How to get debt from Russian company if it is sanctioned?

The president of Russia granted Russian companies the right to pay the foreign debt in rubles instead of foreign currency. The exchange rate is to be defined by the Central Bank of Russia on the payment date. As we can see this indicator is far from real rate and significantly lower than the current market. The big question is what to do with this money which will be paid in rubles and if there is no ruble account on the account opened in the payer’s bank on behalf of the lender? How to collect this money and convert it into the appropriate currency? But all questions are to be answered step by step.

Does a Russian company have a right to pay in rubles despite the contract says it doesn’t?

Due to Vienne convention (1969) every treaty in force is binding upon the parties to it and must be performed by them in good faith (art. 26). A party may not invoke the provisions of its internal law as justification for its failure to perform a treaty. This rule is without prejudice to article 46 (art. 27). According to article 46 of the convention a State may not invoke the fact that its consent to be bound by a treaty has been expressed in violation of a provision of its internal law regarding competence to conclude treaties as invalidating its consent unless that violation was manifest and concerned a rule of its internal law of fundamental importance. A violation is manifest if it would be objectively evident to any State conducting itself in the matter in accordance with normal practice and in good faith. This means that a Russian company doesn’t have a right to pay the way which violates the agreement. If it is not ruble currency then it must be paid in this currency. Period.

What is it going to be if a Russian company will pay in ruble?

If it happens, the party can take actions in accordance with the signed contract. If the contract contains conditions for legal actions on the Russian territory it is obvious difficult to demand from the Russian court (arbitration) the application of international law instead of the Presidential decree. If the contract contains the terms of another jurisdiction, it is more likely that the Russian company will fulfill its obligations in accordance with the contract. The second question: how to get money from Russia if the company has no assets anywhere but Russia? Despite the fact that Russia has ratified New York Convention (1959) Russian bailiff wouldn’t take action against the decree.

But Russia is a democratic country and confirms international law, especially in commercial relations. There are many legal mechanisms that should help in this case. Despite the Presidential decree, this contradicts all signed international agreements and even Russian law.

However, all foreign colleagues should to understand that Russian companies are in very difficult circumstances – they don’t have the opportunity to pay their bills in any foreign currency except in case of the company has accumulated currency in its account (barely we can find even a company). In this situation, it is very important to maintain prudence. What is the point of aggressive actions against Russian business if they cause more harm to their own business interests? It is more expedient to find mutually beneficial way out of this crisis.

Our law firm offers all companies from abroad services to represent their business in Russia. We can represent all issues in courts or negotiations, prepare necessary letters or give advice in accordance with Russian and international legislation.

09.03.2022