The Supreme Court allowed foreign companies doing business in Russia to go bankrupt

The Supreme Court recognized the legality of the introduction of bankruptcy proceedings by Russian courts in relation to foreign legal entities that have a “close connection” with Russia. The procedure may cover all assets of the debtor, regardless of their country, or only property in Russia. Such conclusions were made by the judicial panel for economic disputes of the Supreme Court, its conclusion is given by Interfax.

The board considered a complaint about the courts’ refusal to introduce bankruptcy proceedings against the Cyprus-based Westwalk Projects Ltd.—the company owned three shopping centers in the Moscow region. During the division of assets between Alexey and Konstantin Mauergauz, who, after the sale of the Paterson retail chain to X5 Group, began to create local shopping centers, these objects were transferred to the authorized capital of another Cypriot company – AMN Commercial Property Advisors Ltd. The companies transferred all rights and obligations under the lease agreements. Westwalk committed to handing over the security deposits from the tenants, but never did so. After this, AMN collected more than 6 million rubles from Westwalk through the court. and filed a bankruptcy petition with the Moscow Arbitration Court. The basis for bankruptcy was the presence of a branch in Russia.

However, the court of first instance, as well as the appeal and cassation, terminated the proceedings, citing the fact that bankruptcy of the branch was not provided for. The courts considered that the debtor is a foreign person who does not work in Russia, like its Russian branch. According to Art. 1202 of the Civil Code of the Russian Federation, the liquidation of a legal entity, including forced liquidation, must follow the laws of the country where such a person was registered. However, the Supreme Court panel did not agree with this argument.

“The current national legislation does not exclude the initiation by a Russian court of insolvency (bankruptcy) proceedings, complicated by a foreign element, both on the side of the creditor (in particular, the applicant in the bankruptcy case) and on the side of the debtor,” the board’s decision says.

The Supreme Court ruled that the key point in resolving the issue is the presence or absence of a close connection between the debtor and Russia. The court provides an open list of circumstances that may indicate such a connection: the center of the main interests of the debtor’s controlling persons is located in Russia; commercial activities are aimed at Russians; location of property assets in Russia; Russians among creditors; as well as concluding transactions with a place of execution in Russia. Depending on where the center of the main interests of the foreign debtor is located – in Russia or abroad, the court will be able to initiate main or local bankruptcy proceedings.

Why tax authorities were prohibited from liquidating a bankrupt before the end of the proceedings – in the Kommersant publication “Courts extend the life of a company”.

Anastasia Larina