Russian Federation: Newly Adopted Amendments to Insolvency Law Allow Some Citizens to Go Through Bankruptcy but Avoid Court Proceedings

Russian Federation: Newly Adopted Amendments to Insolvency Law Allow Some Citizens to Go Through Bankruptcy but Avoid Court Proceedings

(Nov. 25, 2020) On September 1, 2020, Federal Law No. 289-FZ on Amendments to the Federal Law on Bankruptcy entered into force. This law, which was signed by President of the Russian Federation Vladimir Putin on July 31, 2020, allows some categories of Russian citizens to declare bankruptcy while avoiding court proceedings and without paying a fee.

Background

Federal Law of the Russian Federation on Bankruptcy No. 127-FZ was adopted on September 27, 2002, and last amended on May 25, 2020. According to this law, bankruptcy can be declared only by a decision of the Court of Arbitration, a system of commercial courts in the Russian Federation.

This requirement of judicial resolution of a bankruptcy issue was confirmed in 2015, when Federal Law No. 154-FZ extended Russian legal procedures to the territory of the Crimean Republic.

Eligibility

The newly adopted amendments allow individuals to file for an out-of-court bankruptcy procedure if they meet certain eligibility criteria. These are:

  • The amount of debt as well as obligations to make mandatory payments must be at least 50,000 rubles (approximately US$648) and not more than 500,000 rubles (approximately US$6,480).
  • These amounts include obligations whose due dates have not arrived, obligations to pay alimony, and obligations under a surety agreement regardless of the delay of the main debtor.
  • The debtor has no property on which a claim can be levied, and measures to find such property have been ineffectual.
  • The debtor has no outstanding debts or liens due to previously imposed court orders.

Procedures for an Out-of-Court Application

An application for recognizing the bankruptcy of a citizen must be submitted by an applicant to the Multifunctional Center for State and Municipal Services at the place of the applicant’s residence or place of stay. In this application, a citizen must submit a list of all known creditors and the amount of debt owed to them.

The procedure specifies the special form of the application. Also, the instructions for filling out the application are provided. Submitting an application is free of charge.

The bankruptcy procedure takes up to six months. Creditors can try to bring the bankruptcy case to court during this time. Under the new rules, a citizen has the right to file a new application for bankruptcy not earlier than 10 years after the day the previous out-of-court bankruptcy procedure ends.

Consequences of the Out-of-Court Application

If an application for an out-of-court bankruptcy procedure is approved, information must be published in the Unified Federal Registry on Bankruptcy. This results in a moratorium on the satisfaction of creditors’ claims on monetary obligations and on making mandatory payments. This rule does not apply to creditors who are not mentioned in the application.

Upon publication in the registry, monetary obligations that arose before the date of inclusion of that type of information in the Unified Federal Registry are considered fulfilled, and the accrual of fines and other financial sanctions, as well as interest on all obligations of the citizen, are terminated.

Moratorium on the Initiation of Bankruptcy

Article 9.1, previously added to the Bankruptcy Law, authorizes the Russian government to introduce a moratorium on the initiation of bankruptcy cases by creditors in case of an emergency, a natural disaster, an essential change in the exchange rate of the ruble, or similar circumstances.

On April 6, 2020, in response to the COVID-19 pandemic, the government of the Russian Federation passed Resolution No. 428, which introduced a moratorium on bankruptcy proceedings initiated by creditors. The moratorium came into force on April 6, 2020, and continued until October 5, 2020.

On October 1, 2020, the Russian government issued Resolution No. 1587, which renewed the moratorium. This renewal entered into force on October 7, 2020, and is in effect for a period of three months.

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