6 January 2005
The commercial laws of The Russian Federation. Part 18. Writs of Execution

Writs of Execution.

a. Legislation.

The procedure of execution (enforcement) of judicial acts is governed by Section VII of the new Arbitrazh Procedure Code of the RF of 24 July 2004 No. 95-FZ (hereinafter the “APC”), Chapter 47 of Section VI and Section VII of the new Civil Procedure Code of the RF of 14 November 2002 No. 138-FZ (hereinafter the “CPC”), the federal law No. 118-FZ On Court Bailiffs of 21 July 1997 and the Federal Law On Execution Procedure No. 119-FZ of the same date.

Execution of judicial and other official acts in administrative matters is governed by Section V of the Code on Administrative Offences (the Federal Law of 30 December 2001 No. 195-FZ) and certain other acts. Cited laws On Court Bailiffs and On Execution Procedure are applicable to these proceedings as well.

Execution of judgements in criminal cases is governed by Section III of the Criminal Code the Russian Federation, Section XIV of the Criminal Procedure Code (the Federal Law of 18 December 2001 No. 174-FZ) and the Penal Execution Code (Federal Law of 7 January 1997 No. 1-FZ). However, execution of civil suits in criminal proceedings is also governed by Federal Law On Execution Procedure.

b. Court Bailiffs.

The system of court bailiffs (“marchalls”) is subordinate to the Ministry of Justice. Thus now the enforcement proceedings are a competence of executive branch (previously enforcement departments were functioning as part of court system).
Court bailiffs carry out two functions: maintenance of proper order in courts and enforcement of judicial and other public acts.

c. Execution Procedure.

The execution procedure is initiated if a judgement or other act having the effect of a judgement is not complied with voluntarily. Enforcement of court decisions and interim orders is carried out on the basis of a “writ of execution” (ispolnitelnyj list). The writ of execution may also be issued on the basis of an interim judicial order for provisional measures to secure the claim, of order to impose a fine, to reverse execution of a judgement, of judicial approval of settlement, of order on allocation of costs and a state fee.

The writ of execution is issued by the same authority which issued the original judgement or an interim order, after such judgement or an order becomes effective. Normally, a judgement of the arbitrazh court of first instance becomes effective within one month after it is promulgated. A judgement of the court of general jurisdiction normally becomes effective within ten days after it is promulgated. Other judicial acts of the court of general jurisdiction normally become effective immediately upon promulgation.

Not only writs of execution but also other documents are capable of being enforced. Such other enforceable documents include court ordinances (sudebnyj prikaz), executive endorsements by a notary, certain acts of administrative officials, alimony agreements certified by a notary. Enforceable documents are only effective for a limited period of time, from three months to three years. A writ of execution is effective for three years.

The nature of enforcement depends on the type of remedy requested. The analysis infra is related primarily to the execution of monetary claims. However, it is also possible to enforce (a) demands for an individual thing and (b) demands for specific performance. In the first mentioned case a bailiff removes the item in question from possession of the debtor and delivers it to the claimant. For comments on specific performance see section “f” below.

In the case of a monetary claim, enforceable documents may be forwarded by the beneficiary directly to a bank or other financial institution. Alternatively, they can be submitted to the court bailiff which initiates enforcement (execution) procedure. Court bailiffs carry out search for assets and persons, and implement actual collection, sale of property and distribution of proceeds.

d. Assets protected from the execution.

(i) Assets of an individual.

The list of property of an individual immune from the execution is defined in Art. 446 of the CPC. The list includes a residential house; land plots on which the residential house is located and which are not connected with business undertakings; household articles and furniture except for jewellery and other things of luxury; several heads of cattle, seeds, food; fuel required for cooking and heating of the residential premises; professional equipment required for support of the professional activities of the debtor with exception of items worth more than 100 minimum monthly wages; special transport facilities and other equipment for disable debtors; state awards, prizes, etc.

Collection cannot be levied upon the property of an individual if amount to be collected does not exceed the portion of one monthly salary, pension or other income of an individual which can be subject to collection. Monthly collection levied upon salary may not exceed 50 per cent of the amount of monthly salary and in cases of collection of alimony, compensation of damages caused by injury or death or by commitment of a crime - 70 per cent of the amount of monthly salary. Articles 64-69 of the Federal Law On Execution Procedure determine a procedure, requirements and limitations of collections against wages and other periodic income of an individual.

(ii) Assets of legal entities.

As a general rule, no assets of a legal entity are protected from the execution.

There are certain exceptions to this rule. For instance, a non-commercial organization incorporated as an institution is responsible only for its obligations with the money in its possession (and at bank accounts). All other assets of the institution are protected from the execution. However, in case of insufficiency of money in possession of an institution to satisfy the judgement, the execution may be turned against assets of the owner of the institution.

(iii) Assets of public entities.

Rules governing liability of public entities (the state formations) are provided by Art. 126 of the RF Civil Code. Execution for debts of the Russian Federation, subunits of the Russian Federation and municipal formations can be turned against the property which these entities possess by the right of ownership, with the exception of the property that has been assigned on the right of economic domain or the right of operative management to the legal entities, created by the state or municipal formations.

The remaining part of the state property which is not assigned to organizations is called the Treasure (“fisk”) of the corresponding public entity. The Treasure of the state formation in its turn is divided into (1) the budget funds of the corresponding state formation and (2) the other state property. Generally the claims against the state are recovered against the Treasure. However, not all the assets of the Treasure can be claimed by the creditors. Execution cannot be levied upon the property that cannot be owned by anybody else but the state. This category includes, inter alia, certain subsoil natural resources, continental shelf, state border, certain hazardous substances. Levy of execution on the state or municipal land and other natural resources is allowed only in cases specifically provided in the law.

All other assets of the state can be claimed by a creditor. However, the Budget Code of the RF (federal law of 31 July 1998 No. 145-FZ, as amended) provides that public funds enjoy immunity from execution (Art. 239). The writ of execution is condemned to be stalled with a treasury until such time as the corresponding allocation is provided in the budget. The only exception is a claim under tort. Constitutionality of these provisions is questionable, but is not tested yet.

e. Priorities.

The law On Execution Procedure establishes priorities for collection of monetary judgements. First, the execution must be attempted against monetary assets (including those located at bank accounts). Only where these assets are not sufficient, the execution may be attempted against other assets.

For organizations, the assets which are not used in production and accounts receivable are subject to execution (judicial sale) in the first order of priority. Then the collection is made against the finished production (output), and as a matter of last resort against real property and other capital goods.

Real property is sold at the public tender (auction). Other property is sold through a specialized factoring organization. Proceeds are allocated in the following order: (1) to cover costs of enforcement, (2) satisfy the principal amount, and (3) the balance is returned to owner.

The execution may be collected at the cost of property of a debtor in possession of third parties.

Art. 46.1 of the law On Execution Procedure, which was added by the Federal Law of 5 March 2004 No. 11-FZ, provides for the rules governing execution against monetary assets of the professional participants of the securities markets and their clients.

Under Art. 78 of the law On Execution Procedure, in case where the amount recovered (including by sale of property) is not sufficient to satisfy multiple claims against the debtor, the amounts collected are distributed according to the following categories, in order of priority (higher priority first):

(i) Alimony, damages to health and the wrongful death of the family breadwinner.

(ii) Labor (employees) claims, advocates’ fees, author’s compensation for use of intellectual property objects.

(iii) Mandatory payments to Pension Fund, Social Security Fund.

(iv) Claims for tax and non-tax payments to the state budget and other non-budget funds.

(v) All other claims based on writs of executions and other enforceable documents as they will be presented to a debtor.

Lower ranked claims are only satisfied after all claims falling under categories with higher priority are completely satisfied. If the assets recovered are not sufficient to satisfy the claims of all the creditors of a particular category, these assets are allocated between collectors of this category pro rata to the amount of their claims. It should be taken into consideration that different priorities apply under the federal law on Insolvency (Bankruptcy) - see chapter 21 for more details.

f. Specific Performance.

The law On Execution Procedure lays down the rules for execution of judgements providing for specific performance. The specific performance is enforced through the following procedure. If the debtor fails to render specific performance within the reasonable deadline set by the bailiff, the bailiff imposes a penalty on the debtor of up to 200 times the minimum monthly wage and declares a new deadline. If no performance is rendered by the deadline, the penalty is doubled. There is no limit neither for a number of times the new deadline is set nor for the amount of penalty, which grows progressively twofold each time the debtor fails to deliver.

g. Costs of enforcement.

Legislation provides for an enforcement fee. This fee equals to seven percent of the amount or value of property collected or five times minimal monthly wage (fifty times minimal monthly wage for organizations) in case where the subject matter of enforcement is not an economic right. The fee is collected from the debtor in addition to the principal amount. This fee is an incentive to voluntary compliance with judgements.