Key Provisions
On 22 March 2024 the Central Bank of Russia issued official clarifications on the application of restrictions on the fulfilment of obligations to certain foreign creditors. These rules pertain to the termination of obligations.
According to the regulator's position, if a resident's obligation to an “unfriendly” person is terminated on the basis of another provision to an “unfriendly” person (including termination of counterclaims, e.g. by set-off, granting of compensation, or performance of an obligation arising under a novation) without crediting the due performance to the “C” type account, permission from the Central Bank of Russia or the Ministry of Finance of Russia must be obtained. Other methods of terminating a resident's obligation to an “unfriendly” person are generally permitted.
Therefore, the popular practice of writing off debts of Russian subsidiaries to “unfriendly” parent companies by offsetting the debt against, for example, a contribution to assets of the Russian company, is limited to RUB 10 million per month unless a permit is obtained. A set-off agreement must specify a time frame for the set-off, and relevant supporting documents must be submitted to the bank on a monthly basis.
The Central Bank of Russia has thus formalized a practice that has developed over the past few years. Nevertheless, Solstico Legal recommends that the relevant document package be agreed upon with the particular bank when preparing to terminate an obligation by way of set-off, compensation or novation.
Background
In accordance with the Presidential Decree No. 95 dated 5 March 2022, the execution by residents of their obligations under credits, loans, and financial instruments to persons of “unfriendly” foreign states in amounts exceeding RUB 10 million per calendar month, without crediting the due performance to the “C” type account, must be carried out based on permissions issued by the Central Bank of Russia or the Ministry of Finance of Russia.