Restructuring & Insolvency in Russia
What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?
The principal law regulating insolvency and restructuring is the Bankruptcy Law (Federal Law 127-FZ, October 26 2002).
On an international spectrum, is your jurisdiction more creditor or debtor friendly?
Before recent amendments (which came into effect on December 23 2014 and January 29 2015), the Bankruptcy Law offered the possibility of applying both pro-creditor and pro-debtor bankruptcy systems, without attempting to regulate the mechanism for their implementation. The amendments substantially improved the position of creditors by providing greater protection of their interests in bankruptcy proceedings.
Under the previous legislation, by initiating the bankruptcy proceedings the debtor was entitled to appoint the bankruptcy manager and thus have de facto control over the supervision stage due to the manager’s increased authority. However, the debtor is no longer able to initiate bankruptcy proceedings with the appointment of a friendly manager. Therefore, the debtor cannot retain control of the bankruptcy proceedings, which in the past proved detrimental to creditors.
The recent changes to the bankruptcy legislation are more friendly to creditors, giving them greater opportunity to monitor and influence the bankruptcy proceedings.
Do any special regimes apply to corporate insolvencies in specific sectors (eg, insurance, pension funds)?
The Bankruptcy Law contains special rules governing the bankruptcy of specific categories of legal entity, including:
Are any reforms to the legal framework envisaged?
- town-forming organisations;
- agricultural organisations;
- financial organisations;
- strategic (mainly defence and infrastructural) enterprises and organisations;
- natural monopolies;
- residential real estate developers; and
- clearing banks and their clients.
In 2016 the Ministry of Economic Development reported on the preparation of a draft law to amend the Bankruptcy Law by introducing provisions for a simplified scheme of bankruptcy proceedings for individuals, which would apply where an individual lacks suitable financing for ordinary proceedings. The draft law was premised on the fact that bankruptcy proceedings are currently unaffordable for low-income individuals.
Director and parent company liability
Under what circumstances can a director or parent company be held liable for a company’s insolvency?
A director of a debtor can be subject to subsidiary, administrative and criminal liability.
The director of the debtor may be subject to subsidiary liability for the debtor’s obligations where the debtor’s assets are insufficient to discharge its obligations if:
- the debtor’s insolvency was caused by illegal actions of the director;
- the director did not file a petition for the debtor’s insolvency when insolvency was anticipated due to circumstances clearly evidencing the debtor’s inability to fulfil its monetary obligations to creditors; or
- the necessary accounting and reporting documentation is missing or the relevant information reflecting the economic activity of the debtor is incomplete or untrue.
The Criminal and Administrative Codes provide for penalties for the director of the debtor for wilful bankruptcy when he or she deliberately takes or refrains from taking actions (eg, continuing to trade) that will result in the company’s inability to satisfy in full its creditors’ claims. In such case, the director may be subject to:
- criminal liability if his or her actions caused major damage to the debtor (ie, where the damage amounts to at least Rb1.5 million ($26,000)). The court can find the director of a debtor criminally liable to a fine of up to Rb500,000 ($8,650) or a prison sentence of up to six years; or
- administrative liability, which is subject to a fine of up to Rb10,000 ($175) or professional disqualification for one to three years.
The parent company of the debtor is subject to subsidiary liability if the bankruptcy resulted from the wrongdoing of the parent company (ie, the contracts concluded by the debtor were made under the instruction or with the consent of the parent company).
What defences are available to a liable director or parent company?
The director must convince the court that his or her actions (or inaction) did not cause the company’s bankruptcy. Depending on the circumstances of the case, the director can lodge various defences, including:
What due diligence should be conducted to limit liability?
- evidence proving that the company’s tax delinquency was temporary and minor in nature;
- evidence of a lack of causal relationship between the bankruptcy and the way in which he or she exercised his or her management powers;
- if there was a change of director during the period preceding the company’s bankruptcy, a statement to this effect which specifies the previous director’s period of responsibility and the effect of the indebtedness and obligations accumulated during this period on the company’s further development; and
- evidence that the company’s bankruptcy did not exclusively result from the director’s actions or that the effect of his or her actions was insignificant.
- The parent company must prove that the bankruptcy of its affiliate was caused solely by the actions of the affiliate’s management and that the affiliate’s transactions – having led to the bankruptcy – were not undertaken pursuant to the decisions, instructions or approval of the parent company.
To limit liability, directors should fully comply with their obligations under Russian law.
If there is clear evidence that the company will become bankrupt, directors are obliged to file a bankruptcy petition within one month of the signs of bankruptcy arising. Failure to do so will result in their liability for all obligations accruing thereafter.
When initiating bankruptcy proceedings, the director must notify the debtor’s shareholders about the risks of bankruptcy proceedings within 10 days of becoming aware of such risks. Failure to do so may result in a fine or professional disqualification.
The Bankruptcy Law imposes responsibility for maintenance of the debtor’s accounting and reporting documents on the director. If the relevant obligations of the debtor are not fulfilled as of the date of the bankruptcy declaration or the commencement date of supervision proceedings, the debtor’s director will bear subsidiary liability.
To limit liability, the director should exercise control over the company’s transactions and the parent company should act in good faith and with due diligence while giving instructions or consent regarding the affiliated company’s transactions.
Position of creditors
Forms of security
What are the main forms of security over moveable and immoveable property and how are they given legal effect?
The primary way to secure transactions involving movable or immovable property is through a pledge.
The status of the pledge creditor is considered to be privileged. The claims of a creditor which are secured by pledge are listed in the creditors’ registry as part of the claims of creditors of the third priority, while 70% of the funds received from the disposition of the subject of a pledge are used to discharge the claims of the pledge creditor.
However, the right of pledge creditors to vote at the creditors’ meetings is sufficiently limited by the Bankruptcy Law. Such creditors are entitled to vote only in cases directly provided for under the law.
Ranking of creditors
How are creditors’ claims ranked in insolvency proceedings?
Current payments are outside the general order of priorities for satisfaction of the creditors’ claims and are to be satisfied on a first-priority basis as they fall due and before any other payment. ‘Current payments’ refer to monetary obligations, requests for payment of severance benefits and remuneration of current and former employees employed under an employment contract, and mandatory payments arising after the date of the application for a declaration of bankruptcy. Requests for payment for goods supplied, services provided and works performed after initiation of the bankruptcy proceedings are also considered current payments.
The Bankruptcy Law ranks current payments as follows (in descending order):
- payments aimed at avoiding industrial or ecological disaster caused by the debtor’s activities;
- court expenses;
- utility payments and operational expenses; and
- other current payments.
The Bankruptcy Law provides for the following order of priority in which creditors’ claims shall be met:
Can this ranking be amended in any way?
- first priority – personal injury claims;
- second priority – severance benefits, employees’ wages (if any are due) and copyright loyalties;
- third priority – all other claims, as follows:
- claims arising out of violation of environmental legislation;
- claims for taxes and other mandatory payments;
- claims of secured creditors;
- claims of unsecured creditors; and
- claims from challenged suspicious or preferential transactions.
The Bankruptcy Law does not allow the priority of redemption of creditors’ claims to be changed. Transactions made by the debtor in violation of the ranking can be challenged and invalidated by the court.
What is the status of foreign creditors in filing claims?
The Bankruptcy Law does not provide any specific rights for or impose any specific restrictions on foreign creditors. Foreign creditors filing claims in reference to the bankruptcy of a Russian debtor have the same rights as Russian creditors.
Are any special remedies available to unsecured creditors?
Once supervision is initiated, unsecured creditors may raise their claims only in accordance with the procedure established by the Bankruptcy Law. This means that the creditors should file a request with the court to include their claims in the register of creditors’ claims. The court will accordingly accept such claims if they are well founded. Creditors vote at the creditors’ meetings by way of votes distributed in accordance with the proportion of their registered claims.
Settlement of creditors’ claims is possible only during the liquidation. After commencement of the liquidation, creditors are eligible to receive settlement of their claims according to their priority rank.
By what legal means can creditors recover unpaid debts (other than through insolvency proceedings)?
If the creditor is entitled to recover current payments from the debtor, such payments are recovered outside the bankruptcy proceedings.
‘Current payments’ refer to monetary obligations, requests for payment of severance benefits and remuneration of current and former employees employed under an employment contract, and mandatory payments arising after the date of the application for a declaration of bankruptcy. Requests for payment for goods supplied, services provided and works performed after initiation of the bankruptcy proceedings are also considered current payments. Such requests for payment are not included in the register of creditors’ claims.
Claims regarding current payments are satisfied in the following order:
Is trade credit insurance commonly purchased in your jurisdiction?
- first priority – payments aimed at avoiding industrial or ecological disaster caused by the activities of the debtor;
- second priority – payments for judicial expenses and the performance of obligations by the insolvency officer and other persons whose involvement in the bankruptcy proceedings is mandatory;
- third priority – payments of severance benefits and remuneration of current and former employees;
- fourth priority – payments for the performance of obligations by persons engaged by the insolvency officer (apart from persons whose involvement is mandatory);
- fifth priority – maintenance charges; and
- sixth priority – other payments in chronological order.
Trade credit insurance is not commonly sought by companies in Russia. Some Russian insurers provide trade credit insurance along with other services, but this type of security is mostly used by companies with high-value business and applying the instrument of adjournment of payment. Trade credit insurance is used mostly in the pharmaceutical, electronics, automobile and chemical industries.
What are the eligibility criteria for initiating liquidation procedures? Are any entities explicitly barred from initiating such procedures?
Bankruptcy proceedings may be commenced against a company if it:
- has debts of more than Rb300,000 rubles ($5,265) (excluding fines, penalty interest, damages and other financial penalties); and
- has failed to settle such debts within three months of falling due.
Bankruptcy proceedings may be commenced at the petition of a creditor having a court decision confirming the debt. However, there is no requirement for a court judgment when the tax authorities initiate the insolvency proceedings. The tax authorities may file a petition with the court for the debtor’s bankruptcy within 30 days of their decision to recover mandatory payment by seizing the debtor’s funds or other assets.
A bank may file a petition for the debtor’s bankruptcy from the date on which the debtor first shows signs of insolvency, with no need for a court decision to recover the debt. The bank must publish a notice of its intention in this regard on the website of the Unified Federal Registry of Information on Companies’ Operations 15 days before commencement of the bankruptcy proceedings.
What are the primary procedures used to liquidate an insolvent company in your jurisdiction and what are the key features and requirements of each? Are there any structural or regulatory differences between voluntary liquidation and compulsory liquidation?
There are five types of bankruptcy procedure that may be applied against the debtor:
- financial rehabilitation;
- external administration;
- liquidation; and
Debtors do not necessarily undergo all of these bankruptcy procedures.
During supervision, a temporary administrator analyses the current financial status of the debtor and takes an overview of claims against it. This stage aims to preserve the debtor’s property by restricting the actions of the debtor.
Financial rehabilitation aims to restore the debtor’s solvency and arrange for outstanding debt to be discharged under scheduled debt repayment.
That stage includes the appointment of an external administrator to collect debt, make an inventory of assets and prepare a plan for restoring solvency.
Liquidation starts with a declaration of the debtor’s bankruptcy. This stage involves the appointment by the court of a liquidator in order to sell the assets of the debtor and thus satisfy its debts in accordance with the statutory order of priority.
As of the date of court approval of the voluntary agreement, the bankruptcy proceedings terminate and the debtor is obliged to begin repaying the creditors’ claims in accordance with the repayment schedule set out in the agreement.
How are liquidation procedures formally approved?
A court ruling is required to terminate one stage of bankruptcy proceedings and commence another. Generally, the court issues its ruling based on the decision of the creditors’ meeting.
If the court confirms that the creditor’s claim is well founded, shows signs of insolvency and remains outstanding at the time of the court hearing, it must rule in favor of the commencement of supervision.
Financial rehabilitation is initiated by the court on the petition of the first creditors’ meeting or the petition of the shareholders of the debtor or other persons willing to put up collateral for the debts of the company.
External administration is initiated by the court on the petition of the creditors’ meeting if there is a real possibility of restoring the debtor’s solvency.
The court initiates liquidation where the debtor shows signs of bankruptcy and there are no grounds on which to transfer to another stage of bankruptcy proceedings, approve a settlement or terminate the bankruptcy proceedings.
The creditors’ meeting can file a petition for settlement, to be approved by the court.
What effects do liquidation procedures have on existing contracts?
After supervision is initiated, claims under a contract can be dealt with through the stages of the bankruptcy proceedings. Enforcement against the assets of the debtor is suspended. Other actions against the debtor for the recovery of funds are terminated.
During financial rehabilitation, the debtor pays no penalties for non-payment or overdue repayment of debts that fell due before financial rehabilitation.
During external administration and liquidation, the bankruptcy manager may terminate the debtor’s contracts if:
What is the typical timeframe for completion of liquidation procedures?
- the contract will impede restoration of the debtor’s solvency; or
- the debtor will incur losses from performance in comparison to similar transactions concluded in comparable circumstances.
Role of liquidator
How is the liquidator appointed and what is the extent of his or her powers and responsibilities?
- Supervision can last up to seven months.
- Financial rehabilitation can last no more than two years.
- External administration can last up to 18 months and can be extended by a further six months.
- Liquidation can last up to six months and can be extended by a further six months.
At the supervision stage, the court approves a temporary manager. During supervision, the company’s management remains in place, albeit with restricted authority. The temporary manager’s written consent is required to enter into certain transactions. The temporary administrator must take measures:
- concerning assurance of the debtor’s property preservation;
- to indicate the debtor’s creditors; and
- to summon and manage the first creditors’ meeting.
The temporary manager is entitled to file a claim on his or her behalf to invalidate any transactions entered into by the debtor in contravention of the law and to raise defences against the creditors’ claims.
At the financial rehabilitation stage, the court approves an arbitrage manager who supervises implementation of the debt repayment schedule and the financial rehabilitation plan. During this stage, the company’s management remains in place, albeit with even more restricted authority than at the supervision stage. The arbitrage manager must:
- maintain a register of the creditors’ claims;
- summon the creditors’ meetings; and
- exercise control over the execution of the financial rehabilitation plan and repayment schedule.
The arbitrage manager is entitled to submit a motion for removal of company directors.
At the stage of external administration, the court approves an external manager. When external administration commences, the powers of the management are terminated and the duty to manage the affairs of the debtor is vested in the external manager. The external manager must:
- take the debtor’s property into administration and draw up an inventory of such property; and
- develop an external administration plan.
The external manager is entitled to manage the property of the debtor in accordance with the external administration plan, and to make a declaration of refusal to perform the debtor’s contracts.
In a liquidation procedure, the court approves the liquidator, who replaces the management of the company. The debtor’s shareholders’ rights are also terminated. The liquidator is entitled to:
- manage the debtor’s property;
- dismiss the debtor’s employees;
- make a declaration of refusal to perform the debtor’s contracts; and
- file claims to invalidate transactions entered into by the debtor.
The bankruptcy manager must recover damages to the debtor, creditors and other persons, if their losses were caused by non-performance or undue performance of his or her obligations in terms of the debtor’s bankruptcy.
What is the extent of the court’s involvement in liquidation procedures?
All bankruptcy procedures are supervised by the court.
The court exercises the following powers, among others:
What is the extent of creditors’ involvement in liquidation procedures and what actions are they prohibited from taking against the insolvent company in the course of the proceedings?
- initiates, completes and terminates bankruptcy proceedings;
- approves the administrators in bankruptcy proceedings;
- applies interim measures;
- invalidates transactions of the debtor;
- prohibits the debtor from entering into transactions without the bankruptcy manager’s consent; and
- approves the voluntary agreement.
Creditors recognised by the court have to form the creditors' committee. Creditors included in this committee in terms of the bankruptcy procedure have the power to:
- apply to the court to initiate the bankruptcy procedure;
- stipulate additional requirements for bankruptcy manager candidates;
- exercise control over the activities of the bankruptcy manager; and
- raise claims under obligations with a later maturity date, but which fell due on initiation of the bankruptcy procedure.
The creditors are prohibited from:
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in liquidation procedures?
- raising claims against the debtor outside the bankruptcy procedure;
- claiming for penalties, interest or other financial sanctions for the period starting from the initiation of the bankruptcy procedure;
- foreclosing on the debtor’s assets; and
- taking any other actions against the debtor outside the bankruptcy procedure.
The managing bodies of the debtor (directors and the shareholders’ meeting) may exercise their powers of managing the company’s affairs and disposing of its property, with certain limitations. On commencement of external administration, the managing bodies are discharged from performing their duties.
What are the eligibility criteria for initiating restructuring procedures? Are any entities explicitly barred from initiating such procedures?
The Bankruptcy Law provides for a procedure referred to as ‘restructuring’, but which applies only to individuals. The court will accept an application for recognition of the individual’s bankruptcy if the claims against the individual amount to at least Rb500,000 ($8,700) and have not been settled within three months of the date of their due performance.
The Bankruptcy Law provides no special procedure for companies that is specifically referred to as ‘restructuring’, but in practice company restructuring may be achieved through either a financial rehabilitation plan, an external administration plan, settlement or ‘sanation’.
For financial rehabilitation, a financial rehabilitation plan must be in place. The aim of the plan is to restore the debtor’s solvency and repay its debts in accordance with a debt repayment schedule. The financial rehabilitation plan and the debt repayment schedule provide for a complete discharge of all of the creditors’ claims that are included in the register of creditors.
For external administration, an external administration plan must be in place. The external administration plan should outline measures to restore the debtor’s solvency and settle the claims of the insolvency creditors. In order to restore the debtor’s solvency, the plan may provide for the following actions:
- shutdown of unprofitable production facilities;
- sale of the debtor’s property;
- repayment of the debtor’s obligations by third parties or shareholders; and
- increase in the debtor’s charter capital through contributions by third parties.
A settlement may be reached at any stage of the bankruptcy proceedings. The settlement must specify a schedule for termination of the debtor’s obligations to certain creditors.
There is also a special mechanism to prevent bankruptcy – so-called ‘sanation’. The purpose of the sanation procedure is to provide the debtor with sufficient financial assistance to repay its debts.
What are the primary formal restructuring procedures available in your jurisdiction and what are the key features and requirements of each?
The Bankruptcy Law stipulates that the aim of the restructuring of an individual’s debts is his or her financial recovery and recovery of debts to creditors in accordance with the debt restructuring plan.
This plan must contain provisions on the order and terms of the proportional recovery of debts and applicable interest. The law provides for a three-year period to implement the plan.
The law requires that a financial administrator be appointed to manage the individual’s bankruptcy. The financial administrator:
How are restructuring plans formally approved?
- analyses the individual’s financial standing;
- maintains the register of the creditors’ claims;
- summons and oversees the creditors’ meetings; and
- manages implementation of the debt restructuring plan.
The debt restructuring plan must be approved by a majority of the bankruptcy creditors and authorised bodies (eg, the tax authorities) whose claims are included in the register of creditors’ claims. The plan is also subject to approval by the court.
The financial rehabilitation plan, the external administration plan and the settlement agreement must also be approved by a majority of the creditors. The settlement agreement must obtain the unanimous consent of all secured creditors.
What effects do restructuring procedures have on existing contracts?
Once the bankruptcy procedure starts:
- all debts under existing contracts are deemed to be due and payable;
- debt recovery by the creditors is suspended; and
- creditors may file claims in relation to outstanding debts only with the court that is hearing the bankruptcy case.
During the restructuring procedure (for individuals) and external administration and liquidation (for companies), the bankruptcy manager is entitled to declare the abandonment of performance of all of the debtor’s transactions.
Abandonment of performance of the debtor’s transactions can be declared only in respect of transactions that have not been fully or partially performed, if such transactions are preventing the debtor’s financial recovery and performance of such transactions leads to losses for the debtor in comparison to similar transactions made in comparable circumstances.
Such transactions are considered to be terminated from the date on which all parties to the transaction receive the financial manager’s declaration of abandonment of its performance.
The initiation of the restructuring procedure for an individual’s debts constitutes grounds for the creditor’s unilateral abandonment of performance of a contract providing for the individual’s performance of the creditor’s claim in non-monetary form.
What is the typical timeframe for completion of restructuring procedures?
The term for implementation of an individual’s debt restructuring plan cannot exceed three years.
If the creditors’ committee does not approve the individual's debt restructuring plan, the court is entitled to approve this plan under certain conditions. However, in this case the term for its implementation cannot exceed two years.
A company restructuring can last no longer than the timeframe set for the relevant bankruptcy procedure used to effect the restructuring.
What is the extent of the court’s involvement in restructuring procedures?
The arbitrazh (commercial) court has the power to:
What is the extent of creditors’ involvement in restructuring procedures and what actions are they prohibited from taking against the company in the course of the proceedings?
- initiate and complete the procedure;
- appoint the bankruptcy manager and relieve or suspend him or her from his or her obligations;
- approve or reject the restructuring plan;
- apply the amendments made in the restructuring plan; and
- terminate the restructuring plan.
The creditors are the persons or companies entitled to apply to the court for an individual’s or company’s bankruptcy.
Creditors can have a say on the key matters concerning the restructuring procedure by participating in the creditors’ meeting. Creditors vote at the creditors’ meeting in proportion to their claims.
Debt rescheduling plans, debt restructuring plans and voluntary agreements must be approved by the creditors’ meeting and may be instituted with the court’s approval. Decisions are generally adopted by a simple majority of creditors attending the meeting, provided that at least one-half of the registered creditors are present at such meeting.
Illegal decisions of the creditors’ meeting can be challenged in court.
Under what conditions may dissenting creditors be crammed down?
Decisions of the majority of creditors on the approval of a company debt restructuring plan will be binding on the minority creditors and the debtor cannot influence such decisions. No cram-down provisions are available.
If the creditors’ meeting does not approve the individual’s debt restructuring plan, the arbitrazh court is entitled to approve the plan on the condition that its implementation will satisfy:
the creditors’ claims secured by pledge in full; and
other claims included in the register of creditors’ claims in an amount sufficiently greater than what would have received in the event of the immediate disposition of the individual’s property and distribution of his average monthly income for six months.
Director and shareholder involvement
What is the extent of directors’ and shareholders’ involvement in restructuring procedures?
Company directors must notify shareholders of the risk of bankruptcy proceedings as soon as they become aware of such risks.
Shareholders must take all necessary preventive measures to ensure that the company does not become bankrupt, including by way of the pre-bankruptcy sanation procedure. During the bankruptcy proceedings, debt-for-equity swaps, certain transactions of the debtor and debt rescheduling are subject to the approval of the debtor’s shareholders. Shareholders cannot be compelled to give up their existing shares in the debtor. The Bankruptcy Law provides no shareholder cram-down mechanism.
Are informal work-outs available for distressed companies in your jurisdiction? If so, what are the advantages and disadvantages in comparison to formal proceedings?
In Russia, it is possible to implement informal work-outs such as debt-for-equity swaps. Because there is no legal regulation of informal work-outs, most amount to no more than a restructuring of debt.
However, the Bankruptcy Law contains provisions that may be used to challenge informal work-outs. Any payments to a creditor under an existing facility made within the suspect period may be subject to a clawback to the debtor. At the same time, new money provided under a new facility would be subject to repayment according to a statutory order of priority in the course of the debtor’s bankruptcy. Therefore, creditors are unlikely to use informal work-outs.
Setting aside transactions
What rules and procedures govern the setting aside of an insolvent company’s transactions? Who can challenge eligible transactions?
Transactions concluded with the debtor can be invalidated on the general grounds established by civil legislation and on specific grounds established by the Bankruptcy Law. Specific types of voidable transaction and debtor action (eg, payment, transfer of property and performance of other obligations) may be challenged in court, namely:
- suspicious transactions; and
- preferential transactions.
These transactions may be challenged by several persons – including the bankruptcy manager and creditors – at the external administration or liquidation stage.
Operating during insolvency
Under what circumstances can a company continue to conduct business during an insolvency procedure?
A company subject to bankruptcy proceedings continues to conduct its business at all the stages of the proceedings.
Stakeholder and court involvement
To what extent are relevant stakeholders (eg, creditors, directors, shareholders) and the courts involved in any business conducted during an insolvency procedure?
The bankruptcy manager plays a key role in the bankruptcy proceedings. He or she supervises and controls the actions of the debtor, has the authority to enter claims in the creditors’ register and convenes the creditors’ meeting.
All creditors preserve their rights before the debtor. Creditors whose claims are included in the register of creditors’ claims form the creditors’ committee. The decisions of the creditors’ committee can influence the operations of the debtor before and after initiating any stage of the bankruptcy proceedings.
Directors and managing bodies (including the shareholders’ meeting) are involved in the company’s activities until external administration is commenced.
The court exercises significant influence on the company’s activities through procedural acts.
Can an insolvent company obtain further credit or take out additional secured loans during an insolvency procedure?
At all stages of bankruptcy proceedings, the managing bodies of the debtor that are authorised by its constitutive documents to make decisions on major transactions (or interested-party transactions) are entitled to enter into agreements with third parties for the provision of funds needed to fulfil the debtor’s obligations. Such loan agreements may, depending on the stage of the bankruptcy proceedings, require the approval of the creditors’ committee or the bankruptcy manager.
Effect of insolvency on employees
How does a company’s insolvency affect employees and the company’s legal obligations to employees?
As of 2015, employees of a debtor company have the right to apply to the arbitrazh (commercial) court for recognition of the company as bankrupt. In the process of repaying the company’s debts, the claims of the employees take second priority.
The debtor’s director is obliged to notify employees of the initiation of bankruptcy procedures. In terms of the liquidation procedure, the liquidator is entitled to dismiss employees.
Recognition of foreign proceedings
Under what circumstances will the courts in your jurisdiction recognise the validity of foreign insolvency proceedings?
There is no specific law in Russia relating to recognition of foreign restructuring or insolvency proceedings. However, the decisions of foreign courts relating to bankruptcy proceedings in foreign countries are recognised and enforced in Russia based on international treaties and the principle of reciprocity.
Bankruptcy proceedings against Russian companies can be commenced only in Russia. If proceedings are initiated against a Russian company in a foreign court, any resulting bankruptcy awards will not be enforced in Russia.
Winding up foreign companies
What is the extent of the courts’ powers to order the winding up of foreign companies doing business in your jurisdiction?
Russian bankruptcy proceedings can generally be commenced only in relation to a Russian registered company. Thus, companies incorporated in a foreign jurisdiction cannot be restructured in Russian courts. However, foreign creditors may initiate proceedings against a Russian debtor in the Russian courts.
Centre of main interests
How is the centre of main interests determined in your jurisdiction?
The concept of a ‘centre of main interests’ does not exist in Russian legislation. Bankruptcy proceedings against Russian companies can be initiated only in the Russian courts.
What is the general approach of the courts in your jurisdiction to cooperating with foreign courts in managing cross-border insolvencies?
The decisions of foreign courts relating to bankruptcy proceedings in foreign countries are recognised and enforced in Russia based on international treaties and the principle of reciprocity. There is no Russian law relating to recognition of foreign restructuring or insolvency procedures. Therefore, there is no cooperation between Russian and foreign courts in respect of the administration of cross-border insolvency cases.
Infralex - Artem Kukin
, Stanislav Petrov
and Yan Bagaev
Published by Lexology Newsfeed on 27th March 2017