Insolvency and directors' duties in the Russian Federation: overview

A Q&A guide to group insolvency and directors' duties in the Russian Federation.

The Q&A global guide provides an overview of insolvency from the perspective of companies that are operating within a domestic and/or international group of companies, and considers the various complexities that this can introduce into insolvency procedures. It also has a significant concentration on duties, liabilities, insurance, litigation, and subsequent restrictions imposed on directors and officers of an insolvent company.

To compare answers across multiple jurisdictions, visit the International Insolvency: Group Insolvency and Directors’ Duties Country Q&A tool.

This Q&A is part of the International Insolvency: Group Insolvency and Directors’ Duties Global Guide. For a full list of contents, please visit www.practicallaw.com/internationalinsolvency-guide.

Contents

Corporate insolvency proceedings

1. What are the main out-of-court and court-sanctioned insolvency proceedings involving a liquidation of the company's assets?

Bankruptcy liquidation (konkursnoye proizvodstvo) can be initiated by a court decision on the recognition of the debtor as bankrupt. At this stage, all of the debtor's assets are pooled to create the insolvency estate that will be used to satisfy the creditors' claims.

The liquidation takes no more than six months and can be extended by an additional period of up to six months by a court decision made on the basis of an application by a party participating in the insolvency proceedings.

Russian law is not aware of any out-of-court insolvency liquidation proceedings. However, the insolvency liquidation must be distinguished from the general liquidation according to Russian corporate laws. In particular, if the property of a Russian entity is sufficient for the satisfaction of all creditors' claims, such an entity may be voluntarily liquidated on the decision of the shareholders.

In cases provided by law (for example, with respect to pledged property or at the request of a specific creditor), the insolvency administrator must request for an appraiser to evaluate the debtor's property that is to be included in the insolvency estate, following the initiation of the liquidation. Certain types of property will be withdrawn from the insolvency estate (for example, cultural heritage objects).

The insolvency administrator must present at the creditors' meeting a proposal on the order of the sale of the debtor's property for its approval, within one month from the date of the valuation or inventory of the debtor's property, as the case may be.

The Insolvency Law ranks creditors' claims to be satisfied in the course of the insolvency liquidation under the following main categories:

  • Category one. If the debtor's liquidation may result in a technogenic or environmental disaster or human death, expenses for measures aimed at preventing the consequences of such disaster or death are included in this category.

  • Category two. This generally includes claims for obligations arising after acceptance by the court of the insolvency petition against the debtor (current payments). In particular, the payments must be satisfied in the following order:

    • court expenses and remuneration for the insolvency administrator;

    • payments to employees working after the acceptance of the bankruptcy petition;

    • payments to persons engaged by the insolvency administrator for the bankruptcy purpose;

    • operational payments;

    • other current payments.

  • Category three. This includes claims relating to obligations that have arisen prior to acceptance by the court of the insolvency petition. The claims must be listed in the creditors' register and are satisfied in the following order:

    • claims arising out of damage caused to life or health;

    • employee dismissal compensation, other payments to employees and payments to authors of intellectual property;

    • other claims.

  • Category four. This includes creditors' claims secured by pledge that must be satisfied at the expense of the subject of the pledge.

Shareholders' claims must be satisfied after all other creditors' claims have been satisfied.

 
2. Are there statutory proceedings allowing for a rescue/restructuring of the debtor company's operations and debts?

Russian Federal Law No. 127-FZ on insolvency (bankruptcy) of 26 October 2002 (Insolvency Law) provides for a large set of measures aimed to restore the solvency of the debtor and the restructuring of its debt. Restructuring is possible in insolvency proceedings through supervision, financial rehabilitation and external administration. See below for information on the respective bankruptcy stages.

Restructuring measures can include:

  • Increasing the charter capital of the debtor.

  • The provision of financial assistance from third parties.

  • The closure of unprofitable facilities.

The Insolvency Law also provides for the replacement of the debtor's assets, through the creation of one or more joint stock companies (on the basis of the debtor's property) to restore the solvency of the debtor.

The Insolvency Law provides for out-of-court and court-sanctioned proceedings.

Out-of-court proceedings

Out-of-court proceedings in Russia are as follows:

  • Out-of-court recovery (sanatsiya). Out-of-court recovery is a measure to prevent bankruptcy by restoring the financial situation of the debtor. The shareholders and creditors of the debtor can provide sufficient financial assistance in order to pay urgent financial obligations and mandatory payments and restore solvency.

  • Amicable arrangements (mirovoye soglashenie). The aim of amicable arrangements is to save the debtor from insolvency. The debtor, creditors and competent authorities can conclude an amicable arrangement at any stage of the bankruptcy proceedings. However, the amicable agreement must be approved by the court.

Court-sanctioned insolvency proceedings

The Insolvency Law provides for four main stages of insolvency proceedings. However, not all stages have to necessarily go through the bankruptcy procedure. The four stages are as follows:

  • Supervision (nablyudeniye). The supervision stage is aimed at:

    • safeguarding the debtor's property;

    • analysing the debtor's financial standing;

    • determining the list of creditors;

    • holding the first creditors' meeting.

An insolvency petition must be submitted to the relevant arbitrazh court, generally by the debtor's Chief Executive Officer (CEO), a competent authority, a creditor (subject to certain limitations) or a current/former employee having relevant employment claims to initiate the supervision. The supervision can be initiated if claims are overdue for more than three months and the aggregate amount of the claims are at least RUB300,000. Creditors and employees can generally only file a bankruptcy petition if their claims have been recognised by a court.

Under this procedure, a temporary insolvency administrator will be appointed. The debtor's corporate bodies will continue to carry out their functions, subject to certain restrictions. In particular, the consent of a creditors' meeting is required to execute some transactions (for example, the acquisition or sale of property with a value of more than 5% of the debtor's assets according to the balance sheet statements).

The first creditors' meeting must be held within the supervision period. The meeting must decide which stage of the insolvency proceeding should be initiated after the supervision (that is, financial rehabilitation, external administration or liquidation). Any stage must be initiated by a court decision on the basis of the first creditors' meeting.

The supervision stage must not exceed a period of seven months.

  • Financial rehabilitation (finansovoe ozdorovleniye). Financial rehabilitation is aimed at restoring the debtor's solvency and discharging its debts under a debt repayment schedule.

This stage is not mandatory in the insolvency process, but the debtor, its shareholders or third parties can request the first creditors' meeting or a court (in certain cases) to initiate it. The financial restoration plan must justify the satisfaction of creditors' claims in accordance with the payment schedule. The financial restoration plan and the payment schedule must be approved at the creditors' meeting. In addition, the payment schedule must be approved by the court.

At this stage, the court appoints an insolvency administrator, who is entitled to convene creditors' meetings in cases envisaged by law. The insolvency administrator must not replace the debtor's corporate bodies, as they retain management powers. However, some of their actions must be approved by the creditors' meeting or the insolvency administrator.

The financial rehabilitation stage must not exceed a period of two years.

  • External administration (vneshneye upravleniye). The external administration is generally initiated by the court on the basis of a decision of the creditors' meeting. The external administration is aimed at restoring the debtor's solvency. With external administration, the following consequences can occur:

    • the debtor's CEO is replaced by an external administrator;

    • a moratorium satisfying creditors' claims applies except in certain cases;

    • the debtor's solvency is restored through measures provided in the Insolvency Law and contained in the external administration plan prepared by the external administrator, approved by a creditors' meeting and presented to a court.

The external administrator must submit an external administration plan at the creditors' meeting for approval within one month after his appointment.

As a general rule, external administration is introduced for a period of not more than 18 months.

  • Liquidation. See Question 1. This stage will generally result in the debtor company's liquidation and is not aimed at rescue/restructuring of its obligations and debts. Other procedures (supervision, financial rehabilitation, external administration) deal with the possibility of restructuring the debtor's obligations (see above).

 
3. What are the general requirements for commencing insolvency proceedings?

The insolvency proceedings must be initiated by submitting an insolvency petition to the relevant arbitrazh court in the region where the debtor is registered. The supervision stage can be initiated for the first insolvency proceeding if claims are overdue for more than three months and the aggregate amount of these claims are at least RUB300,000. Creditors and employees can generally only file a bankruptcy petition if their claims have been recognised by a court.

An insolvency petition can be filed by:

  • The debtor represented by its CEO or another authorised person.

  • Creditors.

  • A competent authority.

  • A current/former employee having the respective employment claims.

The debtor is allowed to apply to the court in circumstances that clearly demonstrate that it is unable to fulfil its financial obligations, employment obligations and/or the obligation to make mandatory payments.

The debtor is obliged to file an insolvency petition as soon as possible but no later than one month from the day when a certain event occurs (for example, the satisfaction of claims of one or more creditors makes it impossible to satisfy the claims of other creditors).

The supervision is always the first stage of the insolvency proceedings. See Questions 1 and 2 for more information regarding the introduction of the other stages of insolvency proceedings after the supervision.

 

Insolvency of corporate groups

4. Are there joint insolvency proceedings available that can apply to a whole group of companies? Do all members of a corporate group have to proceed under the same type of insolvency proceeding?

Joint proceedings for a family of companies are not available in Russia.

Separate proceedings are initiated for each member of the corporate family, and the type or stage of insolvency proceeding can be different for each member.

However, Russian law provides for certain situations where controlling persons (for example, the CEO or a person entitled to dispose of 50% or more of voting shares of the debtor) or other persons can bear liability in relation to the bankruptcy of a company.

Reimbursement of losses for breach of the Insolvency Law

The Insolvency Law provides that the CEO, members of the managing bodies or shareholders of the debtor must be liable for losses caused as a result of a breach of the Insolvency Law. A claim for reimbursement of losses against the debtor's shareholders or members of corporate bodies in favour of the debtor can be brought in the course of a liquidation procedure or bankruptcy external administration (vneshneye upravleniye). Claims can be brought by the insolvency administrator, shareholder and also by a creditor or a competent authority (at the liquidation stage).

Subsidiary liability

The Civil Code of the Russian Federation also provides that the controlling company must bear so-called subsidiary liability for debts of the controlled company if the latter's insolvency has occurred due to the fault of the controlling company. A controlling company is an entity that can determine decisions of the subsidiary due to the majority of shares, a contract or otherwise. The subsidiary liability will apply in addition to the main debtor's liability, for example, in cases where the debtor's assets are insufficient for the satisfaction of creditors' claims. In essence this subsidiary liability constitutes a joint and several liability of the controlling company, but subject to the prior submission of a payment demand to the controlled company as the main debtor.

Under the Insolvency Law, controlling persons can bear subsidiary liability for the debts of a company that is insolvent, in the event that the insolvency was caused by their actions or inaction. Liability occurs if the assets of the debtor are insufficient to satisfy the creditors' claims. A controlling person is a person that has been in a position to give mandatory instructions to the debtor, or otherwise determine its actions for the last three years preceding the acceptance by a court of a bankruptcy petition. The amount of subsidiary liability is equal to the aggregate amount of creditors' claims including:

  • The register of the claims.

  • The claim declared following the closing of the register.

  • Claims under current payments.

The amount of liability of the controlling person can be decreased if it provides evidence that the damage it has caused to creditors is materially less than the amount of claims to be satisfied at its expense.

In addition, according to the Insolvency Law the CEO can also bear a subsidiary liability in the case of a breach of an obligation to submit a bankruptcy application in respect of the debtor.

The controlling person can bear subsidiary liability within the liquidation stage of the proceedings by a decision of a competent court hearing the bankruptcy case. The decision must be made on the application of the insolvency administrator acting at his discretion or subject to a resolution of the creditors' meeting or committee. In certain cases the application can be submitted to court by a creditor, competent authority, current/former employee or a representative of employees.

Any funds received from the controlling shareholders as a result of enforcement must be included in the debtor's assets that are being distributed among creditors.

The application against the controlling person can be submitted to the court within one year from the date when the applicant learnt or should have learnt about the grounds of the subsidiary liability, and not later than three years from the date of the debtor's recognition as bankrupt.

All proceedings for claims against controlling persons (for example, the CEO or a person entitled to dispose of 50% or more of voting shares of the debtor) and other persons bearing liability for the debtor's obligations must be heard in the arbitrazh court responsible for hearing the bankruptcy case.

 
5. Can the same insolvency office holder(s) administer the assets and the liabilities of the entire corporate group? Is a court hearing required to determine whether administration by the same individual(s) is appropriate and, if yes, does notice have to be given to creditors?

Russian law does not provide for joint insolvency proceedings.

 
6. If the law does not permit a single insolvency office holder, are there provisions allowing different office holders to co-ordinate with each other so that the value of the group's assets can be maximised?

Russian law does not provide for the co-ordination of insolvency administrators of group companies.

 
7. Can professional advisers work for the entire corporate group?

Russian law does not provide for joint insolvency proceedings.

 
8. Are the rules regarding members of a corporate group transferring assets to one another different when one or more members are insolvent?

There is no specific regulation regarding members of the corporate family transferring assets, and each corporate member will be subject to separate bankruptcy procedures. However, if transactions on transferring assets are executed in an attempt to damage the creditors' interests (suspicious or priority-breach transactions) they can be challenged by a court.

 
9. How are claims of one member of a corporate group against other members of the group treated in a formal insolvency processes for those members?

Claims of one member of a corporate family against other members will be treated in the same way as other claims. This is unless the respective transactions between corporate family members are challenged due to a breach of the Insolvency Law (for example, they are suspicious transactions or transactions executed in favour of specific creditors). In practice, the insolvency administrators take into account the transactions of the debtor with members of its group. If the transactions are found to be suspicious or aimed at providing preferences to specific creditors, the insolvency administrators can apply to the court for the transactions to be invalidated.

In addition, in general, claims of the debtor's shareholders against the debtor are satisfied after satisfaction of all other claims.

Substantive consolidation

10. Is pooling of assets and liabilities of some or all members of a corporate group allowed, so that a creditor of one member becomes, in essence, a creditor of all members?

In general, the pooling of assets and liabilities of members of the corporate group are not allowed. See Question 4, Subsidiary liability for more information on subsidiary liability.

 
11. What proceedings are required for the court to order the pooling of assets and liabilities?

The competent bankruptcy court will decide whether the controlling person is subject to subsidiary liability and order any reimbursement of losses.

The court will be requested by the claimant to issue an enforcement document, enforcing the court's decision.

 
12. Is the partial pooling of assets and liabilities allowed? What conditions apply?

The partial pooling of assets and liabilities does not exist in Russia. However, several controlling persons (for example, the CEO or a person entitled to dispose of 50% or more of voting shares of the debtor) may be required to bear subsidiary liability. In such a case, all controlling shareholders will be considered jointly liable, that is, each of them may be required to satisfy all or any claims of creditors.

As a general rule, the controlling person that has satisfied the claim is allowed to also claim against any other liable controlling person in equal measures (Russian Civil Code).

 
13. If the pooling of assets and liabilities is permitted, are there any protections for certain types of creditors?

There are no such protections available for creditors.

Secured creditors

14. How are secured creditors treated in relation to a group of companies?

Russian law does not recognise the bankruptcy of a corporate group. It also does not generally provide for the satisfaction of the claims of creditors at the expense of members of the debtor's corporate group.

In case of the subsidiary liability of the controlling persons (for example, the CEO or a person entitled to dispose of 50% or more of voting shares of the debtor) (see Question 4, Subsidiary liability) funds collected from controlling persons must be included in the debtor's assets that are to be distributed between creditors (subject to the rules on priority of the respective secured creditors).

 

Insolvency proceedings for international corporate groups

15. What extra considerations are necessary if one or more members of the corporate group is incorporated under or governed by the laws of another jurisdiction?

In general, the Insolvency Law does not provide for the initiation of bankruptcy proceedings against foreign companies. However, the foreign corporate or individual person can be found to be liable.

If the assets of the liable person are located in Russia, the court decisions against it can be enforced at the expense of the assets. Otherwise, the court decision must be recognised and enforced outside of Russia, which requires compliance with the foreign procedure for the recognition and enforcement of decisions of foreign state courts.

 
16. If insolvency/restructuring proceedings are started for corporate group members in different countries, do international treaties or EU legislation apply?

There are no such international treaties that are effective in Russia. Also, EU legislation does not apply in Russia.

The decisions of foreign courts on insolvency cases are recognised in Russia in accordance with international treaties of Russia. In general, if there are no international treaties, the decisions of foreign courts are recognised on a mutual basis. However, this is not well developed in court practice in Russia.

 
17. Do domestic courts typically attempt to exercise jurisdiction over all the assets of a company filing locally (regardless of where the assets are located) or do they limit their jurisdiction to local assets?

In general, assets of the bankrupt company must be included in the debtor's assets (regardless of their location).

 
18. Do local courts enforce court orders from foreign jurisdictions that attempt to exercise jurisdiction over assets located in your jurisdiction that are owned by a company subject to foreign insolvency proceedings?

Decisions of foreign courts on insolvency cases are recognised in Russia in accordance with international treaties of Russia. Otherwise the decisions can be recognised on a mutual basis (see Question 16).

 
19. Can the courts co-operate with foreign courts to co-ordinate the administration of group assets?

Russia has not adopted or informally utilised the Guidelines Applicable to Court-To-Court Communications in Cross-Border Cases as adopted and promulgated by The American Law Institute and The International Insolvency Institute.

Separate international treaties of Russia can also regulate the performance of foreign court orders that request specific procedural measures in Russia and the foreign country.

 

Directors' duties

20. Does your jurisdiction encourage or discourage overlapping boards or management teams for separate members of a corporate group?

In general, Russian law neither encourages nor discourages overlapping boards or management teams. However, an overlap can potentially lead to special corporate approval requirements for so-called interested-party transactions or constitute a group for the purposes of anti-trust law.

 
21. What legal consequences are there for the directors of a parent company where they are not directors of the subsidiary but do manage the subsidiary's affairs?

Russian law does not recognise the concepts of "de facto" or "shadow" directors. The directors of a parent company can be considered controlling persons of the subsidiary and bear liability for the subsidiary and be forced to reimburse any losses. See Question 4, Subsidiary liability.

 
22. What are the main duties and responsibilities of directors and officers to the company, shareholders and third parties? Do they change when the company becomes insolvent?

The laws regulating the duties of directors and officers are not very developed in Russia. In general, directors and officers must act reasonably and in the interests of the company.

The CEO and members of shared corporate bodies must act reasonably, within their competence, and with good faith and can be liable for losses caused to the company. Shareholders can bring claims against such persons for breaching this duty.

There is no direct fiduciary duty of directors and officers towards shareholders.

Company directors and officers do not owe any duties to the creditors when the company is solvent.

Directors and other officers must comply with the requirements under Russian law and any lawful instruction of the competent authorities. Under Russian administrative law, a general director can be personally liable for any breaches and will be liable to pay a fine.

As a general rule, the company as an employer is a party to relationships with employees. Therefore, the CEO representing the employer and other responsible officers must ensure the company complies with the requirements of Russian labour legislation.

In general, the powers of the directors and officers are restricted by the powers of the insolvency administrator and/or the decisions of the creditors' meeting (for example, some transactions require the respective consent of the administrator). The powers of the debtor's CEO will terminate when initiating the external administration stage of the insolvency proceeding. See Questions 1 and 2 for the respective stages of the insolvency proceeding.

 
23. How are competing duties addressed where directors and officers of different group company members overlap and there are conflicts of interest between the group members?

Competing fiduciary duties are not specifically addressed under Russian insolvency law. However, if competing fiduciary duties exist, directors must always act in the interests of the company, or they may be liable to reimburse losses caused by their actions or inaction. Russian corporate laws require directors to inform a legal entity about all legal entities in which they (separately or together with affiliates) hold 20% or more shares or all legal entities in which they (or their affiliates) hold positions in management bodies.

 
24. What specific types of conduct are in breach of the duties and responsibilities of directors and officers?

The following actions can be considered a breach of the good faith principle under the Insolvency Law and/or Russian corporate legislation:

  • Failure to take reasonable steps to minimise losses to creditors.

  • Misappropriation of corporate assets.

  • Undervaluation of corporate assets in a preference or other transaction to the detriment of creditors.

  • Failure to inform creditors of insolvency.

  • Preferring payment to one creditor as opposed to another when insufficient monies are available to pay both.

  • Continuing to trade when there is little prospect of being able to pay when due.

  • Any others depending on the actual circumstances.

 
25. What civil and criminal liability exists for directors and officers if they breach their duties and responsibilities?

Before Insolvency

Criminal liability. Only individuals can bear criminal liability under Russian law. Under the Russian Criminal Code, the management can be criminally liable if any of the following actions are committed:

  • Illegal receipt of credits (Article 176, Russian Criminal Code). In general, the punishment can include the following:

    • a fine up to RUB200,000;

    • a fine for the amount of salary or other income obtained during the previous 18-month period; or

    • imprisonment of up to five years.

  • Evading payment of taxes and (or) fees collectible from organisations (Article 199, Russian Criminal Code). In general, the punishment can include:

    • a fine up to RUB300,000;

    • a fine for the amount of salary or other income obtained during the previous two-year period;

    • imprisonment of up to two years and disqualification of up to three years; or

    • imprisonment of up to two years and no disqualification of up to three years.

  • Deliberate evasion of the repayment of debts (Article 177, Russian Criminal Code). In general, the punishment can include:

    • a fine up to RUB200,000;

    • a fine for the amount of salary or other income obtained during the previous 18-month period; or

    • imprisonment of up to two years.

Civil liability. Directors and officers can be held liable for their guilty actions (inaction), which has caused losses and damages to the company. Shareholders or a company can raise claims before a court against the CEO or members of shared corporate bodies and recover the respective damages in favour of the company.

After Insolvency

Criminal liability. The company's management and its individual shareholders (or responsible officials of corporate shareholders) can be criminally liable under the Russian Criminal Code for the following actions:

  • Unlawful actions in the case of bankruptcy (Article 195, Russian Criminal Code). In general, the punishment can include the following:

    • a fine up to RUB500,000;

    • a fine for the amount of salary or other income obtained during the previous three-year period;

    • imprisonment of up to three years, and a fine of up to RUB200,000;

    • imprisonment of up to three years, and a fine for the amount of salary or other income obtained during the previous 18-month period; or

    • imprisonment of up to three years, and no fine.

  • Intentional bankruptcy (Article 196, Russian Criminal Code). In general, the punishment can include the following:

    • a fine up to RUB500,000;

    • a fine for the amount of salary or other income obtained during the previous three-year period;

    • imprisonment of up to six years, and a fine of up to RUB200,000;

    • imprisonment of up to six years, and a fine for the amount of salary or other income obtained during the previous 18-month period; or

    • imprisonment of up to six years, and no fine.

  • Fictitious bankruptcy (misleading declaration about the insolvency) (Article 197, Russian Criminal Code). In general, the punishment can include the following:

    • a fine up to RUB300,000;

    • a fine for the amount of salary or other income obtained during the previous two year period;

    • imprisonment of up to six years, and a fine of up to RUB80,000;

    • imprisonment of up to six years, and a fine for the amount of salary or other income obtained during the previous six-month period; or

    • imprisonment of up to six years, and no fine.

Civil liability. See Question 4.

 
26. Is potential personal civil or criminal liability a factor in officers and directors deciding if and when to put the company into a formal insolvency/reorganisation procedure?

The existence of potential personal civil or criminal liability is a factor in officers and directors deciding when and if to put the company into a formal insolvency/reorganisation procedure. The threat of potential personal liability is a mechanism to protect the assets of an insolvency estate to the maximum extent possible.

 
27. Is insurance available to protect directors and officers from claims arising while operating a financially distressed company?

Directors' and Officers' (D&O) liability insurance policies are arguably available, but are not widely used in Russia.

Recourse claims of the insurance against the director or officer can be excluded in the insurance policy, apart from claims resulting from wilful misconduct.

In addition, under Russian law the insurance of illegal interests is prohibited, which can be potentially very widely interpreted and applied.

 
28. Can directors and officers resign from their positions if the company becomes financially distressed and what difference will this make to their potential liability?

Directors and officers can resign at any time, including when the company is financially distressed.

However, it is arguable whether the CEO or members of boards of directors can resign at their discretion. This is because Russian law generally considers their powers terminated on the decision of the shareholders' meeting, or the board of directors, as the case may be. Therefore, there is a risk that even after their resignation, they may still be considered to be the CEO or board members.

In addition, after their resignation, directors and officers can still be considered liable for actions performed while they were in duty. See Question 4 and 25.

 
29. How common is litigation against directors and officers for violation of their duties after commencement of insolvency/reorganisation proceedings? Is the litigation typically successful?

The court practice regarding bringing directors to vicarious liability exists and is currently expanding in Russia. However, claims against officers and directors are still rare and are not satisfied in most cases.

 
30. What defences against civil and/or criminal sanctions are available to directors and officers?

In Russia, it is assumed that the CEO and members of corporate bodies act reasonably and in good faith. Therefore, the claimant must provide evidence to the contrary to the court. In practice, it is advisable in each specific case to provide proof that the director or officer acted reasonably and in compliance with business practice.

 
31. If it appears that "going concern values" will result in a higher return to creditors than a liquidation of the assets, can directors and officers be protected if they decide to continue operations to protect the values for the benefit of all creditors?

In certain cases the CEO of the debtor is obliged to submit the insolvency petition against the debtor. For example, if:

  • The satisfaction of claims of specific creditors will make it impossible to completely satisfy all of the creditors' claims.

  • It is impossible to pay debts due to insufficiency of funds or the debtor has excessive monetary obligations that exceed the value of its assets.

  • Enforcement over the debtor's assets will complicate or make economic activity impossible.

In such a case, officers and directors cannot decide whether or not to continue operations. In addition, in some cases creditors and a competent authority can submit the insolvency petition, meaning that directors and officers cannot influence the initiating of insolvency proceedings.

If the company is operated at any of the stages of bankruptcy, directors and officers are not allowed to decide on the liquidation of the company or whether to continue operations (if the continuation of the business is prohibited). Only the court can make such decisions subject to compliance with all procedural requirements.

 
32. If a company becomes insolvent, is a director or officer of the insolvent company legally restricted from acting as a director or officer in another company, or from obtaining credit as a promoter of another company?

In general, there are no legal restrictions under Russian law. However, in the case of certain administrative or criminal offences, an officer or director can be banned from holding particular management positions for a certain period of time.

 
33. If a director or officer becomes personally insolvent, is he legally restricted from continuing to act as a director or officer of his current company or another company?

Current company

An individual is not entitled to hold positions in the management bodies of legal entities, or take part in administering legal entities, within three years after the sale of his/her assets in the course of the bankruptcy proceedings (Insolvency Law).

Another company

See above, Current company.

 

Online resources

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Contributor profiles

Stefan Weber, Head of Moscow Office

Noerr

T +7 495 799 56 96
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Professional qualifications. Rechtsanwalt (German Attorney)

Areas of practice. Banking and finance; corporate; competition/anti-trust.

Languages. German, English, Russian

Professional associations/memberships

  • Dresden Chamber of Lawyers.

  • German-Russian Chamber of Commerce.

  • Association of European Lawyers.

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Publications

  • Banking Regulation Review in Russia, 5th Edition (with Vladislav Skvortsov), in: Law Business Research, 2014.

  • Enforcement Without Court Decision - Significant Changes to the Law on Pledges (with Ekaterina Kalinina), in: East-West Contact, 5/2012.

  • Project Finance in Russia (with Elena Frolovskaya, Ilya Rachkov) in: Getting The Deal Through, 2012.

Evgeny Lisin, Associate

Noerr

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Professional qualifications. Lawyer, Russia

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Professional associations/memberships

  • German-Russian Chamber of Commerce.

  • Association of European Business in Russia.


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