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Amendments to the Civil Code of the Republic of Belarus 2024: Eight important innovations for businesses

published on 6 December 2024 | reading time approx. 7 minutes

On 19 November 2024, comprehensive and long overdue amendments to the Civil Code of the Republic of Belarus (the “Civil Code”) came into force. The corresponding adjustments were introduced by the Law of the Republic of Belarus No. 312-Z of 13 November 2023 “On Amendments to the Codes”. In this article, we provide a brief overview of the amendments to the Civil Code that offer new opportunities for businesses.

Overview »
Escrow agreement »
Option agreement »
Convertible loan »
Indemnity »
Recovery of interest »
Representations & Warranties »
Waiver »
Branch Office »
To-do steps »

Overview

Belarusian lawmakers have taken an important step towards international business by introducing legal instruments that are frequently used by foreign investors in different countries. Thus, as a result of the amendments, the Civil Code has been supplemented with Anglo-American legal constructions, among which we can mention:

Escrow
Indemnity
Representations and Warranties
Waiver

Escrow agreement

A new type of account, the escrow account, has been introduced into the system of bank accounts. Introduction of the escrow institution into the legislation helps solve the problem of distrust between the parties, when both are reluctant to take the first step due to financial or personal risks.

An escrow agreement is a tripartite agreement under which:

the escrow agent (bank) undertakes to open a special account (escrow account) for its holder (depositor)
the funds transferred by the depositor to the escrow account are held by the escrow agent
the third party (beneficiary) fulfils the terms and conditions of the escrow agreement; and only then
the escrow agent transfers funds in favor of the beneficiary

Thus, the conclusion of an escrow agreement guarantees safe execution of the contract concluded between the parties.

In addition, it should be noted that the escrowed funds are protected from foreclosure due to non-performance of any other obligations by one of the parties. According to Article 210-4 of the Banking Code of the Republic of Belarus, the following is not allowed:

suspension of transactions on the escrow account
seizure and foreclosure of funds in the escrow account

Option agreement

Another innovation that will certainly have a positive impact on the structuring of business transactions is the introduction of legal regulation of option agreements. By limiting risks and defining the terms of cooperation in advance, option agreements are useful for business. The fulfilment of an option agreement is deferred in time and depends on the will of only one of the parties. If that party claims the right to perform the actions specified in the agreement, the other party must perform them under the threat of judicial compulsion.

An option agreement may be used, inter alia, for the following purposes:

to stagger the investor's exit from/entry into the business project
to encourage the shareholders of a company to achieve certain results (e.g., buyout of a share by an investor if a certain level of financial performance has been achieved)

Convertible loan

The convertible loan is also incorporated in the Civil Code. Under the convertible loan agreement:

one party (the lender) transfers money to the other party (the borrower); and
the borrower in the event of the occurrence of a circumstance specified in the agreement, or if the borrower or third parties perform certain actions specified in the agreement:

transfers to the lender stocks owned by the borrower, a share (part of a share) in the borrower's authorized capital, or
increases the authorized capital by the amount of the convertible loan and transfers to the lender stocks, the issuer of which is the borrower, or a share (part of a share) in the borrower's authorized capital

In other words, when a convertible loan is issued, debt may be transformed into equity. The use of this instrument allows to reduce risks at the initial stages of financing and (or) investing in a company.

Indemnity

By using the indemnity, the parties have the right to specify in the agreement the obligation of one party to compensate the other party for the financial losses it has incurred in the event that:

the circumstances defined in the agreement occur, and
these circumstances are not related to a breach of obligation by one of the parties

These circumstances include, inter alia, losses caused by inability to fulfil the obligation, claims by third parties or government authorities against the party to the agreement or the third party named in the agreement. The amount of compensation for such losses or the procedure for its determination shall be specified by the parties in the agreement.

Recovery of interest

The approach to the recovery of interest for the use of third-party funds pursuant to Article 366 of the Civil Code has been amended. Thus, the “double” liability of a debtor, whereby both penalty interest and interest for non performance or improper performance of a monetary obligation may be claimed, is excluded.

This innovation is characterized by the following features:

if a penalty interest is established for a breach not related to the non-performance or improper performance of a monetary obligation, the recovery of interest for the use of third-party funds is allowed.
possibility of simultaneous recovery of a penalty interest and interest for use of third party funds may be established by legal acts.

Representations & Warranties

In order to promote the good faith of the parties, the institute of representations and warranties has been incorporated into the Civil Code. Thus, if one party to the agreement provides unreliable assurances of circumstances relevant to the conclusion, performance or termination of the agreement, the other party has the right:

to recover actual damage and penalty interest
to withdraw from the agreement if the circumstances were material to the party

Circumstances of material importance include:

subject matter of the agreement
authority to enter into the agreement
compliance of the agreement with the law applicable
financial standing of the party to the agreement
existence of special permits (licenses)
existence of rights to tangible or intangible assets

Waiver

The possibility of a waiver is provided for a party to the agreement providing that it carries out a business activity. It should also be noted that a party that has waived the exercise of a right under the agreement may no longer exercise this right later for the same reasons. An exception applies if similar circumstances arise again.

In addition, a rule is introduced that in cases expressly provided for by the agreement or laws, a party that does not exercise its right under the agreement within the prescribed period of time shall be deemed to have waived its right under the agreement.

Branch Office

Foreign companies have become entitled to conduct business in Belarus by establishing branch offices. Previously, foreign organizations were only allowed to set up a representative office having no right to conduct business activities or a subsidiary. The Labor Code of the Republic of Belarus was also amended to determine the status of a branch established by a foreign legal entity as an independent employer.

Please note

Foreign legal entities that conduct business activities in Belarus through permanent establishment and have intention to continue such activities are legally obliged no later than on 19 May 2025

– establish a branch office, or

– set up a legal entity, or

– merge with any legal entity operating in Belarus

To-do steps

Companies intending to operate or already operating in Belarus should review their business processes with a focus on optimizing them in light of the amendments to the Civil Code. Foreign companies wishing to do business in Belarus may consider a possibility of opening a branch office.