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Financing Transactions in Russia

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Financing Transactions in Russia FINANCING TRANSACTIONS IN RUSSIA ROMAN CHAPAEV Submitted in fulfillment of the requirements for the degree of Doctor of Philosophy (Ph.D.) of the University of London CENTRE FOR COMMERCIAL LAW STUDIES, QUEEN MARY UNIVERSITY OF LONDON MAY 2010 LONDON ABSTRACT The thesis analyzes Russian laws of security and insolvency and reviews common legal issues arising in cross-border financing transactions. To aid better understanding of up-to-date Russian law, the analysis includes historical information. The thesis concludes that Russian law traditionally did not adopt a regime favorable to lenders and that the law of security was inefficient. In addition, commercial practice suffered from the inflexible approach of courts to innovations. Statutory law was not appropriate for commercial, as opposed to retail, transactions. This situation may be partially attributed to the recent transition from planned to market economy and, hence, relatively short history of modern Russian law. The thesis highlights recent Russian legal reforms and their impact on lending practices. At the thesis shows, the respective changes provided more comfort and protection to the lenders and increased certainty in business transactions. In this way laws of security and insolvency were elevated to new levels and this demonstrated the changing approach of legislators and courts. This originality of this work is in that it combines the study of the original Russian sources of law with the perspective of financial transactions in the international markets. It also includes a comparative element: where appropriate rules of Russian law are contrasted with their counterparts in English law. Furthermore, Russian security and insolvency laws are often reviewed through the prism of their practical application and effect on lending practices. Thus, the link between law and economy is also exposed. -2- TABLE OF CONTENTS ABSTRACT ............................................................................................................................ 2 TABLE OF CONTENTS ............................................................................................................... 3 ACKNOWLEDGMENTS .............................................................................................................. 5 INTRODUCTION ..................................................................................................................... 6 CHAPTER 1. SOVIET LAW ....................................................................................................................... 9 1.A. Constitutions ............................................................................................................................ 13 (i) R.S.F.S.R. Constitution 1918 and Decrees on Courts ................................................................... 13 (ii) U.S.S.R. Constitution 1924 ........................................................................................................... 16 (iii) U.S.S.R. Constitution 1936 ........................................................................................................... 18 (iv) U.S.S.R. Constitution 1977 ........................................................................................................... 22 1.B. Civil Codes ................................................................................................................................ 25 (i) Civil Code 1922 ............................................................................................................................ 26 (ii) Civil Code 1964 ............................................................................................................................ 28 1.C. Transitional Period ................................................................................................................... 36 (i) Law on Cooperatives ................................................................................................................... 38 (ii) Law on Property and Law on Enterprises .................................................................................... 44 (iii) Civil Foundations 1991 ................................................................................................................ 46 (iv) Privatization and Market Reforms ............................................................................................... 51 CHAPTER 2. SECURITY LAW .................................................................................................................. 65 2.A. Security, Insolvency and Conflict of Laws ................................................................................. 68 2.B. Pledge ....................................................................................................................................... 71 2.C. Assignment ............................................................................................................................. 113 2.D. Other security ......................................................................................................................... 122 (i) Bank Guarantee ......................................................................................................................... 123 (ii) Suretyship .................................................................................................................................. 127 (iii) Penalty ....................................................................................................................................... 129 (iv) Deposit ...................................................................................................................................... 133 (v) Lien ............................................................................................................................................ 133 CHAPTER 3. INSOLVENCY LAW ............................................................................................................ 135 3.A. Insolvency: 1917-1992 ........................................................................................................... 137 3.B. Law on Insolvency 1992 ......................................................................................................... 139 (i) Insolvency Test .......................................................................................................................... 140 (ii) Insolvency Procedures ............................................................................................................... 142 -3- 3.C. Law on Insolvency 1998 ......................................................................................................... 148 (i) Insolvency Test .......................................................................................................................... 150 (ii) Insolvency Procedures ............................................................................................................... 151 3.D. Law on Insolvency 2002 ......................................................................................................... 160 (i) Insolvency Test. Insolvency Petition .......................................................................................... 160 (ii) Obligation to File Insolvency Petition. Subsidiary Liability ........................................................ 163 (iii) Observation. First Creditors’ Meeting ....................................................................................... 164 (iv) Financial Rehabilitation ............................................................................................................. 169 (v) External Administration ............................................................................................................. 173 (vi) Liquidation Proceedings ............................................................................................................ 182 (vii) Priorities and Security ................................................................................................................ 186 (viii) Chapter III.1: Contesting Debtor’s Transactions ........................................................................ 195 CONCLUSIONS .................................................................................................................... 200 ANNEX. MODERN RUSSIAN STATE AND LAW .......................................................................................... 210 A. Federative Organization ......................................................................................................... 210 B. Executive and Legislative Powers ........................................................................................... 212 (i) Executive Branch ....................................................................................................................... 212 (ii) Legislative Branch ...................................................................................................................... 217 C. Branches of Law ..................................................................................................................... 218 D. Sources of Law ....................................................................................................................... 219 E. Courts ..................................................................................................................................... 224 (i) Constitutional Court .................................................................................................................
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