In Case А11-9642/2008-К1-6/348, the Federal Arbitration Court of Volgo-Vyatskii region (one of the Russian commercial courts of cassation) upheld the decision of the lower court (the Arbitration Court of Vladimir region) leaving undecided an application for the enforcement of a foreign arbitral award in the light of pending bankruptcy proceedings against the debtor.

Metallurgtrans LLC commenced proceedings seeking to enforce, in Russia, an award issued under the rules of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce. The award ordered PromoTrans Company LLC, a company which turned out to be in bankruptcy, to pay about USD 9,5 million. The court of first instance left the suit undecided pursuant to Article 148(4) of the Russian Code of Arbitrazh Procedure, which stipulates that the statement of claim should be left undecided if the claims contained therein are to be brought in bankruptcy proceedings. The argument of Metallurgtrans, that this rule applies to ordinary action proceedings and not enforcement proceedings, was rejected. The court of cassation confirmed the position of the court of first instance in full.

The decision of the court of cassation reiterates that if the debtor under the arbitral award is facing bankruptcy, the enforcement of the award can be carried out only within the bankruptcy proceedings and in accordance with the procedural rules applicable in the bankruptcy. The award creditor will have to apply to be included in the registry of creditors and will recover on a residual basis, after payment of all the expenses related to bankruptcy proceedings, all salaries, community charges and operating expenses. The payment will not necessarily correspond to the awarded amount as the bankruptcy estate will then be divided between all the creditors proportionally.