During the bankruptcy proceedings against a construction and assembly group (“debtor”), its bankruptcy trustee filed with the court a request for imposition of secondary liability for the debtor’s liabilities on our client.
The legal dispute was aggravated by the fact that some time ago both the client and the debtor had been members of the same group of entities.
Another factor complicating the mater was that it was the second legal action brought by the bankruptcy trustee against our client. Previously, the bankruptcy trustee filed with the court a claim for invalidation of a real property sale and purchase deal between our client and the debtor for reasons provided for by the bankruptcy (insolvency) laws. Regretfully, the case was lost by the client as the court decided that the deal had been made with the purpose of causing harm to the debtor’s creditors and ruled that the real property should be included again in the debtor’s bankruptcy estate.
After the client had lost the first case, it asked us for defense in the secondary liability proceedings initiated against it.
In the first case lost by our client, the court established (wrongly, in our opinion) inter alia the existence of legal and factual affiliation between the debtor and our client.
Based on the outcome of the first case, the bankruptcy trustee maintained in the second case that cessation of corporate connections between the debtor and the client was merely formal, factual affiliation remained in place and that our client influenced the debtor’s resolutions (including the resolution to make the deal which was challenged). During the proceedings the bankruptcy trustee insisted that all other deals and actions which, in his opinion, brought about the debtor’s bankruptcy had been made under the influence of our client.
The AGP attorneys were faced with a hard task: after the adverse conclusions (which were wrong, in our opinion) in respect of our client had been set out by the court in the reasons of its decision rendered in the first proceedings, we had to demonstrate to the court that factual affiliation did not mean that the client influenced the debtor’s resolutions and that the client had been prior to the making of the deal challenged and remained at the time of its making and thereafter the debtor’s bona fide counterparty who may not be held secondarily liable for the debtor’s liabilities.
The case was examined by the Moscow Arbitrazh (Commercial) Court and the Ninth Arbitrazh (Commercial) Court of Appeals. Both courts accepted our arguments and dismissed the bankruptcy trustee’s allegations.
This case is a telling example of the situation which, in our view, is not rare in practice. From our observations we see that in cases over challenging of deals defendants very often fail to pay due attention to factual affiliation arguments. As a consequence, court’s arguments about factual affiliation have a serious impact on the outcome of secondary liability proceedings. Even if a deal cannot be defended, one should note that challenging of the deal in court and loss of the property acquired thereunder does not mean that all troubles are over. As the next step, the bankruptcy trustee is likely to try to impose secondary liability for the debtor’s debts on the other party to the deal. It is worth thinking over the strategy of defense against such potential claim even at the stage of defense against a claim for invalifation of the deal.
The client’s defense team included AGP attorneys Alexey Gorodissky and Dmitry Yakushev and associate lawyer Yana Dovzhikova.
