Incentive with interest – Newspaper Kommersant No. 69 (7514) of 04/20/2023

The Supreme Court of the Russian Federation (SC) will have to decide whether the arbitration manager (AI), who is handling the bankruptcy case of the developer, deserves a large percentage of remuneration for work if, thanks to his efforts, the residential building was completed and the apartments were transferred to equity holders. The district court considered that since the claims of the equity holders were not repaid in cash, the manager could not count on a stimulus payment. Now the case will be considered by the Economic Collegium of the Armed Forces. Experts say that the courts often limit payments to managers, but now they have a chance to defend their right to interest.

The Supreme Court will sort out the issue of payment for the services of arbitration managers. As part of the insolvency of the developer FB Sestroretsk LLC (declared bankrupt in April 2019), its bankruptcy trustee Konstantin Korobov asked the court to set him a percentage fee in the amount of 48.86 million rubles. According to the bankruptcy law, in addition to a fixed remuneration, the manager can also receive interest (3-7%), calculated from the share of repayment of creditors’ claims. According to Mr. Korobov, thanks to his actions, 141 residential and 9 non-residential premises were transferred to equity holders in the amount of 697.99 million rubles, which paid off 78.5% of the register of creditors. AC specified that it had negotiated with the Fund for the Protection of the Rights of Shareholders, found an investor and a new developer to complete the construction, and the house was put into operation in December 2020.

The Arbitration Court of St. Petersburg and the Leningrad Region recognized the AC’s right to interest. The court noted that the manager “chosen the most optimal procedure for satisfying the requirements of equity holders”, and these results “would not have been achieved without the active work of the AC.” The appeal agreed with this decision, adding that the register of shareholders’ claims “is part of the register of creditors’ claims.” But the cassation canceled both decisions, considering that the specifics of the requirements of equity holders “does not imply the establishment of interest on the remuneration of the AC if they are repaid not in cash,” but by transferring residential premises.

Konstantin Korobov complained to the Supreme Court, insisting that there are no special rules for remuneration of ACs in the bankruptcy of developers in the law, so general rules apply. In addition, the law does not limit the right of the manager to interest in the event that the requirements of equity holders are met, the complaint says. AC emphasized that the transfer of apartments is not only “the most effective way to meet the requirements of equity holders, but is also expressly provided for in Art. 201.11 of the law (repayment of claims of equity holders)”, and the reverse approach could “provoke abuses on the part of managers”, stimulating them to “economically inexpedient” actions for the debtor and creditors. According to the applicant, the transfer of the premises of the completed house “should be considered as the sale of the debtor’s property, leading at the same time to the satisfaction of creditors’ claims.” Based on these arguments, the case was referred to the Economic Collegium of the Armed Forces, the hearing was scheduled for May 15.

The lawyers and AC welcome the submission of the dispute to the Supreme Court, noting the importance of the issue, since it is a matter of significant amounts. According to Aleksey Antonov, a member of the Board of the Arbitration Managers Union “Avangard” Alexei Antonov, the Supreme Court often ruled in favor of creditors who asked to reduce the percentage remuneration of the manager or even refuse it. Meanwhile, this approach “affects the motivation of the AC to support complex and labor-intensive bankruptcy procedures for developers.” “Who wants to conduct a procedure without being able to receive a reward in the future?” – says Mr. Antonov.

Ivan Stasiuk, adviser to the RCT consulting group, believes that in the case of Konstantin Korobov “there are chances for a decision in favor of AC”. He explains that “usually, interest is allocated from the proceeds of the debtor, most of which goes to creditors, and a small part to the manager.” But in the case of the transfer of apartments to citizens, the money does not go to the bankruptcy estate, so the remuneration of the AC will be paid from the proceeds from the sale of the bankrupt’s property or challenging his transactions. This affects the rights of other bankrupt creditors who are not equity holders, who also claim this money, says Ivan Stasyuk. However, this developer has no other creditors.

According to Sergei Domnin, if the bankruptcy estate already had ready-made apartments, and the fund was involved in the completion of the house, then the manager would not be entitled to interest. But here “the AC itself attracted a private investor to complete the construction of the house, and only for this reason the object was finalized,” Mr. Domnin emphasizes, and “in this case it would be unfair to leave the manager without interest.” Daniil Savchenko, managing partner of Arbitrazh.ru, agrees that it is impossible to completely deprive the manager of the “incentive reward for the implementation of the rehabilitation plan for the transfer of apartments to equity holders”, especially when the facility was completed “directly in the bankruptcy procedure”. He notes that the procedure for paying these percentages is unclear, believing that they “can be attributed to priority costs”, such as the cost of completing the facility.

Ekaterina Volkova, Anna Zanina