The Russian Government has approved the terms under which self-regulating organisations grant loans to their members

Pepeliaev Group advises that, on 8 July 2020, the Russian Government’s Resolution^[1] (the “Resolution”) came into force establishing the rules for self-regulating organisations (also the “SROs”) to grant loans to their members.

Please be reminded that on 8 June amendments were introduced in the Federal Law “On bringing the Town-Planning Code of the Russian Federation into effect”^[2] regulating the ability of self-regulating organisations to grant loans to their members. These amendments are a measure aimed at reducing the backlashes of the spread of the coronavirus infection in construction industry.

In accordance with the amendments, the Russian Government should determine the thresholds of loans for a single SRO member, threshold interest for using such loans and their maturity, loan purposes and requirements for SRO's members to whom loans can be granted, as well as the procedure for monitoring the use of the funds provided under the loans. To this end, the Russian Government has adopted the above Resolution that regulates the issues mentioned.

Main requirements for issuing loans

Under the Resolution, loans can be granted only out of the funds of the compensation fund securing contractual obligations and provided that the SRO meets the following requirements:

• the amount of loans issued to a single SRO member cannot exceed 7.5% of the compensation fund;
• the issuing of a loan does not result in any drop of the compensation fund below its threshold that is determined under the Russian Town-Planning Code[3] on the date the SRO adopts a resolution to grant the loan;
• the interest rate of a loan does not exceed 50% of the key rate established by the Russian Central Bank.

Nor can the amount of loans granted exceed 50% of the compensation fund.[4]

It is permitted to grant loans before 1 January 2021.[5]

Criteria for the borrower

The Resolution has set criteria which the borrower should meet.[6] The main requirements for the borrower are:

• no payroll arrears as at 1 April 2020;
• no arrears in taxes, levies, penalties, fines or interest that are due under Russian legislation and exceed RUB 300,000;
• the borrower must not be included in the register of bad-faith suppliers;
• the borrower must have a plan for spending the loan.

The purpose of a loan

A SRO may grant monetary funds solely for the purposes set out in the Resolution, namely:

• payment of salaries to the employees of the SRO member;
• the acquisition of construction materials, structures or equipment for the purpose of performing work under contracts concluded before 1 April 2020 involving drafting design documentation and/or engineering survey, construction, reconstruction, major repairs, demolition of buildings and/or structures or preservation of cultural heritage in accordance with federal laws Nos. 44-FZ[7] and 223-FZ[8] and the Russian Government’s Resolution No. 61 dated 1 July 2016[9];
• the acquisition of construction materials, structures or equipment for the purpose of performing work involving drafting design documentation and/or engineering survey, construction, reconstruction, major repairs, demolition of buildings and/or structures or preservation of cultural heritage under contracts concluded for the purpose of constructing real estate under Federal Law No. 214-FZ[10];
• payment of a bank charge for granting a new bank guarantee or amending the bank guarantee which was previously issued and securing the performance of a contractor’s obligations under contracts for work mentioned in the two preceding paragraphs.

Maximum maturity of a loan

The maximum loan maturity cannot exceed 1 year from the date when the loan agreement was concluded. If the loan has been granted for the purpose of acquiring construction materials, structures or equipment, its maturity cannot be more than 5 business days from the date indicated in the contractor agreement when obligations under it must be fulfilled.[11]

Securing the borrower’s obligations under the loan agreement

Under the Resolution, a borrower is obliged to secure the performance of its obligations under the loan agreement by one or several of the methods below:[12]

• a mortgage over property whose value exceeds the loan by at least 30%;
• an assignment of financial obligations under contractor agreements totalling the amount of the loan;
• guarantees of third parties.

Monitoring the use of the loan funds

A SRO that has granted a loan should monitor the use of the loan funds.[13]

For the purpose of monitoring correspondence between the expenditures of the borrower and the purposes of the loan the borrower is obliged to provide the following to the SRO:

• monthly, documents confirming that the loan funds are used in compliance with the terms and conditions of the loan agreement, and a certificate from the tax authority revealing the borrower’s bank accounts opened as at the last day of the month preceding the reporting month;
• within 5 days from the receipt of a relevant request of the SRO, additional information regarding expenditures made using the loan funds, attaching confirmation documents and statements of the borrower’s bank account.

What to think about and what to do

In view of the above amendments and the Resolution adopted, we recommend that one should familiarise oneself with them and consider the possibility of obtaining loans from SROs when they plan and carry out their business operations.

Help from your adviser

Pepeliaev Group’s lawyers are ready to assist you with navigating the new rules for granting loans and to provide legal support in the context of obtaining loans from SROs.