The approved review by the Presidium of the Supreme Court of the Russian Federation reflects 37 positions on various issues based on the decisions of the Economic Disputes Collegium for the year 2022.

The positions are divided into 6 groups:

  1. Procedural issues (items 1-9)
  2. Material issues, challenging transactions (items 10-17)
  3. Establishment of requirements in the registry (items 18-21)
  4. Implementation of assets at auctions and settlement of creditors’ claims (items 22-25)
  5. Liability of controlling persons (items 26-31)
  6. Features of bankruptcy for developers (items 32-37)

Statement of bankruptcy without a court decision on debt recovery (item 1 of the review)

The bank transferred its claim under the credit agreement through a cession agreement to another bank (cessionary). The cessionary immediately filed a bankruptcy petition against the debtor, without a court decision on debt recovery.

Considering the rule on the transfer of the cedent’s rights to the cessionary to the extent and on the conditions that existed at the time of the transfer of rights, the applicant’s claim falls within the scope of the seventh paragraph of Article 213.5 of the Bankruptcy Law. Therefore, the cessionary has the right to initiate the bankruptcy procedure against the borrower in a simplified manner.

In other words, the bank’s right to file for the debtor’s bankruptcy without a court decision passes within the framework of the cession to its successor in interest.

The lack of sufficient funds to cover the expenses in the bankruptcy procedure is not a ground for its termination (item 3 of the review)

The authorized body, opposing the termination of proceedings in the insolvency case due to the lack of funds for the procedures and insisting on the availability of a source to cover the mentioned expenses, has the right to present evidence substantiating the likelihood of assets entering the bankruptcy estate, particularly due to challenging the debtor’s transactions.

Restoration of the deadline for appeal (item 4 of the review)

The creditor filed an objection to the refusal of the insolvency administrator to include their claims in the register three days after the established deadline. They submitted the objection after 18 days instead of the required 15 days as stipulated by the “Bankruptcy Law.” The Supreme Court noted that the 15-day period prescribed by the law (unlike statutory deadlines) does not establish the duration of the subjective right; it can be restored if valid reasons for missing the deadline exist.

Expenses for the bankruptcy procedure borne by the company’s owners (item 9 of the review)

The company was placed under observation, and a temporary administrator was appointed. Subsequently, the bankruptcy proceedings were terminated due to a lack of funds sufficient to cover the legal expenses associated with the bankruptcy procedures.

According to the clarifications provided in paragraph 10 of the resolution of the Plenum of the Supreme Court of the Russian Federation No. 53 “On certain issues related to holding controlling persons liable in bankruptcy,” in accordance with the meaning of Article 61(5) and Article 62(2) of the Civil Code of the Russian Federation, when a debtor lacks funds to finance bankruptcy procedures, necessary expenses may be attributed to its founders (participants).

Imposing such expenses on the participants is based on their status and is not conditioned by either the filing of a bankruptcy petition or the adoption of measures to establish a liquidation committee. Therefore, according to the cited provisions of the legislation and clarifications, the costs of liquidating a legal entity (conducting bankruptcy procedures against it) are to be borne by the respondent as a participant of the debtor.

The absence of voluntary compensation of legal expenses for the liquidation of a legal entity by the founders (participants) does not constitute a violation leading to subsidiary liability in bankruptcy.

Payment for legal services by a company that subsequently went bankrupt (item 10 of the review)

The lawyers received payment from the company for services rendered in defense of one of its employees in a criminal case. In the context of the company’s bankruptcy proceedings, creditors filed a petition with the court to invalidate the payment transactions transferring funds to the account of the lawyers’ collegium, as well as to impose consequences of invalidity on these payments by recovering the funds from the lawyers.

Position of the Supreme Court: The resolution of the issue regarding the possibility of an independent lawyer entering into a contract with an organization to defend the interests of its employee in a criminal case cannot be conditioned on the lawyer assuming the obligation to verify the financial position of the appointing organization.

Such a transaction may be deemed detrimental to the creditors of the debtor if it is established that the lawyer is affiliated (either formally or factually) with the debtor or its employees, or if the transaction is fictitious, or if the parties to the legal services agreement acted dishonestly, intentionally inflating the price of the transaction to cause harm to the creditors.

Low price of assets (item 11 of the review)

Shortly before the company’s bankruptcy, a buyer acquired assets at a significantly undervalued price.

The Supreme Court stated that for bankruptcy purposes, the acquisition of assets from the debtor at a significantly undervalued price, coupled with the buyer’s failure to provide substantiated justification for such undervaluation, indicates that this party was aware of the transaction’s intention to harm the property rights of the creditors (to remove assets from the bankruptcy estate).

Significantly undervaluing the price of the transferred property should raise doubts about the legitimacy of such transfer for any conscientious and reasonable participant in civil transactions.

Challenging the final balance (item 17 of the review)

The bankrupt and their counterparty had mutual legal claims within the framework of a single contract. The courts, in separate disputes, granted the claims of each party. The insolvency administrator proposed to compare the claims of the parties and determine who had the larger debt. The balance turned out to be in favor of the bankrupt.

The Supreme Court acknowledged that in the presence of an awarded debt and its subsequent inclusion in the registers of current creditor claims for both debtors, it is impossible to determine the final counter obligation between the parties. This would lead to a review of legally binding court decisions, which is impermissible according to the provisions of Article 16 of the Arbitration Procedure Code of the Russian Federation. Furthermore, comparing the obligations of parties from a single contract (or several interrelated contracts) and performing arithmetic (calculative) operations to determine the party responsible for the final performance (with the corresponding amount) cannot be classified as offsetting and is not subject to challenge as a separate transaction under the rules of Article 61.3 of the Bankruptcy Law due to the absence of a qualifying feature in the form of the counterparty receiving any preference. In this type of situation, unlike offsetting, opposing claims do not actually arise.

Mutual bankruptcy (item 18 of the review)

The company transferred funds to an affiliated conglomerate and subsequently went bankrupt.

In the conglomerate’s bankruptcy case, the company filed a request to include its restitution claim in the register of creditor claims.

The company’s claim was placed outside the register and deemed eligible for satisfaction after the repayment of claims from all independent creditors but with priority over the claims of parties receiving assets from the debtor under the provisions of Article 148.1 of the Bankruptcy Law and Article 63.8 of the Civil Code of the Russian Federation (in order preceding the distribution of the liquidation quota).

In reducing the priority of satisfaction for the mentioned claim, the first-instance court considered that the company and the conglomerate belonged to the same group of companies. The court deemed the fund transfer operations as compensatory financing.

The Supreme Court recognized the legality of subordination despite the bankruptcy of the “compensatory creditor.”

Division of assets on auctions (item 22 of the review)

With the consent of the courts, the administrator sold the bankrupt’s real estate and separately the bankrupt’s right to lease the land underneath. The Supreme Court emphasized that a reasonable and diligent potential buyer, upon learning about such division, would refrain from participating in the auction because there is a risk of winning only one of the lots, which would hinder the use of the property. As a result, the potential sale price of the asset would be lower. The Supreme Court also noted that artificially dividing functionally related objects into several lots during bankruptcy auctions may restrict the circle of participants and affect the price, thus not aligning with the goals of the bankruptcy proceedings.

Procedure for the recovery of penalty (item 24 of the review)

In addition to the main claim, the secured creditor also requested the recovery of a penalty.

The Supreme Court’s conclusion: the demand for the recovery of a penalty is considered separately in the register of creditor claims and is subject to satisfaction after the repayment of the principal amount of the debt and the accrued interest. The penalty should be paid only after the repayment of all third-priority claims. Furthermore, a secured creditor’s claim for the payment of the penalty has priority over the satisfaction of unsecured claims of other creditors for the recovery of financial sanctions.

Liability of former executives (item 26 of the review)

In a debtor’s bankruptcy case, the insolvency administrator filed a claim for holding the former executive subsidiarily liable for the debtor’s obligations since the former executive did not file a bankruptcy petition for the organization and thereby concealed information about the company’s severe financial position.

The Supreme Court reached a decision: obligations of the debtor that arose before the defendant’s breach of duty to timely file a bankruptcy petition cannot be included in the amount of subsidiary liability based on Article 61.12 of the Bankruptcy Law.

According to the meaning of Article 61.12 of the Bankruptcy Law, the existence of a causal link is presumed between the deceit of counterparties by the debtor’s executive in the form of intentional concealment of signs of insolvency, which the executive was obligated to publicly disclose by law through filing a bankruptcy petition, and the negative consequences for deceived creditors who provided financing to an entity that was effectively unable to pay its debts.

The subsidiary liability of such an executive is limited to the amount of obligations owed to these creditors, specifically debts that arose after the expiration of the one-month period provided for in paragraph 2 of Article 9 of the Bankruptcy Law.

Delegation of a portion of managerial functions in the economic activities of a legal entity by its executive does not, in itself, constitute grounds for exempting them from liability (item 27 of the review)

When determining the scope of responsibilities entrusted to the executive, it should be taken into account that they indeed have the right to delegate specific functions to subordinate employees and trust their competence and honesty to a reasonable extent. However, an executive who exercises the right to delegate cannot absolve themselves from monitoring the performance of the delegated functions. When deciding on their liability, the nature and scale of the economic activities of the controlled legal entity, the actual situation that has developed at the enterprise, etc., should be taken into account.

Establishing a company management mechanism in which all executive powers are transferred to middle management does not exclude the subsidiary liability of top managers and other controlling individuals. They are responsible for the selection of middle-level managers.

Company without its own capital financed by loans from a controlling entity (item 28 of the review)

In the case of creating a company that lacks significant capital of its own and is financed through loans from a controlling entity, which are withdrawn before the bankruptcy of the company, there is a basis for the subsidiary liability of such controlling entity.

In this case, in violation of the principle of asset segregation, the mingling of assets of two companies occurred, creating conditions where settlements with creditors became impossible.

In exceptional cases, a participant of a corporation and other controlling individuals (paragraphs 1-3 of Article 53.1 of the Civil Code of the Russian Federation) may be held liable to the creditor of the respective legal entity if the inability to satisfy the creditor’s claims was provoked by the implementation of the will of the controlling individuals, whose behavior did not meet the criteria of good faith and reasonableness and was not related to market or other objective factors, business risk inherent in entrepreneurial activities (Article 1064 of the Civil Code of the Russian Federation, Article 61.11 of the Bankruptcy Law, paragraph 3.1 of Article 3 of the Federal Law of February 8, 1998, No. 14-FZ “On Limited Liability Companies”).

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