Debt under a supply contract: demand letter, court, enforcement

A supplier usually comes to a lawyer once the delay has passed the six-month mark and it has become clear that the promises to pay "next month" are never going to end. By then some of the evidence has already been lost. Here is the sequence that makes a case move quickly.

What proves the debt

The contract and the specifications. If no contract was signed, the relationship is treated as a series of one-off sales, evidenced by the delivery notes. That works, but there is then no contractual penalty clause.

Documents on handover of the goods. A consignment note or a universal transfer document signed by an authorised person and stamped. The key question is the signatory's authority: a power of attorney, an internal order, or proof that the person acted in circumstances indicating they had authority.

Transport documents. The transport consignment note, the waybill, records of access to the site. These close off the debtor's most common argument: "we never received the goods."

A reconciliation statement. Signed by the debtor, it interrupts the running of the limitation period: it is an acknowledgement of the debt.

Correspondence. Letters asking for extra time to pay, letters of guarantee, messages from the debtor's staff in messaging apps. The courts accept correspondence where the sender can be identified.

The demand letter

For a commercial court dispute, the pre-action demand procedure is mandatory. The time for a reply is thirty calendar days unless the contract sets a different period.

The demand letter must contain: a calculation of the principal debt for each delivery, a calculation of the contractual penalty or interest as at the date of the letter, a demand for payment stating the deadline and the bank details, and a list of the enclosures.

It is sent to the address shown in the register of legal entities, by registered post with a list of contents. Sending it electronically is permissible if the contract provides for that method.

The mistake that costs months: a demand letter for less than the amount later claimed. The court will leave the claim without consideration to the extent that the procedure was not followed.

Contractual penalties and interest

If the contract provides for a penalty, it is calculated under the contract. If it does not, interest is claimed under Article 395 of the Civil Code, at the key rate for each day of delay.

You cannot recover both a contractual penalty and Article 395 interest at the same time: one or the other applies.

In its response the debtor almost always asks for the penalty to be reduced under Article 333. A reduction is permitted where the penalty is clearly disproportionate, and for a business only on its own application and where the disproportion is proved. A rate of around 0.1 per cent per day usually survives; a rate of 1 per cent per day is often reduced.

Fast-track procedures

Court order proceedings apply up to RUB 500,000 where the claim is based on documents confirming the debt and the debtor acknowledges them. The order is issued without summoning the parties, within ten days. The drawback: the debtor may file objections within ten days, and the order is then set aside automatically, with no reasons required.

Simplified proceedings apply up to RUB 1.6m for legal entities. No hearing with the parties, decided on the documents, and the case is heard faster.

For larger sums, ordinary claim proceedings apply.

Interim measures

The most underrated part of the process. An application to freeze funds or property is filed together with the claim and is considered the next day without summoning the parties.

The courts grant such applications where they are properly supported: the debtor is selling off assets, changing its address, has started liquidation, or has enforcement proceedings against it. A bare fear of non-payment does not work; you need register extracts, information on other claims and data showing a fall in assets.

If the debtor has no money

From there, three lines of attack.

Enforcement proceedings actively supported: enquiries to banks, tracing assets, a travel ban on the director, and enforcement against the debtor's own receivables.

Insolvency of the debtor. The petition can be filed where the debt is RUB 2m or more and confirmed by a court judgment. Often the notice of intention to file changes the debtor's behaviour by itself; in practice that works more often than the procedure does.

Subsidiary liability of controlling persons, where the company has been driven into insolvency or simply abandoned. Striking a dormant legal entity off the register does not close the matter: since 2017 a creditor has been entitled to bring a claim against the director and the shareholders where they have acted in bad faith.

This material is for information only and is not a substitute for advice on a specific case.

If a counterparty is not paying, write to us. The first consultation is free of charge where an engagement agreement is signed.

Kristina Tsypkalo — advocate, partner of the Kovalev, Malyutov, Tsypkalo & Partners Moscow Bar Association