Simplified Procedure For Initiating Bankruptcy By The Legal Successors Of Banks

In October 2016, the Chamber for Commercial Disputes at the Supreme Court of the Russian Federation considered the cassation appeal of Eurasian Trading Company LLC (hereinafter – the Trading Company) in Case № А57-16992/2015 against the court's refusal to introduce monitoring procedures with respect to RBP JSC (hereinafter – the Debtor) and decision to dismiss the application by the Trading Company without consideration.

The contentious issue in this case is the question of whether non-lending institutions are entitled to avail themselves of the simplified procedure for initiating a bankruptcy case, i.e. without benefit of a final and binding judgement on debt recovery.

The Trading Company filed suit in the Arbitration (State Commercial) Court of Saratov Region seeking declaration of the Debtor's bankruptcy and the inclusion of the Debtor's debt to the Trading Company in an amount in excess of RUB 863 mln in the register of creditor claims against the Debtor. In substantiating its claims against the Debtor, the Trading Company explained that it is the legal successor to a lending institution (Absolut Bank (PJSC)) with respect to claims against the Debtor, as acquired by the Trading Company on the basis of the respective assignment agreements.

However, the courts of three instances refused to introduce monitoring procedures and dismissed the application by the Trading Company without consideration, insofar as the applicant had ostensibly failed to observe the provisions of RF Federal Law № 127-FZ dated 26.10.2002 "On Insolvency (Bankruptcy)" (hereinafter – the "Bankruptcy Law").¹ The courts found that the Trading Company had failed to present a final and binding court judgement in the matter, and that therefore it had not proven its assumption of the legal right to file an application in court seeking declaration of the Debtor's bankruptcy.

The Chamber for Commercial Disputes at the Supreme Court of the Russian Federation did not agree with the opinion of the lower courts, set aside their rulings and sent the case for new consideration, indicating as follows:

• Interpreting Para. 2, Clause 2, Art. 7 of the Bankruptcy Law as predicating the ability to file an application seeking the declaration of a debtor's bankruptcy (without the presentation of a court judgement) solely in connection with the applicant's status as a lending institution would be a violation of the principle of equality.
• The main criterion should be viewed not as the status of the lending institution filing the respective application itself, but rather the activity pursued thereby in terms of the performance of banking operations on the basis of a special permit (license) issued by the Bank of Russia.
• In such situations, the courts must establish whether the applicant's claims are the result of the exercise of the special legal capacity of a lending institution or related claims (such as those stemming from security transactions), and where such facts are established in the affirmative – decide the matter of their substantiation and the appropriateness of initiating insolvency procedures on the merits.

Thus, the position as stated by the Chamber for Commercial Disputes at the Supreme Court of the Russian Federation allows loan-obligation assignees other than banks to initiate bankruptcy proceedings with respect to their debtors under the simplified procedure.

Footnote

^{1 Inter alia, the failure to observe the provisions of Clause 2, Art. 7 and Clause 2, Art. 39 of the Bankruptcy Law}

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