Clarifying how guarantee-related disputes should be resolved

Pepeliaev Group advises that on 12 July 2012 a Resolution of the Plenum of the Russian Supreme Arbitration Court (the “SAC”) was published. It clarifies how provisions concerning a guarantee should be applied when cases are considered by courts, as well as when bankruptcy cases are considered.

Concluding a contract of guarantee
The Resolution of the SAC specifies how and when a contract of guarantee may be concluded. In particular, a contract of guarantee may be concluded:
a) to secure the performance of obligations under a transaction concluded based on suspensive conditions or conditions subsequent (clause 2 of the SAC’s Resolution);
b) before the principal obligation arises (clause 2);
c) after a delay in performance of the principal obligation (clause 3);
d) under suspensive conditions or conditions subsequent (clause 4);
e) without obtaining the consent of or notifying the debtor (clause 5).

Contents of the guarantor’s obligations
The SAC explains that the guarantor is not a co-debtor with regard to the guaranteed obligation; the guarantor’s obligation is purely monetary in nature, which means that a claim to secure performance in kind of the obligation may not be sustained. However, the guarantor may at its own discretion suggest to the creditor that the obligation be performed in kind (clause 12).

Guarantee if the principal obligation changes
The Resolution of the SAC emphasises that if the principal obligation changes (for example, if the debt or interest amounts increase) without the guarantor’s consent, this does not terminate the guarantee. The guarantor remains liable to the creditor under the initial terms and conditions, as if no change of the principal obligation took place (clause 37).
Moreover, the Resolution clarifies that if a debtor that is a legal entity (clause 21) is reorganised or a debtor that is an individual dies, this does not terminate the guarantee even if the guarantor does not agree to assume liability for the new person (legal successor, heir), since the debt is transferred under the universal succession procedure (clause 20).

Joint guarantee and guaranteeing a part of obligation
The SAC also clarifies that for a joint guarantee to arise, there should be an express declaration of will that the obligations are guaranteed jointly. In this case one of the guarantors who satisfied the creditor’s claim obtains the right to recover money not only from the debtor, but also from other co-guarantors pro rata to the share they took in guaranteeing the obligation (clause 27).
If guarantees of different persons are limited to a part of an obligation, it is assumed that they are all liable for different parts of the obligation (clause 29).
In a similar way, the SAC explains that if the guarantee only covers a part of the obligation and the debtor has partially discharged its obligation, it is deemed that the portion of the obligation that has terminated is the portion not covered by the guarantee (clause 32).

Correlation between the rights of the creditor and guarantor
The Resolution of the SAC deals with relationship between the rights of the initial creditor and those of a guarantor who has discharged the obligation. The SAC clarifies that since the guarantor’s obligations are a sort of security, the guarantor is not able to exercise a right assigned to it to the detriment of the creditor if the obligation to that creditor has only been discharged partially (clause 30).

Grounds for making a claim against the guarantor
The SAC clarifies that if the guarantor and debtor assume joint and several liability, the creditor may submit a claim to the guarantor solely based on the fact that the debtor has failed to discharge its obligation. The creditor does not have to attempt to force the debtor discharge its obligation.
However, if the guarantor assumes secondary liability, a claim may only be submitted to the guarantor if the debtor refuses to perform its obligation or if no response is received within a reasonable time. The contract of guarantee may include special provisions with regard to making a claim against the guarantor (clause 35).

Guarantee of bonds
Special terms and conditions for guarantees of bonds have been established. In particular, the SAC points out that if rights confirmed by a bond are assigned to a third party, this will result in the simultaneous assignment of all enforceable claims that may be made against the guarantor of the bond (clause 43). A change in the amount of income from the bond (if it changes other than through the issuer’s discretion) will result in the relevant change of the guarantor’s obligations (which differs from the general rule pursuant to which if the principal obligation changes, the guarantor should only be liable within the scope of initial terms and conditions) (clause 42).

Guarantee when bankruptcy cases are being considered
The Resolution tries to answer how to identify indications that a guarantor is bankrupt. The SAC establishes that if the penalties or losses in the form of lost profits are secured by a guarantee, they should not be taken into account when testing a company for indications of bankruptcy. They should also be recorded separately in the list of creditors’ claims and shall be compensated after the principal amount of debt and interest have been paid (clause 50).
The SAC also clarifies that if an obligation to a creditor is secured with a guarantee, that creditor is entitled to have its claims included in the list of claims in a bankruptcy case concerning either its principal debtor or its guarantor (clause 51).

Conclusions and recommendations
The SAC’s Resolution touches upon a wide range of issues regarding how to apply legislative provisions concerning guarantees. It also resolves a number of controversies that existed in the case law.
In this regard, we recommend that the companies that sign or are planning to sign contracts of guarantee take into account the stance of the SAC when drafting their contracts and also if a creditor submits a claim to the guarantor, including within the scope of court disputes.