Baker & McKenzie : State Duma is to speed up debt collection under loan agreements

On July, 3 the State Duma adopted amendments to the Arbitration Procedure Code in the third and final reading. The amendments enable courts to integrate debt claims and counter-claims of borrowers litigating loan agreements into one case.

Up to now the Arbitration Procedure Code did not allow the compulsory integration of such cases, which gave borrowers the possibility to litigate with banks independently. Meanwhile debt collection was suspended.

The draft law envisages changes to a number of laws. The main amendments are to the Arbitration Procedure Code. For the first time it contains clauses enabling the court of primary jurisdiction to integrate similar cases at its own initiative as well as cases involving primary and counter-claims.

The amendments should significantly speed up debt collection under loan agreements by banks and solve some of the more complicated problems courts have encountered in the economic downturn. Under the current law only the defendant is empowered to counterclaim.

For instance, the borrower under a loan agreement, being a defendant before the court, may counterclaim against the bank within the same case, demanding either the invalidation of the agreement or the amendment of its terms. However, borrowers tend not to file such counter-claims since the court will handle them quickly in the same case. Borrowers are more inclined to sue banks separately, within a new case, and claim suspension of debt collection. Tens of such cases are suspended at the moment.

The aforesaid amendments will come into force, once they are approved by the Federation Council and signed by President Dmitry Medvedev, 90 days after official publication of the law.

For more information, please contact in Moscow: Vladimir Dragunov (+7 495 787 2700), Max Gutbrod (+7 495 787 2700), Mikhail Turetsky (+7 495 787 2700), David Scott (+7 495 787 2700), in St. Petersburg: Igor Gorchakov (+7 812 303 90 00).