Debt forgiveness. Trends arbitration practice make the deal possible for companies


The subtleties of the transaction

How important is the retribution for the forgiveness of debt How to prove that the debt forgiveness — no donation

The Civil Code provides a number of ways by which the parties may terminate the mutual obligations. One of them is the forgiveness of debt. This institution could be widely distributed in property turnover, but the companies are afraid to resort to it. The courts and the tax authorities in most cases qualify debt forgiveness as a variety of gift and acknowledge void. To use this institution in its business practices, the lawyer should clearly understand the difference between debt forgiveness and giving, take it into account when making a transaction and these differences to argue its position. As the jurisprudence of these arguments work

Debt forgiveness — a one-sided deal, not a contract

If we accept the forgiveness of the debt kind of donation, then what’s the point in general to introduce debt forgiveness to the rank of an independent foundation.

termination of obligations? If the legislator equated with forgiveness of debt and donation, there would be no need to introduce the provision of Article 415 of the Civil Code. I would have thought that the creditor to the debtor enters into a contract of gift. However, the very existence of Article 415 says in favor of the institution of debt forgiveness legislator gave independent significance.

Debt forgiveness is devoted only one article of the Code, but because of its content courts have done so broad conclusions, that the practical usage of this institute was paralyzed. The most common attitude was the recognition of debt forgiveness donation (exemption from the obligation — it is a gift) and therefore void as a prohibited between commercial organizations (resolution of federal arbitration courts of the Volga-Vyatka District of 30.07.01 № A38-2 / 45-01, Far Eastern District from 25.05.04 № FO3-A73 / 04-1 / 972).

Yes, its legal structure debt forgiveness and gift do have some similarities. But they are not identical.

And this is reflected in fresh jurisprudence refutes the previously existing approaches that these differences are not taken into account.

For a long time the courts have considered debt forgiveness as a contract, and the moment of termination of the obligation to consider the consent of the debtor’s debt forgiveness (para. 1, Art. 433 of the Civil Code). Perhaps this attitude is not devoid of logic and consistent with the practice (despite the forgiveness of debt, the debtor still has the right to perform its obligations), but now the jurisprudence gradually began to move away from this approach. The one-sided nature of the debt forgiveness (as opposed to the contractual nature of the donation) may serve as one of the first arguments validity of the transaction.

The conclusion of the one-sidedness of debt forgiveness can be drawn from the wording of Article 415 Code, according to which the obligation to cease releasing the debtor from the lender lying on its responsibilities. The expression «the obligation to terminate the release» does not contain any indication of any agreement between the creditor and the debtor. Lender its unilateral act of will relieve the debtor from the respective obligation and thereby terminate the obligation. This means that the Code does not provide for the need to obtain the consent of the debtor’s debt forgiveness, while the donation involves the mandatory consent of the donee to accept the gift and that is why a contract.

CASE STUDY. The plaintiff based on the cession agreement passed right to claim against the debtor in full. When a new lender turned to the debtor for payment of the amount of the contract and penalties for late payment, the latter refused. Debtor substantiate its position that in the minutes of the meeting on the cooperation of the original creditor refused to sanction him penalties for late payments under previously signed contracts. Then the new creditor filed a claim in court for recognition of the transaction of gift, which is prohibited between commercial organizations. But the plaintiff’s claims were dismissed. The Court explained that the prohibition provided for in Article 575 Code for the donation contract on debt forgiveness does not apply, or forgiveness of debt in general can not be applied in practice. Their main difference is that the latter can be implemented unilaterally, not by agreement between the parties as to the donation.

What has been done in the minutes of the creditor (the decision of the Federal Arbitration Court of the Ural District of 13.02.02 № FO9-139 / 02-GC).

Qualifying debt forgiveness as a unilateral transaction automatically removes the possibility of the application of the rules to the parties of the contract of donation (Art. 572, 575 of the Civil Code). Because a one-way deal under any circumstances can not be transformed into a contract (agreement), which in all cases is a donation.

Debt forgiveness can be compensated

One of the essential features of the donation contract is its gratuitousness. It is qualified by the contract, which is directly enshrined in the Code (art. 572 of the Civil Code). Any counter-submission indicates a lack of donations (Art. 423 of the Civil Code). So debt forgiveness can be qualified as donation only if the question of its gratuitous nature will be resolved positively. Since article 415 the Code does not specify on grant debt forgiveness, it will operate a presumption of its retribution (for details on the presumption of retribution, see. Article, «What is written in the Civil Code, but it is extremely important to know of the process», «UK» number 5, 2007). In other words, debt forgiveness is possible if the creditor receives any counter-representation on the part of the debtor.

Meanwhile, the release of the debtor from the obligation to the creditor does not always gratuitous in the strict sense of paragraph 2 of Article 423 of the Civil Code. Below is an example of a legitimate debt forgiveness, which is due to the counter material representations. And because of this is not gratuitous and can not be recognized by donation.

CASE STUDY. Between Ltd (lender) and AO (the borrower) was signed loan agreement. If the borrower violates the terms of the contract of one of the head of the lender to the borrower sent a demand for the return of the loan amount, pointing out that for the fulfillment of this requirement, the lender releases the borrower from paying interest for use of funds and penalties for late return of the debt. Borrower loan amount returned. Despite this, the creditor (plaintiff) appealed to the arbitration court against the borrower for the recovery of interest and penalties under the contract. Borrower pointed to his lack of obligation to pay them, since these obligations ceased debt forgiveness. The appeal court took into account this fact and acknowledged legitimate debt forgiveness. His decision to court to substantiate the fact that the qualification of debt forgiveness as a kind of gift he needed free of charge. However, the purpose of the transaction of debt forgiveness by the parties was to ensure repayment of the debt of the Unforgiven without going to court, that is, there was no intention to bestow the lender of the borrower. Since in this case the lender did not intend to release the debtor from the obligation as a gift, the claim was denied (newsletter of the RF from 21.12.05 № 104).

Intention was not to bestow

In the event of a dispute about the actual nature of the forgiveness of the debt issue must be resolved in view of the legal objectives, the achievement of which was sent to the real will of the creditor in debt forgiveness. If the main purpose was to preserve the creditor and the debtor’s property is for that lender released him from his duties — a donation. But if the lender forgiving the debt, guided by other considerations, debt forgiveness can not be considered donation and is not subject to restrictions on commercial organizations. Exemption from the duty is not necessarily due to the desire to bestow a creditor of the debtor. The purpose of debt forgiveness can not be gratuitous release of the debtor from the obligation, and, for example, the complete cessation of obligations. Also, the lender may go for debt forgiveness, if interested in the future solvency of the debtor.

CASE STUDY. The arbitration court approved a settlement agreement, which provided a discount to the debt of the debtor before the bankruptcy creditors in the amount of 30 percent, as well as the postponement of repayment of creditors’ claims in the remaining part. One of the bankruptcy creditors vote on the creditors’ meeting to the conclusion of a settlement agreement. Then he went to court because he believed that the debt forgiveness in this case is unlawful because the parties are commercial entities between which by virtue of paragraph 4 of article 575 Code of donation is prohibited. The appeal court dismissed the applicant’s arguments as to the circumstances of the present case there has been a partial debt forgiveness to restore the solvency of the debtor, and no evidence of intention to bestow the creditors of the debtor was provided (newsletter of the RF from 20.12.05 № 97).

Thus, the elucidation of the real will of the lender should be the basis for qualification and consequently differentiation of giving and forgiveness of debt.

The lender pursues his interest

Determine whether the creditor’s intention to bestow the debtor or not, it is possible through the criterion of interest. The donation does not involve any counter-representation in any form, while debt forgiveness — on the contrary. The lender has to have some commercial interest. It is because of him, and he makes a trade debt forgiveness. The main purpose of commercial companies is to make profit. Therefore, all transactions (including forgiveness of debt) that occur in the course of this activity, must satisfy some property (commercial) interests of creditors.

Litigation is now adheres to the same position. Arbitration courts in assessing an agreement of forgiveness of debt taken into account is the intention, the interests of creditors. Debt forgiveness can only qualify as a gift, the court will establish the absence of a lender of such interest.

CASE STUDY. The two sides had signed an agreement contract, according to which on the basis of performance of the contract, regardless of the results of financial and economic activities of the parties, all the obligations under the contract shall be deemed fulfilled, and calculations completed and the parties have each other any property and financial claims when properly contractor performance of their duties. Subsequently, one of the parties tried to challenge this paragraph and justify its position that it is a condition for debt forgiveness, which is contrary to paragraph 4 of Article 575 of the Civil Code. However, the court dismissed the claim. His position, he argued that the parties had though not equivalent, but the mutual outstanding obligations, in connection with which the disputed text of the supplementary agreement is not a donation. Furthermore, the lender has continued to meet its property interest, because the performance of an obligation in its favor did not stop. But this method of termination payments between the parties is a form of promotion of a debtor to fulfill its duties properly (Decree of the Presidium of the Russian Federation from 19.12.06 № 11659/06).

Size of property representations counter party’s obligations may be not equivalent. This is evidenced by the actual commercial practice. For example, it is an agreement on compensation, according to which the obligation is terminated representation of compensation, the amount of which is less than the debt. It seems to be a creditor of the debtor is the liberation from property liabilities in terms of the size of the debt the debtor’s non-compliance and the size of compensation. If you do not take into account the real economic interests of the parties, it can be assumed that the presentation of compensation to the missing part of a donation (or debt forgiveness). However, doubts about the availability of the property at a compensation of interest does not arise, because the use of it for commercial purposes is assumed. This logic can be applied to the forgiveness of debt in conjunction with other arguments.

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