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New Debt Transfer Rules: A Surprise for Debtor?


The major portion of amendments in the provisions of the Civil Code regarding debt delegation introduced on the basis of Federal Law No.367-FZ as of December 21, 2013 took effect on July 01, 2014.

Entrepreneurs now have an opportunity to change a debtor in the obligation under a contract between a creditor and a new debtor (so-called imperfect delegation) according to Article 391 of the Civil Code of the Russian Federation.

Previously this was only possible by agreement between the original and the new debtors. Today, for example, a creditor can find a company that will repay the loan of a corporate debtor and enter into a contract therewith.

However, the law does not expressly require either to notify or to obtain consent of a previous debtor to imperfect delegation.

Thus, it seems as if a debtor may be unaware of the fact that it is no longer in debt.

What a nice surprise for a debtor! But is it really a surprise?

Here the first question arises whether one should inform or ask the original debtor for consent to replace it.

Having analysed the provisions of the Civil Code of the Russian Federation, one can reach a conclusion that notification of a debtor is essential. Firstly, this stems from the principle of good faith of business entities. Secondly, there is a clause contained in item 3 of Article 391 of the Civil Code stipulating the debtor’s right to waive its release from performance of the obligation. In case of failure to notify a debtor, the latter may exercise its right for such waiver.

The requirement to ask for a debtor’s consent in case of non-monetary debt is not explicitly prescribed by the law. However, this may be concluded on the basis of systematic interpretation thereof (more specifically, item 4 of Article 388 of the Civil Code of the Russian Federation is meant). A monetary debt does not allow to draw such a conclusion. Thus, technically, no permission is required in this case.
Nevertheless, it may happen that in the event of dispute a court will recognize the need to obtain a consent of the original debtor (for any kind of debt) based on the history of development of imperfect delegation provisions. In fact, it was pointed out in the Concept of Development of Civil Legislation of the Russian Federation that “…transactions regarding assumption of debt of another party by agreement with a creditor may be allowed, provided that they are carried out within the scope of entrepreneurial relations and obligatory consent of the original debtor is obtained”.

It can therefore be concluded that imperfect delegation suggests that the previous debtor is at least notified thereof.

To avoid subsequent challenging of a debt delegation transaction by a debtor, one had better inform the latter of the delegation in advance, and not post factum.

After all, the creditor’s person is sometimes significant for a debtor, and release from obligations is not always advantageous for the latter. Thus, a post-factum notice may be a surprise for a debtor, though an unpleasant one.

The most obvious example: a debtor may have a counterclaim against a creditor that it was ready to raise to be offset and only waited for the due date. After getting rid of the debt, the debtor also lost the set-off right. Thus, one should keep away from ‘surprises’.

Speaking of surprises:

It follows from item 3 of Article 391 that in case of imperfect delegation both previous and new debtors are jointly and severally or vicariously liable, if the original debtor is not released from performance of obligations. The last words suggest that one can enter into a contract, in circumvention of the prohibition on gift giving between commercial entities, under which a new debtor will gratuitously (without creation of claims against the previous debtor) assume the debt of another party. For example, a company X intending to gratuitously surprise a company Y will pay the debt for the goods of the latter to a creditor, thus releasing the debtor from the debt repayment obligation.

Therefore, the wording “release of a debtor from obligations” may seem to explicitly contradict Article 575 of the Civil Code of the Russian Federation (prohibiting gift giving between commercial entities) and indicate inconsistency thereof. However, that’s not the case.

Taking into account the prohibition on gift giving, a release from performance of obligations can only mean release in terms of creditor, i.e. debtor’s withdrawal from the obligations, as in ordinary debt delegation.
This is confirmed by paragraph 2 of item 3 of Article 391, stipulating that creditor rights are transferred to the debtor that fulfilled the obligations.

Thus, as a result of imperfect delegation, creditor rights to demand fulfilment of obligations are transferred to the new debtor, while the former debtor will still be obliged to repay the debt, however, not to the original, but to the new creditor (a debtor that satisfied its obligations).

Here there is no surprise either.

Still, a creditor has an opportunity to surprise a debtor, albeit in an unpleasant way.

Even if parties provide for a prohibition to assign claims against the debtor in a contract (e.g. loan agreement), a creditor is still able to make a contract for imperfect delegation resulting in similar consequences for a debtor, as in case of assignment: the debtor will owe to a new creditor.

In the end economic effect of the assignment will be achieved, and the previous debtor will only be able to refer to misuse of the right on the part of the creditor and argue sham nature of the transaction.

If a debtor is concerned about such a scenario, a clause may be suggested in a contract prohibiting, apart from assignment of claims, imperfect delegation. Thus, it may be concluded that new delegation rules do not allow to spring a surprise on a debtor! 

Author: Maria Smirnova — Rightmark Group Senior Associate of Corporate/M&A Practice 
Source: St. Petersburg Legal Internet Portal, author column ‘Business from the Legal Standpoint’ (Biznes — Sudebnaya Versiya)