Russian Federation

soon

Key Legislation

Bankruptcy Act 2002

Insolvency Procedures

1. Bankruptcy procedures for legal entities are the following:

• Supervision;
• Financial improvement;
• External management;
• Bankruptcy proceeding;
• Amicable settlement.

2. Bankruptcy procedures for individuals are:

• Bankruptcy proceeding;
• Amicable settlement.
  

Financial improvement, external management and amicable settlement are real alternatives to the bankruptcy (liquidation) of a debtor, as they are aimed at restoration of solvency of the debtor and avoidance of its liquidation. Supervision and bankruptcy proceeding are the procedures aimed at the protection of rights of creditors, as their primary goal is to recover as much of the debtor’s property as possible.

1. The law regulates the bankruptcy of individuals and legal entities.
   An individual is considered to be unable to satisfy creditors’ claims and to pay obligatory payments, if these obligations are not met within three months from the due date, and if the amount of his obligations exceeds the value of his property.
   And a legal entity is considered to be unable to satisfy creditors’ claims and to pay obligatory payments, if these obligations are not met within three months from the due date.
   
   
2. Bankruptcy procedure may be initiated by an application of the debtor, creditors, authorized bodies.
   
   
3. The founders (participants) of the debtor, proprietor of property of the debtor, creditors and other persons can provide the debtor with the financial support (sanation) for the purposes of restoring the debtor’s solvency and preventing bankruptcy (pre-trial procedure).

Supervision shall be introduced after consideration by the arbitration court of the validity of applicant claims’ (in the order set in the Bankruptcy Act). This procedure applies to the debtor to maintain safety of the debtor’s property, to analyze the debtor’s financial status, to draw up the Register of creditors’ claims and to hold the first meeting of his creditors.

At the end of supervision, the first meeting of creditors is being held to make one of the following decisions:

1. To introduce financial improvement (under the agreement with the debtor or the third parties)
   
2. To introduce external management
   
3. To recognize the debtor’s bankruptcy and initiate bankruptcy proceedings
   
4. To sign an amicable settlement agreement

Financial improvement applies to the debtor to restore his solvency and repayment of debts according to schedule of repayment.
At a result of financial improvement the Arbitration court may make a decision to establish the external management in the following cases:

1. If it is proved that the debtor’s solvency can in fact be restored
   
2. If a petition of a creditors’ meeting was filed to the Arbitration court
   
3. If the creditors’ meeting made a decision to file a petition to the Arbitration court for declaring the debtor bankrupt and commencing bankruptcy proceeding.

External management applies to the debtor in order to restore his solvency.

Bankruptcy proceeding applies to the debtor, recognized bankrupt in order to proportionally satisfy creditors’ claims.

The amicable settlement is a procedure of bankruptcy to be applied at any stage of bankruptcy case consideration by the court, which concludes the bankruptcy procedure after reaching an amicable agreement between the debtor and its creditors.

Creditors’ claims are satisfied in the following order:

1. Individuals injuries claims;
   
2. Employees entitlements including wages and severance pay, and payments under author’s contracts;
   
3. Claims of other creditors.
   

Roles

Role played by Government

Federal executive bodies are authorized to represent the following claims during the bankruptcy case and in the procedures of bankruptcy:

• Obligatory payments,
• Russian Federation monetary claims,
• State entities claims,
• Local self-governmental bodies of the Russian Federation entities and municipal bodies monetary claims.

The Government of the Russian Federation approves the professional rules regulating the activity of the insolvency practitioners and the activity of self-regulated organizations of insolvency practitioners.

Role played by private sector practitioners

In the Russian Federation insolvency practitioners perform the functions of managers during the bankruptcy procedures. There are four kinds of managers for each bankruptcy procedure:

Temporary manager (supervision procedure);

Administrative manager (financial improvement);

External manager (external management procedure) or

Arbitration manager (bankruptcy proceeding procedure).

All insolvency practitioners shall be approved by arbitration court for implementing duties during bankruptcy procedures and executing other powers, stipulated by the Bankruptcy Act. They shall also be a member of one of self-regulated organizations of arbitration managers. This is aimed for the regulation and control over the activity of insolvency practiotioners.

Insolvency practitioner shall meet the requirements set in the law:

• be registered as an individual businessman;
• have higher education;
• have experience in managerial work for no less than two years in total;
• have to pass theoretical examination on a program of preparation of insolvency practitioner;
• have to pass skill training during six months at least as the assistant of insolvency practitioner;
• have no conviction for crimes in economic sphere;
• be a member of one of self-regulated organizations of insolvency practitioners.

Role played by the Court

The Arbitration Court has a general oversight role as well as specific powers under the law.

The bankruptcy cases of legal entities and individuals, including individual businessmen, shall be investigated by arbitration court in compliance with rules stipulated by Arbitration Procedural Code.

At a Glance

Does the insolvency system in the Russian Federation allow for:

1.	Different procedures for the insolvency of individuals and the insolvency of companies?
2.	Creditors to accept an arrangement outside of formal bankruptcy/liquidation proceedings?
3.	Priority payment for employee creditors?
4.	Priority payment for taxation debts?
5.	Automatic disqualification of directors of failed companies from managing other companies?
6.	Recognition of insolvency proceedings being conducted in another jurisdiction?
7.	A government agency to undertake insolvency administration work?
8.	Some form of licensing of private sector practitioners?
9.	A review of the remuneration claimed by an insolvency practitioner by either a court or other government regulator?
10.	A mandatory scale of fees applicable to insolvency practitioner remuneration?
11.	Surveillance of the work of private sector practitioners by a government regulator?
12.	Collation of insolvency statistics by a government regulator?