Russian Federation: Changes In The Civil Laws Of The Russian Federation: A New Procedure For The Recovery Of Legal Interests And Interest On Third-Party Money

The Federal Law, dated 3 July 2016, No. 315-FZ (hereinafter - the 'Law No. 315-FZ') amended Article 317.1 'Interest on Monetary Obligation' and Article 395 'Liability for Failure to Perform Monetary Obligation' of the Civil Code of the Russian Federation (hereinafter - the 'Civil Code').

The relevant changes to the Civil Code become effective from 1 August 2016.

I. Changes in Article 317.1 of the Civil Code

Within the reform of the civil legislation, the Federal Law, dated 8 March 2015, No. 42-FZ 'On the Introduction of Amendments to Part One of the Civil Code of the Russian Federation' introduced a new Article 317.1 'Interest on Monetary Obligation' into the Civil Code.

According to the previous version of Article 317.1 of the Civil Code (as effective up to 1 August 2016), unless otherwise provided by law or an agreement, the creditor on a monetary obligation, the parties to which are commercial organizations, shall be entitled to receive from the debtor the amount of interest on the debt for the period of the funds use. Where the agreement does not provide for the amount of interests, such an amount shall be determined according to the refinancing rate of the Bank of Russia as effective during the respective periods (legal interests).

Thus, the previous wording of the Article contained a provision, according to which, the interests on a monetary obligation (legal interests) could be recovered from the debtor, if the latter was a commercial organization, while the law or the agreement did not provided for the removal or restriction of such a right. The interest rate was determined on the basis of the refinancing rate of the Bank of Russia as effective in the respective periods.

From 1 August 2016, the said Article is significantly amended. In particular, according to the amendments, where the law or the agreement provides that the amount of a monetary obligation is subject to interests for the period of the funds use, the rate of interests shall be determined under the key interest rate of the Bank of Russia (legal interest) as effective in the respective periods, unless another interest rate is set by law or the agreement.

Thus, from 1 August 2016 the legal interests shall be accrued in cases expressly provided by law or agreement, in which case the interest rate shall be determined on the basis of the key rate of the Bank of Russia being in effect at the relevant period of time (rather than the refinancing rate of the Bank of Russia).

According to the Information of the Bank of Russia, dated 10 June 2016, (Minutes of the meeting of the Board of Directors of the Bank of Russia, dated 10 June 2016) the key rate from 14 June 2016 is 10.50%.

The changes affected, inter alia, the parties that are subject to Article 317.1 of the Civil Code. As previously mentioned, the legal interests could be recovered from the debtor, if the latter is a commercial organization, the new wording of the Article does not contain such restrictions, therefore, it applies to all parties of the civil turnover.

II. Changes in Article 395 of the Civil Code

In accordance with the previous wording of Article 395 of the Civil Code, for the use of other's funds as a result of illegal retention thereof, avoidance of return, a delay in payment or unjust receipt or saving at the expense of another person, the interest on the amount of such funds shall be paid. The interest rate shall be determined by the average banking rates on deposits of individuals effective at the place of residence of the creditor or, if the creditor is a legal entity, at the place of its location and published by the Bank of Russia in the relevant periods. These rules apply, unless another interest rate is set by law or agreement.

The Law No. 315-FZ amended the procedure for determining the amount of interests on third-party money: the interest rate is now determined under the key rate of the Bank of Russia as effective in the respective periods, rather than the average bank interest rates on deposits of individuals, as provided earlier.

The new wording of Article 395 of the Civil Code also provides that these rules apply, unless another interest rate is set by law or agreement. Consequently, the parties to the agreement may provide another interest rate different from that provided by the Civil Code of the Russian Federation.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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