On March 08, 2015, the President of the Russian Federation signed Federal Law No.42-FZ on introducing the long-awaited amendments to Chapter 23 of Part I of the Civil Code of the Russian Federation concerning the securing of performance of obligations (the “Law”).

According to the new edition of the Civil Code, which becomes effective starting from June 01, 2015, there are several substantial changes as regards securing the performance of obligations.

A new way to secure the performance of obligations has been added to the Civil Code – the security payment (Article 381.1).

Pursuant to the Law, a security payment can be used for securing any monetary obligation, including the obligation to pay damages and penalties and can be used to secure future obligations.

In essence, this addition fixes in place a business practice that has existed for a long time.

The instrument of a guarantee is being expanded in Article 368 of the Civil Code, where “bank guarantee” is substituted with “independent guarantee.” Therefore, after the Law becomes effective, not only credit and insurance organizations will be able to issue guarantees as before, but also other commercial organizations, which provides broader opportunities for using this instrument.

The Law establishes the timeframes for examining requests of a beneficiary of an independent guarantee at five days from the day the relevant request is received, with the opportunity to increase this timeframe to up to thirty days upon agreement of the parties. Earlier, these timeframes were defined by the category of “reasonable.”

The Law also determines the grounds for changing or withdrawing an independent guarantee and cases when a guarantor can refuse to perform or suspend performance.

Additions to Article 333 of the Civil Code have been made, restricting the court’s right to decrease the amount of a penalty.

This amendment in essence sets into law the position of the Supreme Commercial Arbitration Court of the Russian Federation as given in Resolution No.81 of the Plenum dated December 22, 2011. Now Article 333 of the Civil Code consistently states that the court is entitled to decrease the amount of a penalty only on request of the debtor and only in exceptional cases if it is proven that collecting the penalty in the amount provided for in the agreement will lead to the creditor’s unjust enrichment.

The Law also clarifies the procedure for using other types of security for performance of obligations, in particular, withholding, surety and down payment.

It is a good thing that the adopted amendments take into account relations of the parties as they take place in practice and give a legal effect to beneficial precedent resolutions of commercial arbitration court.

Federal Law No.42-FZ “On introducing amendments to Part I of the Civil Code of the Russian Federation” dated March 08, 2015

Valentina Alikova   Associate  Moscow      Tel.: +7 (495) 970 10 90

Irina Afanasieva    Associate    Moscow      Tel.: +7 (495) 970 10 90

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Onikienko, Irina Afanasieva or Valentina Alikova, St. Petersburg and Moscow Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.