The Supreme Court will for the first time consider the issue of extending the deadline for the debtor to implement the restructuring plan
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The Supreme Court of the Russian Federation (SC) will for the first time consider on the merits a dispute related to the execution by a debtor citizen of a restructuring plan. This procedure is a court-approved installment plan to repay a debt so that a person can avoid being declared bankrupt. The payment period may be extended by the court, contrary to the opinion of the creditors, if the execution of the plan within the allotted time “proved impossible due to force majeure.” What kind of circumstances these are and whether the bank’s opposition to the removal of collateral from real estate for its sale applies to them will be decided by the Supreme Court. Lawyers say the criteria are “very subjective,” but courts usually take into account the debtor’s good faith and activity.
The Supreme Court will consider extending the deadline for a debtor citizen to execute a restructuring plan so that he can pay off creditors and avoid bankruptcy. The insolvency law allows you to introduce a special procedure for a citizen – a restructuring plan, which must be approved by creditors and approved by the court. The maximum term of the plan is five years, or three years if the creditors are against it, but the court is in favor. At the request of the citizen and with the consent of the creditors, the court may extend the period. Against the will of the creditors, this is possible only if the debtor proves that execution of the plan on time “proved impossible due to force majeure.”
In October 2020, Nikolai Pushkin filed for bankruptcy of Arina Balakireva due to a debt of 64.8 million rubles. In June 2021, with the consent of the sole creditor, the Moscow Arbitration Court approved a restructuring plan for a period of one year. It provided that “the debtor will take measures” to remove the encumbrance (collateral in favor of Investtorgbank) from land plots with an area of 3803 square meters. m and houses with an area of 691.6 sq. m in the Moscow region. After this, Arina Balakireva must sell the land with the house for 218.7 million rubles. with the right to reduce the price to 170 million rubles. In July 2022, the court extended the plan until October 15 “due to delays in removing the encumbrance.”
In September 2022, Ms. Balakireva again asked to extend the deadline, since she did not have time to remove the collateral and sell the property, but was refused due to the fact that the creditor changed her mind and voted to cancel the restructuring. The court did not recognize the delay in the removal of bail as “force majeure.” As a result, in December 2022, the restructuring plan was canceled, Arina Balakireva was declared bankrupt and a procedure for the sale of property was introduced in her regard. The appeal and cassation agreed with this decision. The court documents say that now the sale of real estate “will be carried out by a financial manager in the manner prescribed by law under the control of the court and creditors” and there is no evidence that the proceeds from the sale will be less than those from the sale by the debtor herself.
However, following a complaint from Ms. Balakireva, Deputy Chairman of the Supreme Court Irina Podnosova referred the dispute to the economic board. A hearing is scheduled for March 4. In the complaint, the debtor objected to declaring herself bankrupt, emphasizing that the value of the property was 3.5 times the amount of the debt, and her actions and behavior within the framework of the plan “clearly indicated an intention” to fully pay off the creditor. According to Arina Balakireva, “she was objectively deprived of the opportunity to fulfill the plan, since the removal of encumbrances was delayed due to active opposition from the bank, which initiated several lawsuits (including the adoption of interim measures).”
The fact is that Investtorgbank, which in 2014 received a court decision to collect the loan debt from Ms. Balakireva, missed the three-year deadline for enforcing the decision, which is why it was not included in the register of creditors. Despite this, the bank did not agree to voluntarily remove the pledge from the property. This led to litigation, in which the courts nevertheless recognized the pledge as missing, which made it possible to clear the record of this in Rosreestr. But this happened only on October 22, after the expiration of the plan, Ms. Balakireva indicated.
Senior lawyer at Asto Consulting Dmitry Avdeev notes that this is the first time such a dispute will be considered by the economic board. “In general, rehabilitation procedures in bankruptcy of both citizens and legal entities are a rather rare phenomenon,” he clarified. Delcredere lawyer Alexander Spiridonov calculated that in 2023, one restructuring plan accounted for over 560 decisions declaring citizens bankrupt. “Therefore, the issue of applying the rehabilitation procedure that has reached the Supreme Court attracts attention. Moreover, the case was transferred to the economic board for consideration by the deputy chairman of the Supreme Court, which happens very rarely,” notes Mr. Spiridonov.
At the same time, against the backdrop of an increase in the number of bankruptcies, the number of restructuring plans approved by the courts is also growing: according to Fedresurs, in January-September 2023, their number increased by 37%, to 441. This increases the need for clarification of the rules of procedure.
“Assessing the possibility or impossibility of extending the deadline for implementing the restructuring plan is a subjective category,” emphasizes Dmitry Avdeev. “In each specific case, it is necessary to take into account the circumstances of this particular case.” “In general, the courts base their judgment on whether it is reasonable to extend the plan and whether it is really aimed at maintaining a balance of interests between creditors and the debtor,” adds arbitration manager Alexey Antonov.
Usually, Mr. Spiridonov clarifies, in practice, the courts agree to extend the plan in the event of the debtor’s temporary loss of ability to work, serious illness or other insurmountable circumstances caused by external factors. “These may include circumstances beyond the control of the citizen himself, for example, if the bailiff did not lift the seizure of the property in a timely manner, which made it impossible to sell it,” explains Mr. Antonov.
“In any case, the courts evaluate the citizen’s integrity,” emphasizes Mr. Spiridonov. Most often, according to Alexey Antonov, the courts accommodate the debtor if he has already repaid part of the debt and is taking active steps within the framework of the plan. “As a rule, the reason for the extension is completely objective circumstances – when the debtor is confidently moving towards success, but does not have time to do something. They refuse when the debtor’s behavior and the progress of the restructuring plan do not meet reasonable expectations,” concludes Mr. Avdeev.
Dmitry Avdeev considers Arina Balakireva’s chances of getting support in the Armed Forces high. If there were no abuses on the part of the debtor and her actions “are not aimed at deliberately delaying” the process of removing the pledge and selling the property, her arguments deserve attention, Mr. Antonov agrees, especially “given the significant excess of the value of her property over the amount of the debt.”
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