The St/ Petersburg International Legal Forum is one of leading platforms for discussing most urgent matters of law. Traditionally, speakers are reputable legal experts and practitioners. This year AGP was represented SPBILF by Dmitry Yakushev, attorney of Litigation/Arbitration department, who spoke at the session ‘Controlled Bankruptcy: What a Minority Creditor Should Do?’
Dmitry spoke about the most frequently practiced method of seizing control of bankruptcy proceedings, namely repurchase of independent minority creditors’ claims under an assignment agreement aimed at increasing the vote percentage. Usually, the debtors or their beneficiaries are behind this. In some cases repurchase of claims may be used by competing groups of creditors with the same aim, i.e. to increase the percentage of their share in the register of creditor claims and to control the bankruptcy proceedings.
Dmitri dwelled at a greater length on the current case law relating to replacement of creditors under assignment agreements. In most cases courts apply heightened proving standards to assignees and require that they should disclose economic reasons for purchase of claims against the bankrupt company as well as the source of relevant money. With such approach at hand, the other parties to bankruptcy proceedings may prevent the debtor’s affiliates from increasing the percentage of ‘friendly’ votes on the register.
Dmitry also provided a brief opinion regarding the Ruling of the Russian Supreme Court of August 20, 2020 (matter # 305-ЭС20-8593) in the bankruptcy proceedings against MTK – ERA LLC. The Ruling brought about a broad discussion among legal professionals, as the Supreme Court in fact protected the debtor affiliate’s right to purchase another’s creditor’s claim, while the claim does not become subordinate (does not change its priority). In Dmitry’s opinion, the Court examined a parochial legal question of whether purchase of the debtor’s claim could be regarded as its compensatory (covert) financing. Potentially, after purchase of the claim the affiliate may grant the debtor a grace period for performance of its obligation so that the debtor should not formally be required to apply for bankruptcy in court. So, the debtor’s creditors may be misled about its actual financial status.
Finally, Dmitry mentioned that the approach of the Supreme Court in the case concerned would not have any significant effect on the established case law requiring the heightened proving standards for inclusion in the register of claims purchased from creditors under assignment agreements, because courts should in any event assess whether such deals meet the bona fide and economic viability criteria.
