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Supreme Commercial Court chairman: Time to change business model

11:13 27/01/2012

The commercial court system will celebrate its 20th anniversary in late January. In the run-up to the event, Supreme Commercial Court Chairman Anton Ivanov spoke with Sergei Feklyunin, the Russian Legal Information Agency, about the system's work in 2011.

- The tug-of-war over the Civil Code amendments has continued now for a second year. You seem to be a liberal, but in terms of this specific issue, your position sounds rather conservative. You propose tougher state control over business, while your opponents stress the need to attract investments to Russia and to create a favorable business environment. And they also allege that the proposed amendments will prevent them from accomplishing their goals.

- Legal procedures are not intended to develop the economy, but rather to provide a guarantee to the parties concerned that they will preserve their economic results. This is the purpose of the law -- not business development.

- What about the dispute over the charter capital amount required to establish a legal entity? It is quite clear that the smaller the capital, the easier it is to set up an entity and to start a business. This means that you are hindering the development of new businesses, correct?

- Do you think that the non-execution of judicial acts in Russia helps economic development? The non-execution percentage is as high as 80-90 percent in some areas. Do you know why? If it’s easy to start a business, it’s easy to close one. And nobody is liable for their debts. You make starting up companies easier and at the same time you promote a business model whereby an individual can register a company for a song, carry out transactions and abandon it without paying taxes or settling with his partners. The partners then look for debtors, go to court and say: “You need to help us out.”

Unfortunately, our business environment has developed improperly from the very outset. It is based on deceit, fraud and tax evasion, which all run counter to the values of a civilized market. This system must be dismantled one day. If we continue in the same format, the system will destroy any reasonable measures and reforms proposed. If one wants to form an entity – form it for the long term, pay your taxes, conduct audits, repay debts, meet your social liabilities and make it operate safely on the market. What is so illiberal about this model?

- Your opponents argue that business escapes to other areas where legal entities are easier to set up.

- Well, not for this reason. One goal of going offshore is unlawful tax mitigation. What we need is a sound economic environment. When a person can easily form a legal entity and easily get rid of it, there is a general lack of responsibility and the non-execution of obligations is observed on a mass scale.

- You said at the International Legal Conference in December that providing easier conditions to open a company must go hand-in-hand with ensuring that business owners are more responsible when they close shop. It looks like the concept of a long-term legal entity does not actually work.

- I talked about the logic of different regulation patterns. So far nobody is going to increase responsibility when companies close. I think this will happen later when people find it very hard to make new business partnerships pay their debts.

- Will you and like-minded individuals submit relevant draft laws? You have shocked many people with your proposal to institute 50- to 70-year prison terms for unsavory businessmen.

- Each economic model has a logic. Waiving control over the start-up process means more control is needed over closing businesses. As for lengthy prison terms, this is an example of “exit control.” Look at the United States. What kinds of sentences are given to people who engage in unsavory business practices? Even a 100-year sentence is possible there.

- The two high-profile cases of Sodexim and Arbat Pestizh were considered in parallel by a common law court and a commercial court. Isn’t it more logical to refer cases concerning economic and tax violations to economic courts, such as commercial courts?

- Commercial courts do not handle criminal cases. And, in such disputes, the most important thing is to stick to one principle – the existence of a judgment in a civil case prevents a criminal proceeding from opening until the judgment has been reversed. A person cannot incur criminal liability if the circumstances established by the court in the civil case need to be interpreted differently in order to press charges against him. If a tax authority does not make tax claims against a taxpayer, a criminal case cannot be opened against him.

- What were the most noteworthy trends in the Supreme Commercial Court’s supervisory activities in 2011?

- The number of tax cases is dropping. There are less stereotyped and recurring tax cases. Therefore, the work of the court’s tax panel has changed. There are fewer cases, but they are more complex and interesting. Another trend is a dramatic growth in antitrust cases. A rather significant growth has occurred in procurement cases. In civil cases, the number of disputes over ownership and land is increasing steadily. There are also many cases regarding power tariffs as, unfortunately, electrical and thermal power supply legislation is controversial and needs judicial control. The inflow of corporate disputes, bankruptcies and debt recoveries has slightly subdued. Today, the presidium is not prosecuting as many corporate raid cases as before.

- Which issues does the court plan to address in 2012?

- In view of the  federal contract system's adoption, we plan to sum up the judicial practice in public procurement. We will arrange a system of legal positions regarding interpretation of the law of obligations where its general provisions are concerned.

- You have termed the new mechanism of filing online lawsuits the most significant event of 2011. Why is this so important?

- The judicial procedure's future lies in IT. People who closely follow development trends in judicial systems see an irreversible transition to a paperless judicial process. For now, only several countries have fully adopted e-procedures -- some countries in Southeast Asia, the United States… The United States uses IT in federal courts and some state courts, while its Supreme Court still uses paper copies. Hardly any European country has adopted paperless records management. Commercial courts were the first to accept e-claim statements in Russia.

- Is this really so important?

- The ability to submit a claim statement or another service document in an e-form is a vital component of electronic judicial proceedings. It is convenient for people, and it also creates new ways to make the process even more transparent.

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Supreme Commercial Court chairman: Time to change business model

11:13 27/01/2012 The commercial court system will celebrate its 20th anniversary in late January. In the run-up to the event, Supreme Commercial Court Chairman Anton Ivanov spoke with Sergei Feklyunin, the Russian Legal Information Agency, about the system's work in 2011.
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