Cashless situation – Newspaper Kommersant No. 44 (7489) of 03/16/2023

“Kommersant” studied the latest practice of the Supreme Court of the Russian Federation (SC) on the question of whether equity holders who demanded a refund from a bankrupt developer can again apply for an apartment in a house if there is a chance to complete it. The legislation does not regulate this situation. The Supreme Court recognized the equality of all equity holders and their right to replace the monetary claim against the developer with a property one, but not in the event of termination of the agreement on equity participation in construction (DDU). The position of lawyers diverged: some support the position of the Supreme Court, others call it controversial.

In February-March, the Supreme Court made two practical decisions on the rights of equity holders in the event of a developer’s bankruptcy. In both cases, we are talking about the so-called transformation of claims from monetary to property (the transfer of housing). The question is relevant for cases when an investor appears ready to complete the construction.

In the decisions of the Supreme Court, we are talking about disputes with equity holders Tatyana Knyazeva and Sergey Potekhin as part of the bankruptcies of developers ZhSK ARS-Aurora LLC and United Construction Company JSC, respectively. In both cases, citizens entered into a DDU with the company, their claims were included in the register as monetary. But after the emergence of new investors on projects and the resumption of construction, equity holders wanted to get housing, not money. In the Supreme Court, the outcome of the considerations turned out to be different, but in both cases it somehow protected the equity holders.

In the case of Mrs. Knyazeva (the decision of the Supreme Court was published on February 23), the Economic Board almost unconditionally supported the shareholder.

The Supreme Court clarified that the position of equity holders remains equal, “irrespective of which of the registers (on the transfer of residential premises or monetary) their requirements are included, since the same material and legal interest is thereby pursued.”

According to the Supreme Court, these requirements have “one legal nature” and a single “level of legal guarantees”. Separately, the Supreme Court noted the lack of evidence that Ms. Knyazeva agreed to money instead of an apartment. In the opinion of the Economic Board, the lower courts themselves should have qualified Tatyana Knyazeva’s statement “as a demand to compel the new developer to assume obligations to the equity holder to transfer the living quarters to her.” The dispute was sent for retrial.

In the case of Sergei Potekhin, the matter was complicated by the fact that, due to the failure to complete the house, the shareholder obtained the termination of the DDU through the court, and the money paid and the penalty were recovered from the developer. At that time, the developer already had financial difficulties, and a year and a half later he was declared bankrupt. As a result, Sergei Potekhin did not receive money and entered the monetary register of creditors. After the rights and obligations of the developer were transferred to the Fund for the Protection of the Rights of Shareholders (from January 1, 2022 – the Territorial Development Fund), the former shareholder asked to replace his monetary claims with property claims and transfer them to the register for residential premises. The courts supported the plaintiff, but these decisions were already challenged in the Supreme Court by the fund, which stated that the termination of the DDU deprives the equity holder of the right to demand the transfer of housing. The case was referred to the economic board.

In a decision published on March 11, the Supreme Court supported the fund, recognizing that upon termination of the DDU, all obligations of the parties cease, the developer must simply return the money to the interest holder.

The law does not provide for exceptions in case of bankruptcy of developers, therefore, one cannot speak of “revival or renewal of a terminated obligation,” the board specified. Thus, citizens who terminated the DDU can only demand monetary compensation. However, the Supreme Court clarified that its size “should correspond to the market value of housing” and “calculated at the time of its actual payment.” The parties may choose another way to resolve the dispute, including through the transfer of housing for compensation, the board added, sending the case for a new trial.

Daniil Savchenko, managing partner of Arbitrazh.ru, notes that the Supreme Arbitration Court considered a similar issue regarding equity holders in 2013, but the Supreme Court “has to return to it again.” “Perhaps, the reason is that in the rehabilitation model used in cases of bankruptcy of developers, a fund appeared in 2018 that is interested in minimizing the requirements of equity holders for a separate mass in the form of a residential building to be completed, receiving priority,” the lawyer believes. The head of Kuchembaev & Partners, Almaz Kuchembaev, notes that “the law does not provide for the transformation of the requirement, although it is applied in practice.” He hopes that the Constitutional Court will pay attention to the problem and the right to replace the money claim of a shareholder with a property claim will be legislated.

But if the decision on Tatyana Knyazeva is unanimously supported by lawyers, then views on the case of Sergei Potekhin diverged. A number of experts consider the refusal of the Armed Forces to transfer housing to be lawful, especially in the light of the remark about monetary compensation.

Thus, Elena Kravtsova, partner of ProLegals, emphasizes that the developer’s bankruptcy itself does not change the situation around the terminated DDU. Valeria Tikhonova, senior lawyer at Vegas Lex, agrees with this, specifying that the rights of the equity holder are “fully protected”: “Sergey Potekhin will receive a payment in the amount of the cost of apartments at current market prices, that is, more than the amount of investment that is not enough to buy such housing now.” At the same time, she notes a number of questions that remain open: whether the conclusions in the case with the fund apply to private developers and how exactly to calculate compensation. Mr. Savchenko even considers compensation to the equity holder at the level of the market value of housing to be excessive.

Ivan Stasyuk, an adviser to the RCT consulting group, on the contrary, calls the decision of the Supreme Court in the case of Sergei Potekhin “very controversial.” “It turns out that the rights of a shareholder to receive housing depend on whether he has not refused the contract with the developer before bankruptcy,” the lawyer explains. “But no one can know in advance about bankruptcy, especially a shareholder who is not immersed in the nuances of financial affairs builder.”

Almaz Kuchembaev agrees that equity holders face a difficult choice: at the moment when they need to decide on the registry (to go to the cash or property), “it is not always clear whether the house will be completed at all.” “The transformation of the requirement is not needed because of a good life,” the lawyer believes: before the bankruptcy of the developer, “I want to get out of the project with money, and terminating the DDU through the court is a necessary measure.” “On the eve of the bankruptcy of the developer, equity holders usually terminate the DDU “on emotions”, having lost all hope of getting apartments and wanting to have time to get at least some money. Now, taking into account the position of the Supreme Court, such a decision needs to be carefully considered, because there may not be a way back,” sums up BGP Litigation lawyer Anton Baturin.

At the same time, sending the dispute with Sergey Potekhin for a new consideration, the Supreme Court pointed out the need and task of the fund to resolve the issue with the equity holder on a voluntary basis, emphasizes Elena Kravtsova. Almaz Kuchembaev considers this phrase not accidental: “The Armed Forces are bringing the case down to be terminated by amicable agreement. This is such a hint to the fund that it should give in.

Anna Zanina, Ekaterina Volkova