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Refusal of the moratorium: practical consequences

30.04.2020
4 min read
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On 17 April 2020 the State Duma in the third reading adopted draft law No. 685368-7[1] which introduces significant amendments to the current article 9.1 of the Bankruptcy Law[2], regulating the application of the moratorium on bankruptcy and other significant restrictions with respect to a wide range of persons.

The right to refuse the moratorium

In accordance with the text of draft law No. 685368-7 adopted by the State Duma, any person covered by the moratorium[3] has the right to refuse the application of the moratorium to itself. The corresponding refusal is performed by entering information in the Unified Federal Register of Information concerning Bankruptcy (the “Bankruptcy Register”).

If the Russian Government extends the moratorium (currently it has been enacted for 6 months):

  • any previously made application concerning the refusal to apply the moratorium loses its force;
  • any person covered by the moratorium has the right to file a repeated petition cornering the refusal to apply the moratorium to itself under the same procedure.

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Having published the information concerning the company’ refusal to apply the moratorium to itself:

  • creditors and authorised bodies may accrue penal sanctions, enforce their claims, including under enforcement proceedings through levying execution on pledged property,
  • the bankruptcy of such person may be initiated under the general procedure;
  • the following can be undertaken: the payment of dividends; the purchase or acquisition of shares; the apportionment of membership interests (equity units) in the debtor’s property; the payment of the actual price of membership interests (equity units);
  • the obligation to initiate one's own bankruptcy in the presence of the grounds provided for by the Bankruptcy Law arises for controlling persons of the company and individual entrepreneurs.

The rule has been cancelled that transactions performed during the moratorium are void

In accordance with the text of the draft law, clause 4(4) is deleted from article 9.1. The above provision stipulates that in bankruptcy cases initiated with regard to companies covered by the moratorium within three months after the termination of the moratorium in relation to debtors covered by it, transactions are void which were performed within the period of the moratorium in terms of disposing of the debtor’s property, except for those performed within ordinary business activity and not exceeding 1% of the amount of the assets.

Therefore, companies and individual entrepreneurs covered by the moratorium are granted the possibility to conduct ordinary business activity under standard regime. Moreover, the above transactions performed within the period when article 9.1(4)(4) of the Bankruptcy Law was in force (before its cancellation) will also not be voided[4].

comment.jpg We recommend that companies facing financial difficulties in connection with the introduced restrictive measures, irrespective of whether or not the moratorium regime is cancelled, should pay increased attention to the risk of the challenging of transactions that are currently being performed, in the case of a potential bankruptcy under articles 61.2 and 61.3 of the Bankruptcy Law. In this regard it is necessary to analyse transactions in terms of whether they correspond to the ‘ordinary’ nature and whether they deviate from the market price. It is prudent to pay particular attention to transactions with affiliates (including affiliates further to signs of actual rather than legal links).

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 the application of the rules concerning the moratorium. We also provide comprehensive legal defence of the interests of any persons involved in bankruptcy cases, including individual disputes concerning the invalidation of transactions and the imposition of subsidiary liability and any other liability.



[2] Federal Law No. 127-FZ dated 26 October 2002 “On insolvency (bankruptcy)”

[3] By Resolution No. 428 of the Russian Government dated 3 April 2020 the moratorium covered legal entities and individual entrepreneurs engaged in any of the industries most affected by the pandemic, and also backbone and strategic enterprises included in special lists. We provided the exhaustive list of companies covered by the moratorium in our previous alert.

[4] Article 4(4) of draft law No. 685368-7

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