Russia
A credit agreement in Russia can take the form of a credit facility agreement or a loan agreement. For more information, see Lending and borrowing – restrictions.
A credit facility agreement, being the most common lending instrument in Russia, may be structured in a number of ways to include a variety of features depending on the commercial needs of the parties. A loan agreement is used between individuals or non-credit organizations that only occasionally (not on a regular basis) lend their funds to other parties.
A credit facility agreement is usually provided on a bilateral basis (a single lender providing the entire facility); however, syndicated facility agreements with multiple lenders providing parts of an overall facility are also used on the basis of Federal Law 'On Syndicated Credit (Loan) and Amendments to Certain Legislative Acts of the Russian Federation'. It should be noted that Russian law does not recognize the concept of a trust, thus alternative structures, such as a credit agent (kreditnyj upravlyayushiy), are used in syndicated secured transactions.
Loan durations
There are no particular requirements as to the duration of credit agreements.
Depending on the commercial needs of the parties, the credit agreements may take the form of a term agreement (provided for an agreed period of time), revolving agreement (provided for an agreed period of time with an availability period to extend nearer to maturity of the agreement and which may be redrawn if repaid), etc.
Loan security
A credit agreement can be either secured or unsecured. For more information, see Giving and taking guarantees and security.
Loan commitment
In the case of a credit facility agreement a lender cannot refuse to provide the loan unless there are circumstances evidencing that the loan will not be repaid in the due time. However, in accordance with the long-standing position of Russian courts, a breach of the respective obligation by a creditor will not give rise to the remedy of specific performance; ie a debtor will not have an enforceable right against the creditor to demand the provision of a loan but will have to resort to the remedies of rescission and damages. It is also possible to formulate conditions precedent for such refusal in the credit facility agreement itself.
A lender under the loan agreement is obliged to provide the loan unless there are circumstances evidencing that the loan will not be repaid in the due time with the exception of cases where a lender is an individual (please see Lending and borrowing – restrictions).
Loan repayment
A credit facility or a loan can be repayable on demand, on an amortizing basis (in installments over the life of the loan) or scheduled (usually meaning the facility or loan is repayable in full at maturity).
Are there any restrictions on giving and taking guarantees and security?
As a matter of Russian law, a guarantee is not regulated separately – it is one form of security which shares common features with other forms of security.
Some of the key areas affecting the giving of security are as follows.
Form of a contract
Granting security that breaches certain mandatory form requirements specified by the law will lead to its invalidity. The requirements differ depending on the type of the security. For example, a pledge of a participation interest must be notarized, while agreement on penalty must be in writing regardless the form of the primary obligation.
Insolvency
For a period after a new security interest has been granted (known as the hardening period), security may be at risk of being set aside under Russian insolvency laws if the security was granted within a certain time period prior to the insolvency of a company and a company received considerably less consideration for it or if a deal was made with the purpose of prejudicing the property rights of the creditors. Another ground for setting security aside is where the court qualifies the deal as leading to preference of one creditor over the other creditors.
Subsequent pledge
Pursuant to recent changes to the law, a subsequent pledge cannot be prohibited by the first ranking pledge agreement. However, if a first ranking pledge agreement specifies the terms on which a subsequent pledge is to be concluded, the breach of such terms entitles the first ranking pledgee to claim from the pledgor compensation of any losses incurred by such breach.
What are common types of guarantees and security?
There are various methods of securing performance of obligations under the Russian law.
The common types of security interest include:
- pledge (including mortgage);
- surety (note that the surety and the debtor shall be jointly liable to the creditor unless the surety agreement or law provides for secondary liability);
- independent guarantee (a written guarantee issued by a bank or other legal entity to pay the creditor a certain amount of money irrespective of the validity of the obligation secured by this guarantee);
- security payment (a sum of money paid by one party to another party to secure a monetary obligation, including the obligation to pay a penalty for breach of contract and certain other specific types of obligations);
- penalty (a sum of money which the debtor is obliged to pay to the creditor in the event of its failure to discharge its obligations); and
- retention (a creditor has the right to retain tangible property in its custody in the event that the debtor fails to discharge its payment obligations relating to the property).
Are there any other notable risks or issues around giving and taking guarantees and security?
To be valid, security shall comply with the following form requirements:
- An agreement on a penalty must be in writing regardless the form of the primary obligation.
- A pledge can be created by a written agreement or by operation of law (in this case the parties may conclude a written agreement regulating their relationship). The pledge of participation interest must also be notarized.
- A surety agreement must be in writing (in some cases it can be created by operation of law).
- An independent guarantee must be granted in a written form that allows for the identification of the terms of a guarantee and to ascertain its authenticity.
The law also states compulsory registration requirements for certain types of pledge that are not created until such registration is made:
- A pledge of participation interest must be registered in the official single register of the legal entities.
- A mortgage (pledge of immovable property) as an encumbrance over the real estate must be registered in the unified state register of real estate.
- For a share pledge, a transfer record must be made on the account on which the rights of the shares owner are recorded.
There is also a register of notifications on the pledge of movable property which is maintained by the notary public. Registration of the pledge is not compulsory but the pledgee is only entitled to refer to the pledge in its relations with the third parties if registration is made. Moreover, regardless of the time the pledge was created, priority will be given to the claim under a pledge which has been registered first.