SAC Plenum clarifies objections to transactions by a bankrupt.


Legal Update No. 221.

Goltsblat BLP advises that 3 February 2011 saw publication of Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated 23 December 2010 No. 63 „On certain aspects of application of chapter III.1 of the Federal Law “On Insolvency (Bankruptcy)”” (the Resolution), clarifying many important questions relating to the grounds and procedure for disputing transactions undertaken by a bankrupt.

The following deserve attention.

  • The SAC Plenum has given a broad interpretation of the range of disputable transactions and actions involved in them, including, among others, payments and transfer of assets under an agreement, banking operations, payment of salaries, taxes, customs dues, actions to fulfil a court ruling and remit funds to a recoverer during execution proceedings.
  • It is clarified that, when a business partner concludes a transaction with a company that is already subject to bankruptcy proceedings, it should be aware of this because information about bankruptcy proceedings is subject to mandatory publication. Consequently, in order to avoid having to file objections to transactions on the basis of chapter III.1 of the Federal Law “On Insolvency (Bankruptcy)”, all business participants should take extra care in checking on their business partners, including by monitoring publications on bankruptcy.
  • Inequitable transactions now also include ones formally envisaging equitable reciprocal fulfilment when one of the parties thereto is aware, when the transaction is concluded, that the business partner does not and will not have sufficient assets to fulfil the mutual obligations.
  • The Resolution draws a distinct line between the procedures for disputing transactions within the scope of the  Federal Law “On Insolvency (Bankruptcy)” and in accordance with other legal rules (articles 10 and 168 of the Civil Code of the Russian Federation and so on), noting, in particular, that, in addition to the court-appointed administrator, other interested parties are entitled to appeal against transactions entered into by a bankrupt on the basis of civil rules of law. Such suits are filed and considered in observance of the general rules governing jurisdiction.
  • Persons participating in the bankruptcy case are entitled to participate in cases disputing transactions within the scope of chapter III.1 of the  Federal Law “On Insolvency (Bankruptcy)”, but only the parties to the transaction and other persons to which it relates are notified of the hearings.
  • The SAC Plenum stresses that transactions may be disputed within the scope of chapter III.1 of the  Federal Law “On Insolvency (Bankruptcy)” only within the scope of external administration or receivership proceedings. The provisional administrator or financial recovery administrator is, however, entitled, before the given procedures are initiated, to apply to the court for imposition of interim relief measures in relation to property disposed of by the bankrupt under transactions likely to be disputed subsequently, in order to prevent the assets being hidden by this time.

In general, the Resolution under consideration is designed to increase the effectiveness of the procedures for disputing transactions within the scope of a bankruptcy. Yet it should not be forgotten that, at the same time, there is a greater risks of transactions undertaken by bona fide market participants being subsequently declared null and void. This makes it even more vital to check business partners thoroughly before entering into a transaction and during its performance.

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