Challenging the debtor's transactions in bankruptcy of individuals: grounds, judicial practice, terms, consequences of cancellation

We have already written more than once that bankruptcy is different from bankruptcy. There is temporary, and there is real. In a temporary debtor, the debtor has a vested interest in restoring his solvency and preserving his property. In reality, he has no such hope. You will have to part with all the goods you have acquired, except for the fact that the merciful law leaves the bankrupt so that he does not die of hunger under the fence.

So the idea of “stashing” something so that you can return it later after all debts are written off can seem very tempting to some. And he will not be original in this.

Although Chapter X of Federal Law No. 127, which regulates the bankruptcy of individuals, has been in force for just under 5 years, the law itself has been working with legal entities for almost twenty years. And its creators were well aware that the management of ruined companies could reason in a similar way. They say the company is dying anyway. Debts will be written off regardless of the size of the bankruptcy estate. Why not use part of the remaining property for personal enrichment, “so that the property does not go to waste”?

A similar situation was provided for in Article No. 61.8 (clause 6) of Federal Law No. 127. Any investigation made by the debtor shortly before filing an insolvency application can be challenged if it has the suspicious signs listed in the article. In addition, the issue of challenging transactions is regulated by Article No. 166 of the Civil Code of the Russian Federation.

ATTENTION! A court-appointed financial manager reviews all of the debtor's transactions for the three years before bankruptcy. The first suspicious sign is that the deal is unprofitable for the debtor. For example, selling something at a clearly reduced price. Or gratuitous transfer. For legal entities, as a rule, these are unexpectedly generous bonuses or payment of royalties. For individuals, donating valuable property/real estate to relatives and friends.

Regulatory framework for challenging transactions in bankruptcy

Transactions are challenged by the same arbitration court that conducts the insolvency case, but outside the framework of the process itself. To do this, you must file a separate claim. One for each contested transaction.

The main character in the process is the financial manager appointed by the court. It is he who has the preemptive right to file such claims. Creditors, even if they have not only suspicions, but also evidence of illegality of transactions, must act through him. But if the meeting of creditors approved challenging the transaction, and the manager did not file a claim within the time period approved by the quorum, the claim may be filed by an authorized person at the meeting of creditors (Article No. 61.9 (clause 1) of Federal Law No. 127). The so-called bankruptcy creditor, the largest creditor, also has the right to file a claim.

Only transactions involving the debtor's own property are contested. Transactions made by him with other people's property by proxy cannot be contested. Also, even the most suspicious transactions cannot be challenged if they took place more than 36 months before filing for bankruptcy.

ATTENTION! Transactions will be 100% contested if they were made by the debtor after the start of the bankruptcy procedure without the approval of the financial manager. After the start of the procedure, the debtor’s property is considered seized; the citizen cannot dispose of it at his own discretion. But the financial manager may approve the sale of part of the property if it will help pay off debts, for example, during restructuring planning or a settlement agreement.

Any transactions (even those that do not bear special suspicious signs) will also be challenged if their terms violated the rights of children. In this case, the guardianship authorities, whose competence includes protecting the rights of minor citizens, will be involved in the bankruptcy case.

Who has the right to challenge a citizen’s transactions in bankruptcy?

The bankruptcy process of a citizen is accompanied by a financial manager who collects information about the debtor’s property and income. He forms the bankruptcy estate, conducts valuations, organizes tenders and distributes the proceeds among creditors.

Typically, challenging transactions falls on the shoulders of the financial manager. After discussing this issue with creditors, he goes to court with a statement. Subsequently, he takes part in the consideration of the case in order to prove the illegality of the transaction.

Bankruptcy creditors also have the right to apply to the court to challenge an illegal transaction. In this case, the financial manager participates in the consideration of the case as an interested party and supports their claim.

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Subject of dispute

The purpose of challenging transactions in bankruptcy is to prevent the debtor from fraudulently withdrawing property from the bankruptcy estate. That is, to evade responsibility to them and infringe on their rights. Not only purchase and sale or gift transactions are contested, but also any contracts that reduce the size of assets/bankruptcy estate:

Payment of excessive remuneration to employees or subjects of short-term employment relationships
Concluding a marriage contract or an agreement on the division of marital property, in which an unreasonably large share of joint property goes to the other spouse
Return of the debt to one of the creditors of your choice, bypassing the priority established by law

The law also allows for challenging the actions of third parties if they lead to a decrease in assets and bankruptcy estate. For example:

The bank, which is one of the creditors, wrote off all funds from the debtor’s accounts to repay its loan
One of the creditors sold the property that was pledged to him
Third parties appropriated the debtor's property
Even transactions of the debtor in relation to legal successors can be challenged (Article No. 61.5 of Federal Law No. 127)

ATTENTION! According to the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation No. 63 (dated December 23, 2010), if the counterparty to a transaction resold the resulting property, it will still be claimed from him. True, not within the framework of this insolvency case, but later. A vindication claim will be filed against the new owner of the property. To prevent the acquisition from being taken away from him, he will have to prove that he is a bona fide purchaser and knew nothing about the illegality of the transaction.

Preferential deals in bankruptcy cases

The third type of agreements, which are often disputed in arbitration courts when conducting bankruptcy cases, are preferential, or transactions with preference, that is, concluded in the interests of one of the creditors and to the detriment of others. The essence of the claims in this case is the unfairness of the distribution of the bankruptcy estate and a change in the priority in receiving payments, since one of the creditors is in a privileged position. In other words, he pushes aside other persons who have filed claims against the bankrupt. But bankruptcy occurs when there is a lack of resources, so there may not be enough bankruptcy estate for everyone - one, those who by law have the right to priority satisfaction of claims will suffer - two.

In order for arbitration to recognize that such a transaction is invalid, it is necessary to prove in court the presence of a set of grounds:

The bankrupt's obligations to one of the creditors have been fulfilled.
The concluded transaction has changed the priority of satisfying the creditors' claims (or such a situation may arise).
The creditor in whose favor the transaction was made found himself in a privileged position (the debtor was given preference in satisfying his claims).

A preferential transaction can be challenged if it was concluded a month before filing a bankruptcy petition with the arbitration court. But in two cases this period is extended to six months: if the creditor who was given preference is an interested party or if he was aware of the insolvency of the counterparty.

It happens that a preferential transaction is used to withdraw money and property from the bankruptcy estate, sometimes with the participation of an unscrupulous arbitration manager. However, there are also frequent cases when such transactions are carried out without malicious intent on the part of the debtor. For example, in judicial practice there are situations when the bank’s debiting of funds from the bankrupt’s accounts is disputed.

A typical example is that salary debts have not been paid, and the bank writes off money to repay the loan. In this situation, the priority in fulfilling requirements to creditors established by law is violated. By declaring such a transaction invalid, the court restores the rights of workers and social justice.

Challenging transactions in bankruptcy: conditions

To file a claim to challenge a transaction during bankruptcy, the applicant must meet the following conditions:

The insolvency case has already been opened by the arbitration court. Financial manager appointed by court decision
The original agreement of the disputed transaction must be used as evidence. Therefore, the applicant must either have it in hand or know its exact location so that the court can attach the document to the case
The agreement must contain an unambiguous indication of the debtor's intention to remove the property constituting the subject of the transaction from the bankruptcy estate by transferring it to another person.

If at least one of the conditions is not met, a claim to challenge the transaction cannot be filed, and the court will not accept it.

Procedure for invalidating contracts

Challenging transactions is carried out within the framework of a bankruptcy case for individuals.

An application for pairing a transaction in bankruptcy proceedings for an individual has a standard format:

The name of the court where the claim is being sent.
Indication of the registration number of the insolvency case.
Bankruptcy information.
Statement of the essence of the petition, the reasons for the need to challenge it.
Plaintiff's claims.
List of documents that are attached to the claim: copies of contracts that are proposed for challenge, explanations for each document.

The application is accompanied by the minutes of the meeting of creditors with their collective decision on the need to cancel the attached agreements and the argumentation.

The procedure for challenging a transaction:

Filing a petition to the Arbitration Court by a meeting of creditors or a financial manager. Creditors initiate the cancellation of one transaction or several - this is decided collectively at a general meeting and documented in minutes.
The financial manager proceeds with the creditors' petition. His task is to collect the necessary documents.
Consideration of the application by the court. The court recognizes the contracts proposed by the manager as invalid or refuses to challenge them.

Special grounds for challenge

Challenging transactions is not a specific attribute of “bankruptcy” cases. According to the Civil Code of the Russian Federation, there are various reasons for declaring a particular transaction invalid. But there are causes of action that apply exclusively in financial insolvency cases. These are:

The unequal value of the transaction, its unprofitability for the counterparty, who appears in the bankruptcy case as a debtor. For example, valuable property was sold at too low, or acquired at too high a price (Article No. 61.2 (Part 1) of Federal Law No. 127.) This basis provides grounds for challenging transactions made during the bankruptcy procedure or in the year preceding it.
Serious material damage suffered by creditors. Moreover, the harm was intentional and planned in advance (Article No. 61.2 (Part 20) of Federal Law No. 127). In this case, an important point is the awareness of the counterparty to the transaction about the insolvency of the debtor, and that such a transaction is extremely unprofitable for creditors. On this basis, it is possible to challenge transactions made up to 36 months before the declaration of insolvency.
Extraordinary repayment of debts to individual creditors. Such actions infringe on the rights of other lenders, and can be challenged if concluded during the procedure or six months before it.

Peculiarities

Despite the legality of canceling recent transactions with the debtor’s property, it is not always possible to challenge contracts. The judge may reject a motion to annul the agreement made by the insolvency practitioner or the creditor.

Due to fear of losing the property received over the last three years, many citizens avoid the bankruptcy procedure.

The basis for challenging transactions may be their suspicion or the selection of a certain partner. There are many reasons that can suspend challenging transactions in the event of bankruptcy of an individual. As a rule, any property transaction executed more than one year ago from the date of commencement of proceedings is no longer so easy to cancel.

Contested actions of the debtor

In fact, any action of the debtor with assets - money, property - committed within a certain time frame and arousing the suspicion of creditors and/or the financial manager can be challenged and annulled:

Without exception, all types of contracts signed within the framework of civil law regulation
Agreements between spouses (nuptial agreements, agreements on division of joint property)
Actions to comply with government decisions, court decisions, fulfillment or termination of material obligations
Carrying out any banking transactions
Settlements with third parties
Payment of wages and other benefits

In other words, during the bankruptcy procedure, any actions of the debtor can be challenged, during which he or third parties (including individual creditors) benefit, and not the meeting of creditors as a whole.

What about the only place to live?

According to Article 446 of the Code of Civil Procedure of the Russian Federation, the only housing is not subject to foreclosure. Even if the court challenges a transaction in which the subject of the agreement is the debtor’s only home, this property will be impossible to sell. Thus, challenging such transactions of the debtor in bankruptcy proceedings will not in any way affect the recovery of the debt.

Hotline for citizen consultations: 8-804-333-70-30

Transactions contested under articles of the Civil Code of the Russian Federation

The Russian Civil Code provides several grounds for declaring a particular transaction invalid. A number of grounds for challenge may apply in bankruptcy. Namely:

Transactions contrary to current legislation (Article No. 166 of the Civil Code of the Russian Federation)
Imaginary/feigned transactions (Article No. 170 of the Civil Code of the Russian Federation)
Transactions, the content of which contradicts the constituent documentation of the company (Article No. 173 of the Civil Code of the Russian Federation)
Transactions made by one or another official in excess of authority (Article No. 174 of the Civil Code of the Russian Federation)
Transactions with property, the disposal of which is prohibited or limited by law (Article No. 174.1 of the Civil Code of the Russian Federation). That is, directly related to the period of bankruptcy, because during the procedure the debtor has no right to dispose of his property without the permission of the financial manager

What transactions of a debtor in bankruptcy cannot be challenged?

Transactions concluded during the complete bankruptcy procedure at an auction are not contested (Article No. 61.4 of Federal Law No. 127). Provided that no violations have been recorded on the part of the bankruptcy trustee, such a transaction cannot be challenged, even if it has signs of suspicion.
Also, contracts for an amount amounting to less than 1% of the value of all assets of the debtor are not disputed, especially if they are associated with all kinds of business payments (rent, utility costs, etc.)
And of course, transactions that brought profit to the debtor will not be challenged. That is, those that allowed him to fully pay off his debts or increased the bankruptcy estate.
The last type of transactions that will not be challenged are those, as a result of the cancellation of which, the bankruptcy estate will decrease.

Example

Shortly before declaring bankruptcy, the debtor purchased goods for which he only partially paid. The counterparty to the transaction, who thus became one of the creditors of the bankrupt, filed a claim to invalidate the transaction. The court rejected the claim, citing the ruling of the Supreme Court in case No. 307 ES16-3319 (04/29/2016). The basis was the fact that in the event of cancellation of the transaction, the debtor would be obliged to return the purchased goods, which, in turn, would lead to a reduction in the size of the bankruptcy estate.

Grounds and deadlines for challenging transactions in the bankruptcy procedure of a citizen

The grounds for challenge are:

Suspicions about the fairness of the agreement (Article 61.2 of the Federal Law of the Russian Federation No. 127-FZ). Transactions made for large sums shortly before a person is declared bankrupt are considered suspicious. Usually, the closest relatives are involved in carrying out such transactions, on whose behalf the transaction is made. In this case, the acquirer of the right under it is not the creditor, but the person who signed the agreement. Accordingly, when issuing debt claims, the debtor’s relationship to the property purchased or sold as a result of the transaction will only be indirect, which will avoid its seizure and transfer to creditors.
Selective satisfaction of obligations to creditors (Article 61.3 of the Federal Law of the Russian Federation No. 127-FZ). If the debtor has spent all the funds to cover the debt to only one of the creditors, then his actions may be questioned.
Invalidity of the transaction (Chapter 9, Clause 2 of the Civil Code of the Russian Federation). If a transaction was carried out in violation of the law or between persons without the right to do so, creditors whose rights were violated by the very fact of its existence may file a claim with the court to challenge it.

Important! The statute of limitations for the disputed transaction does not exceed 3 years. In exceptional cases, the court sets other deadlines.

What is the difference between voidable and void transactions?

A transaction is considered valid and legal if:

Concluded by adults and capable parties
Does not contradict the rules of law and current legislation
Executed in accordance with the established form of the contract
Contains an adequately expressed will of the parties in the text

If at least one of the requirements is violated, the transaction can be challenged. In this case, it is of decisive importance how grossly the requirements are violated. The illegality of some transactions has to be proven in court. They are called contestable. The illegality of others is visible, what is called “the naked eye, and there is no need to prove it. Such transactions are called void and initially do not carry any consequences for the parties.

ATTENTION! Let’s assume that one of the counterparties to the transaction is an incapacitated citizen. It is impossible to challenge such a transaction in court, since it is a priori void and illegal. But a citizen who has suffered as a result of a void transaction has the right to file a lawsuit regarding its consequences (Article No. 171 of the Civil Code of the Russian Federation)

What are the deadlines for challenging such transactions in bankruptcy?

Any claims have a statute of limitations. Transactions may be declared invalid:

For contracts that are void - within three years
For voidable contracts – within one year

However, according to judicial practice, transactions that have undeniable signs of abuse of rights are classified as void. And, according to Article No. 168 (clause 2) of the Civil Code of the Russian Federation, in case of bankruptcy, judges apply a three-year limitation period to them.

Example

The court recognized all the property that, according to the marriage contract, was owned by the wife of an individual entrepreneur who declared bankruptcy, as joint property and was seized for sale at auction. The wife fully owned her husband's business, as well as two apartments, a country house with a large plot of land, and an expensive car. She bought a share in the business before concluding the marriage contract, and the rest of the property later. At the same time, she did not work, that is, in fact, she bought her husband’s property from him for his own money. Moreover, at the time of the sale of real estate and a car to his wife, the husband already had debts to the bank.

There was a legal paradox in the case: the marriage agreement was concluded five years before the court decided to introduce the competition stage. However, the court considered the starting point of the limitation period not to be the date of signing of the marriage contract, but the date of its discovery by the financial manager during the inventory of the debtor’s property. This event took place shortly after the opening of the bankruptcy case - 2 years and 10 months before the start of the competitive stage.

The court considered that the conclusion of the marriage contract initially pursued the goal of almost completely excluding family property from the husband’s bankruptcy estate in the event of possible bankruptcy. The judge noted that the wife could not have been unaware of her husband’s large debts when she “bought” the property from him. That is, there were all the signs of abuse of rights. The marriage contract was annulled. The property returned to the bankruptcy estate.

Transactions that cannot be challenged - examples of judicial practice

Not all agreements can be challenged. There are so-called transactions prohibited from challenging, the jurisdiction of which depends on the degree of complexity and size of the debt.

These include:

any agreements concluded during the bankrupt’s participation in the auction in the presence of applications for an unlimited number of participants;
ordinary arrangements, provided that the contract price is no more than 1% of the total assets and the withdrawal of funds will not have significant consequences;
transactions to fulfill obligations;
transactions under a lending agreement and obligations to make payments, if the amount of payment and its terms do not contradict those specified in the agreement.

Transactions for which the statute of limitations has expired (those concluded more than 3 years ago) cannot be challenged.
Judicial practice shows that in order to challenge a transaction, serious grounds are needed - evidence of malicious intent on the part of the bankrupt person.

Example: Citizen N sold an apartment in 2021 and bought a house with the proceeds. In 2021, she was declared bankrupt, but the property purchase and sale transaction she completed was not challenged despite the demands of creditors. As an argument for rejecting such a requirement, the court cited Art. 61.3 Federal Law of the Russian Federation No. 127-FZ, recognizing the transaction as normal for the activities of any individual. faces. The decision can be appealed, but it is unlikely that anything will change.

How do you submit documents to declare a transaction invalid?

A statement of claim is filed with the court. It should be accompanied by the original transaction agreement, as well as documents confirming the plaintiff’s point of view about its illegality. The application shall indicate:

Name and address of the court in the header
Cost of claim. It is determined by the value of the subject of the transaction. If the exact price is unknown, the average market price is used
The rights of the plaintiff violated by the transaction, the demand for measures to restore them (return the alienated property)
List of documents attached to the application (which confirm the fact of the transaction)
Personal signature of the plaintiff and date of filing the application

There are three ways to submit an application:

Appear in person at the court office
Submit the claim through a representative for whom a notarized power of attorney has been previously issued
Send by Russian Post, registered mail with an inventory and notification

A personal visit is preferable. The applicant immediately receives confirmation of acceptance of the claim in the form of a date stamp. The fee can also be paid on the spot (the receipt is attached to the package of submitted documents).

The fee for claims to challenge transactions is impressive - 6,000 rubles. Therefore, if you need to challenge several transactions at once, it is recommended to file all claims within one claim. The result will be significant cost savings.

Transactions after October 1, 2015

Any transactions, agreements, contracts concluded after the above date may be challenged as part of the bankruptcy procedure. Transactions are disputed without the slightest difficulty:

In which the counterparties were relatives and acquaintances of the defendant, who were aware that the seller/donor had debts or signs of insolvency
Agreements of donation or sale at a clearly reduced price
The property was already part of the bankruptcy estate in this bankruptcy case

Only transactions related to the debtor's bankruptcy are contested. No other requests will be accepted until the procedure is completed.

ATTENTION! Not only plaintiffs, but also all creditors or third parties whose interests are affected by the bankruptcy of this person have the right to participate in hearings to challenge the debtor’s transactions.

What transactions can be challenged?

Not every contract can be challenged as part of a bankruptcy procedure. This requires the presence of a number of signs:

the purpose of such a transaction is to avoid fulfilling an obligation to the creditor, to preserve property (even through other persons) or to obtain benefits that cannot be used to pay off obligations;
the transaction is clearly of a sham nature, that is, it was made to hide some other relationship. For example, a gift agreement was concluded when in fact there were purchase and sale relations;
the value of the property is not equivalent to its real value. This may be necessary in order to hide the real benefit from the creditor.

In this case, it is not necessary to have all the signs at once; only one or a few are enough.

Even if the existence of a reason to challenge is obvious, it is not a fact that the court will side with the creditor. It is necessary to prove that another way to resolve the situation is impossible, that the rights of other persons are not violated, or are violated to a lesser extent than the rights of the creditor.

The important point is whether the other party even knew that the transaction was being made for the purpose of non-fulfillment of obligations. That is, is she a bona fide purchaser?

Another type of transactions that can be classified as voidable are those in which preference is given to a specific creditor (or several). For example, an object is transferred to pay off a debt when it was not collateral, while other creditors received nothing.

Read: Procedure for selling collateral property