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Moratorium on bankruptcy

01.04.2022
4 min read
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Pepeliaev Group advises that the Russian Government’s Resolution dated 28 March 2022 imposes a moratorium on bankruptcy.  

The purpose of the moratorium is to support citizens, individual entrepreneurs and companies which have found themselves in a difficult financial position after sanctions were imposed on Russia. 

The period of the moratorium

The moratorium will be in force for 6 months from the date when the resolution is published, i.e. from 1 April 2022 until 30 September 2022.

In accordance with article 9.1 of the Federal Law “On insolvency (bankruptcy)”, any creditors, including the tax service and credit institutions, will be unable to initiate the bankruptcy of debtors for 6 months. Please be reminded that the tax service already announced that it was refusing to initiate cases on the bankruptcy of debtors in March 2022.

While the moratorium is in force, debtors will not be obliged to initiate, in accordance with article 9 of the Law on Bankruptcy, their own bankruptcy if there are elements of insolvency or insufficiency of property.

Nevertheless, debtors retain the right to file a bankruptcy petition with the court or to reject the status of a party that is subject to the moratorium. Article 9.1(1) of the Law on Bankruptcy establishes the right to reject the moratorium on bankruptcy. A rejection of the moratorium on bankruptcy is to be published in the Unified Federal Register of Information on Bankruptcy.

Who is covered by the moratorium?

The new moratorium applies to citizens, individual entrepreneurs, as well as to all entities, except for debtors who are developers included under article 231 of the Federal Law “On participation in the shared construction of apartment buildings and other real estate facilities, and on amending certain items of Russian legislation” in the uniform register of troubled facilities as at the date when this resolution comes into force.

We remind the reader about the principal consequences of the moratorium on bankruptcy being announced:

  • enforcement proceedings are suspended with respect to property foreclosures in accordance with the claims that had been raised before the moratorium was introduced (however arrests of the debtor's property are not lifted, and neither are other limitations lifted with respect to the disposal of the debtor’s property which were imposed during enforcement proceedings);

  • for the period of the moratorium on bankruptcy it is not allowed to:

    • settle the claims of the members of the debtor for a share to be allocated owing to the termination of membership;
    • debtors are not allowed to buy out or acquire the allocated shares and/or to pay the actual value of the share;
    • set off mutual obligations in violation of the order of priority;
    • pay dividends;
    • assess financial sanctions

In accordance with clause 7 of Resolution No. 44 of the Plenum of the Russian Supreme Court “On certain issues of the application of the provisions of article 9.1 of Federal Law No. 127-FZ “On insolvency (bankruptcy)” dated 26 October 2020” dated 24 December 2020, during the period of the coronavirus moratorium financial sanctions were not assessed on monetary obligations only of persons who were affected specifically by the consequences of the limitations relating to COVID. We believe that the courts will apply a similar position in the current situation as well.  In view of the above, companies that act in bad faith referring to an inability to perform their monetary obligations owing to sanctions and the resulting consequences, or who are unable to substantiate a causal link between such circumstances and the deterioration of their financial state, are unlikely to be able to count on not having penalties, fines, and interest assessed for them, or other financial liability not applied to them.   

The announcement of the moratorium gives business additional time to find its bearings, assess the options to diversify the business and to find new partners and contracting parties. Developing and following a plan to overcome the crisis while the moratorium is in force will help business to be retained, and risks of liability, including secondary liability, to be mitigated.

Help from your adviser

Pepeliaev Group’s lawyers have extensive experience in the anti-crisis protection of business. We will help you to analyse your current financial state, assess potential losses, including taking into account the changes in the legislation and the new limitations on activity in a specific sector of economy. A complex approach to the protection of our clients’ interests allows us to identify and mitigate the risks of criminal, administrative and civil law liability that may arise including for an unjustified staff reduction, large-scale dismissals, causing a company to go bankrupt, etc.

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