failure to provide evidence of compliance with settlement procedures may lead to substantial delays in consideration of the case.

  1. It is advisable that the demand letter should be prepared and sent by a lawyer because there are certain content and form requirements.

  2. We also recommend an accurate calculation of the interests on the debt. This is an amount that can be a relevant one and can be an encouraging element for the debtor to pay or to reach an agreement.

  3. It is finally advisable to send the demand letter as soon as possible and begin collecting all the documents so that it will be possible to file the claim within 30 days (unless a shorter period is established by the contract) provided that the debtor does not pay within the given period.
What are the best practices for creditors to increase the possibility of recovering the debt?

In general, any evidence that documents business relationships can be useful: contracts, any annexes thereto, correspondences, messages, witnesses, third-party documents, and any other possible evidence that can prove the relationship between the parties.

We recommend properly documenting the relationship with the assistance of an attorney at each step, taking as many of the following documents and precautions as possible:

  1. Signed contracts, containing the obligations of the parties.
  2. Organized orders for goods or services with detailed written documents.
  3. Try to ensure the solvency of the debtor or agree on guarantees such as first demand bank guarantees.
  4. Agree to, in writing, any further modification of the obligations.
  5. Leave written evidence of any objection of the debtor for the goods delivered or services provided.
  6. Document the deferred payments through appropriate trade effects (such as promissory notes).
  7. Always try to find out and keep documents that can be used to locate assets of the debtor subject to future seizure if necessary (such as bank accounts, movable properties, offices open to the public, etc.).
How can a foreign creditor start a procedure for international debt collection in the Russian Federation?

In general terms, in order to start a judicial process, a lawyer or an advocate is required. The representatives shall submit to the court either a law school diploma or an advocate ID card.

In addition, the parties shall submit a power of attorney specifying all the powers of the representative. Such PoA shall be duly legalized either by a foreign consulate or notary certification, have an Apostille affixed depending on the specific jurisdiction, and be translated into Russian.

Additionally, a document confirming the legal status of the foreign legal entity (the creditor) is required, duly legalized either by a foreign consulate or notary certification, have an Apostille affixed depending on the specific jurisdiction, and be translated into Russian.

The legal status of a foreign legal entity is usually confirmed by an extract from the official trade register of the country of origin. The legal status of a foreign legal entity may be confirmed by other equivalent proof of the legal status recognized as such by the legislation of the country of establishment, registration, main place of business, citizenship, or residence of the foreign legal entity.

In order for a legal entity to make a claim before a court, in Russia there is a judicial fee whose amount varies depending on the amount of the claim, provided that it is subject to assessment:

  • up to 100,000 rubles - 4 percent of the claim price, but not less than 2,000 rubles;
  • from 100,001 to 200,000 rubles - 4,000 rubles plus 3 per cent of the amount exceeding 100,000 rubles;
  • from 200,001 to 1,000,000 rubles - 7,000 rubles plus 2 percent of the amount exceeding 200,000 rubles;
  • from 1,000,001 rubles to 2,000,000 rubles - 23,000 rubles plus 1 percent of the amount exceeding 1,000,000 rubles;
  • over 2,000,000 rubles - 33,000 rubles plus 0.5% of the amount exceeding 2,000,000 rubles but not exceeding 200,000 rubles;

Thus, the maximum amount of court fees will not exceed 200,000 rubles (less than €2,500 at today’s exchange rate) even if the amount claimed by the creditor exceeds a billion euros.

In many cases, and particularly in those where the parties wish to maintain their relationship, it is very convenient to try to negotiate the settlement of the debt, or alternatively, to sign a settlement agreement approved by the court before making a claim before the court. Mediation, unfortunately, is not widely practiced in Russia due to the fast and relatively cheap court proceedings.

Which documents are necessary for the debt collection in the Russian Federation?

The main element to verify before making any decision to recover the debt before a court should be how to prove the debt.

As we have pointed out in Question 2, in order to increase the possibility of success, a claimant shall provide the originals of contracts, waybills, delivery notes, and invoices to prove the debt under the contract.

In general proceedings, debts can be proven by any means admitted by law, including witnesses, experts, the debtor's acceptance of debt, etc. Some of this evidence might be provided with the claim (for example, documents); others could be approved by the court on the basis of motions filed by parties and carried out in a second step of the process (for example, witnesses, experts, third parties, etc.).

In writ and simplified proceedings, the court renders a decision based solely on the documents submitted by the parties. In this case, no oral hearings are held by the court.

In Russia, there is the principle of free evaluation of the evidence by judges. A document signed by the defendant that confirms the existence of the debt will always be better evidence than a witness, for example. Therefore, the better a debt can be evidenced with documents, the more possibilities there will be to overcome in Court, or to reach a good agreement.

What happens after the first demand for payment?

If the Court procedure has not still been initiated, and only a demand letter has been sent, the debtor's actions will have consequences depending on the answers they may provide, if any (for instance, if they refuse or contest the relationship or the amount, or if they include some other counterclaims, or if they simply do not answer).

In our practice, the majority of demand letters remain unanswered, since there are no consequences for the debtor specified by law for failure to answer the demand letter.

Can interim measures be taken?

In general terms, the best opportunity for the creditor to start any legal claim is to find out, with the help of al lawyer, as much as possible on the solvency of the debtor.

In addition, there are several precautionary (security) measures that can be taken to ensure the effectiveness of a judgment.

Security measures are allowed at any stage of the process if the creditor can prove that

  • failure to take such measures may obstruct, or make impossible, the execution of the court judgment, including if the execution of the court judgment is expected outside the Russian Federation,
  • failure to take such measures may cause significant damage to the creditor.

On the other side, the party asking the security measures might be required to offer a guaranty enough to back possible damages that may be caused to the debtor.

That being said, the security measures procedure should be considered very carefully in order to have all the steps and legal requirements fulfilled. Otherwise, the creditor takes the risk of being condemned to pay the costs of this phase of the procedure.

If, for any reason, the recovery was not possible, is there any other action that the creditor could take to write off such debt in its accountancy?

As a general rule, the creditor can write off the debt in its accountancy following the expiry of the period of limitations for debt recovery or liquidation of the debtor.

The general period of limitations under the laws of the Russian Federation is 3 (three) years.