Expertise/Insolvency

Service

Debtor-Side Insolvency Proceedings

If a company cannot pay its debts, the court introduces insolvency procedures in which creditors' claims, the company's transactions and the liability of its executives and participants are examined.

We are most often instructed by:

  • Companies deciding whether to file a debtor's petition
  • Companies against which a case has been opened on a creditor's petition
  • Executives, participants and other persons controlling the debtor

The information on this website is provided for information purposes only and does not constitute a public offer.

What the Service Includes

Timing and Fees
–timing on request
from ₽fee on request

Timing and fees are indicative and are confirmed when the engagement is agreed.

01 / Overview
What determines the course of the procedure

A company's financial condition is assessed before the question of a procedure arises. A legal entity is deemed unable to satisfy creditors' claims under monetary obligations and claims for severance pay and wages, and to perform its obligation to make mandatory payments, if these have not been met within the period established by law. Payments to individual creditors, transactions involving assets and settlements with affiliated persons made before the application to the court are subsequently examined in the bankruptcy case: the work begins with an analysis of that period.

It matters who applies to the court: the debtor or a creditor. The debtor may apply to the court in anticipation of insolvency, and the chief executive is obliged to do so in the cases established by law, including where the debtor meets the criteria of inability to pay or insufficiency of assets. The consequences of a debtor's petition and a creditor's petition are compared before a decision is taken.

In the insolvency (bankruptcy) case of a legal entity, the procedures applied are supervision, financial rehabilitation, external administration, receivership and settlement agreement. The procedure introduced determines the powers of the chief executive, the rules for entering into transactions and the scope of obligations towards the insolvency practitioner.

The state of the documentation determines the scope for defence. The documentation is restored before the procedure begins.

02 / Categories
Categories of cases
  • Arrangements with creditorsNegotiations on deferral and instalments, amendment of the terms of obligations, security agreements, a settlement agreement in the bankruptcy case.
  • Debtor's assetsQuestions concerning the composition of the bankruptcy estate and the valuation and procedure for sale of assets, including property complexes of the enterprise and pledged assets.
03 / Outcome
Service Outcome
  • Written assessmentAn assessment of the company's position with the options for action and the consequences of each of them.
  • Procedural documentsDocuments in the bankruptcy case and in separate disputes.
  • Participation in hearingsCourt hearings and meetings of creditors, liaising with the insolvency practitioner and state authorities.
  • Completion materialsDocuments on payments to creditors and the conclusion of the case.

The outcome of the service is the work performed within the scope agreed with the client.

04 / Preparation
What the position is built on

  1. Materials

    The position is built on the documents and the circumstances of the case; the following points are relevant.

    • LiabilitiesA list of creditors, contracts, payment records, information on overdue payments and security.
    • AssetsProperty, participatory interests and shares, receivables, encumbrances and pledges.
    • Ownership structureParticipants, affiliated persons, intra-group obligations.
    • TransactionsContracts concerning assets over recent years and settlements with counterparties, including affiliated persons.
    • DocumentationAccounting and primary records, information on their condition and completeness.
    • CaseThe petition, the court's procedural rulings and claims received, if a case has already been opened.
    • Client's objectivePreserving the business, arrangements with creditors or completion of the procedure.

  2. Assessment

    On the basis of the materials, the strengths and weaknesses of the position, the risks and the possible courses of action are identified.

  3. Plan

    For the chosen option, a plan is drawn up: the sequence of steps, timing and scope of work.

05 / Projects
Selected Projects
01 / 04

Subsidiary Liability

Reversal of a subsidiary liability finding in the Supreme Court of the Russian Federation

Challenge

The insolvency administrator and creditors sought to hold the chief executive of the bankrupt company personally liable for its debts. The lower courts granted the claims.

What was done

The case was taken to the Supreme Court, the good faith of each management decision was proven, and the Supreme Court set aside those court rulings. The amount of liability avoided is comparable to the total amount of creditors' claims in the register.

Acting for the creditor

Inclusion of an affiliated creditor's claims in the register: five related bankruptcies

Challenge

Five parallel bankruptcy cases were under way within a group of companies. The client was a creditor affiliated with the debtor, and the courts applied subordination: its claims were lowered in ranking.

What was done

A legal position was developed demonstrating that there were no grounds for subordination. The court rulings were set aside, and the claims were included in the register in full, on an equal footing with independent creditors, in all five cases.

Returning assets to the bankruptcy estate

Recovery of assets diverted on the eve of insolvency

Challenge

The debtor had diverted its assets through a chain of formally independent transactions, each of which appeared to be an ordinary commercial operation.

What was done

The full chain was reconstructed, and the interconnection and invalidity of each link were proven. The assets were returned to the bankruptcy estate in full, and the creditors obtained a real source of repayment.

Asset Protection

Protecting a client's assets in a third party's insolvency

Challenge

An attempt was made, by challenging transactions, to include the client's property – acquired, paid for and in commercial use – in the bankruptcy estate of an insolvent counterparty.

What was done

A legal position was built confirming the independent nature of the client's title. The court dismissed all the challenges, and the assets were preserved in full, without concessions or settlement agreements.

06 / Questions
Frequently Asked Questions

Work begins with an analysis of the company's condition: its liabilities and assets, ownership structure, transactions over recent years, settlements with affiliated persons and the state of its documentation.

On that basis, the available options and the consequences of each for the company, its executives and participants are determined. The decision whether to file a petition is taken after this analysis.

The consequences of both options are assessed in the light of the situation: the composition of creditors, the nature of the obligations, the state of the documentation and whether there are transactions that may be challenged. The procedure for approving the insolvency practitioner is also taken into account: a creditor nominates a candidate or a self-regulatory organization, whereas on a debtor's petition the organization is selected at random.

The option is chosen on the basis of that assessment: in some cases preparation has a greater effect on the course of the case than the timing of the application.

The law provides for the liability of persons controlling the debtor. Subsidiary liability arises if creditors' claims cannot be paid in full as a result of the actions or omissions of those persons, and also for failure to file a debtor's petition in the cases established by law. Claims for compensation for harm caused to the debtor are brought separately.

This possibility is assessed for all controlling persons at the stage of analysing the situation, and the work consists of substantiating management decisions and restoring the documentation. Instructions to act for both the company and its controlling persons in the same case are accepted after a conflict of interest check.

The transactions challenged are suspicious transactions made for inadequate consideration or with the purpose of harming creditors' property rights, and transactions that gave preference to one of the creditors. The periods within which a transaction may be challenged differ depending on the grounds and are checked separately for each transaction.

Applications to challenge transactions are heard in the bankruptcy case. The position is built on evidence of the terms of the transaction, the adequacy of the consideration and the business purpose for which it was made.

That depends on the structure of the liabilities, the composition of creditors and the state of the assets. The available options include arrangements with creditors, rehabilitation procedures (financial rehabilitation and external administration), a settlement agreement in the bankruptcy case and asset substitution, that is, the creation of a joint-stock company on the basis of the debtor's property.

Their applicability is assessed at the stage of analysing the situation: a settlement agreement is possible at any stage of the case and requires a decision of the meeting of creditors and approval by the court.

During supervision, a list of assets and documents on the company's activities are provided to the interim administrator, and once receivership has been opened, the handover of accounting and other documentation, seals and stamps to the insolvency administrator is arranged.

Support is provided with preparing and handing over the documents, a record is made of what has been handed over, and the administrator's requests are dealt with. A failure to hand over documents is taken into account when claims against controlling persons are considered.

An hourly rate, a fixed fee or a combined model is used; in some cases part of the fee depends on the outcome achieved. The fee is determined by the time actually spent, the complexity of the matter and the overall timeframe of the project, and is agreed before work begins.

Key Contacts
Anna Tarlakovskaya Anna Tarlakovskaya Partner Andrey Nemov Andrey Nemov Partner

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Other Services in This Practice
Creditor Protection Subsidiary Liability Challenging the Debtor's Transactions Damages from Controlling Persons Asset Protection Restructuring and Settlement Documents and Consultations

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