Ministry of Defence may withhold funds to repay JSC REU’s debt

The Ministry of Defence (the “Ministry”) could possibly withhold the funds it has promised to remit in order to repay the debts of Joint-Stock Company Remontno-Ekspluatatsionnoe Upravlenie (“REU”), the Ministry’s sole supplier of heating energy. Joint-Stock Company Oboronenergosbyt, the monopoly power supplier to the defence industry, has filed about 90 claims with the courts thus far this year, requesting that REU repay a total of RUB 500 million (approx. EUR 12.5 million), which it owes under power supply contracts. Taking into account the amounts already confirmed by the courts, the debt total has reached RUB 1 billion (approx. EUR 25 million) in claims for supplied power, which is comparable to REU’s total debt of over RUB 800 million (approx. EUR 20 million) for generated power.

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“By becoming a large creditor of REU, Oboronenergosbyt has strengthened competition for the money of the Ministry of Defence. Oboronenergosbyt has no clear formal advantage in recovering debts from a ‘fellow’ subsidiary. When there are several writs of execution regarding one company, the court bailiffs service combines them into a consolidated enforcement proceeding”, explained Dmitry Magonya, Managing Partner at ART DE LEX. "However, if there are no bankruptcy proceedings, the payment procedure is not that strict and there is a certain freedom for the debtor to choose the priority and amount of debt repayment”.