The Supreme Court of the Russian Federation will decide what can prevent a person from becoming a bankruptcy trustee of a bankrupt financial organization

The Supreme Court of the Russian Federation (SC) will decide what circumstances may prevent a person from becoming a bankruptcy trustee of a bankrupt financial organization. In this case, the person who four years ago headed the temporary administration appointed by the Central Bank to this cooperative to restore its solvency is applying for the position of manager of a consumer credit cooperative (CCC). The opinions of the courts were divided – some consider his approval possible, others see this as a contradiction to the law. Lawyers and bankers believe that to avoid potential conflicts of interest, the same person cannot hold both positions, even at different times.

The Supreme Court will resolve the dispute over the candidacy of an arbitration manager for a financial organization (.pdf). As part of the bankruptcy of the Central Savings Bank CPC, in October 2022, the arbitration court of the Republic of Tatarstan appointed Ildar Sytdykov as the debtor’s bankruptcy manager.

According to the arbitration court, Mr. Sytdykov’s candidacy complied with the requirements of the law, and no evidence of his interest in relation to the debtor or creditors was presented.

The appeal overturned this decision, pointing out that before the cooperative was declared bankrupt, Ildar Sytdykov led the temporary administration appointed by the Central Bank to the Central Savings Bank to restore its solvency and ensure the safety of its assets. At the same time, paragraph 3 of Art. 183.25 of the bankruptcy law does not allow a person who is part of the temporary administration of the same financial organization to be approved as a management company, the appeal resolution states.

The district cassation supported the decision of the first instance, deciding that paragraph 2 of the same article applies here, according to which it is impossible to approve as the manager of a financial organization someone who has held the position of its head over the past three years.

But Ildar Sytdykov’s candidacy was presented four years after he ceased his duties as head of the temporary administration of the cooperative, so there is no prohibition, the cassation court decided.

KPK creditor Maya Rabkina filed a complaint with the Supreme Court, insisting that the ex-head of the temporary administration of the cooperative, in principle, cannot be approved as its manager. The Supreme Court was interested in the case, and it was referred to the Economic Collegium for consideration, the hearing is scheduled for November 23.

Lawyers note that in practice there is no uniform approach to restrictions for managers of such legal entities-debtors, and expect that the Supreme Court will put an end to the dispute.

Sberbank emphasizes that the position of the economic board in this case “will be applied not only in the bankruptcy of credit cooperatives, but also of financial organizations in general.” They note that the purpose of regulation is to appoint an “independent professional” as the manager of a financial organization. In this regard, the bank believes that a person who is part of the temporary administration of the CPC cannot be its arbitration manager, otherwise there are risks of “interest of members of the administration in the bankruptcy of the financial organization and a conflict of interest.”

Managing partner of the legal boutique K`AMELAWT, Anastasia Shamshina, also believes that paragraph 3 should apply here, which contains special rules for participants in the temporary administration. In her opinion, “such persons cannot be appointed by the CU regardless of the period that has passed since the end of participation in the temporary administration.” Senior lawyer at BGP Litigation Vladimir Klimenko adds that the point of the ban on appointing the head of the temporary administration as the bankruptcy trustee of the same financial organization is to ensure that the latter is objective. Moreover, the administration, represented by its head, is filing for bankruptcy of the organization and nominating a manager.

If we assume that there is no ban, “an absurd situation may arise when the head of the administration asks to appoint himself as manager,” argues Vladimir Klimenko.

In addition, as part of bankruptcy, the manager must check how the head of the temporary administration performed his duties and whether his actions caused losses for the KPK. Consequently, “there is a high probability of bias in relation to checking one’s own actions,” explains Vladimir Klimenko. In this regard, the absence of a restriction, Ms. Shamshina concludes, can lead to the temporary administration and the management company abusing their responsibilities and committing actions to the detriment of creditors, which “contradicts the goals of the bankruptcy procedure as a whole.”

Ekaterina Volkova, Anna Zanina