Shorter statutes of limitations and the factoring industry (about the amendment).

In just one week - from 27.02 - 1.03.2018. - The Parliament will address the issue of the statute of limitations. The government draft amendment to the Civil Code will be considered. The chances of its enactment appear to be high.

What changes does the project provide for?

• Shortening the basic limitation period from 10 years to 6 years;
• Shortening the statute of limitations for claims established by a final court judgment, etc. from 10 years to 6 years, and for periodic benefits up to 3 years;
• Changing the way the statute of limitations is counted - they would end at the end of the calendar year (that is, they would de facto be partially extended - as with taxes);
• Introduction in claims p-consumer a new formula for the official statute of limitations causing the No possibility of taking the case to court after the expiration of the statute of limitations (unless, according to the Court, the allowance of the claim is required by reasons of equity);
• In the case of consumer sales of used movable goods, the one-year limitation period for warranty claims cannot end before the expiration of 2 years from the date of delivery of the goods.

What impact will the enactment of the changes have on the factoring industry? In my opinion:

• Most importantly - the 3-year statute of limitations in a business-to-business (b2b) relationship and the 2-year one in the same relationship for the sale of goods and services in connection with a business activity will not change. Instead, this time limit is crucial for the operation of most factoring companies (buyout of receivables from b2b trade);
• The number of cases sent to bailiffs will increase, as cases that end with a verdict (payment order) and end in unsuccessful enforcement will be "refreshed" instead of every 10 years - every 6 years - that is, the rotation of such re-enforcement will increase. This generates higher costs for creditors due to the need to pay advances to bailiffs;
• Many factoring companies will be forced to revise their internal compliance-type debt collection procedures and bring them in line with the new regulations - especially in the area of 'resumption of discontinued executions' described above;
• The value of the consumer debt portfolio will fall dramatically;
• There is a risk of companies attempting to shrug off transactions on debt portfolios due to a sudden change in economic relations;
• Asset values of selected factoring companies with consumer debt portfolios may fall;
• The value of the collateral established on claims against consumers may fall.

The changes will be felt more by companies that trade in receivables, companies that hold claims against consumers, and consumers themselves:

• Companies basing all or part of their business on consumer debt collection should remodel their operations, forecasts and internal regulations;
• Time-barred lawsuits against consumers will be dismissed, which will shift costs to creditors (factoring companies are minimally affected);
• The profitability of the debt collection industry will decline, because in a sense it will be 'expropriated' from part of its debt holdings. Suddenly and drastically the value of the collection portfolio of these companies will fall;
• The status of the consumer will grow to a key issue and numerous disputes will arise before the Court in this regard, including inter-court disputes over the jurisdiction to hear the case between the commercial and civil divisions.

What about cases 'in progress'?

• The law will, so to speak, 'work retroactively' because it will cover pending cases.
• The shorter statute of limitations begins to run on the date the new law takes effect.
• However, if a statute of limitations that began before the date of entry into force of the new law would, given the previous statute of limitations, have occurred earlier, the statute of limitations shall expire at the end of the earlier period.
• In the case of pending (time-barred) cases - in all pending court cases in which the consumer is the defendant, the claim will be dismissed (the Court will consider the plea of the statute of limitations ex officio). This regulation may lead to the dismissal of thousands of pending cases by the Courts and the shifting of their costs to the parties seeking payment (creditors).

Link to draft Amendment.

In this entry I have not described all the changes I expect to see in practice in terms of the necessary actions to be taken by factoring companies. This is because the volume framework of the entry and its nature are limited.