Moratorium for bankruptcies extended until 2021
Pepeliaev Group advises that in its Resolution No. 1587[1] “On extending the moratorium for initiating bankruptcy cases further to applications of creditors with respect to individual debtors” dated 1 October 2020 the Russian Government (the “Government”) has extended until 7 January 2021 the moratorium for initiating bankruptcy proceedings further to creditors’ requests as stipulated by article 9.1 of the Law on Bankruptcy [2].
The new moratorium period will not apply to backbone and strategic companies, or their subsidiaries.
Please note that some of the backbone and strategic companies fall under the moratorium on common grounds, i.e. as they operate in one of the areas most affected by the pandemic.
From 7 October 2020 through 7 January 2021, the limitations introduced earlier will be applied in full scope in relation to the persons to whom the moratorium applies, such limitations providing that:
With respect to what persons has the moratorium been extended?
The effect of the moratorium has been extended only with respect to legal entities and individual entrepreneurs that operate in one of the areas most affected by the pandemic that are determined by the Government [3]. When such persons are determined, attention is paid to the code of the principal type of activity under the Russian Classification of Economic Activities (known in Russia as OKVED), which is specified in the register as at 1 March 2020.The new moratorium period will not apply to backbone and strategic companies, or their subsidiaries.
Please note that some of the backbone and strategic companies fall under the moratorium on common grounds, i.e. as they operate in one of the areas most affected by the pandemic.
Implications of the moratorium being extended
Under article 9.1 of the Bankruptcy Law, a bankruptcy case with respect to a person to whom the moratorium applies cannot be instigated upon the creditor’s application and the obligation of the debtor to initiate its own bankruptcy is suspended. In addition, with respect to the debtor:- financial sanctions do not accrue for the failure to perform or for the improper performance of monetary obligations and compulsory payments;
- foreclosure on the pledged property is not allowed, including under an out-of-court procedure;
- enforcement proceedings and enforcement measures are suspended.
From 7 October 2020 through 7 January 2021, the limitations introduced earlier will be applied in full scope in relation to the persons to whom the moratorium applies, such limitations providing that:
- payments associated with the withdrawal of members are not allowed; the debtor is not allowed to purchase or acquire the allocated shares;
- the payment of dividends and income according to membership interests (equity units), as well as a distribution of profit between members of the debtor are not allowed;
- offsets in violation of the priority for creditors’ claims to be satisfied, which is established by article 134(4) of the Bankruptcy Law are not allowed.
If there are no grounds for restoring the solvency of a company that is subject to the moratorium, including as a result of the moratorium being applied or an application for own bankruptcy having been filed, we recommend assessing the risks and developing a plan for entering the bankruptcy procedure in the most painless way for reducing the risks that transactions will be disputed and secondary liability will be imposed.
Previous waivers of the moratorium lose their force
With respect to persons that had waived the moratorium before it was extended:- the previous applications concerning the refusal to apply the moratorium lose their force;
- a person to whom the moratorium applies may once again declare its waiver of the moratorium by submitting the relevant information to the Unified Federal Register of Bankruptcy Information.
We recommend comparing the economic implications of retaining the status of a person subject to the moratorium and the transactions that are scheduled for Q4. If any payments (dividends, profit, etc.) prohibited during the moratorium have to be made, it would be prudent to file an application concerning the refusal to apply the moratorium. If a waiver of the moratorium is not declared in due time, the payments and transactions performed during the moratorium may be disputed.
The court instalment plan is granted for 1 year, but this period may be prolonged up to 2 years if the debtor’s revenue has fallen by more than 50%. The debtor must discharge the obligations covered by the court instalment plan every month in equal instalments during the period of the instalment plan.
During the period of the court instalment plan it is prohibited to pay out dividends and income, allocate profit, as well as perform offsets in violation of the priority for creditors’ claims to be satisfied.
Creditors whose claims account for more than 10% of the total amount under the register of creditors’ claims receive access to the information about the debtor’s property and liabilities. If the instalment plan covers a period of more than 1 year, a pledge or a bank guarantee must be provided to unsecured creditors.
Pepeliaev Group’s lawyers have extensive experience of providing services in the area of risk management in terms of the requirements of bankruptcy legislation, including the consequences of applying provisions of the moratorium, and we are ready to provide comprehensive legal support to safeguard the interests of any persons involved in bankruptcy proceedings.
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The possibility remains for an instalment plan to be granted by a court in a bankruptcy case
An instalment plan may still be used both by legal entities and individual entrepreneurs, provided that the following principal conditions are met:- the revenue (income) has fallen by more than 20% in the reporting period in which the bankruptcy case was instigated as compared to a similar period of the previous calendar year ;
- the debtor initiates its own bankruptcy one month after the date of the introduction of moratorium or later;
- the supervision or restructuring procedure is applied;
- no decision was adopted after the first creditors’ meeting with regard to entering into a settlement agreement;
- there are no debts to individuals for causing harm to life or health, or salary arrears;
- there are no applications from creditors, including those returned by a state commercial court under article 9.1(2) of the Bankruptcy Law.
The court instalment plan is granted for 1 year, but this period may be prolonged up to 2 years if the debtor’s revenue has fallen by more than 50%. The debtor must discharge the obligations covered by the court instalment plan every month in equal instalments during the period of the instalment plan.
During the period of the court instalment plan it is prohibited to pay out dividends and income, allocate profit, as well as perform offsets in violation of the priority for creditors’ claims to be satisfied.
Creditors whose claims account for more than 10% of the total amount under the register of creditors’ claims receive access to the information about the debtor’s property and liabilities. If the instalment plan covers a period of more than 1 year, a pledge or a bank guarantee must be provided to unsecured creditors.
Pepeliaev Group’s lawyers have extensive experience of providing services in the area of risk management in terms of the requirements of bankruptcy legislation, including the consequences of applying provisions of the moratorium, and we are ready to provide comprehensive legal support to safeguard the interests of any persons involved in bankruptcy proceedings.
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[1] Resolution No. 1587 of the Government “On extending the moratorium for initiating bankruptcy cases further to applications of creditors with respect to individual debtors” dated 1 October 2020.
[2] Federal Law No. 127-FZ “On insolvency (bankruptcy)” dated 26 October 2002.
[3] The Government’s Resolution No. 434 “On approving the list of sectors of the Russian economy most affected by the deterioration of the situation with the spread of the new coronavirus infection” dated 3 April 2020 (as amended).
[2] Federal Law No. 127-FZ “On insolvency (bankruptcy)” dated 26 October 2002.
[3] The Government’s Resolution No. 434 “On approving the list of sectors of the Russian economy most affected by the deterioration of the situation with the spread of the new coronavirus infection” dated 3 April 2020 (as amended).