Legal Reform in Belarus

In recent years, Belarus has adopted several legal acts and strategies to improve its legal framework and increase business activity. Nevertheless, significant reforms are still required in a number of key areas.

Access to Finance

Belarus has made progress towards adopting modern principles of mortgage lending. However, significant improvements of system of taking pledge over movable assets are needed in order to create a system that would satisfy the needs of modern financial transactions.

Taking security is generally governed by the provisions of the Civil Code (Article 315 – 338). It sets general principles of taking mortgage and regulates pledge over movable property.

In 2008, the Law on Mortgages was adopted, which provides a systematic regulation of mortgages (especially of residential real estate) and legal basis for long-term mortgage lending.

Almost conversely to the state of the development of the system of taking mortgages is the state of the system of taking security over movable property. Security over movable property is subject to the 1993 Pledge Law, which is meant to apply as far as it does not contradict the Civil Code provisions. Because both sets of provisions have not been harmonised, it creates considerable uncertainty for the market. The Civil Code generally allows taking non-possessory security over movables but there is no general registration system of such security in place. The borrower, if a legal entity, is required to keep a record of all pledges on its books. However, even this limited rule does not seem to be respected in practice. These limitations leave potential creditors without certainty of their priority rights when considering movable property as collateral. Furthermore, the system does not allow businesses to grant a security right in a single category of movable assets (without requiring a specific description of collateral), security right cannot extend to future or after-acquired assets and a general description of debts and obligations is not permitted in collateral agreements. Hence the system is not able to sufficiently support neither simple nor sophisticated financing transactions (relying on taking security over a fluctuating pool of assets or securing a changing amount of debt - credit line).

The most significant recent amendments in the field of secured transactions were introduced by the Decree of the President of the Republic of Belarus ‘On Certain Issues of Pledge’ No. 3 of 1 March 2010. The Decree liberalised pledge enforcement procedures. In particular, the non-judicial enforcement of pledges and mortgages has been made possible upon fulfilment of certain conditions (notarisation of security agreement, etc.). This change should help in solving problems of debtor obstructions that were reported as the problem in the past.

In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Belarus.
 
 
 
 

Corporate Governance

The corporate governance framework is essentially regulated by the Law on Companies, which entered into force on 1 August 2006, as amended. The Law on Companies sets out the basic framework for the formation and operation of companies in Belarus. It covers joint stock companies, limited liability companies, non-limited liability companies and other types of commercial entities. The Law on Accounting and Financial Reporting (1994) broadly sets out the main principles of financial reporting and accounting, including the basis of their regulation and responsibilities. The Law on Auditing Activity (1994) defines the legal basis for auditing activities and establishes the rights and responsibilities of external auditors and regulated them.

A voluntary Corporate Governance Code was enacted on 18 August 2007 by the Ministry of Finance, the financial services regulator. The Code includes recommendations tackling the general shareholders’ meeting; supervisory board; company secretary; material corporate transactions; disclosure of company’s information; control over economic and financial activities; shareholders’ dividends, and corporate conflicts. There is no information on the level of implementation of the codes’ recommendations by companies.

The latest EBRD assessment on corporate governance highlighted a framework in “very low compliance” with the relevant international standards (the OECD Principles of Corporate Governance), showing a framework in urgent need of reform in all areas under Consideration.

 
 

Debt Restructuring and Bankruptcy

The 1991 Law on Economic Insolvency and Bankruptcy and the Edict of the President on Certain Issues of Economic Insolvency (Bankruptcy) No 508 of November 12, 2003 (as amended on April 6, 2009) regulate insolvency and restructuring procedures in Belarus (the “Insolvency Legislation”).

The Insolvency Legislation covers all legal and physical persons carrying on economic activities on the territory of the Republic of Belarus. In addition, Regulations on Liquidation (Termination of Activities) of Economic Entities, approved in 2009 and amended in 2011, provide the framework for liquidation of businesses. Special insolvency rules apply to individual entrepreneurs, debtors already in the process of liquidation, state and strategic enterprises, banks, insurance companies, and other financial institutions, as well

as farming households. There is no regime for consumer bankruptcy. The Insolvency Sector Assessment (the “Assessment”) completed in late 2009 concluded that the Belarusian insolvency law framework was of good quality, showing that it is in “medium compliance” with international standards.

 

 

Dispute Resolution

The court system in Belarus consists of economic and general courts that work on the territorial principle. Disputes between legal entities in the area of economic relations arising from civil, administrative, land, financial and other disputes are resolved by seven regional economic courts. Appeals lie to regional appellate instances of these courts, and to the Supreme Economic Court. Certain types of economic cases fall within the sole jurisdiction of the Supreme Economic Court, and are heard by this court even at first instance. Such cases include disputes between the Republic of Belarus and political entities; disputes between political entities; disputes connected with ‘state secrets’; and challenges to the validity of legislative acts and executive decrees, where such instruments are said to violate a party’s legal interests in the field of its business activity. In addition, the Supreme Economic Court’s exclusive jurisdiction applies to cases involving foreign companies from outside the Commonwealth of Independent States (CIS).

The 2012 EBRD Judicial Decisions Assessment found that the outcome of commercial litigation in Belarus was reasonably predicable, and the time taken to resolve claims was comparatively speedy for the CIS. Litigation costs were generally considered reasonable, except in relation to property disputes, where state duty is payable at uncapped progressive rates. Enforcement of judgments posed a problem, as in many countries in the region. Only 45-50% of all writs of execution are enforced per year. Commercial judgments were generally perceived to be impartial, although cases involving state authorities were found to display deference towards state interests.

Recent reform activities include the introduction of new technology at the Supreme Economic Court (e.g. to support videoconferencing), alternative methods of dispute resolution, and increasing the number of publicly available judicial decisions. Further recommended reform initiatives including separating appellate instances from first instance courts, in order to minimise the potential for (and perception of) senior judges influencing decisions at the first instance level.

 

Energy Regulation

Overall, Belarus performs poorly with respect to both electricity and gas sectors. The recent EBRD energy law reform dimensions assessment has shown significant shortcomings with regards to all dimensions of the country’s electricity legislation, with values being zero in all dimensions of the gas sector legislation.

Traditionally, renewable energy sources (RES) was not considered an independent regulatory area in Belarus but rather a sub-issue of broader topics such as energy conservation, energy security, and environmental protection. This has led to a very fragmentary legal and policy framework concerning RES. However, this trend is now changing, as at the end of 2010, Belarus adopted a Law “On Renewable Energy Sources”. While the law has already come into force, it lays out only broad principles, and requires implementation through secondary legislation in order to have effect. This secondary legislation, however, is still in development, and many aspects are as of yet unregulated.

 
 

PPPs/Concessions

Belarus now has some elements of a governmental policy for promoting Public Private Partnership and improving its legal environment. In the recent EBRD PPP Legislative Framework Assessment, Belarus’s legal framework was ranked as being in “low compliance” with international standards with the dimensions of definitions and scope of the law and settlement of disputes and applicable laws having been identified as the main strengths of the country’s concessions legislation, while the other dimensions have shown significant shortcomings, in particular, the dimension relating to the PPP legal framework.

 
 

Public Procurement

The Law of the Republic of Belarus adopted on 13 July 2012, No. 419-3, “On Public Procurement of Goods (Works, and Services)” (PPL) will enter into force 1 January 2013. This is the first primary law passed on procurement in Belarus; currently, public procurement is governed by the Resolution of the Council of Ministers of the Republic of Belarus “On some issues of conducting Public Procurement,” enacted 20 December 2008, No. 1987.

In the EBRD 2010 assessment the Belarusian legal and regulatory procurement framework was determined to be minimally to moderately compliant with international standards and lacking any specific strengths. The new PPL is in part based on the 2011 UNCITRAL Model Law on Public Procurement and introduces a number of improvements.

The Belarusian government is currently focused on implementing the new procurement law, as this law was adopted in compliance with the requirements of the 2010 Agreement on Public Procurement between Belarus, Kazakhstan, and Russia, which calls for changes to be implemented by 1 January 2014. Belarus is covered by the EBRD UNCITRAL Initiative for Enhancing Public Procurement Regulation in the CIS countries and Mongolia, but due to the lack of a country strategy no transition project has been initiated.