“Unaffiliated bankruptcy” — comment by Ekaterina Mikhalskaya for the Legal Information Agency
Owners of financially insolvent companies are recognized as "second-class" creditors – the practice of paying debts to controlling and affiliated persons in the course of bankruptcy was presented by the Supreme court of Russia. Its conclusions are intended to protect bona fide market participants, employees of enterprises, consumers, and the interests of banks and other creditors.
According to the Federal tax service, only one in ten companies declared insolvent actually suffered due to objective circumstances, while the main part consciously goes to bankruptcy to write off the debt. Therefore, in most cases, there are various abuses. One of the most common practices is the presentation of sometimes multi-million-dollar claims by the business owner or other persons associated with it on often fake documents. This allows them to become the main creditors, to appoint a "pocket" manager and otherwise essentially control the procedure.
Ekaterina Mikhalskaya, partner of Prime Advice Consulting Group:
Subordination, that is, lowering the claims of creditors affiliated to the debtor, is a bright trend of recent times and a subject of discussion in the legal community. The practice was very diverse, from automatic subordination on the basis that the creditor and the debtor are affiliated to each other, to the reverse situation – inclusion in the register, despite the objections of independent creditors, when it was clearly necessary to reject the claimed claims.
The stated positions can probably be called balanced. In particular, redistributing the burden of proof should make life easier for independent creditors. The affiliated lender now has the burden of refuting doubts about the validity of the contract on which its claim is based. Also, such creditors do not participate in the selection of the arbitration manager.
At the same time, the highest authority pointed out that automatic subordination of claims is not allowed only because of the affiliation of the creditor and the debtor. It is also stated that for banks involved in corporate control, the fact of controlling the debtor does not matter if the credit institution did not have the purpose of participating in the distribution of profits of such a company.
In addition, those who control the debtor will have to more clearly measure the risks and consequences of allocating funds to the debtor in a situation of property crisis. The priority of their claims may also decrease due to the change of the creditor in the obligation.