The register of secondary respondents set up by the Federal Tax Service
Pepeliaev Group advises that the Russian Federal Tax Service (the ‘Federal Tax Service’) has launched a new service for searching for information regarding controlling persons who have been held liable under civil law.
The purpose of launching the new service is to encourage controlling persons to do business legally and in good faith.
What information will be available and where?
With this service, you will obtain the following:
information about persons who have had secondary liability imposed, including other than under bankruptcy cases;
information regarding disputes to recover damage.
The service provides information not only about a particular person whose details were entered into a search box, but also information about other respondents who are being held liable under this case.
The database that contains information about persons who have had the above liability imposed is limited to cases to which a tax authority is a party, while acting as a creditor and representing the state (including for example, in relation to arrears in customs duties) and other cases where damage is recovered from persons who control debtors, involving the Federal Tax Service.
The service is available at the Federal Tax Service’s website.
Since the authorised authority is not involved in all bankruptcy cases, the service does not replace other information resources that contain information regarding controlling persons who have been held liable under civil law. However, although KAD-Arbitr contains such information to the fullest extent, it is extremely difficult to search for information regarding persons who do not fall under the category of debtors and claimants under a bankruptcy case in this database. In this regard, the new service may become a very efficient instrument.
How do you use the service?
To search for information, it is only required to enter any of the details of either a debtor or a respondent (a taxpayer’s identification number, the name of the company or the full name of the individual).
Currently, the system is operating in test mode and is still being supplemented with new data as and when it is received.
Capabilities of the new service
The new service is recommended to be used to find new business partners and counterparties and to conduct tenders.
When a person is held liable under civil law in relation to a bankruptcy or a non-bankruptcy case on the grounds for which the Federal Law “On insolvency (bankruptcy)” provides, this generally gives rise to large-scale liability for such a person and undermines his business reputation.
Risks are high that creditors or a court-appointed administrator may collect an amount in dispute not only from the respondent himself but also at the expense of the assets of the companies the respondent owns.
A business reputation being undermined together with significant obligations, sometimes ones that are impossible to fulfil, arising for a person who has previously been held liable under civil law creates considerable risks for his counterparties.
Moreover, the fact that a person is being held liable under civil law on bankruptcy-related grounds may evidence that the person adheres to bad-faith business practices and is unreliable.
The fact of information regarding secondary and other civil law liability being imposed creates greater risks for legal entities and individuals.
That such information is becoming more available to the general public significantly affects business reputation and associated consequences. Specifically, information about such liability being imposed may:
make it difficult to establish business relationships or may even break existing ones;
make it difficult to raise loans for business;
signal to counterparties that they need to take a stricter approach when they formulate terms and conditions of cooperation;
prompt creditors to be more active in recovering debts.
What to think about and what to do
The number of bankruptcies is growing in the current economic environment. The practice has become widespread of secondary liability being imposed and losses being recovered, including outside bankruptcy cases. The number of applications for such liability to be imposed that are upheld comes to approximately 50%.
Our experience of anti-crisis defence of business and, specifically, of implementing projects relating to the liability of controlling persons and challenging transactions shows that to safeguard interests to good effect depends on the degree of measures aimed at preventing relevant risks. Within the scope of a company’s current business operations this can be attained when risks are taken into account which are connected, among other things, with bankruptcy legislation as early as at stage when a business is being structured, decisions are made and transactions are consummated.
The lack of awareness of managers and directors of companies of the legal implications of the failure to comply with the Bankruptcy Law raises significantly the risks of adverse effects for the company and its employees including senior managers and other controlling persons, including risks of being held liable under civil law.
Help from your adviser
Pepeliaev Group’s experts have extensive and successful experience in preventing risks associated with counterparties’ financial problems and errors made when business decisions are taken.
We provide professional legal assistance with preserving clients’ assets by preventing secondary liability for them, invalidating transactions or making them avoid potentially dangerous transactions.