Changes to bankruptcy law in Russia

On 1 July 2002, the Russian Duma passed in the third reading the draft bankruptcy law which, when enacted, will supersede the 1998 bankruptcy law. The bill is intended to enhance creditor protection and includes:

• the introduction of a debt threshold below which an organization cannot be subject to bankruptcy proceedings: the threshold is set at 100,000 roubles (approximately US dollars 3,225);
• a right for the founders of an otherwise insolvent company to petition the court for the imposition of a two-year rehabilitation period;
• a requirement on creditors to show they have exhausted all other appropriate means (including taking court action) to recover the debt in question;
• a right for the company in rehabilitation to make payments due and payable to its creditors;
• enhanced rights of appeal against the imposition of bankruptcy proceedings;
• a right for shareholders to vote for or against additional share issues which are proposed during the observation procedure (a court ordered arrangement);
• the right of the State to vote at creditors' meetings on issues related to tax and other budgetary payments which are due yet unpaid as at the date of bankruptcy. Note that the State is not a priority creditor and will take at the same level as other unsecured creditors; and,
• stricter screening and selection processes for bankruptcy managers, whose liability would be subject to mandatory insurance.

Although the bill passed its third reading in the Duma, the main presidential legal department has declared that it contains several contradictory articles (for example, according to one article courts should apply the new law only to new bankruptcy cases; while according to another, the new law may be applied to cases already underway) and has demanded that the draft be returned to the Duma for a re-run of the second reading.

For further information please contact David Griston at [email protected] or on 00 7 095 2585000