Any commercial organization or individual entrepreneur carrying out business activities under contracts that do not provide for 100% prepayment, face a situation sooner or later where the counterparty has receivables, payment of which is not always possible to achieve on a voluntary basis.

02.03.2023 Dealing with accounts receivable: risk management and pre-trial settlement

If the measures for the pre-trial procedure for resolving the dispute are not successful, the only way out of the situation is to go to court to protect the violated right and the subsequent enforcement of the court decision.

At the same time, many participants in the turnover put off going to court, not wanting to be distracted from current business affairs, because they do not understand the prospects for resolving the dispute, have no idea of the time frame for legal proceedings, fear excessive legal costs, and also do not understand to what extent the court can restore the violated right, however, the timeliness of the measures taken affects how quickly the creditor can restore its right and replenish working assets with recovered funds.

According to the applicable laws, the violation by the counterparty of the terms of payment is considered to be a unilateral repudiation of the obligation (Article 310 of the Civil Code of the Russian Federation), which is an unconditional violation of the rights of the creditor, subject to protection by the court (Article 11 of the Civil Code of the Russian Federation).

Stages of the legal collection procedure

As part of the legal collection of receivables, the following main stages can be distinguished:

  • Compliance with the mandatory pre-trial dispute resolution procedure
  • Litigation
  • Enforcement of a court decision

Pre-trial settlement

By virtue of the provisions in Article 4, Part 5 of the Commercial Procedural Code of the Russian Federation, civil law disputes on the recovery of funds under claims arising from contracts, other transactions, as a result of unjust enrichment, may be submitted for resolution to the arbitration court after the parties have taken measures for pre-trial settlement upon expiry of thirty calendar days from the date of sending the claim (demand), unless other terms and (or) procedure are established by law or contract.

Thus, if the pre-trial settlement of the dispute is mandatory, the fulfillment of this obligation is a condition for the exercise of the right of a person to go to court. Subsequently, when applying to the court, the statement of claim shall necessarily indicate the information about the compliance by the claimant of the mandatory pre-trial procedure for settling the dispute, and documents confirming compliance with this procedure shall be attached to the statement of claim. Failure to fulfill this obligation shall be the basis for the return of the statement of claim (Article 129, Part 1, Clause 5 of the Commercial Procedural Code of the Russian Federation).


What and how to prove

At the stage of the litigation, the main task of the Claimant is to prove the circumstances to which it refers as the basis of its claims (Article 65, Part 1 of the Commercial Procedural Code of the Russian Federation). With regard to disputes on the collection of receivables, the basis for a court to make a positive decision on its collection will be the proof by the person who applied to the court that the counterparty has been provided with a service/work performance/ supply, etc., as well as a violation by the debtor of the terms and conditions for their payment, agreed by the parties in the contract, or determined by the general provisions of the law. Proper evidence that confirms these circumstances, as a rule, shall be any primary and accompanying documents, reconciliation statements of mutual settlements, expenditure papers, and any other documents, directly or indirectly, confirming the actual completion of the business transaction, including correspondence between the parties to the disputed legal relationship.

Possible additional requirements

So what kind of violated rights can a creditor protect in a lawsuit?

Along with the recovery of the principal amount, the applicable laws allow the creditor also to protect the accompanying rights in court designed to compensate for the negative consequences of the illegal actions of the counterparty, namely, the Claimant may also simultaneously file additional claims arising from the violated obligation, such as:

  • a claim for the recovery of a contractual or legal penalty,
  • interest on money had and received,
  • recovery of damages in the form of actual damage or lost profits resulting from a breach by the counterparty of contractual terms.

At the same time, penalties and/or interest on money had and received may be recovered in the amount calculated on the date of the actual payment by the defendant of the principal amount, which eliminates the need to re-apply to the court to recover the indicated amounts accrued after the court decision.

Legal costs

In addition, the person who applied to the court to protect the violated right may also award the defendant any legal costs incurred. According to Art. According to Art. 106 of the Commercial Procedural Code of the Russian Federation, legal costs include: amounts of money payable to experts, specialists, witnesses, translators, expenses associated with on-site examination of evidence, expenses for paying for the services of lawyers and other persons providing legal assistance (representatives), postage, and other expenses incurred by the persons participating in the case in connection with the consideration of the case in the arbitration court.

Litigation timelines

The timelines of legal proceedings in the arbitration process in the Russian Federation correspond to global practices and are acceptable from the point of view of civil-law transactions.
Thus, according to Article 152 of the Commercial Procedural Code of the Russian Federation, the case shall be considered by the arbitration court of first instance within a period not exceeding six months from the date of receipt of the claim by the arbitration court, including the period for preparing the case for trial and for making a decision on the case, and if the amount in dispute is less than RUB 800,000 for legal entities, or RUB 400,000 for individual entrepreneurs, or there are other grounds for considering a dispute under the summary procedure rules – within a period not exceeding two months from the date the statement of claim is received by the arbitration court. In addition, cases accepted for consideration in a summary procedure shall be considered without summoning the parties, which makes it possible to avoid additional expenses for the claimant to pay for the services of a representative in court.
At the same time, a court decision considered in a summary procedure shall be subject to immediate enforcement, which means that there is no need to wait for its entry into force and it is possible to receive a writ of execution immediately to carry out actions to enforce debt collection.

Execution of court decisions

When a writ of execution issued by the court on the basis of the decision is received, the stage of its enforcement begins.

According to Article 5, Part 1 of Federal Law No 229-ФЗ dated October 02, 2007 “On Enforcement Proceedings”, the body that enforces judicial acts is the Federal Bailiff Service and its territorial bodies.

At the same time, Article 8, Part 1 of the said Law allows the recoverer to send a writ of execution for enforcement directly to the bank where the debtor has a settlement account. This procedure for the execution of the court decision has a significant advantage in terms of the execution time, since the Banks are obliged to fulfill the requirements contained in the executive document for the recovery of funds immediately.

Thus, for individual disputes on the collection of receivables, the period between going to court and the actual collection of the funds awarded can be only a little more than two months.

The above, however, is true for debtors who have funds in settlement accounts. In the event that the debtor has only assets other than cash, it will be necessary to apply to the bailiff service and actively participate in enforcement proceedings, within the framework of which it is possible to sell the debtor’s property, seize the amounts due to the debtor for the contracts fulfilled by it, implement other enforcement measures.

Additional collection options

If it is not possible to achieve the recovery of the awarded receivables within the framework of enforcement proceedings, the applicable laws provide a number of additional options designed to protect the bona fide creditor, in particular, applying to the court to declare the debtor insolvent (bankrupt).

Bankruptcy of the debtor

According to Article 33, Part 2 of Federal Law No. 127-ФЗ dated October 26, 2002 “On Insolvency (Bankruptcy)”, as a general rule, an application for declaring a debtor bankrupt may be filed with the court if the claims against the debtor being a legal entity in the aggregate amount to at least three hundred thousand rubles, the debtor being a citizen – not less than five hundred thousand rubles and the specified claims are not fulfilled within three months from the date when they should have been fulfilled.
Within the framework of the procedures provided for by the insolvency (bankruptcy) legislation, creditors are provided with ample opportunities to collect debts by selling the debtor’s property, challenging any transactions made by the debtor for a period of up to three years before the date of filing an application for declaring it bankrupt with return to the bankruptcy estate of disposed funds, as well as a number of other opportunities.
In a number of cases, it is possible to recover even the debt that is owed to a legal entity that has ceased its activities and, therefore, is excluded from the Unified State Register of Legal Entities, by filing an independent claim against the persons who controlled it (the Company).

Liability of debtor’s controlling persons

According to the general rule formulated in Article 87, Part 1 of the Civil Code of the Russian Federation, members of a limited liability company shall not be liable for its obligations and shall bear the risk of losses associated with the activities of the company, only within the value of their shares.

At the same time, according to the position set out in recent Resolution No. 20-П of the Constitutional Court of the Russian Federation dated May 21, 2021 “On the Case of Checking the Constitutionality of Article 3, Clause 3.1 of the Federal Law “On Limited Liability Companies” in Connection with the Complaint of Citizen G.V. Karpuk” within the meaning of Article 3, Clause 3.1 of the Federal Law “On Limited Liability Companies”, considered in a systemic relationship with the provisions of Article 53 Clause 3, Articles 53.1, 401 and 1064 of the Civil Code of the Russian Federation, formed in connection with the exclusion from the unified state register of legal entities of a limited liability company, the losses of its creditors, bad faith and (or) unreasonable actions (inaction) of persons controlling the company in exercising their rights and fulfilling obligations in relation to the company, the causal relationship between the indicated circumstances, as well as the fault of such persons form the necessary set of conditions for bringing them to liability.

It follows from the above that in the event that a legal entity ceased its activities and was excluded from the Unified State Register of Legal Entities, and the debt to the creditor arose as a result of bad faith actions of persons controlling it (owners, general directors, etc.), the creditor of this legal entity may collect the debt from controlling persons, while the burden of proof of good faith shall lie with the Defendant.

09.02.2023 Exclusion of a company from the Unified State Register of Legal Entities in an administrative manner is not a ground for bringing the company’s head to liability due to the company’s outstanding debts to the creditor

Who can represent creditor in a court?

The correct determination of the scope of circumstances to be proved in a particular dispute, the formation of a clear legal position, the collection of evidence confirming the basis of the claim, the proper execution of procedural documents and compliance with other procedural obligations stipulated by law will help achieve a positive resolution of the dispute, the enforcement of a court decision as soon as possible.

Obviously, it is difficult for a person who does not have special knowledge and skills to prepare all the necessary documents independently and carry out all the necessary procedural actions in such a way as to achieve effective protection of violated rights as soon as possible. In a number of cases, mistakes made when applying to the court lead to a court decision to refuse to satisfy the stated claims, which makes it impossible to re-apply to the court with a claim on the same subject and grounds (Article 127.1, Part 1, Clause 2 of the Commercial Procedural Code of the Russian Federation), and consequently, further protect the violated right.

For this reason, in order to improve the quality, reduce the time for consideration of arbitration disputes, increase the professionalism of the participants in the arbitration process, Federal Law No. 451-ФЗ dated November 28, 2018 amended the arbitration procedural legislation, according to which representatives of citizens, including individual entrepreneurs, and organizations, with some exceptions, only lawyers and other persons providing legal assistance who have a higher legal education or an academic degree in a legal specialty (Article 59, Part 3 of the Commercial Procedural Code of the Russian Federation) may act in an arbitration court.

Based on the goals of introducing and further developing the institution of professional representation in arbitration proceedings, the Plenum of the Supreme Court of the Russian Federation gave additional clarifications in Resolution No. 46 dated December 23, 2021, according to which the requirements for a representative shall be observed when a person participating in the case performs any procedural actions, including when signing a claim, participating in a court session, examining material evidence.

Thus, in order to carry out effective and timely collection of receivables in court, a business entity will need either to hire a lawyer, which is not always advisable from an economic point of view, or to contact a professional participant in the legal services market to represent its interests in court on a one-time or systematic basis.

At the same time, contacting a third-party specialist has a number of significant advantages, for example, unlike the costs of a full-time lawyer, the costs of paying for legal services under an agreement with a third-party organization or specialist can be reimbursed from the defendant in accordance with Article 110 of the Commercial Procedural Code of the Russian Federation.

Summing up, it can be stated that as a result of the development of the legal system in the Russian Federation, modern legislation and law enforcement practice have developed that contain mechanisms allowing the creditor to collect receivables within a reasonable time, protect related rights, and also achieve reimbursement of expenses incurred in connection with the need to apply to the court, however, it is advisable to entrust the implementation of debt collection actions in court to a professional representative or an organization providing appropriate legal services.

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