Why you can remove the arbitration manager

The Supreme Court of the Russian Federation (SC) recognized that reasonable doubts about the impartiality and affiliation with the debtor of the arbitration manager (AC) are sufficient to refuse to appoint him to the bankruptcy case. The direct affiliation of the AU with the bankrupt need not be proven. The lower courts came to opposite conclusions, and the case, following a complaint from creditor banks, went to the supreme court. Lawyers note that the Supreme Court is consistently implementing a policy of “high standard of behavior for AC”, but they call for doing this in a balanced way.

The Supreme Court clarified the conditions for the removal of the AC from the bankruptcy of the company. In September 2022, the court declared the IT integrator RedSys LLC (in 2015-2018 acted as a supplier of the Pension Fund of the Russian Federation) bankrupt and appointed Mikhail Yasenkov as the manager (.pdf).

The initiator of the bankruptcy was Gefest Holding LLC, in October 2021 it was replaced by AKS Company JSC. The court confirmed the legality of the choice of the manager, since his candidacy was agreed upon by the meeting of creditors.

However, the appeal rejected the AC candidacy, noting his interest “in connection with the representation by the same group of persons of the interests of Mr. Yasenkov, the debtor and the beneficiary of the debtor” (see “Kommersant” dated July 20). The court explained that AKS paid off the debts of RedSys to other creditors who tried to initiate bankruptcy in order to approve Mikhail Yasenkov’s AS. Cassation canceled the decision of the appeal.

Creditors BM-Bank, Promsvyazbank and Trust Bank applied to the Supreme Court, believing that in order to change the manager, it was not necessary to prove “his direct affiliation with the debtor or creditor”.

The complaint stated that there was sufficient information indicating “doubts about the independence of the AU”. As a result, the Economic Board rejected Mr. Yasenkov’s candidacy.

The Supreme Court acknowledged the absence of “economic expediency” in the fact that AKS bought out the debts of RedSys for 7 million rubles, and the debtor himself repaid 5 million rubles, while the register includes claims “for more than 600 million rubles. and announced another 6 billion rubles. The court also did not agree that Mikhail Yasenkov was approved by the meeting of the debtor’s creditors, since the claims of the creditors who voted amounted to about 400 million rubles, which is “ten times lower than the amount already declared at that time.” Thus, the chosen candidate “did not reflect the will of the real majority” and her appointment was “at the suggestion of a minority creditor,” the decision says.

In this case, the “conscientious and independent” manager should have postponed the meeting “to give all participants the opportunity to speak,” the Supreme Court specified. And since “any doubts about the independence of the AU are interpreted against it”, then the doubts of the appeal are justified. There is no need to “prove direct affiliation with the debtor or related persons” in this case, the Supreme Court admitted. As a result, the court upheld the decision of the appeal, noting that the creditors must re-vote on the choice of a new candidate for the AC.

According to ProLegals partner Elena Kravtsova, the decision is “positive for independent creditors,” as the Supreme Court continues “the practice of fighting the approval of AU candidates loyal to the debtor and persons associated with it.”

It is important that the Supreme Court called “the totality of signs and actions of creditors and the AC itself” as grounds for affiliation, that is, the “actual behavior” of the latter, said Valeria Gerasimenko, head of the council of the union of arbitration managers “National Center for Restructuring and Bankruptcy”.

MGP Lawyers lawyer Denis Bykanov considers it important that the board used “a quantitative criterion when comparing the size of the debt manipulatively redeemed by the debtor and the creditor associated with it.” Thus, “the debtor was convicted of circumventing the law,” the lawyer explained.

According to Igor Guskov, a partner at Guskov & Associates, AU found itself in an “ambiguous position” with regard to the meeting of creditors. On the one hand, he had to postpone the meeting, because even then the register included a creditor, “whose claims will become majority.” On the other hand, the first instance has already refused this creditor’s request to take interim measures “in the form of blocking the meeting until the relevant requirements are considered,” the lawyer clarifies. Nevertheless, the Supreme Court indicated that even if such measures are denied, the manager must “approach procedural issues reasonably”, recalling the “high standard of behavior for the AC,” Mr. Guskov notes.

At the same time, Ms. Kravtsova draws attention to the fact that the decision of the Supreme Court “has a downside – a tendency when the courts, even in the absence of proper evidence and considering only doubts about the independence of the candidate, will use a random selection method contrary to the decision of the creditors.” She emphasizes that it’s important to “keep a balance and understanding” as an AC having experience with independent lenders “can be better and should be a higher priority than random court selection.”

Ekaterina Volkova