Lenders against creditors – Economics – Kommersant

The Supreme Court of the Russian Federation (SC) for the first time recognized the fundamental possibility of holding bankrupt’s creditors liable for approving transactions unfavorable for the debtor. The precedent ruling was made in the bankruptcy case of Vyborg Timber Corporation LLC (VLPK), in which minority creditors and the Federal Tax Service received the right to seek damages from large creditors and beneficiaries of the transaction. Lawyers say that the position of the Supreme Court will make it possible to fight “controlled bankruptcy”, but it can also become another tool for the struggle of different parties within the framework of the procedure.

The motives for which the Supreme Court of the Russian Federation sent the dispute of VLPK creditors (declared bankrupt in April 2018) for a new consideration became known. Details about the case and the clash of interests of different businesses in it “Kommersant” told on November 13. But the decision of the board will be of great importance not only for this dispute, lawyers say.

Civil war of creditors

The conflict between VLPK creditors arose due to a processing agreement with MFC Capital LLC (the customer, 99.98% owned by the ONEXIM group), according to which the debtor undertook to store and process customer-supplied raw materials, producing pulp and paper products and shipping them to the customer. “MFC Capital” had to pay for a comprehensive service at the rate of 11.2 thousand per ton of finished products of any kind. The conclusion of the agreement was approved by the meeting of creditors of the bankrupt in May 2018, and then in August 2020.

The tax authorities involved in the case demanded to recover 9.65 billion rubles. losses (the amount of profit received by the defendants) from a group of persons, including the bankruptcy trustee (CU), MFC Capital, Severnaya cellulose LLC (the MFC sold raw materials for VLPK, received finished products and then sold them on the foreign market) and Tavrichesky Bank (with 2015 at the reorganization of the bank IFC, which is part of the ONEXIM group, is affiliated with the customer and acts as a major creditor of the bankrupt).

According to the Federal Tax Service, the manager is controlled by these companies, and the defendants “used the processing scheme to the detriment of the interests of the debtor and his creditors.”

At first, the claim was completely rejected, then the cassation sent the claim to the manager for review, making it possible to recover losses from him. At the same time, the court recognized the processing agreement as unprofitable for VLPK, since the payment for services did not even cover their cost. Nevertheless, the rest of the defendants, according to the cassation ruling, cannot be held liable, since “they were not persons who controlled the VLPK in the period preceding its bankruptcy, and did not form the debtor’s management body, identical to the corporate one.”

Inzhpro LLC (a minority creditor of the bankrupt VLPK) appealed to the Supreme Court, demanding that the court decisions be canceled regarding the refusal to hold two companies and the bank liable. The applicant insisted that the scheme, under which the debtor continued to accumulate losses, while the profits went to MFC Capital and Severnaya Pulp, “was built not by one CU, but by the concerted actions of a group of persons.” The tax authorities, Fjord LLC (creditor) and the owner of the debtor Vyborg Limited (Jersey) joined this complaint to the Supreme Court.

Joint responsibility

The case was referred to the Economic Collegium of the Armed Forces, which canceled all judicial acts and sent the dispute for a new consideration, giving detailed explanations about the possibility of holding creditors liable.

Thus, the Supreme Court clarified that in order to recover damages caused in the course of bankruptcy proceedings, it is not necessary to have control over the debtor before its bankruptcy and corporate ties. In addition, losses from creditors can be recovered not only on bankruptcy grounds, but also according to general civil norms on compensation for harm, to which the Federal Tax Service referred.

Moreover, regardless of how the requirements are formulated in the lawsuit and which articles of the law the plaintiff referred to, “the court must independently qualify the presented claim”, applying the legal norms necessary to resolve the dispute, recognized the Supreme Court.

Also, the courts had to check the arguments of the Federal Tax Service, which doubted the “feasibility of creating a chain of legal entities involved in the production and marketing of products manufactured by VLPK.” According to the calculations of the tax authorities, the activity for the manufacture of products on the production base of the bankrupt is quite profitable, and earlier the debtor himself carried out the entire cycle. The intermediaries did not contribute anything new, but made a significant profit. The defendants insisted on the validity of the scheme, since VLPK could not continue its production activities due to the lack of working capital for the purchase of raw materials and materials. The courts did not evaluate these arguments and did not disclose the role of each of the participants in the processing scheme, the economic board noted.

If the joint infliction of harm by managers and other persons is proved at the new consideration, “the entire group is liable,” admitted the Supreme Court: “A different approach makes it risk-free and leaves unpunished the illegal activities of persons participating in such a scheme and accumulating all the profits.”

The Supreme Court also allowed inferences to be made about the intent of individuals to cause harm, even on the basis of circumstantial evidence indicating that “most likely the event occurred as a result of concerted actions.”

All against all

“This is the first time that the Supreme Court has directly recognized that a majority creditor who controls the bankruptcy procedure with the help of a manager appointed by him should be held liable for his abuse of his power,” said Oleg Zaitsev, chairman of the Bankrupt Club. According to him, so far in such cases, only the manager has been held liable, which “was unfair.”

Oleg Khmelevsky of the A1 Bar Association clarifies that “in Russian realities, bankruptcy is often used by unscrupulous persons to obtain unjustified advantages over other persons or to extract unjustified benefits.” Therefore, “it is reasonable that the affected creditors want to compensate for the harm caused to them and should be able to do so,” said Valeria Tikhonova, senior lawyer for Vegas Lex bankruptcy projects. Moreover, she adds that bankruptcy cases in Russia often represent a “war of all against all.”

It is also important that the board recognized as inadmissible the elimination of judges from independent qualification of claims for the recovery of losses that arose in the bankruptcy procedure, says Tahmina Arabova, partner at Bartolius.

In addition, she adds, the courts can now apply the norms of the Civil Code on compensation for harm (Articles 15, 1069, 1080) in relation to creditors who are not corporately related to the victim.

In the future, the courts need to evaluate in more detail the terms of contracts with the debtor for their marketability in order to exclude abuse by unscrupulous creditors and arbitration managers, Oleg Khmelevsky believes. Oleg Zaitsev expects that the decision of the Supreme Court “will be another step towards breaking the model of controlled bankruptcy.”

However, Ms. Tikhonova admits that the possibility of recovering damages from creditors will become “another tool in the competition for the distribution of the bankruptcy estate” and will be used “not as a mechanism for compensating for the damage caused, but as a way of putting pressure on overly active persons.”

Anna Zanina, Ekaterina Volkova