A moratorium on bankruptcy in russia and abroad

Leonid Barkov

The restrictions that have been introduced in Russia correspond to those introduced abroad. However, for many companies these may only delay bankruptcy if measures of support for business during the pandemic prove to be insufficient.


On 1 April, which is traditionally considered to be April Fool’s Day, the Law on bankruptcy was supplemented with provisions allowing for a moratorium on bankruptcy to be introduced in Russia. As early as on 3 April, the Russian Government embraced its new power and introduced a 6-month moratorium on the initiation of insolvency proceedings further to the petitions of creditors.

The moratorium has been extended to legal entities and individual entrepreneurs engaged in any of the industries most affected by the pandemic, such as catering, education, sports, transportation, and the hotel and tourism business. Backbone and strategic enterprises will be temporarily protected against bankruptcy.

No financial sanctions will be accrued with respect to such organisations during the moratorium. It is further prohibited to foreclose on mortgaged property; and enforcement proceedings that have been initiated with respect to previously accrued debts will be suspended. 
Such measures are already being applied or are being implemented in many foreign states which have been hit by the coronavirus infection to the greatest extent.


In Spain, the number of infected persons had reached close to 150,000 by 6 April. Owing to the pandemic, it is prohibited to consider creditors’ petitions for the compulsory liquidation of debtors, and companies are released from the obligation to file for their own insolvencies. The restrictions will be lifted two months after the state of emergency is called off, with priority to be given to considering bankruptcy petitions filed by the debtors themselves.


In light of the rapid spread of the disease, France has introduced a state of sanitary emergency from 24 March until 24 May. Amendments to the law on bankruptcy have been introduced, stipulating that the existence of bankruptcy signs will until 24 August (unless the state of emergency is extended) be determined as at 12 March. If at that moment the company was not in a state of “suspension of payments”, it may elect not to file for its own bankruptcy if its financial standing deteriorates; nor will creditors be able to initiate the process.

Moreover, companies will be able to take advantage of any of the bankruptcy procedures which could have been unavailable for them under ordinary conditions. In addition to external administration or receivership, it will be possible to utilise the procedures for restoring a company’s solvency (to appoint an ad hoc attorney, initiate a financial recovery procedure (sauvegarde)), as well as reconciliation procedures. After the above period ends, companies that remain in a state of “suspension of payments” will have to file for bankruptcy within 45 days.


In Germany, where the number of COVID-19 victims has gone beyond 100,000 people, it is expected that the affected companies will be released from the obligation to file petitions for their own bankruptcies until 30 September. This rule can be extended until 31 March 2021. It will not, however, apply if the insolvency occurred earlier or did not result from the pandemic, and there are no chances that the company will be able to repay its debts. Creditors will be able to file petitions for the bankruptcy of a contracting party only if the latter was already insolvent as at 1 March.

At the same time, additional guarantees have been put in place to protect against the subsequent challenging of payments, and actions undertaken to support or restore business transactions or to carry out restructuring.


At present, the draft law to amend current insolvency legislation is being developed and approved in the UK. It is proposed that the obligation of debtors to initiate their own bankruptcies will be suspended for a certain period of time and will be applied retroactively, starting from 1 March.


In light of the COVID-19 pandemic, the US has amended its Small Business Reorganization Act of 2019 (SBRA).
The amount of debt has been increased for one year (from USD 2.7 million to USD 7.5 million) in the presence of which small businesses may file for a bankruptcy procedure in accordance with the new subsection V of Section 11 of the US Bankruptcy Code. This will help debtors to retain more control over business, simplify the approval of a reorganisation procedure, and cut the timeframes and costs of bankruptcy proceedings. 

Consumers who face financial difficulties as a result of the pandemic will be able to have changes made to a previously approved reorganisation plan, including to have their payments extended by up to 7 years.

The APAC region

Some of the APAC region countries are also undertaking measures to prevent large-scale bankruptcies during the pandemic. For instance, India has increased by 100 times (up to INR 10 million (approximately USD 130,000) the minimum amount of debt for initiating the bankruptcy of businesses; while Singapore has increased the debt to the equivalent of USD 70,000.

In Australia, the lower threshold for filing for bankruptcy has been increased tenfold (up to AUD 20,000) for 6 months. Further, the timeframes for responding to creditors’ bankruptcy claims and the period of temporary protection against debt recovery have been extended from 21 days to 6 months, during which no bankruptcy can be initiated against a debtor. 

Will the moratorium help the Russian economy?

The Russian moratorium on bankruptcy in general corresponds to the restrictive measures that have been put into effect in many countries across the world and gives time to operating companies to overcome the consequences of the pandemic.
Such a new option as a pre-trial agreement with creditors may also help good-faith companies to amicably resolve the matter and repay their debts. 
We cannot rule out that bad-faith market players will try to take advantage of the moratorium to their own benefit. The restriction on recovery may trigger a crisis of non-payments, which may result in the creditor becoming a bankrupt. 
Since transactions consummated during the moratorium for an amount exceeding 1% of assets can be recognised to be void, it could have proven difficult for the affected companies to overcome the crisis owing to a limited circle of potential counterparties. However, on 24 April the Russian President signed the draft law repealing the legal provision regarding the voiding of transactions. 
Whether or not the moratorium applies to a company, the measures introduced may only delay bankruptcy, if the measures the authorities propose to support business during the pandemic and the anti-crisis plans companies implement prove to be insufficient to overcome the adverse effects of the crisis during the next 6 months.

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