Challenging pre-bankruptcy transactions required clarification

The Supreme Court of the Russian Federation (SC) will explain whether it is possible not to cancel a transaction for the alienation of assets by a debtor citizen on the eve of bankruptcy, if it does not violate the rights of creditors. In the dispute referred to the economic board, the property was sold by the debtor at a reduced price, but the proceeds were still enough to pay off the debts in full, which, however, did not happen. Whether in this case the buyer can keep the property for himself and how he can prove his good faith will be decided by the Supreme Court. Lawyers note that transactions between individuals are often executed at a lower price, which allows saving on taxes, but creates the risk of contesting the contract in the event of the seller’s bankruptcy.

The Supreme Court will consider the dispute on the cancellation of the pre-bankruptcy transaction of the debtor citizen. Ruzanna Sargsyan in July 2019 sold Elena Omelyanchuk and her minor daughter Daria a house with a land plot (442.1 sq. m and 706 sq. m, respectively) in Sochi for 12 million rubles. And in June 2020, at the initiative of UralSib Bank, an insolvency case was initiated against Ruzanna Sargsyan, a year later she was declared bankrupt.

As part of the bankruptcy case, the financial manager of the debtor challenged the contract for the sale of real estate. In August 2022, the Arbitration Court of the Krasnodar Territory declared it invalid, obliging it to return the property to the bankruptcy estate and restore Ruzanna Sargsyan’s debt to the buyers (their claims are included in the register of creditors). The court noted that the transaction was completed within a year before the initiation of bankruptcy proceedings (June 2020) at a reduced price, since the market value of the property is 30 million rubles.

At the same time, Elena Omelyanchuk, who did not participate in the case at the first instance stage, tried to appeal this decision in an appeal and cassation. However, the courts did not consider her complaint because of the missed deadline. The buyer stated that she had not previously known about the proceedings, but this argument was rejected.

The courts referred to the response of the Primorsky Postal Administration, which stated that “the items were not delivered due to the absence of the recipient at the place of delivery” and after the expiration of the storage period “returned as unclaimed.”

Elena Omelyanchuk appealed to the Supreme Court, insisting that she was not notified of the lawsuit that had begun due to the fact that there was no postman at her station, which was confirmed by the post office itself, but the courts left this “without attention.” The buyer also stated that she bought the house through a real estate agency for 30.5 million rubles, which is confirmed by the seller’s receipts for money. Moreover, even if Ruzanna Sargsyan had received only 12 million rubles under the deal, this amount would have been enough to fully repay all her debts, therefore, the deal did not violate the rights of creditors and could not be challenged as suspicious, the complaint says. Based on these arguments, the case was referred to the Economic Collegium of the Armed Forces, and consideration is scheduled for September 28.

Lawyers hope that the Supreme Court will not limit itself to studying only the circumstances of notifying the buyer, but will also provide explanations about the possibility or impossibility of saving the transaction, provided that the money received by the bankrupt was sufficient for settlements with all creditors. This is an important issue, says Azat Akhmetov, an adviser to the law firm Orchards, since citizens “quite often try to sell their property in the run-up to bankruptcy.” According to him, the logic of the debtors is as follows: “either give everything voluntarily, or try your luck and eventually try to keep the asset,” while there is no tangible sanction for the withdrawal of assets.

Such standard methods of withdrawing assets have long been known to the courts and successfully challenged by creditors, so these actions “only delay the process of debt collection,” says Ilya Dedkovsky, head of the Bankruptcy practice at AB KIAP.

At the same time, very often a citizen-seller does not want to indicate the real value in the contract in order to save on taxes, Mr. Dedkovsky explains. Meanwhile, transactions at a price below the market are the first to be challenged, emphasizes Igor Guskov, partner of Guskov & Associates.

Lawyers assess the argument of the buyer of property that even a low price is sufficient for settlements with creditors in different ways. Mr. Guskov believes that “this is unlikely to predetermine the outcome of the dispute”, since “the actual size of the bankruptcy estate and its relationship with the volume of debts are of importance.” However, the money from the sale of the house, apparently, was not transferred by the debtor to the bankruptcy estate. Ilya Dedkovsky admits that formally, in order to invalidate a transaction, “it is enough to prove the unequalness of its conditions,” but he considers this approach “not entirely fair.” From the sale of property, the debtor received an amount four times greater than the entire registry debt, so it is logical to “raise the question of where the money received went to her,” the lawyer believes.

However, arbitration manager Maxim Dotsenko notes that “it is very difficult to find out” and, at best, it is possible to establish the spending of money on bank accounts, and “managers have practically no opportunity to track the movement of cash.” In addition, according to him, a receipt for the seller to receive a larger amount for the house is not very reliable evidence, so the courts need to check whether the buyer was in principle able to pay such an amount and from what sources of income.

Ekaterina Volkova, Anna Zanina