The Supreme Court stopped a widespread scheme to reduce the price of an asset at bankruptcy auctions

The Supreme Court of the Russian Federation (SC) stopped a widespread scheme to reduce the price of an asset at bankruptcy auctions. The evasion of the auction participants who offered the highest price from purchasing the property made it possible to sell the asset at a significantly reduced price. The Supreme Court declared the auctions invalid, noting that their purpose was to reveal the market value of the property, and not to follow a formal procedure. According to bankruptcy experts, establishing a high deposit amount and removing the restriction for the manager to enter into an agreement for the sale of property only with the first two bidders who offered the highest price can help in the fight against such schemes.

The Supreme Court considered the case of challenging bankruptcy trading. The property complex (land plots with greenhouses, warehouses, shops and equipment) of the bankrupt LLC Greenhouse Plant Belorechensky was put up for auction for 612 million rubles, the deposit for participation was 1 million rubles. The winner of the auction in April 2021 was Varvara Gerasimenko (agent of IP Timur Aleksenderov), who offered 1.35 billion rubles, but due to non-payment, the auction was declared invalid. Those with the right of first refusal – enterprises engaged in the production and processing of agricultural products and owning plots adjacent to the lands of the bankrupt plant – did not want to purchase the greenhouse complex at this price.

At the second auction in July 2021, with the starting price lower by 10% (550.9 million rubles), the situation repeated itself: Ms. Gerasimenko won with a price of 1.3 billion rubles, but did not sign the contract. The manager offered to conclude a deal to the participant who took second place in price – Stanislav Ryabchikov, who evaded payment. The repeated auctions were also declared invalid. Then the manager suggested that the secured creditor, Gros Retail LLC, keep the property at a price that was another 10% less (RUB 501 million). After the creditor’s consent, the asset was offered for this price to persons with the right of first refusal – and the complex was eventually bought by OOO Vegetables of the Krasnodar Territory, which neighbors the bankrupt.

The debtor’s creditors (JSC Federal Corporation for the Development of SMEs and JSC Greenhouse Plant Progress) challenged the auction as conducted with violations. The receiver, the secured creditor and the purchaser of the asset objected to the claim. The arbitration courts decided that the auction was legal and “took place in a competitive environment.” In addition, the judicial acts say, if it was not possible to sell the asset to the winning bidder and the second bidder with the highest price, “the manager does not have the right to consider the third, fourth and subsequent price offers” to conclude an agreement.

The creditors appealed these decisions to the Supreme Court, insisting that “actions took place that distorted the very essence of the auction,” as a result of which the debtor’s property was sold at a price significantly lower than any of the offers made by the participants during the auction. The case was transferred to the Economic Collegium of the Supreme Court, which overturned the judicial decisions.

The Supreme Court agreed that there were no formal violations of the law. However, the board emphasized, within the meaning of the rules on bankruptcy auctions, “the transition from one procedure to another, accompanied by a constant decrease in the initial sale price, must be due to an objective circumstance – the lack of demand.” It can be confirmed by “failure to submit applications for participation in the auction” or the evasion (refusal) of bidders from concluding and executing a sales contract. Here, in both auctions, the highest prices were offered by the same persons, but their subsequent behavior “indicated that they had no real intention to purchase the property.” “Due to their dishonest behavior, the bids of other bidders were essentially blocked,” the Supreme Court said.

Thus, the board summarized, “if there was demand for the property, the results of the auction among real contenders were not summed up, and the initial sale price was unreasonably reduced.” This “contradicted the very essence of bankruptcy auctions,” the meaning of which is to determine the actual value of the property “in accordance with objectively existing demand,” so the final price “cannot be considered fair,” the Supreme Court concluded. The auction was declared invalid, and the case was sent to the first instance to resolve the issue of consequences.

This is a common scheme for reducing prices at bankruptcy auctions, lawyers say. “Most often, several participants who have agreed in advance submit multiple applications in order to discourage independent individuals,” explains Elena Kravtsova, partner at the ProLegals law firm. “The purpose of such dishonest actions is to transfer a liquid asset at a reduced value to a specific interested party,” continues Denis Krauyalis, junior partner of the Yakovlev and Partners law group. “In fact, trading is blocked, and instead of selling the property at the highest cost, the price is reduced at each subsequent stage.” . At the same time, the lawyer admits, “at first glance, everything looks legal, since unscrupulous persons take advantage of gaps in legal regulation.”

Explanations from the Supreme Court on “how courts should react and what signs may indicate dishonest behavior of bidders” will help combat such actions, Elena Kravtsova believes. Mr. Kraujalis notes that practice has not yet developed clear criteria by which signs of coordination of actions can be determined.

Arbitration manager Pavel Zamalaev draws attention to the fact that the deposit was only 0.15% of the initial price of the asset, which is “unnaturally small,” and if the deposit had been set at 20% (about 120 million rubles), only the participant with real intention to purchase the asset. In addition, in his opinion, it is necessary to allow the manager to sell the property not only at the first two highest bids at a price, but also at subsequent ones if their bids are greater than the initial cost of the asset.

Anna Zanina