In difficult economic conditions, non-performance or improper performance of the contract by legal entities or sole proprietors, unfortunately, happens quite often. For instance, the company may not have sufficient funds to pay for the delivered goods or services rendered, so its counterparties are negatively affected. Definitely, they wish to solve the problem in any way possible, including through the use of punitive and legal leverage. Non-fulfillment of contractual obligations brings actual criminal liability, according to Part 5 of Article 159 of the Criminal Code of the Russian Federation. However, several conditions must be met.
1. Non-fulfillment of obligations in business shall be intentional. This means that the culprit deliberately evades the fulfillment of the terms of the contract, in order to steal the assets of his/her counterparty. Simultaneously, the intent to steal shall arise either before the conclusion of a civil contract, or after its conclusion, and before the provision is made by the counterparty.
In particular, the direct intent is evidenced by the following circumstances:
· lack of actual possibility of fulfilling the obligations assumed;
· spending the funds received for personal needs;
· use of false documents for the conclusion of the contract;
· provision of the counterparty with deliberately false information that influences their decision to conclude a contract, etc.
2. Significant damage shall be caused to the counterparty of the culprit. The note to the article in question states that the amount of such damage shall be equal or exceed 10 thousand rubles.
Initiation of criminal cases under Part 5 of Article 159 of the Criminal Code of the Russian Federation
Companies facing evasion from fulfilling the terms of the contract can file relevant claims with law enforcement authorities. Together with the application, they shall provide documents relevant to the case: contracts, transfer certificates, bank certificates, claims, etc. In case if a party engages a lawyer's for the case, he-she will help to collect additional evidence: interrogation protocols and documents received via the lawyer's request.
Based on the claim, a check is carried out: the investigator receives explanations from the company's management, requests additional documents and studies them, as well as conducts other actions defined in Article 144 of the Criminal Procedure Code of the Russian Federation. The decision to initiate a criminal case/the refusal to initiate a case shall be issued within 3 days (however, in some cases, the period may be extended for up to 30 days). Normally, based on the results of the check, comes a refuse to initiate a criminal case, due to the fact that the existing relations are of a civil legal nature.
However, if the investigator finds signs of a crime under Part 5 of Article 159 of the Criminal Code of the Russian Federation, a decision to initiate a criminal case shall be issued. This risk is especially high, when it comes to non-fulfillment of obligations under state contracts. During the preliminary investigation, the company will face interrogations, searches, seizures, and a preventive measure maybe imposed on the management. Since investigators will the company accounts movements, there is a possibility that the signs of other crimes will be detected (for instance, tax evasion).
Liability for non-fulfillment of the terms of the contract
Part 5 of Article 159 of the Criminal Code of the Russian Federation defines the following sanctions:
· fine up to 300 thousand rubles (or in the amount of the person's earnings for a period of up to 2 years);
· up to 480 hours of mandatory labour;
· up to 2 years of correctional labour;
· up to 5 years of penal labour;
· up to 5 years in prison.
In the last two cases, detention for up to 1 year may be applied as an additional punishment.
According to the Judicial Department of Supreme Council of the Russian Federation, in the first half of 2021, 45 people were convicted 1 under Part 5 of Article 159 of the Criminal Code of the Russian Federation. The most "popular" punishment is a suspended sentence. Quite often, criminal cases are terminated, once the fine implied by court is paid. However, no acquittals were issued during the period under review.
It is important, that, criminal liability does not exclude victim right to file a lawsuit for recovery of damage.
How to avoid the initiation of a criminal case under Part 5 of Article 159 of the Criminal Code of the Russian Federation?
If you wish to avoid criminal prosecution for deliberate non-fulfillment of the terms of the contract, you are recommended to carefully evaluate your capabilities before entering into a contract. For instance, if your company is relatively new and does not possess enough assets, you should not enter into large and risky transactions, from the point of view of the deal entrepreneurship. To begin with, create a business plan: a step-by-step program for the development of enterprise over a certain period.
There are further recommendations as well.
1. Commit to fulfill your obligations on time and in full.
2. Notify counterparties of financial issues that have arisen by official letter.
3. Solve the debt issues through meetings and negotiations. There is a high probability that the counterparty will agree, for instance, to accept the payment of arrears in installments, and that gives you time to solve your financial issues. Moreover, you should engage an accountant and a lawyer for participation in negotiation process, later they can witness that you did not have intent to steal someone else's property.
4. Exercise due diligence before entering into a contract and always check your potential counterparties.
5. Make an assessment of the value of the property before concluding a purchase and sale agreement. Valuation report will help you in case if your counterparty suspects you of selling assets at an inflated price.
6. Pay attention to the matter of provision for the fulfillment of obligations. For instance, a reliable guarantor can help reduce risks.
If a criminal case was initiated against you, keeping a low profile and hiding from law enforcement authorities is not a solution. Instead, state your position and submit documents to support your defense.
1. Non-fulfillment of obligations in business shall be intentional. This means that the culprit deliberately evades the fulfillment of the terms of the contract, in order to steal the assets of his/her counterparty. Simultaneously, the intent to steal shall arise either before the conclusion of a civil contract, or after its conclusion, and before the provision is made by the counterparty.
In particular, the direct intent is evidenced by the following circumstances:
· lack of actual possibility of fulfilling the obligations assumed;
· spending the funds received for personal needs;
· use of false documents for the conclusion of the contract;
· provision of the counterparty with deliberately false information that influences their decision to conclude a contract, etc.
2. Significant damage shall be caused to the counterparty of the culprit. The note to the article in question states that the amount of such damage shall be equal or exceed 10 thousand rubles.
Initiation of criminal cases under Part 5 of Article 159 of the Criminal Code of the Russian Federation
Companies facing evasion from fulfilling the terms of the contract can file relevant claims with law enforcement authorities. Together with the application, they shall provide documents relevant to the case: contracts, transfer certificates, bank certificates, claims, etc. In case if a party engages a lawyer's for the case, he-she will help to collect additional evidence: interrogation protocols and documents received via the lawyer's request.
Based on the claim, a check is carried out: the investigator receives explanations from the company's management, requests additional documents and studies them, as well as conducts other actions defined in Article 144 of the Criminal Procedure Code of the Russian Federation. The decision to initiate a criminal case/the refusal to initiate a case shall be issued within 3 days (however, in some cases, the period may be extended for up to 30 days). Normally, based on the results of the check, comes a refuse to initiate a criminal case, due to the fact that the existing relations are of a civil legal nature.
However, if the investigator finds signs of a crime under Part 5 of Article 159 of the Criminal Code of the Russian Federation, a decision to initiate a criminal case shall be issued. This risk is especially high, when it comes to non-fulfillment of obligations under state contracts. During the preliminary investigation, the company will face interrogations, searches, seizures, and a preventive measure maybe imposed on the management. Since investigators will the company accounts movements, there is a possibility that the signs of other crimes will be detected (for instance, tax evasion).
Liability for non-fulfillment of the terms of the contract
Part 5 of Article 159 of the Criminal Code of the Russian Federation defines the following sanctions:
· fine up to 300 thousand rubles (or in the amount of the person's earnings for a period of up to 2 years);
· up to 480 hours of mandatory labour;
· up to 2 years of correctional labour;
· up to 5 years of penal labour;
· up to 5 years in prison.
In the last two cases, detention for up to 1 year may be applied as an additional punishment.
According to the Judicial Department of Supreme Council of the Russian Federation, in the first half of 2021, 45 people were convicted 1 under Part 5 of Article 159 of the Criminal Code of the Russian Federation. The most "popular" punishment is a suspended sentence. Quite often, criminal cases are terminated, once the fine implied by court is paid. However, no acquittals were issued during the period under review.
It is important, that, criminal liability does not exclude victim right to file a lawsuit for recovery of damage.
How to avoid the initiation of a criminal case under Part 5 of Article 159 of the Criminal Code of the Russian Federation?
If you wish to avoid criminal prosecution for deliberate non-fulfillment of the terms of the contract, you are recommended to carefully evaluate your capabilities before entering into a contract. For instance, if your company is relatively new and does not possess enough assets, you should not enter into large and risky transactions, from the point of view of the deal entrepreneurship. To begin with, create a business plan: a step-by-step program for the development of enterprise over a certain period.
There are further recommendations as well.
1. Commit to fulfill your obligations on time and in full.
2. Notify counterparties of financial issues that have arisen by official letter.
3. Solve the debt issues through meetings and negotiations. There is a high probability that the counterparty will agree, for instance, to accept the payment of arrears in installments, and that gives you time to solve your financial issues. Moreover, you should engage an accountant and a lawyer for participation in negotiation process, later they can witness that you did not have intent to steal someone else's property.
4. Exercise due diligence before entering into a contract and always check your potential counterparties.
5. Make an assessment of the value of the property before concluding a purchase and sale agreement. Valuation report will help you in case if your counterparty suspects you of selling assets at an inflated price.
6. Pay attention to the matter of provision for the fulfillment of obligations. For instance, a reliable guarantor can help reduce risks.
If a criminal case was initiated against you, keeping a low profile and hiding from law enforcement authorities is not a solution. Instead, state your position and submit documents to support your defense.
