Bankruptcy law reform

06.02.2015

Legal update No 497

Goltsblat BLP advises that Federal Law No. 482-FZ “On Amending the Federal Law 'On Insolvency (Bankruptcy)' and the Russian Code of Administrative Offences” (the Law), one of the five federal laws passed in December 2014 as a major reform of bankruptcy legislation (Nos. 405-FZ, 432-FZ, 457-FZ, 476-FZ and 482-FZ), came into effect on 29 January 2015.

The most important novel legal developments introduced by the Law into the Federal Law “On Insolvency (Bankruptcy)” are the following:

Initiation of a bankruptcy case:

  • the “claim threshold” has been raised: a bankruptcy case may now be initiated if the claims against a debtor exceed RUB 300 thousand (quite a jump from the previous threshold of RUB 100 thousand). The threshold for enterprises and organisations of strategic importance and natural monopolies has gone up to RUB 1 m;
  • credit institutions, the tax and customs authorities might file a bankruptcy against a debtor without obtaining prior court judgement: these entities do not need to confirm the debtor's arrears in court prior to filing for the debtor’s bankruptcy: a credit institution is entitled to go to court when signs of bankruptcy are demonstrated by the debtor and the tax and customs authorities may do so 30 days after issuing the decision on debt recovery;
  • the debtor's notice to its creditors: a company may file for bankruptcy provided it has given its creditors at least 30 days’ written notice to this effect and, as of 1 July 2015, has published an announcement of the debtor's declaration filed with a commercial court, recording it in the Unified Federal Register of Information on Facts in Activities by Legal Entities (the Register) at least 15 days before filing;
  • a credit institution notice to creditors: a credit institution may seek bankruptcy of a debtor by filing a petition with a commercial court provided it has given the debtor and all its known creditors at least 30 days’ written notice of its intention to do so. From 1 July 2015, such notice may be given by recording it in the Register.

Assigning a court-appointed administrator:

A debtor cannot have a “friendly” court-appointed administrator assigned to control the bankruptcy procedures: a debtor can no longer influence selection of the candidate to be assigned as a provisional court-appointed administrator or self-regulating organisation of such administrators. Once a debtor has filed a petition for bankruptcy, the appointment of a self-regulating organisation will be made at random, following the procedure established by the Russian Ministry for Economic Development, and the court will be responsible for doing this until the relevant procedure has been approved.

Meanwhile, the right to nominate an administrator or a self-regulating organisation of administrators to be appointed by the court is reserved for bankruptcy creditors if they file for the debtor’s bankruptcy.

Powers of a court-appointed administrator:

  • the court-appointed administrator's powers to require necessary information about a debtor have been specified and expanded: the law now empowers a court-appointed administrator to request information about the members of a debtor's executive bodies, parties in control of the debtor, counterparties, including but not limited to data constituting business, commercial or bank secrets, and entitles him to contact the Russian state extra-budgetary funds;
  • requirements on the administrator's report: a report by a court appointed administrator should now include an opinion as to whether or not there are grounds for contesting the debtor's transactions;
  • current liabilities disclosure: the administrator's report should disclose the amount of the current liabilities and their details (purpose, grounds, overall and outstanding amounts), i.e., a register of current payments must be kept, whereas the previous requirement was for such a report to show general information about the expenses incurred for receivership procedures.

Rights of creditors, creditor and committee meeting proceedings:

  • expanded powers of secured creditors: they now have the right to vote at general meetings of creditors in any procedure on individual issues (electing or dismissing a court-appointed administrator, etc.) and determine independently both the starting sales price of the pledged property and the procedure and conditions for safeguarding pledged items;
  • revised provisions on creditor meetings: at least five business days before a meeting, creditors should be notified and given an opportunity to familiarise themselves with the meeting materials;
  • the procedure for executing, keeping and filing the Minutes of creditor committee meetings with courts now requires administrators to provide information on the resolutions passed by the creditor committee meeting for recording in the Unified Federal Register of Information about Bankruptcy (the Bankruptcy Register).

The Law also specifies the procedure for disposition of debtor's assets, details the requirements for e-auctions and e-platform operators, sets additional rules governing the responsibility of a court-appointed administrator, clarifies the provisions on bankruptcy procedure expenses, specifies the standards for fixing creditor claim amounts and provides for sanctions to be imposed for unlawful acts and deeds committed by the management of the debtor in bankruptcy.

The provisions of the Law apply to bankruptcy cases initiated after the Law comes into effect (with certain exceptions).

The other key provisions of the 'December reform' of the bankruptcy legislation are:

  • a harmonised regulatory framework: The Federal Law “On Insolvency (Bankruptcy) of Credit Institutions”, being an ad-hoc law regulating the bankruptcy procedure for banks, was repealed and the relevant provisions on bankruptcy of credit institutions included in the general Federal Law “On Insolvency (Bankruptcy)” (No. 432-FZ);
  • detailed provisions on parties authorised to contest debtor transactions: cases are specified when an application to contest transactions may be filed by a bankruptcy creditor or an authorised body and a detailed description is given of the procedure for provisional administrators of financial institutions to contest transactions (No. 432-FZ);
  • the institution of individual bankruptcy is introduced (No. 476-FZ).

Contact details

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Ksenia Soboleva

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