Sergei Bakeshin analysed for Delovoy Peterburg the impact of the tendency for courts to extend beneficiary rights on bankruptcy practices

In 2017 “Financial company “Priscels”” LLC was announced insolvent. As part of this process, the bankruptcy manager applied for subsidiary liability against the debtor’s controlling parties (DCP), including the organisation’s director Mikhail Kokurin. Kokurin lodged a counter-complaint against the manager’s actions which, according to the plaintiff, had led to a reduction in the bankruptcy estate. The complaint was rejected by the Arbitration Court of St Petersburg and the Leningrad Region, the 13th Arbitration Appeal Court and the Arbitration Court of the Northwest District. However, the Supreme Court of the Russian Federation cancelled the decisions of the lower instances and sent the application for reconsideration, thus providing the beneficiaries and the management of the debtor company with a new instrument to protect their interests. The trend towards extending beneficiaries’ rights was continued by the Constitutional Court, which ruled in the “Stigl” LLC insolvency case that those brought to subsidiary liability for the debtor’s obligations in bankruptcy cases have the right to challenge creditors’ claims.

According to Sergei Bakeshin, Head of Dispute Resolution and Insolvency practice at Maxima Legal, granting the DCP such rights is fair and justified. “The person from whom the money is charged should be able to object not only to the payment as a whole but also to the amount being charged. Until now, such objections could only be based on the creditor’s affiliation with the DCP or the debtor, which does not allow the claim to be included in the total amount of subsidiary liability (because the claims of the affiliated creditor are opposed to the interests of creditors of independent creditors)” – the expert explained.

While analysing the decisions of the higher courts, Sergei drew the attention of Delovoy Peterburg to the fact that the new right granted to the DCP undermines the principles of stability of judicial acts and legal certainty. “A subsidiary liability application is usually filed and considered at the final stages of the bankruptcy process, when creditors’ claims have been long established. There is now the possibility of an extraordinary challenging of them. The Constitutional Court has not made it sufficiently clear whether this right is only granted to those DCP against whom a judgment of liability has already been issued or also to those against whom an application for subsidiary liability is still under consideration. If the practice follows the second path, we can expect ‘technical’ applications for subsidiary liability to challenge creditors’ claims,” said Sergey Bakeshin.

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