On 22 February 2012, the Supreme Commercial Court of the Russian Federation (the “SCC”) published on its official site a draft clarification of several issues on resolving disputes involving suretyships (the “Draft Clarification”).
The Draft Clarification specifically stipulates that:
- an amendment to the secured obligation (e.g. an increase in the debt amount or interest rate) does not terminate the suretyship agreement (in this case, assuming the suretyship is not amended accordingly, the surety is liable to the creditor in respect of the initial secured obligation);
- a suretyship agreement may provide for a maximum increase in the amount of the secured obligation for which the surety has agreed to be liable for the debtor (in this case, when the principal obligation is amended, the surety is liable to the creditor within the range and up to the maximum amount agreed upon in the suretyship agreement);
- a suretyship may be entered into subject to a condition precedent (e.g. the utilisation of the facility amount as per a credit agreement, or upon the entrance by the creditor and the debtor (or third parties) into other security agreements);
- a suretyship agreement may be entered into without the consent and/or notice to a debtor (but we note that the SCC is reviewing the possibility of including a provision which stipulates that where the guarantor accepts liability for the debtor and the debtor subsequently does not approve the suretyship, the courts may define the arrangement as being one not formally stipulated in the Civil Code of the Russian Federation (the “Civil Code”), and a claim for reimbursement of any amount paid will fall under the rules of unjust enrichment (Chapter 60 of the Civil Code), as opposed to a generally applied procedure for a recourse claim;
- the absence in a suretyship agreement of provisions relating to the amount and/or procedure for paying interest limits the guarantee payment obligations to the principal amount (i.e. excluding any interest);
- a suretyship may be granted even after a debtor has committed an event of default; and
- a provision in the suretyship agreement fixing the term of the suretyship to the date of full discharge of the secured obligations is not a valid term of the agreement (in this case, the suretyship agreement terminates if a creditor does not file a claim against the surety within one year of the date when the obligation becomes due.
Market players have long awaited the position of the SCC in terms of suretyships. Adoption of the Draft Clarification will close specific loopholes in the current legislation that have allowed bad-faith debtors to avoid fulfilling their obligations by challenging the validity of a signed suretyship agreement.
[The draft decree of the Supreme Commercial Court of the Russian Federation “On Several Issues of Resolving Disputes Relating to Suretyships” is available in Russian at the Court’s official site]