The Overview of case law of the Russian Supreme Court with regard to the participation of a court appointed administrator in bankruptcy

Pepeliaev Group advises that the general approaches of courts to issues connected with court appointed administrators participating in bankruptcy cases are listed in the Overview of Case Law dated 11 October 2023The Overview of case law on issues when the court appointed administrator participates in a bankruptcy case, approved by the Presidium of the Supreme Court on 11 October 2023.
 (the “Overview”).

An assessment of the independence of a court appointed administrator

Case law proceeds from the fact that well grounded doubts concerning independence of the court appointed administrator shall be interpreted against the approval of his/her candidacy (clause 4 of the Overview).

The circumstances allowing doubts to be raised as to the independence of the court appointed administrator include the following (clause 4.1 of the Overview):

• when the court appointed administrator combines duties of both the court appointed administrator and a creditor of the debtor;

• unusual behaviour of the claimant in the bankruptcy case who proposed the candidacy of the court appointed administrator (for example if the petition was filed at the same time as the liquidation procedure was initiated by the company and after a third party repays the claims the creditor objects to procedural succession and insists on the bankruptcy of the debtor (clause 4.1 of the Overview);

• if the initiator of the bankruptcy who proposed the candidacy of the court appointed administrator is affiliated with the debtor;

• a candidate for the court appointed administrator is a major participant in the same business entity as the head of the creditor of the debtor;

• if a candidate for the court appointed administrator assisted his/her predecessor, who was suspended from his/her duties for illegally conducting bankruptcy proceedings.

At the same time the proposal by a creditor on more than one occasion of the same candidate for the court appointed administrator does not evidence that the latter is dependent on the creditor (clause 5 of the Overview).

Change of the candidacy of the court appointed administrator

The case law confirms that it is possible to change the candidacy of the court appointed administrator before the court has approved him/her. In order to do so it is necessary to conduct a new creditors' meeting (clause 6 of the Overview).

For example, if as at the date when the creditors meeting elects the court appointed administrator the claims of the major creditor have not been established, the latter is entitled to initiate a new meeting for this issue to be reconsidered.

Duties of the court appointed administrator

In order to prevent unjustified spending of the bankruptcy estate to pay for the services of persons engaged by the court appointed administrator, the Overview focuses on classifying the following duties of the court appointed administrator as ‘personal’:

• an initial check of whether the creditors’ claims are justified and preventing unjustified claims from inclusion in the register of claims (clause 14 of the Overview);

• independent organisation of auctions in order to sell the debtor’s property if only engaging a third-party organisation will result in reducing costs of the debtor or if a positive effect cannot be reached without such engagement (clause 21 of the Overview);

• taking measures to recover accounts receivable; if such an obligation is not fulfilled, the court, at the request of the creditor, may oblige the court appointed administrator to file a claim for debt collection and determine the deadline for its enforcement (clause 15 of the Overview);

• challenging transactions (clause 16 of the Overview); at the same time the bankruptcy of respondents in itself cannot serve as a sufficient ground to conclude that claims have no prospects.

The remuneration of the court appointed administrator

It is emphasised in the case law cited in the Overview that the percentage of the remuneration of the court appointed administrator depends on the volume and quality of the work performed by him/her (clause 23 of the Overview).

If the court appointed administrator has rendered only a part of the services provided for by the Bankruptcy Law for reasons that are objective (for example, the absence of a need for certain measures) or subjective (for example, the creditor's fulfilment of part of the measures), he/she has no right to expect to receive full payment.

Parties to a bankruptcy case may rely on the fact that actions performed by the court appointed administrator cannot be compared with the full amount of percentage-based remuneration.

Bad-faith performance by the court appointed administrator of his/her duties may result in a complete refusal to pay him/her a percentage-based remuneration. For example if the court appointed administrator sold all of the debtor's property even though only a part of the estate would have been enough to settle accounts with the creditors (clause 24 of the Overview).

Challenging actions of the court appointed administrator after the bankruptcy case is terminated

As noted in the Overview, the completion of bankruptcy proceedings and the liquidation of the debtor do not prevent the court from considering a complaint against the actions of the court appointed administrator (clause 25 of the Overview).

Article 150(5)(1) of the Commercial Procedure Code in this case cannot apply since the proceedings are subject to termination when a company that is a party to the dispute is liquidated. But if the creditor files a complaint neither it as a claimant nor the respondent (the court appointed administrator) lose their legal capacity.

Financing the proceedings may be imposed on the debtor's members

If the debtor has no funds for financing the bankruptcy proceedings, the necessary expenses (including the remuneration of the court appointed administrator) can be recovered from its members (clause 25 of the Overview).

The obligation of members to pay the costs of the debtor's liquidation (including as a result of its bankruptcy) is imposed on them by law and does not depend on their fault in the debtor becoming bankrupt. This obligation depends neither on whether a bankruptcy petition has been filed, nor on whether measures have been taken to create a liquidation commission.

What to think about and what to do

The case law listed in the Overview has ‘armed’ debtors, creditors, participants, beneficiaries, and controlling persons with additional tools to safeguard their interests. If the company or an individual is involved in a bankruptcy case we recommend not limiting protection by one or several separate disputes. The degree of satisfaction of claims, the invalidity of transactions, the amount of personal liability, the size of the liquidation quota – this is an incomplete list of what can be directly affected by proper oversight over the activities of the court appointed administrator.

Help from your adviser

Pepeliaev Group’s lawyers have significant experience in protecting the rights of parties in bankruptcy cases, including with regard to liaising with court appointed administrators and overseeing their activity. Cooperating with the court appointed administrator, providing legal support to him/her and exchanging information can significantly increase the efficiency of bankruptcy proceedings.

We are ready to provide legal support in all the above areas, including settling separate disputes and/or bankruptcy cases in full by a settlement agreement or using other conciliation procedures, including negotiations with the involvement of the court appointed administrator.