The Armed Forces will deal with the inviolability of the housing of a bankrupt citizen

The Supreme Court of the Russian Federation (SC) will determine how broad the powers of the financial manager to search for the assets of a bankrupt citizen are. In particular, if the manager ended up in the debtor’s apartment together with the bailiff to seize a specific item, can he draw up an inventory of all property that is not prohibited from being recovered. The decision will be made as part of the bankruptcy case of Evgeny Bernshtam, the founder of the microfinance organization Home Money. Experts interviewed by Kommersant emphasize the importance of balancing the interests of creditors and the personal rights of the debtor.

The Supreme Court will clarify the powers of the financial manager (FinU) in relation to the property of the debtor citizen. As part of the bankruptcy of Yevgeny Bernshtam, in February 2020, the arbitration court ordered the debtor to transfer to the manager a private collection of figurines “We all come from childhood” worth 201.6 million rubles. The debtor did not do this, after which the manager applied to the court for the right of access to Mr. Bernshtam’s apartment. But in May 2021, the court rejected the petition, since the businessman was then under house arrest as part of a criminal case and he was forbidden to communicate with anyone other than lawyers, an investigator, law enforcement agencies and special services.

The investigation of the criminal case against Yevgeny Bernshtam for fraud on an especially large scale has been ongoing since 2018. According to investigators, the company was actually a financial pyramid and did not plan to return money to investors. In July 2019, the businessman was detained and sent to a pre-trial detention center, in the same month he was declared bankrupt. Then Mr. Bernshtam was transferred under house arrest, and later released on bail. In July, the Khoroshevsky District Court of Moscow sentenced the founder of Home Money to five years in prison and put him on the wanted list.

In the meantime, the judicial act on the seizure of the expensive collection was handed over to the bailiffs for execution. In March 2022, the bailiff inspected the Moscow apartment of the debtor in the presence of FinU, but neither the collection nor Yevgeny Bernshtam himself was there. Having learned that the manager got into the bankrupt’s apartment, his creditor Sovcombank considered that FinU should have carried out an inventory of all the property in it. The creditor demanded that FinU conduct an inventory of the property without a separate judicial authorization, which he did not do. The bank complained to the court about the inaction of the manager, which “causes significant damage to the property rights of creditors.”

The Moscow Arbitration Court in August 2022 rejected the bank’s complaint.

The court concluded that the manager acted in a timely manner and was not entitled to describe all the property of the debtor as part of the actions to seize the collection.

But the appeal with cassation took the side of the bank, deciding that the law does not limit FinU in a complete inventory of the bankrupt’s assets. According to the courts, it was necessary to make an inventory immediately, as the manager got into the debtor’s apartment, in order to do “without unreasonable time and material costs.”

FinU applied to the Supreme Court. He stated that, as a recoverer, he could only be present when the bailiff was searching for a collection of figurines in the debtor’s home and could not conduct a full inventory of assets, since this was “out of the scope of authority”. In addition, a few months after the removal of house arrest, in August 2022, the manager obtained judicial permission to access the bankrupt’s apartment. The dispute was referred to the Economic Board of the Armed Forces, its consideration is scheduled for October 5.

Ekaterina Smelkova, Senior Associate at BGP Litigation, notes that in relation to access to housing, the SC has previously called for “ensuring a fair balance between the property interests of creditors and the personal rights of the debtor”, including for a decent life and dignity of the person. Therefore, “the actions of the administrator to search for the debtor’s property should not be arbitrary and unmotivated, even if they are required by creditors,” Pavel Mingaleev, a lawyer at the LEVEL Legal Services dispute resolution practice, clarifies.

At the same time, the debtors themselves “often do not agree to provide access to the dwelling,” says arbitration manager Sergei Domnin: “This is a common problem, and FinU can only force the debtor in court.”

The manager Pavel Zamalaev notes that even if there is a court decision, “the debtor may simply not open the door, for which he will receive only a fine,” and against the will of a FinU citizen, he can only get into the apartment with the help of bailiffs.

Valeria Gerasimenko, Chairman of the Council of the Union of Arbitration Managers “National Center for Restructuring and Bankruptcy”, admits that “despite the broad powers of the FinU under the law, in practice they are limited.”

If the enforcement of the judicial act is transferred to the bailiffs, then the decision on certain actions in the debtor’s home is made by them, and not by the manager, emphasizes Pavel Mingaleev. Moreover, even if FinU would have carried out a complete inventory, he, “most likely, would not have been able to ensure the safety of property at that time,” which would make the inventory useless, Mr. Zamalaev believes.

Ms. Smelkova supports the manager’s position, believing that if there was a court decision to refuse access to the dwelling, he was not entitled to describe all the property. If FinU, having learned about the removal of house arrest from the debtor, “promptly applied to the court for permission to get into the apartment, there is no reason to talk about his illegal inaction,” Ms. Gerasimenko believes. In general, in her opinion, “there is a gap in regulation, since now the norms of the criminal procedure prevent the manager from fulfilling his direct duties within the framework of bankruptcy.”

Anna Zanina, Ekaterina Volkova