The Russian insolvency legislation mainly consists of the Civil Code of the Russian Federation (the Civil Code) and the Federal Law No. 127-FZ on insolvency (bankruptcy) dated 26 October 2002 (the Insolvency Law), the principal legislation on insolvency in the Russian Federation.
A number of companies and organisations are subject to specific insolvency regulation governed by additional laws. In particular, the Federal Law No. 40-FZ on insolvency (bankruptcy) of credit organisations dated 25 February 1999, which regulates the insolvency of credit organisations and the Federal Law No.122-FZ on specifics of insolvency of natural monopolies in the fuel and energy sector dated 24 June 1999, which regulates the insolvency of organisations in the fuel and energy sector.
This update aims to provide a general overview on the commencement of the insolvency proceedings against the debtor (a corporate legal entity) and outlines the initial actions of the creditor (a banking or corporate legal entity) to perfect its rights under different contractual arrangements entered into between the creditor and the debtor. First, in the event a debtor has filed for insolvency, the creditor should register its monetary claims with the Register of creditor’s claims (the Register of Claims).
Commencement of proceedings
Matters relating to the insolvency of legal entities in Russia are within the competence of the Arbitrazh courts (i.e. state commercial courts dealing with commercial matters between legal entities) (the Arbitrazh Court).
Under the Insolvency Law, a petition to open an insolvency case for a debtor may be filed with a respective Arbitrazh Court by any of a creditor, a debtor or an authorised governmental agency.
Under the Insolvency Law, insolvency proceedings can be initiated against a debtor if:
- the debtor's obligations (indebtedness) are more than RUR100,000; and
- a debtor has failed to discharge its outstanding obligations within three months after their due date.
There are five stages of special proceedings which may be applied to a debtor under the Insolvency Law:
- Supervision (nablyudeniye) – the appointment of a temporary administrator;
- Financial Rehabilitation (finansolvoe ozdorovleniye) during which a financial rehabilitation plan is proposed to creditors;
- External Administration (vneshneye upravleniye) – the appointment of an external administrator and approval of an action plan of the external administrator;
- Liquidation (konkursnoye proizvodstvo) – the appointment of a liquidator and realisation and distribution of assets to creditors;
- Amicable Agreement (mirovoye soglasheniye) – at any insolvency stage either the debtor or its creditor(s) may file a petition to the Arbitrazh Court to enter into an amicable settlement by way of a voluntary arrangement.
The first insolvency stage is the Supervision. However, all other stages do not necessarily follow one after the other. The creditors during a creditors' meeting make the decision and propose it to the Arbitrazh Court regarding the future bankruptcy stages to be initiated against the debtor, such as: (i) to initiate Financial Rehabilitation; (ii) to initiate External Administration; (iii) to approve Amicable Agreement; or (iv) to have the debtor declared bankrupt and commence Liquidation.
The Arbitrazh Court issues a resolution on introduction of Supervision upon (i) verification of validity of grounds for the applicant's petition against the debtor (in case the petition is filed by a creditor) or (ii) acceptance by the Arbitrazh Court of the debtor's own claim for insolvency.
In each stage of insolvency proceedings, an insolvency administrator is appointed by the Arbitrazh Court. Depending on the stage of proceeding the insolvency administrator is referred to as: "temporary administrator", "financial rehabilitation administrator", "external administrator" or "insolvency administrator".
The insolvency administrator must be a member of one of the many “self-regulating organisations of insolvency administrators”.
Bankruptcy Register – this does not work yet as the procedure for setting up the register shall be developed by 1 January 2010
The Insolvency Law provides that information on the commencement of each insolvency stage, the termination of the insolvency proceedings, the appointment of an insolvency administrator, etc. must be entered into the Unified Federal Register of Information on Insolvency, a publicly available register (the Bankruptcy Register).
The information from the Bankruptcy Register shall also be available via the Internet and published in an official publication, such as Kommersant newspaper.
The Register of Claims
For the purposes of attending the first creditors’ meeting during the Supervision, each creditor should present its claim to the Arbitrazh Court (the Claim) within 30 calendar days after the date of official publication announcing the start of the Supervision following the decision of a respective Arbitrazh Court. The Claim should be filed simultaneously to: (i) the Arbitrazh Court, (ii) the debtor and (iii) the temporary administrator together with other documents confirming the ground for this Claim.
The Arbitrazh Court shall make a decision whether to enter the creditor's Claim in the Register of Claims. The Arbitrazh Court may order the temporary administrator to postpone the first creditors’ meeting if not all the Claims filed within the prescribed period have been adjudicated.
The deadline to file the Claim is not preclusive. Under the Insolvency Law the creditor has the right to file the Claim to the Arbitrazh Court to be entered in the Register of Claims after the introduction of a procedure following the Supervision stage. In this case, the Arbitrazh Court shall make a decision to enter the creditor in the Register of Claims within 30 calendar days after the introduction of a procedure following the Supervision.
However, in the event the creditor misses the deadline to file the Claim within 30 calendar days after the date of official publication announcing the start of the Supervision, a creditor loses its right to participate in the first creditors' meeting. It is important for a creditor to participate in the first creditors' meeting as during this meeting the creditors make the decision regarding the future bankruptcy stages to be initiated against the debtor.
Under the Insolvency Law, each creditor has a number of votes proportionate to the size of its Claim as a percentage of the total sum of the Claims relating to monetary obligations and mandatory payments included in the Register of Claims as of the date of the meeting of creditors. The decision of the meeting is adopted by a majority of votes of the creditors.
Required documents to file the Claim
A creditor has to submit to the Arbitrazh Court an application requesting the Arbitrazh Court to include the creditor into the Register of Claims (the Application). The Application should contain the detailed description of the creditor’s Claim to the debtor, indicating: (i) the overdue amount, (ii) default interest and (iii) reference to supporting documents.
The documents submitted to the Arbitrazh Court must be:
(i) in the Russian language, as originals or copies notarised by a Russian public notary; or
(ii) if documents are in the English language, they should be notarised and apostilled in the country where such documents were issued, and translated into the Russian language. The Russian translation of the documents should be confirmed by the signature of a translator, which should be notarised by a Russian public notary.
If the Claim is not denominated in Russian roubles then the Application should specify the amount of the Claim in a foreign currency and its equivalent in Russian roubles at the Russian Central Bank’s official exchange rate.
Notification about insolvency proceedings
Only the creditors included into the Register of Claims shall be informed about the first creditors’ meeting by the temporary administrator.
If the number of creditors exceeds 500, then the temporary administrator shall procure publication of the notice in the mass media.
If the number of creditors is less than 500, then the temporary administrator must mail to the creditors information about the meeting at least 14 days prior to the date of the meeting. If it is impossible to identify the address of a creditor, there should be a relevant official publication.
The announcement of the forthcoming meeting of creditors shall contain the following information: (i) the name and location of the debtor and the debtor’s address; (ii) the date, time and place of the meeting of creditors; (iii) the agenda of the meeting of creditors; (iv) the procedure for becoming familiarised with the material to be examined by the meeting of creditors; and (v) the procedure for registering persons attending the meeting.
The Arbitrazh Court hearing
The Supervision ends with the decision of the Arbitrazh Court at the substantive hearing to commence one of the insolvency stages. Such decision shall be taken within seven months after the initial insolvency petition has been filed with the Arbitrazh Court.
On the conclusion of the substantive hearing, the Arbitrazh Court shall issue one of the following decisions, based on the decision of the first creditors' meeting:
- to declare the debtor insolvent and to commence its Liquidation;
- to refuse to declare the debtor insolvent;
- to initiate Financial Rehabilitation;
- to initiate External Administration; or
- to approve an Amicable Agreement and terminate the insolvency proceedings.