Russian Supreme Court explains issues tied to forming and distribution of bankruptcy assets.

On 25.12.2018, the Plenum of the Russian Supreme Court adopted Decree No.48 “On certain issues tied to particulars of forming and distributing bankruptcy assets in individual bankruptcy cases” (the “Decree”), in which it examined cases where the bankrupt individual tries to exclude its property from the bankruptcy process through fictitious divorce or pre-trial agreement on division of property among spouses. The Decree provides an opportunity to contest court decisions and agreements on division of property and alimony obligations.

We have provided below what we see to be the key points of this Decree.

Exclusion from bankruptcy assets

• The financial manager has the right to independently define what property is to be excluded from the bankruptcy assets in indisputable situations pursuant to the Bankruptcy Law (Clause 1 of the Decree). The courts will thus be released from the need to examine issues that are not disputable.

• Immunity from enforcement applies in respect to sole residential premises within a bankruptcy case (Clause 3 of the Decree), including expensive sole residential premises.[1]

• Pledge right to sole residential premises is terminated, and it is deemed not included in the bankruptcy assets if the pledge creditor did not lodge claims in time (Clause 5 of the Decree).

Joint obligations of spouses

• Spouse or former spouse of a debtor can request through court that joint property be divided prior to sale as part of the bankruptcy process. Such dispute is to be resolved in general jurisdiction court. The spouses’ joint property subject to division cannot be sold off as part of bankruptcy process until the court resolves the dispute (Clause 7 of the Decree).

Division and alienation of spouse property

• When deciding on the issue of the size of the share in joint property, the Decree presumes they are equal shares in the joint property (Clause 8 of the Decree). The spouse or former spouse can contest this approach in general jurisdiction court.

• The financial manager and creditor of the debtor can contest a court act on division of property, a pre-trial agreement of the spouses or a transaction on alienation of joint property if such decision, agreement or transaction violate their rights and interests (Clauses 9 and 13 of the Decree).

Alimony obligations

• The financial manager and creditor of the debtor can contest an out-of-court agreement on alimony payments to the extent the amount assets due to the receiver exceeds their reasonable needs (Clause 11 of the Decree).

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[1] It should be noted that the Russian Constitutional Court in Decree No.11-P dated 14.05.2012 stated that the existing property/enforcement immunity in respect to residential premises (or parts thereof) owned by a debtor individual applies to residential premises which by their objective properties are reasonably sufficient to satisfy a constitutionally significant need for living space as required for supporting life.

Considering this, the Russian Constitutional Court indicated to lawmakers the need to amend civil procedural laws governing the limits of existing property/enforcement immunity in respect to residential premises (or parts thereof). However, this issue to date has not been resolved on a legislative level.

 

Irina Onikienko Partner    Saint Petersburg +7 (812) 346 7990 ionikienko@cls.ru

Pavel Kislovskiy Principal Associate    Moscow +7 (495) 970 1090 pkislovskiy@cls.ru

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Onikienko and  Pavel Kislovskiy Office of Capital Legal Services.

This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues. 

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