Moratorium on bankruptcy

On April 1, 2020, Article 9.1 was added to the Federal law for maintaining economic stability, providing the Russian Government the authority to impose a moratorium on initiating bankruptcy proceedings. On April 3, 2020, the Russian Government adopted Resolution No.428, pursuant to which a moratorium is imposed for 6 months. The Resolution took effect from the date of its official publication, i.e. starting from April 6, 2020.

From that date, a special rehabilitation procedure (much similar to a supervision procedure) is applied to the organizations and particular enterprises, which are recognized by the Government as affected by COVID-19 (see the list using the online service launched by the Russian Federal Tax Service), providing as follows:

1. Applications for a debtor’s bankruptcy from creditors which the courts did not have time to examine before the moratorium was introduced, as well as applications submitted after the Government adopted Resolution No.428, are to be returned to the applicants;
2. The head of a debtor organization is released from the obligation to apply to court declaring the organization bankrupt;
3. Satisfying the claims of a founder/shareholder of a debtor organization regarding a share in the debtor’s property to be allocated due to founders/shareholders withdrawing from it, buyback of the outstanding shares by a debtor, payment of the actual value of a share are not allowed;
4. No penalty is to be charged for non-fulfillment of monetary obligations and obligatory payments;
5. Foreclosure on the debtor’s pledged property is not allowed;
6. Other restrictions are introduced on a number of transactions and operations.

The introduced restrictions do not deprive creditors of the right to file a claim for debt collection through ordinary litigation.

In addition, paragraph 4 of the new article provides special rules for examining bankruptcy cases initiated within three months after the moratorium for debtors concerned is terminated. In particular, “transactions on transferring property and assuming obligations or responsibilities performed during the moratorium shall be recognized as void.”

An exception to this (rather strict) rule is made for transactions performed in the normal course of business if the price of property transferred under one or several interrelated transactions, or the scope of obligations or responsibilities assumed does not exceed one percent of the value of the debtor’s assets determined on the basis of the debtor’s financial statements for the last reporting period as of the date the moratorium was introduced.

Court practice

Creditor refiling a claim for bankruptcy and being included in the list of creditors is unacceptable.

In Resolution No.305-ES19-213125 dated March 5, 2020 on case No.А40‑58702/2018, the Russian Supreme Court drew a parallel between a creditor filing an application for inclusion in the list of creditors in respect of the debtor and filing a statement of claim (a regular lawsuit), as well as between the consequences of waiving them.

Referring to the position previously developed by the Plenum of the Supreme Commercial Arbitration Court of the Russian Federation in Resolution No.35 dated June 22, 2012, the court stated that if a creditor had earlier waived the claim filed in a bankruptcy case, this demonstrates its unwillingness to further use legal remedies through debt collection.

In view of this case, currently there are the following rules and restrictions on refiling a claim in bankruptcy cases:

1. The creditor waiving its claim on recognizing the debtor as bankrupt entails inability to refile the same claim concerning such monetary claim;
2. The creditor waiving its claim on inclusion in the list of creditors in respect to the debtor entails inability to refile a similar application;
3. If an individual initially files a claim on recognizing the debtor as bankrupt, and then rejects it, this does not deprive it of further applying for inclusion of its claims in the list of creditors in respect to the same debtor.

Affiliation with the debtor does not deprive the creditor of the right to initiate bankruptcy of the debtor; the priority of claims  is irrelevant.

Having examined the cassation appeal of creditors against the denial of the claim on recognizing the debtor as bankrupt, in Resolution dated March 19, 2020 the Russian Supreme Court stressed that the basis for such a statement is a civil law claim. The court particularly examines whether such a claim existed at the stage when the claim on recognizing bankruptcy was accepted and considered.

Therefore, if there is a confirmed claim against the debtor, the mere fact that the creditor is affiliated cannot serve as the basis for depriving the creditor of its rights of the party to the bankruptcy case, including the right to file a claim on recognizing the debtor as bankrupt. At the same time, the issue of whether the priority of satisfying the claims of such a party is to be lowered, is irrelevant. 

While deciding on whether to include shareholders in the list of creditors regarding a debtor company, courts shall be guided by the principle of equality, preventing unreasonable advantage of one shareholder over another and taking into account the agreements between the parties.

The courts found that the bankrupt company had two shareholders, and they both became creditors of the company, since they financed its activities through different shares. Before bankruptcy proceeding started, one shareholder had left the company, and the court included it in the list of creditors. The court denied the same to the second shareholder. Considering the specific circumstances of the case, the Supreme Court pointed out that if the creditors had claims similar in nature and scope, the priority of satisfying the claims of the remaining shareholder of the debtor being lowered caused significant and unreasonable imbalance.

The Supreme Court once again encouraged courts to use interim measures more actively if there are reasonable doubts of a debtor acting in bad faith.

In Resolution No.305-ES19-16954 dated 16.01.2020, the Russian Supreme Court noted the need to adjust the practice of denying claims for interim measures and pointed out that reasonable suspicion that not granting interim measures may impede or frustrate enforcement of a court decision are a sufficient cause to apply such measures. 

Reasonable suspicion can be caused by the defendant not agreeing to voluntarily compensate damages and refusing to cooperate with a bankruptcy administrator.

Previously in December 2018, the Russian Supreme Court expressed a similar position in the framework of the IpoTek Bank case; however, statistics of denials have not changed significantly.