Context and Rationale

Initiator: The Ministry of Justice of Russia. Goal: To expand the possibilities for reorganization (merger, accession, spin-off) of companies with debts. 

Essence: To create a mechanism protecting the reorganizing debtor from a creditor’s immediate demand for early repayment of the debt or for the provision of specific types of security (“cash” or an unconditional guarantee). 

Bill: Amendments to Article 60 of the Civil Code of the Russian Federation.

What exactly do they propose to change? 

It is proposed to relax the current stringent requirements for the debtor during reorganization. A reorganizing legal entity will be able to avoid immediate payment/security if it proves to the court that the reorganization itself does not create a threat to the performance of its obligations to the creditor. An alternative to proving the absence of a threat is to prove that the creditor already has existing, sufficient security at the time of the demand.

Criticism: The absence of clear criteria for the “threat to performance” and the possibility of a subjective assessment of risk factors may lead to abuses and litigation.

Drafting issues 

• Blurring the line between improper performance and non-performance; 

• Risk of abuse: creditors may invoke immaterial breaches (delays without penalties) that, outside the context of reorganization, would not give rise to protection.

Burden of proof 

The reorganizing legal entity bears the burden to prove either: 

• the absence of a threat of non-performance due to the reorganization, or 

• the presence of sufficient security for the creditor’s interests at the time of the demand.

Rights-protection procedure 

• Threat of non-performance → move to negotiations; 

• The creditor has the right to demand security immediately after being notified of the reorganization; 

• Failure of negotiations → a claim for early performance.

Pre-trial settlement Linking the neutralization of the threat to the provision of security reduces the number of court cases — the demand for early performance arises only if security is refused.

Judicial procedure

• The dispute over the sufficiency of security is resolved within a single case; 

• The court examines the merits of claims and objections through an adversarial process.

Positive aspects 

• An open (non-exhaustive) list of types of security; 

• The category «sufficient degree of guarantee» is treated as evaluative, which is inherent to Russian law, and implies subsequent clarification by the court.

Источник — https://www.eg-online.ru/article/503144/