The Russian Constitutional Court has acknowledged the right of insurers to participate in disputes regarding court-appointed administrators to be held liable

Pepeliaev Group advises that the Russian Constitutional Court (the "Constitutional Court") has adopted Resolution No. 30-P dated 5 June 2023[1]. The Constitutional Court has checked whether article 35(2) of the Bankruptcy Law complies with the Constitution to the extent of how in legal practice the right was not recognised of an insurance company to participate in a dispute regarding the acts or omissions of a court-appointed administrator where no claim for losses to be recovered from the administrator has been asserted.

Facts of the dispute

In a bankruptcy case, a court had recognised as unlawful the actions of a court-appointed administrator. Subsequently, the judicial act served as a ground for recovering losses from the administrator. The insurance company had unsuccessfully tried to challenge the ruling to recognise the administrator’s actions as unlawful. The courts concluded that the company had had no right to appeal since article 35(2) of the Bankruptcy Law did not contain in its list of participants of commercial proceedings any insurance companies that insure the liability of a court-appointed administrator. In addition, along with the claim to invalidate the administrator’s actions, no claims had been raised for the recovery of losses. Accordingly, the insurer’s interests were not affected by the judicial act.

Position of the Constitutional Court

The Constitutional Court made the following conclusions:

1. Article 35(2) of the Bankruptcy Law has not been recognised to be at odds with the Russian Constitution since that instrument is not, by itself, a ground for refusing to have an insurer participate in a commercial proceeding further to claims against court-appointed administrators, including in cases where, simultaneously with the above claim, a claim for losses to be recovered is not filed.

2. The fact that the list of participants of commercial proceedings (article 35(2) of the Bankruptcy Law) does not contain any organisations insuring the liability of court-appointed administrators is construed by courts as having the sense that such organisations do not have the right to participate in separate disputes. However, in disputes regarding the invalidation of an administrator’s actions, a court determines the circumstances in which losses were caused as well as their amount, irrespective of whether any claim has been raised for such losses to be recovered. These facts gain prejudicial relevance and, consequently, affect whether the obligation arises of an insurance company to make an insurance payout.

3. A refusal to recognise that insurers have the right to participate in such disputes puts the insurance company in an unequal position in relation to other participants of the commercial proceedings as referred to in article 35(2) of the Bankruptcy Law, which have a similar status (e.g. self-regulated organisations of court-appointed administrators).

What to think about and what to do

It could be assumed that, further to complaints and motions being examined for losses to be recovered from administrators, the relevant judicial acts considered without the interested insurance company being given notice about the proceedings will be revoked further to a complaint by the insurance company.

Insurance companies should monitor bankruptcy cases in which insured persons are involved that have court-appointed administrators. This will make it possible to timely identify any complaints against their actions and to influence the course of the dispute to mitigate the risk of grounds for insurance payments emerging.

We recommend that court-appointed administrators should file motions for insurance companies to be involved in disputes considering complaints at an early stage since this can enhance protection.

Help from your adviser

Pepeliaev Group's experts provide a wide array of services connected with handling bankruptcy cases of debtors of all categories, including control of the activities of court-appointed administrators.

The efficient handling of disputes regarding complaints against the actions of court-appointed administrators enhances the chances of the claims being satisfied, including via the possibility to replace a court-appointed administrator with a more professional and efficient one.

[1] Resolution No. 30-P of the Constitutional Court dated 5 June 2023 “On checking whether article 35(2) of Federal Law ‘On insolvency (bankruptcy)’ as well as articles 42 and 270(4)(4) of the Russian Commercial Procedure Code comply with the Constitution further to a claim by TIT Insurance Company”.