A settlement agreement is a solution to a protracted dispute. This form of resolution of any dispute allows participants to avoid lengthy and costly litigation, quickly resolve the dispute and go about their business or their own affairs without being distracted by legal disputes.
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What is a settlement agreement?
A settlement agreement is a document approved by the presiding judge in the framework of a civil process, in which each of the parties to the dispute assumes the rights and obligations to resolve the dispute in question out of court.
The settlement agreement has the legal nature of a operative decision on the dispute. The obligations assumed under it are binding. In the event of a violation by one of the parties of its obligations, the party guilty of the violation will be forced to perform execution by the bailiff service on the basis of a writ of execution issued by the court.
By its legal nature, a settlement agreement represents a contract between the parties. The text of this agreement provides for the rights and obligations of the parties, as well as sanctions for violation of their obligations.
Civil legislation is based on the principles of equality of parties. And the judicial system considers it right that the parties will be able to independently understand the circumstances that have arisen. The presiding officer, explaining the rights of the participants in the process, will certainly try to direct the plaintiff and defendant towards reconciliation.
After concluding a settlement agreement, the parties do not have the right to again bring forward claims on the same grounds as specified in the statement of claim. Agreements can be considered in accordance with the requirements stated in the statement of claim. They may be supplemented by circumstances relevant to the case under consideration, but should not go beyond these limits. If the subject of the dispute is debt obligations under a specific agreement, then the scope of this agreement should be described in the agreement. Requirements under other agreements are not included in the settlement agreement.
In the final determination, the court has the right to refuse the parties to enter into a settlement agreement if it contradicts the interests of legality or violates the rights of third parties. Such refusals are often found in family disputes between former spouses regarding the maintenance of a common child or disputes about the right to inheritance. For example, the law sets the minimum amount of alimony obligations at 25 percent of the spouse's income. At the same time, the participants agreed to reduce this share to 15 percent. The court will refuse to approve the settlement agreement, since this directly contradicts the interests of the minor.
Without court approval, the settlement agreement is not considered concluded.
Before agreeing to conclude such a document, you should carefully think about the feasibility and real possibility of the parties fulfilling their obligations. For example, if the defendant has assumed debt obligations and does not fulfill them for several years, it is unlikely that he will fulfill the settlement agreement in accordance with the obligations assumed.
What law is it provided for?
The right to conclude a settlement agreement is provided for participants in civil proceedings in the provisions of Article 173 of the Civil Procedure Code of the Russian Federation. These provisions are disclosed in detail in Chapter 14.1 of the legislative act. These additions were adopted on the basis of Federal Law No. 197-FZ of July 26, 2021.
Additional provisions are contained in the Federal Law “On Enforcement Proceedings”.
Why do you need a settlement agreement in bankruptcy of individuals?
In this article we will talk about all the nuances of drawing up settlement agreements in the event of bankruptcy of an individual. If an organization goes bankrupt, only the algorithm of actions of the parties changes, but not the very essence and consequences of the procedure. For example, on behalf of the debtor organization, the document can be signed by the manager, owner or other authorized person.
The citizen himself makes the decision to conclude an agreement. However, the law does not prohibit entrusting the signing of a document to a representative.
As the word “amicable” implies, the parties must reach a compromise on all the terms of the deal and resolve the dispute peacefully. In bankruptcy this means the following:
- the debtor voluntarily agrees to begin making payments in favor of creditors on the terms specified in the document;
- creditors agree to waive subsequent stages of bankruptcy (for example, the sale of assets) and give the debtor any advantages;
- the court is obliged to check the document for compliance with the laws and make sure that its terms do not violate the interests of the parties.
The initiator of the preparation and conclusion of an agreement can be both the debtor and the creditors. The rules for drawing up a document, requirements for its form and content, are specified in Chapter VIII of Law No. 127-FZ. In relation to bankruptcy of individuals. persons there is a special article 213.31, where you can also find important information on this issue.
For the debtor
Typically, citizens file for bankruptcy to get rid of credit and other debts. But this goal can only be achieved through the sale of property (real estate, vehicles, valuables). By drawing up a settlement agreement, you can avoid the sale of property. In this case, all debts will not be written off, but you can receive significant benefits on their payments.
The main reasons why a debtor may be interested in concluding an agreement:
- you will avoid the consequences caused by bankruptcy (for example, there will be no ban on holding positions in the management bodies of the company);
- you can preserve your property, remove all prohibitions and restrictions from it;
- you can get a deferment or installment plan for payments, get creditors to forgive part of the debt;
- you can bypass the restrictions that arise when a restructuring plan is approved (for example, on the maturity of debt);
- You can save time, reduce the costs of conducting a bankruptcy case, and paying remuneration to the manager.
If creditors reveal signs of deliberate or fictitious bankruptcy, other unlawful actions on the part of the debtor, instead of being released from obligations, he will be brought to administrative or criminal liability. A settlement agreement virtually eliminates such risks, since the debtor assumes obligations to pay creditors. This is another reason why it is worth considering the option of formalizing an agreement.
For creditors
During bankruptcy, creditors have one last chance to get their money back—or at least some of it. Therefore, creditors should be interested not in completing the bankruptcy case and writing off debts, but in restoring the debtor’s solvency. This can be done by concluding a settlement agreement or approving a restructuring plan.
Having drawn up the agreement and approved it through the court, creditors:
- will receive certain guarantees that the debtor will begin to voluntarily return the money;
- will be able to apply for a writ of execution and begin collection if the debtor violates the terms of the transaction;
- may introduce additional measures of control over the debtor’s property and income if they stipulate such conditions in the agreement.
A settlement agreement in bankruptcy is drawn up by mutual agreement of the creditors and the debtor.
The agreement can specify any conditions for the fulfillment of obligations that do not contradict the law and the interests of third parties. For the agreement to take effect, it must be approved by the court.
It is always better to pay back most of the debt than to lose any chance of getting your money back. Therefore, creditors can reduce debts or write off part of the penalty, or they can give other benefits to the debtor. All these issues are discussed at meetings of creditors, during negotiations with the debtor.
Differences from debt restructuring
The essence of the restructuring plan and the settlement agreement is approximately the same. The debtor does not reach the stage of selling the property, but assumes obligations to make payments in favor of creditors. But there are also significant differences:
- the court can approve the restructuring plan without the consent of the debtor if the creditors prove a real possibility of restoring his solvency and the availability of sufficient income;
- the period of validity of the restructuring plan is precisely defined by law, while any terms can be agreed upon in the settlement agreement;
- When a document is approved by the court, there are no strict requirements for the debtor to have sufficient income to begin making payments to creditors.
If you find it difficult to assess the advantages and disadvantages of both options, consult our lawyers. It is better to take into account all the risks and nuances in advance than to fulfill obviously unfavorable conditions of creditors later.
How to conclude a settlement agreement?
After receiving agreements between the parties, they are included in the draft settlement agreement in writing. The participant in the process or his representative submits the finished document for consideration to the judge who presides over the process. After reading the text of the agreement, the judge makes a ruling.
The settlement agreement may apply to part of the claims presented. In this case, the agreement must be accepted in full. The law does not allow partial acceptance of agreements. The judge has the right, after studying the text of the document, to demand the removal of paragraphs that do not comply with the requirements of the law.
There is no unified form provided. Correct writing of the text is important from the point of view of equality of parties and the rule of law.
When is it impossible to conclude a settlement agreement?
Peace cannot be concluded in cases where the scope of the rights and obligations of one of the parties is determined by the norms of legislative acts. And the wording of the agreement contradicts the specified standards. In particular, when determining the volume of alimony obligations or allocating a mandatory share to heirs (consultation with a lawyer on inheritance).
It is prohibited to make peace in labor disputes when the subject of the proceedings is arrears of wages. Labor disputes also include the process of compensation for harm caused to the health of an employee. The regulation of such a dispute relates to a normative act. Dispositive regulation is not provided in order to prevent pressure from the employer, as the most financially protected party.
The agreement is not regulated within the framework of an administrative litigation with government agencies. In particular, when challenging the decision of a particular official or collegial body. Also, when challenging an adopted normative act. In particular, in legal disputes with the Pension Fund of the Russian Federation on the assignment or refusal to assign a pension to a person who receives status ahead of schedule on the basis of the provisions of labor legislation on heavy or mixed labor.
The reconciliation procedure cannot be performed within the framework of a special proceeding case. Such cases include:
- adoption cases;
- on recognizing a citizen as missing;
- on declaring a citizen dead;
- on limiting the legal capacity of a citizen;
- to challenge the action or inaction of an official;
- on termination of a citizen’s legal capacity;
- about forced hospitalization;
- about compulsory treatment;
- on amendments to civil status acts;
- about disputes related to notarial actions.
Provisions on settlement agreements are very rarely applied in cases in which there is no material component of the dispute.
Also, a settlement agreement cannot be accepted if the parties do not have a common opinion regarding the specific provisions of the document submitted to the court.
Who can sign a settlement agreement?
The participants in the process appearing in it have the right to sign the document personally or through a representative if the power of attorney directly contains this authority.
The main participants in the process are the plaintiff and the defendant in the dispute under consideration. Third parties who make independent claims must also sign the settlement agreement and participate in the negotiation of terms. Third parties, without independent demands, participate in concluding an agreement if the rights and obligations provided for in the document affect their interests.
Consequences of the settlement agreement for the debtor and creditors
After the document is approved by the court, the debtor and creditors are obliged to strictly fulfill its terms. The following consequences occur for the parties:
- the restructuring schedule is canceled if it was previously approved in the bankruptcy case;
- the moratorium on repaying creditors' claims is lifted, and the debtor is obliged to start making payments;
- encumbrances and restrictions on the disposal of property and income of the debtor are lifted;
- no sale of assets is carried out;
- The manager’s powers are terminated, and he will not receive a percentage from the sale of property.
The debtor who signed the agreement is not declared bankrupt. Consequently, he will not face the consequences of bankruptcy, including prohibitions on holding managerial positions, the obligation to notify about his bankruptcy status when receiving new loans.
At what stage can a settlement agreement be concluded?
The conclusion of a settlement agreement is possible at any stage of the process. The trial is divided into periods:
- Acceptance of the case for proceedings;
- Preparing for the hearing;
- Direct examination in the courtroom;
- Court of Appeal;
- Cassation authority.
After the final decision on the case is made and the decision enters into legal force, the possibility of concluding a settlement agreement remains limited. By virtue of the provisions of Article 439 of the Code of Civil Procedure, the claimant has the right to refuse collection for certain reasons. Thus, enforcement proceedings are terminated and cannot be resumed again on the same grounds.
Is it possible to appeal?
To appeal the settlement agreement, 15 days are provided from the date of the court’s decision on acceptance. In practice, this happens extremely rarely, since most often the parties are well aware of the consequences of making peace within the framework of the trial.
However, if one of the parties made peace under the influence of a mistake or as a result of deception, then it has the opportunity to challenge the determination of the acceptance of the settlement agreement.
Is the government coming back? duty?
There is no refund of state duty. There is an option to distribute legal costs between the parties to the settlement agreement. The state fee is paid into the budget before the start of the trial to cover the court's expenses for considering a particular case. The conclusion of peace is considered the logical and correct conclusion of the legal process, which is equivalent to a court decision.
Q. Tell us about the practice of conciliation procedures
A. The institution of conciliation procedures is more developed in the West: the Russian business community treats it with a great deal of distrust: after all, the implementation of what the parties agree on occurs voluntarily.
There is some unjustified skepticism in this: after all, the APC protects the parties with the help of a mechanism for enforcing the settlement agreement if necessary.
However, one way or another, the parties were able to sit down at the negotiating table: with a mediator or a judge, or even without named persons, the plaintiff and defendant were able to come to an agreement.
As evidence of the completion of conciliation procedures, the parties enter into a settlement agreement.
And this is where the difficulties begin. Firstly, until recently the legal nature of this document was not completely clear , a legal definition was not given anywhere, and lawyers argued quite actively over the question of whether the settlement agreement should be considered a transaction and whether all the rules on transactions from the Civil Code should be applied to it.
The point in this dispute (looking ahead, let’s say that in many others) was put by Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated July 18, 2014 N 50 “On the reconciliation of the parties in the arbitration process”
(hereinafter referred to as Resolution No. 50).
The then still existing Supreme Arbitration Court explained that “a settlement agreement is an agreement of the parties, that is, a transaction , as a result of which to this agreement, which is one of the means of protecting subjective rights, in addition to the norms of procedural law, the norms of civil law on contracts are subject to application, including including the rules on freedom of contract.”
It would seem that since a settlement agreement is a transaction, then it can be contested separately. However, paragraph 21 of Resolution No. 50
states that “challenging a settlement agreement approved by the court (
parts 1, 5 of Article 141 of the Arbitration Procedure Code of the Russian Federation
) separately from challenging the judicial act by which the settlement agreement was approved is impossible.”
A similar practice existed before the release of Resolution No. 50
, for example, the FAS of the East Siberian District indicated that
the settlement agreement is a procedural action of the arbitration court , therefore, the revision of the settlement agreement is possible only by appealing by an interested party to the determination to terminate the proceedings in connection with the approval of the settlement agreement in the manner prescribed by law.
The plaintiff’s argument (represented by the Office of the Federal Bailiff Service for the Republic of Sakha (Yakutia)) that the settlement agreement is a civil law transaction and can be challenged separately, the FAS VSO rejected as based on an incorrect interpretation of substantive and procedural law ( see Resolution FAS East Siberian District dated May 16, 2011 in case No. A58-3951/10
).
Thus, if the settlement agreement is approved by the court, the dissatisfied party has two options: file a complaint against the relevant court ruling or (if appropriate circumstances exist) file an application to review the case based on new or newly discovered circumstances).
There may also be difficulties with third parties involved in the process. As reasonably noted in paragraph 11 of Resolution No. 50
,
a third party who declares independent claims regarding the subject of the dispute has the right to participate in the conclusion of a settlement agreement , since such a third party enters into the case practically as a plaintiff.
Clause 12 of Resolution No. 50 is causing controversy
, according to which third parties without independent claims also have the right to act as participants in a settlement agreement.
This position is fundamentally incorrect; third parties, without independent demands, are involved in the process only because the decision in this case may entail certain consequences for them; they are not parties to the disputed legal relationship.
Consequently, the court, in its ruling approving the settlement agreement, does not have the right, for example, to oblige a third party to fulfill the defendant’s obligations for him.
A third party who does not make independent claims cannot participate in the adoption of a settlement agreement , since he can neither admit the claim nor renounce it.
In this case, it is important to note that not only the participants in the process, including third parties, have the right to appeal a judicial act, but also entities whose rights were affected by the court decision (see, for example, Resolution of the FAS Volga District dated October 28, 2013 on case No. A12-457/2013
).
And here we come to the understanding that the approval of a settlement agreement is not always the end point in the dispute between the parties .
What happens if the debtor does not comply with the settlement agreement?
If one party fails to fulfill obligations assumed on the basis of the peace document, the other party has the right to apply to the court for the issuance of a writ of execution for forced execution by the Federal Bailiff Service.
The corresponding application is submitted to the reception room of the court, which considered the case and approved the settlement agreement. The claimant may ask the court to independently send a writ of execution to the FSSP or hand it over to the claimant for self-filing.
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Q. And in the case of new or newly discovered circumstances?
A. The situation with challenging the ruling of the court of first instance to approve the settlement agreement and terminate the proceedings is not so common, but it is of great importance.
In this case, the cassation court must carefully check each time whether the circumstances stated in the complaint are new or newly discovered.
Unfortunately, there are cases when the initiator of such proceedings is forced to go to the cassation court to prove his case (see, for example, Resolution of the Arbitration Court of the North-Western District dated May 29, 2015 N F07-2623/2014 in case N A56-67812/2013
).
Let us remind you that when a case is reviewed due to new or newly discovered circumstances, the process actually starts all over again and the parties again have the right to proceed to conciliation procedures and conclude a settlement agreement.
