The RF Duma is considering an amendment to the Civil Code that, if ratified, will resolve an inconsistency in Russian law and open the door for any commercial entity to engage in factoring.
On April 14, 2006, the RF State Duma carried out the first reading of a draft federal law that would abolish the requirement in the RF Civil Code that factoring companies hold licenses (the "Factoring Amendment").
Factoring, which is also referred to as accounts receivable financing, is the selling of a company's accounts receivable at a discount to a factor who then assumes the credit risk of the account debtors and receives cash as the debtors settle their accounts.
Pursuant to the RF Civil Code, a company must hold a factoring license in order to engage in factoring. However, RF Law No. 128-FZ "On Licensing Certain Types of Activities", dated August 8, 2001 (the "Licensing Law"), does not require factoring companies to apply for such license. Thus, no agency exists to issue factoring licenses. Due to this inconsistency in the law, participation in the factoring market has been limited to banks, which may trade in accounts receivable under the terms of their banking licenses.
If adopted, the Factoring Amendment would eliminate the existing conflict between the relevant provisions of the RF Civil Code and the Licensing Law and, therefore, would likely encourage the entry of new major factoring companies and suppliers into the Russian receivables market. According to Andrey Sharonov, the Head Deputy of the RF Ministry for Economic Development and Trade, the Factoring Amendment could result in an increase in the volume of the factoring market from 0.5% of the RF’s GDP in 2005 to 3% of the RF’s GDP in 20081.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
Footnotes
1 Please see http://www.sostav.ru/print/rus/2006/17.04/news/72.
The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.
