alrud confidential 1 liquidation and bankruptcy of legal entities in russia may 2015 maria...
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ALRUD Confidential 1
LIQUIDATION AND BANKRUPTCY OF
LEGAL ENTITIES IN RUSSIA
May 2015
Maria Ostashenko Of Counsel
ALRUD Confidential 2
CONTENT
3. Liquidation of legal entities
4. Stages of voluntary liquidation
5. Stages of compulsory liquidation
6. Bankruptcy proceedings (general provisions)
7. Initiation of the bankruptcy proceedings
8. Stages of the bankruptcy proceedings
9. Bankruptcy administrator related issues
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ALRUD Confidential 3
LIQUIDATION OF LEGAL ENTITIES
Liquidation shall mean dissolution of a legal entity without legal succession as
distinct from reorganization
Types of liquidation under Russian law:
1.Voluntary liquidation (upon the decision of the shareholders/executive body due to
expiration of establishment term; accomplishments of object of establishment etc.)
2.Compulsory liquidation (upon the court decision due to invalidation of state
registration thereof; violations of laws and state regulations etc.)
Nota Bene: Bankruptcy is one of the options for liquidation of a legal entity
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STAGES OF VOLUNTARY LIQUIDATION
1. Making the decision on liquidation by the shareholders or an executive body
2. Making entries on liquidation to the Unified State Register of legal entities
3. Appointment of the liquidation committee by the shareholders
4. Publication of data on liquidation in the relevant mass media
5. Formation of assets and liabilities of the liquidating legal entity (tracing of assets;
reimbursement of receivables; inventorying stores etc.)
6. Cessation of membership in other legal entities
7. Employee lay-off
8. Drafting and affirmation of an interim liquidation balance sheet
9. Settlements with creditors in accordance with priority prescribed by law
10. Drafting and affirmation of the final liquidation balance sheet
11. Completion of liquidation, introduction of information on liquidation to the Unified state
register of legal entities 4
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STAGES OF COMPULSORY LIQUIDATION
1. Making the decision on liquidation by the court
2. Making entries on liquidation to the Unified State Register of legal entities
3. Appointment of the liquidation committee by the court
4. Publication of data on liquidation in the relevant mass media
5. Formation of assets and liabilities of the liquidating legal entity (tracing of assets;
reimbursement of receivables; inventorying stores etc.)
6. Cessation of membership in other legal entities
7. Employee lay-off
8. Drafting and affirmation of an interim liquidation balance sheet
9. Settlements with creditors in accordance with priority prescribed by law
10. Drafting and affirmation of the final liquidation balance sheet
11. Completion of liquidation, introduction of information on liquidation to the Unified
state register of legal entities 5
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BANKRUPTCY (GENERAL PROVISIONS)
3. Bankruptcy shall mean debtor's inability to fully satisfy the claims of creditors on monetary obligations and (or) to fulfill the obligation to make compulsory payments recognized by the court
4. Debtor shall mean legal entity or individual entrepreneur failed to settle a creditors’ monetary claims and (or) failed to fulfill the obligation to make compulsory payments within the term prescribed by law
5. Creditor shall mean person having right to claim for reimbursement of monetary obligations from the Debtor including claims with respect to the compulsory payments
6. With the aim of determining the criterion of bankruptcy for the legal entity the following shall be taken into account: amount of financial obligations; amount of debt; amount of compulsory payments; amount of loans
7. Amounts of penalty, interests, losses, other property and monetary sanctions shall not be taken into account while determining the existence of bankruptcy criterion
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INITIATION OF THE BANKRUPCTY PROCEDIING
1. Pursuant to Russian bankruptcy law the following entities are entitled to file an application on recognition the Debtor as bankrupt:
(A) Creditors of monetary claims;
(B) Public bodies (e.g. tax authorities);
(C) The Debtor itself.
2. For initiating bankruptcy proceedings by the creditor or public body the Debtor shall meet the following bankruptcy criteria:
(A) Overdue term shall be more than three months;
(B) Amount of overdue shall be more than 300 000 RUB (approx. 5 300 Euro);
(C) There shall be an effective court decision on reimbursement of debt from the debtor attached to the application on considering Debtor as bankrupt
3. If there is no effective court decision on reimbursement of debt from the Debtor the creditor has the right to enter into the bankruptcy proceedings upon its initiation 7
ALRUD Confidential 8
STAGES OF THE BANKRUPTCY PROCEEDINGS
1. Supervision procedure
Term: shall not exceed 7 months
Aim: supervising financial standing of the Debtor.
Within this procedure the first meeting of creditors shall be arranged by the bankruptcy administrator. Creditors entitled to participate in the meeting shall adopt the decision regarding in particular the next stage of bankruptcy proceedings. Afterwards this decision shall be subject to approval by the court within the hearings scheduled to by the date of supervision procedure.
2. Financial rehabilitation procedure
Financial rehabilitation is an optional stage and shall be introduced by the court in case:
(A) Creditors of the first meeting have adopted the respective decision, or
(B) Shareholders or the third parties filed the respective motion
Term: Shall not exceed 2 (two) years
Aim: restoring the Debtor’s solvency and satisfaction of creditors' claims according to debt repayment schedule
Upon introducing financial rehabilitation procedure the Debtor shall be relieved from paying financial sanctions for non-performance or undue performance of its obligations arisen prior to introduction of financial rehabilitation.
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ALRUD Confidential 9
STAGES OF THE BANKRUPTCY PROCEEDINGS
3. External management procedure
This is optional stage of the bankruptcy proceedings and shall be introduced upon the decision of the creditor’s meeting.
Term: shall not exceed 18 (eighteen) months and can be prolonged up to further 6 months.
Aim: the court shall approve external manager of the Debtor which should manage the Debtor to restore the solvency according to external management plan (can contain such measures of solvency restoring as selling of assets belonged to the Debtor and/or issue of additional shares of the Debtor and/or assignment of Debtor’s rights and/or redirection of Debtor’s activity etc.).
Upon the results of External management procedure the court is entitled to rule to:
(A) Terminate bankruptcy proceedings;
(B) Move to settlements with creditors;
(C) Deny approving external management report to be prepared by the bankruptcy administrator.
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STAGES OF THE BANKRUPTCY PROCEEDINGS
4. Winding-up procedure
Declaration of Debtor as a bankrupt entails introduction of winding-up procedure.
Term: 6 months, can be prolonged up to the term required to complete winding-up procedure and further liquidation of the Debtor
Aim: Creditors’ claims settlement
Within this procedure creditors’ claims shall be satisfied according the following priority (except claims on current payments which shall be reimbursed out of turn):
(A) First priority: personal injury claims, including moral damages claims;
(B) Second priority: employees’ claims for severance pay and unpaid wages, as well as the payment of royalties to authors;
(C) Third priority: other creditors’ claims, including monetary claims of the pledging creditors.
Creditors’ claims secured by pledge of assets belonged to the Debtor enjoy priority over other creditors in satisfying their claims from the proceeds of the sale of pledged assets, except for those creditors of the first and second priority whose claims originated prior to the execution of the relevant pledge agreements.
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BANKRUPTCY ADMINISTRATOR
1. Status of the bankruptcy administrator (independent participant to the proceedings which shall belong to a self-regulation organization)
2. Appointment of the bankruptcy administrator (by the first creditor and by the creditor meeting at any stage)
3. Particular issues related to the bankruptcy administrator
(A) Bankruptcy administrator shall hold the register of claims and proceed with actions aimed at satisfaction of the claims of creditors recorded thereto
(B) Bankruptcy administrator acts in a bona fide manner and prudentially in the interests of the creditors and the Debtor. Provided that the bankruptcy administrator breaches the said duty the creditor(-s) may file a motion to the Court to dismiss the bankruptcy administrator
(C) In case the bankruptcy administrator is dismissed another bankruptcy administrator shall be appointed upon the proposal of the same self-regulatory organization which the former bankruptcy administrator belonged to
(D) The complaint to the bankruptcy administrator’s conduct may be filed to the self-regulatory organization or before the court by the registered creditors
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ALRUD Confidential 12
THANK YOU FOR YOUR ATTENTION
My contact details: Maria Ostashenko
email: mostashenko@alrud.com Telephone: +74952349692
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