Bankruptcy

Bankruptcy moratorium: special aspects and effect for debtors and creditors

By Resolution of the Government of the Russian Federation dated March 28, 2022, a moratorium was introduced on the initiation of bankruptcy cases. In this article, we will consider special aspects of the imposed moratorium and its effect for debtors and creditors.

Currently, a moratorium on bankruptcy has been established for all categories of legal entities and individual entrepreneurs, with the exception of:

• Developers of apartment buildings included in the register of problematic facilities;
• Individual debtors included in the list approved by the Government of the Russian Federation and their affiliates.

The following special rules apply to all other persons affected by the bankruptcy moratorium:

2. Applications for declaring the debtor bankrupt filed to a commercial court during the period of the moratorium, as well as applications on which no judgements have yet been passed, must be returned by the court to the applicant without consideration.
   A similar fate awaits creditors’ notices of their intention to file bankruptcy applications against the debtor to the court - these applications are not subject to publication in the EFRSB (Unified Federal Register of Bankruptcy Information) until the bankruptcy moratorium is lifted.
   In this case, debtors themselves are not deprived of the right to file an application to the court for their own bankruptcy. However, the debtors are released from the obligation to file an application for their own bankruptcy.
3. A ban is imposed on the allocation of a share (equity stake) of the founder (participant) in the company's property in connection with his/her/its withdrawal from the company, as well as on redemption by the company itself of its shares or payment by it of the actual value of the share (equity stake).
4. A ban is imposed on termination of obligations by offsetting homogeneous counter claims if the priority for performance of obligations is violated.
5. Companies are prohibited to pay dividends, as well as to distribute profits between founders (participants). At the same time, the Bank of Russia points out that business entities are not limited in their right to make decisions on payment of dividends during the moratorium period. However, it will be possible to make payments in accordance with the decision only after the lifting of the moratorium.
6. Default charges (fines, penalties) and other financial sanctions are not accrued for failure to perform or improper performance of monetary obligations, or for failure to make mandatory payments, with the exception of current payments.
7. Pledged property may not be recovered.
8. All enforcement proceedings in respect of the debtor are suspended. The Ministry of Justice of the Russian Federation has made a clarification that suspension of enforcement proceedings is possible only in respect of the legal entities and individual entrepreneurs who filed bankruptcy applications or against whom bankruptcy applications were filed, including those filed before 01.04.2022, the issue of which acceptance was not resolved by the date of introducing the moratorium. Enforcement proceedings are not suspended in respect of any other legal entities; recoveries are ongoing in the usual way.

For all legal entities and individual entrepreneurs who are not willing to apply the bankruptcy moratorium against themselves, the right to refuse from the moratorium is established by law. The debtor's application about the decision made published on the EFRSB website serves as such refusal. From the date of its publication, the rules and restrictions listed above cease to apply to this company.

October 01, 2022 is set as the moratorium deadline which, however, can be extended by decision of the Government of the Russian Federation.

by Konsu