Individual bankruptcy in Russia. What does business have to do with it?

Starting October 1, 2015, an individual in Russia can be deemed bankrupt. 

One of the main consequences of an individual’s bankruptcy is a ban for him or her to participate in the management of a legal entity after the debtor’s property is sold, for a total of three years. There are at this point no clarifications as to what “management of a legal entity” means, but the ban can affect the functions of a single-person executive body, participation in a company’s collegial bodies, as well as a ban on influencing the management of a company through trust mechanisms or otherwise. 

The procedure of selling the debtor’s property ends with a court decree, and this information is entered into the Federal Bankruptcies Register. Starting from the time the court issues the decree completing the bankruptcy procedure, the individual loses the right to act on behalf of a legal entity; however, the contracting parties of the bankrupt individual or of the legal entity headed by him or her might not be aware of this. 

In the meantime, transactions entered into by a bankrupt person or by the legal entity headed by him or her can be invalidated, and the decisions of bodies in which he or she is a member can be contested. 

There is another noteworthy consequence, namely, starting from the date a person is deemed bankrupt, transactions he or she performs without consent of the financial manager in respect to property that is part of the bankruptcy assets, are deemed invalid, which should be noted when conducting transactions with individuals, including transactions with shares and stock in legal entities. 

In order to avoid the risk of a transaction being contested, the following is recommended:

- Check more scrupulously the information on managers of the contracting party before entering a transaction;

- Check information on contracting parties in the Federal Bankruptcies Register at http://bankrot.fedresurs.ru/;

- Check whether such persons are undergoing bankruptcy proceedings in the commercial arbitration card catalog at http://kad.arbitr.ru;

- Include in the agreements special provisions with representations, for example, concerning there being no bankruptcy-related restrictions for managers to participate in company management.

Additional notes

Should any questions arise in connection with the above or if you need any additional materials, please contact Irina Onikienko, St. Petersburg 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.