The Supreme Court issued a second review of litigation practice on April 30, 2020. The topic of the document is the application by courts of legislation and measures to counteract coronavirus. “Raschet” asked Marina Potsabey, a lawyer from Acsour, to prepare a brief overview of the findings of the Supreme Court of the Russian Federation that are relevant to business.
No sooner had the business community carefully studied the first review of the Supreme Court of the Russian Federation, than the judges published a new document: “Review No. 2 of certain issues of litigation practice associated with the application of legislation and measures to counteract the spreading of the new coronavirus infection (COVID-19) in the Russian Federation”, approved by the Presidium of the Supreme Court on April 30, 2020. What did the servants of Themis tell?
It is necessary to start the review with the category of issues associated with the implementation of lease agreements. In this section, it is worth paying attention to four questions and the comments on them.
If the lease agreement for non-residential premises was concluded before the introduction of the high-alert regime, the law allows the lessee to claim a deferral in the rental fee until October 1, 2020 (part 1 of article 19 of Federal Law No. 98-FZ “On amendments being made to certain legislative acts of the Russian Federation on the prevention and control of emergencies” dated April 1, 2020). The lessor is obliged to meet the claim of the company renting the premises and conclude a corresponding supplementary agreement within 30 days after such request. The deferral does not come into force from when the supplementary agreement is signed, but from when the high-alert regime was introduced or from an earlier date, if this does not aggravate the situation of the lessee.
At the same time, the Supreme Court of the Russian Federation did not comment on what to do with advances that were actually made under the lease agreements for April and May. Should it be refunded, counted for the future, or in this case, should the deferral not be provided at all? Here everything will depend on those involved in the lease relationship, who conclude a supplementary agreement to the contract. As previously noted, such agreements should not aggravate the situation of the lessee. Therefore, before signing a new document, both the lessee and the lessor should conduct a legal analysis of the deferred payment agreement. This will help avoid further legal proceedings to dispute the lessee’s situation.
If the lessee’s business belongs to one of the sectors of the economy most affected by the coronavirus, the lessor should inform him or her of the right to defer payments. Otherwise, the deferral is still considered to have been provided from when the high-alert regime was introduced. In other words, the Supreme Court of the Russian Federation entrusted to owners of premises the obligation to check whether their lessees’ activities comply with the list of the most affected by the coronavirus sectors of the economy, which is set by Decree No. 434 of the Government of the Russian Federation dated April 3, 2020. Therefore, lessors need to check extracts from the Uniform state register of legal entities regarding lessees in terms of their Russian Classification of Economic Activities (Russian acronym “OKVED”) codes agreeing with the approved list.
To obtain a deferral, the lessee does not need to prove that it is impossible to use the premises according to their intended purpose, but he or she still needs to act in good faith.
If the lessor proves that the lessee was not affected, but used the leased property in violation of restrictive measures, the lessee may be deprived of the right to defer payment. What exactly constitutes inequitable conduct is not specified in the review. Therefore, answering the question “will it be considered inequitable conduct for employees to periodically visit the office to adjust remote work or to receive correspondence?”, it can be assumed that the outcome of the case and the court’s decision will depend on the evidence of the lessee and the lessor in the particular case.
The Law allows a lessee of real estate to claim for the owner of the premises to reduce the rental fee for 2020 (part 3 of article 19 of Federal Law No. 98-FZ “On amendments being made to certain legislative acts of the Russian Federation on the prevention and control of emergencies” dated April 1, 2020). At the same time, neither the law nor the explanations of the Supreme Court of the Russian Federation have elaborated approaches that help the lessor to determine the amount of such a discount. Consequently, everything is left to the discretion of the parties. To calculate the discount, lessors should take into account the financial situation of the lessee, the period of cooperation, the history of paying previous invoices, and other factors. The Supreme Court of the Russian Federation has indicated that in order for a discount to be provided, the lessee should prove that it is impossible to use the property according to its original purpose owing to the introduction of a high-alert regime.
It should be noted that many companies (including those who have transferred their employees to remote work) took advantage of the transition to remote work and informed the owners of premises that the premises may not be used for the originally agreed purpose. Therefore, they requested a corresponding discount from the lessor under part 3 of article 19 of Federal Law No. 98-FZ “On amendments being made to certain legislative acts of the Russian Federation on the prevention and control of emergencies” dated April 1, 2020. However, the Supreme Court did not directly confirm this possibility, but only mentioned it between the lines, giving those involved in the lease relationship the opportunity to independently agree on the terms of the discount.
Please note: if the lessee does not pay the rental fee in full and the owner applies to the court for the collection of debt, the lessee may justify his or her actions by the groundless refusal of the lessor to grant a discount. The Supreme Court of the Russian Federation has explained that, in this case, the lessee should reimburse the payment, taking into account the discount. Its percentage is determined by taking into account the amount by which it is usually reduced in such conditions. Consequently, the lessee should research the market of lease relationships in advance during the benefit period and prove the “usual” discount amount based on his or her research.
The reduction of the payment should be counted from the date when the property became impossible to use owing to the measures that had been introduced. The date of the conclusion of the supplementary agreement does not affect anything in this case.
The Supreme Court of the Russian Federation has confirmed that the benefits apply not only to property that is leased out entirely, but also to real estate that is taken for temporary use in parts. For example, the discount will apply equally if you lease one of the premises on a single floor.
The Supreme Court of the Russian Federation entrusted to owners of premises the obligation to check whether their lessees’ activities comply with the list of the sectors of the economy most affected by the coronavirus, which is set by Decree No. 434 of the Government of the Russian Federation, dated April 3, 2020.
And let us talk about bankruptcy again. The judges have already put forward their comments on the insolvency of a business in the first document. In the second Review, they revisited this topic again.
The Government’s Decree No. 428 dated April 3, 2020 introduced a six-month moratorium on the commencement of bankruptcy cases by creditors against a number of debtors. In accordance with this document, commercial (‘arbitration’) courts are obliged to return bankruptcy petitions submitted before the introduction of the moratorium, but not considered by the commercial court, as well as to return those submitted during the period of the moratorium. At the same time, notifications of an intention to apply to the court with a bankruptcy petition become invalid in accordance with part 2 of article 9.1 of Federal Law No. 127-FZ “On Insolvency (Bankruptcy)” dated October 26, 2002. The Supreme Court of the Russian Federation has explained that after validity of the moratorium ends regarding a certain category of companies, the creditor needs to send a notification (even if it is renewed) first and to apply to the court with bankruptcy petition after 15 calendar days from the date of publication of the notification on the federal resource. In doing so, the Supreme Court obliged creditors to perform additional actions and incur the costs of publishing the notification on the federal resource. Is it possible to file for the bankruptcy of an organization that is being voluntarily liquidated during the period of the moratorium? If a company has started voluntary liquidation, the extension of the moratorium does not forbid creditors to submit a bankruptcy petition. This owes to the very purpose of the moratorium – to keep companies on the market. But an organization that has voluntarily decided to liquidate does not pursue this aim, but rather wants to cease to exist. Therefore, the protection of the moratorium does not apply to such companies; they can be referred to as an “exception to the exception”. In addition, the Supreme Court of the Russian Federation has indicated that if, during the period of the moratorium, a voluntarily liquidated person became insolvent, it should comply with the obligation to submit a debtor’s petition and draw it up independently within the time limit prescribed by law. At the same time, the judges did not comment on cases of the termination of a voluntary liquidation. According to the law, it may be cancelled by a decision of the participants or terminated by law if it lasts more than one year (part 6-7 of article 57 of Federal Law No. 14-FZ “On limited liability companies” dated February 8, 1998 (as amended on November 4, 2019 and April 7, 2020)). In this case, it is assumed that, since the firm is considered fully operational, it is subject to the moratorium, which means that it is impossible to file for the bankruptcy of such a company.
Forfeits (fines, penalties) or other financial penalties for the non-performance or improper performance of monetary obligations and mandatory payments, except that current payments do not accrue for companies which are subject to the moratorium (sub-clause 2, clause 3 of article 91, and paragraph 10, clause 1 of article 63 of Federal Law No. 127-FZ “On insolvency (bankruptcy)” dated October 26, 2002 (as amended on April 24, 2020)).
A penalty in the form of interest for using someone else’s monetary funds after a delay (liability under article 395 of the Civil Code of the Russian Federation) is not a forfeit. However, the Supreme Court of the Russian Federation drew attention to the fact that interest under article 395 of the Civil Code of the Russian Federation during the period of the moratorium is subject to the same legal regime as a forfeit, i.e. interest is not accrued.
The Supreme Сourt has also explained that the suspension of the accrual of financial penalties applies to a delay on claims that arose before the moratorium was introduced. This does not apply to current payments by implication of law, but the Supreme Court of the Russian Federation did not comment on this in any way.
In accordance with the law, during the period of the moratorium, enforcement proceedings are suspended with respect to claims that arose before its introduction. This is only relevant for those companies that are subject to the moratorium regime. On the one hand, the Supreme Сourt of the Russian Federation has noted that transactions concerning a writ of execution are an obligation of banks and other credit organizations. On the other hand, according to the provisions of the moratorium, the creditor may not apply to the bank for recovery of monetary funds from the debtor.
We recommend that creditors wait until the moratorium expires on October 6, 2020 in order to obtain recovery. The lease benefits apply not only to property that is leased out in its entirety, but also to real estate that is taken for temporary use in parts. For example, the discount will apply equally for a lease of one of the premises on the floor. The judges indicated that if, during the period of the moratorium on bankruptcy a voluntarily liquidated person has become insolvent, it should comply with the obligation to submit a debtor’s petition and draw it up independently within the time limit prescribed by law.