New restructuring procedure
Less than 2% of enterprises undergoing bankruptcy proceedings in Russia get a chance to restore their solvency and return to the market, the Ministry of Economic Development notes. For comparison: in the USA this figure reaches 30%. “The probability of saving a business if you enter bankruptcy proceedings in Russia tends to zero,” the deputy minister stated.
The number of bankruptcies has increased by almost one and a half times Economy
The Ministry of Economic Development proposes to introduce the possibility of debt restructuring. If by a majority vote the creditors decide that this is possible, the debtor must provide a restructuring plan. Creditors will have the opportunity to find a compromise and agree on a discount at the court site, the authors of the bill believe.
In addition, the department offers:
- leave only two procedures - rehabilitation or liquidation of the enterprise and abandon the procedures of monitoring, financial recovery and external management;
- The rehabilitation period is proposed to be limited to four years;
- the liquidation period should be reduced to 1–1.5 years, now it exceeds two years;
- oblige a legal entity in bankruptcy proceedings to cease operations nine months after the start of bankruptcy proceedings.
This will eliminate the “perpetual bankrupts” who continue to conduct obviously unprofitable activities for five to ten years, withdrawing money through “shelter companies” and not paying their debts, Torosov explained.
Another way to repay debt, besides restructuring and selling assets, is to immediately sell the entire enterprise. The bill of the Ministry of Economic Development suggests the possibility of such a transaction - without selling it in parts. “This will make it possible to simply change owners to more efficient ones, preserving business and jobs,” Torosov explained.
Nowadays, a rare bankruptcy takes place within two years, notes Sergei Kislov, a partner at the Kovalev, Tugushi and Partners bar association. To change the situation with controlled bankruptcies, according to him, “it is necessary to “accelerate” justice in terms of considering disputes regarding the recognition of transactions as invalid, as well as to reform enforcement proceedings - to introduce the institution of private bailiffs.” Then it will be possible to hold those responsible for bankruptcy to subsidiary liability, the lawyer explains.
The number of bankruptcies in Russia increased by almost 57% in 2021 Society
A protracted revolution
This draft law can be considered revolutionary because since the beginning of the 2000s in the Russian Federation, no fundamental changes or large-scale amendments and additions have been made to the bankruptcy law (Federal Law “On Insolvency (Bankruptcy)”). , says Igor Zinevich.
The proposed changes are aimed at radically changing all existing bankruptcy procedures (supervision, external management, financial recovery, bankruptcy proceedings). The “Belousov” reform proposes to essentially reduce all this and do everything the same as for citizens: restructuring of debts and sale of property (for legal entities this is bankruptcy proceedings). “That is, the authorities want to do everything the way it is now with the bankruptcy of ordinary citizens, that is, to unify everything,” Zinevich emphasized.
Restructuring of debts from citizens assumes that the debtor can negotiate with creditors on the payment of obligations in installments, say, for three years according to the restructuring plan. And carry out this plan for three years. If someone fails to do this within three years, then the next procedure is to sell the property. And this second procedure, clarifies Igor Zinevich, coincides with the bankruptcy procedure for legal entities, which is called bankruptcy proceedings.
Strict responsibility of managers
Beneficiaries in controlled bankruptcies can appoint “their” insolvency practitioners and, with their help, control the procedures to return assets under their management. The authors of the bill propose a set of measures to increase the “white” motivation of managers. Among them:
- Random selection of arbitration managers based on ratings.
Currently, managers are appointed by the debtor or creditor, which leaves a loophole for the appointment of affiliates. “If the amendments are adopted, you will not know which arbitration manager will be appointed to the procedure,” the deputy minister noted.
Self-regulatory organizations (SROs) of arbitration managers will be assigned a rating depending on how quickly previous bankruptcy procedures were completed, debts were repaid, and whether there were violations. The most effective SROs will be randomly assigned to bankruptcy proceedings and select a manager from among their members.
Creating an objective rating is a utopia, believes Mikhail Sachev, president of the Ural SRO of Arbitration Managers union. “Those who work actively and have real experience always receive complaints, and those who work as a gray mouse can become leaders in the rating,” he explains. “The result may be an artificial rating that will not improve the effectiveness of bankruptcies.”
Banks, as the biggest “customers” of the work of arbitration managers, can influence the rating, warns lawyer Sergei Kislov: “The big question is how to ensure that such a rating does not transfer managers under the control of banks.”
- Fixed remuneration for managers. According to the ministry's plan, they will receive a percentage of the total proceeds to the bankruptcy estate.
Now managers receive about 30 thousand rubles. monthly. Therefore, unscrupulous players delay the process, including to increase the amount of their remuneration.
The remuneration should be kept in a special account and paid only based on the results of the procedure, suggests the Ministry of Economic Development. “The longer the process takes, the less the reward will be,” explained the deputy minister, specifying that the amount will vary from 300 thousand to 500 thousand rubles. per procedure depending on the size of the company.
- Punishment for managers in the form of a temporary ban on the profession.
Managers are obliged to compensate losses to participants in bankruptcies for failure to fulfill their duties or errors. For this purpose, SROs form a compensation fund. The Ministry of Economic Development advocates that an SRO dissolve itself if it does not cover the amount of payments made by the fund for the obligations of one of the managers of this SRO within three months. In addition, in this case, all managers of this SRO will not be able to work in their profession for three years. “There will be strict collective responsibility of all members of the SRO for each other,” Torosov emphasized.
These changes may finally turn arbitration managers into a pocket industry of large financial and industrial groups, Sachev believes. Many managers, he said, are dependent on large corporations and systemic creditors, and fixed remuneration will lead to increased dependence. Honest arbitration managers “simply won’t live to see the reward,” since they will not be able to pay for expensive procedures and the work of lawyers and accountants, Sachev criticizes.
Draft amendments to the Bankruptcy Law. What will change for companies and arbitration managers?
The Ministry of Economic Development has prepared a large-scale draft amendments to the Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)” (hereinafter referred to as the Bankruptcy Law). The changes concern bankruptcy of legal entities. They want to exclude procedures for monitoring, financial recovery and external management from the Bankruptcy Law. The law will only retain bankruptcy proceedings, and will also introduce a new procedure—debt restructuring. The developers of the bill expect that the changes will help bankrupt people maintain their business and restore the company's solvency. Now less than 2% of bankruptcies end in this way. They want to increase this figure to at least 10%. The changes are expected to come into force in 2021.
The Ministry of Economic Development of Russia has prepared and posted on the Federal Portal of Draft Regulatory Legal Acts a draft federal law “On Amendments to the Federal Law “On Insolvency (Bankruptcy)” and certain legislative acts of the Russian Federation" (the draft is published on regulation.gov.ru under ID 02/04 /03-20/00100272, hereinafter referred to as the Project).
In this Project, the Ministry of Economic Development proposes to leave only two bankruptcy procedures - debt restructuring and bankruptcy proceedings, as well as the possibility of exiting it through a settlement agreement.
The bill also provides for measures to combat controlled bankruptcies. To prevent creditors from appointing “their” manager, it is proposed to select a manager randomly based on the rating (Article 45 of the Bankruptcy Law as amended by the Draft).
The manager's payment will be fixed and depend on the volume of proceeds to the bankruptcy estate and the speed of bankruptcy procedures (clause 23 of Article 1 of the Project). The longer the process takes, the less the manager will receive.
Public discussion of the Project will end on April 3.
Debt restructuring procedure
Debt restructuring is a procedure applied in a bankruptcy case to a debtor - a legal entity in order to restore its solvency, preserve its business and satisfy the claims of creditors.
According to the Project, the debt restructuring plan must be approved by a meeting of creditors and approved by the court (clause 72 of Article 1 of the Project). After this, an anti-crisis manager will appear in the bankruptcy case.
The debtor is obliged to propose a debt restructuring plan within four months from the date of introduction of the procedure (Clause 1, Article 70 of the Bankruptcy Law as amended by the Draft). Bankruptcy creditors, a manager, founder or participant in bankruptcy can also propose their plans (Clause 2, Article 70 of the Bankruptcy Law as amended by the Draft).
The plan must justify the possibility of restoring the company's solvency and satisfying the claims of creditors. It may provide for the reorganization of the debtor, an increase in its authorized capital, the sale of an enterprise or part of its property, the replacement of assets, the novation of obligations, the termination of obligations by providing compensation, changing the timing, procedure and scope of fulfillment of obligations, terminating and changing the terms of the pledge, debt forgiveness, etc. d. It is also possible to convert claims into shares in the authorized capital of the debtor company, its shares, bonds or other securities (clause 5 of Article 70 of the Bankruptcy Law as amended by the Draft).
The restructuring plan must provide for full repayment of debt on current payments and claims of first and second priority creditors within three months from the date of its approval.
The restructuring period cannot exceed four years from the date of approval of the plan. By decision of the meeting of creditors, this period can be extended for another four years (Article 83 of the Bankruptcy Law as amended by the Draft).
After the introduction of debt restructuring:
- previously imposed arrests and other restrictions on the debtor’s property are lifted;
- the founder of the debtor will not be able to obtain the actual value of the share;
- profits cannot be distributed between participants and founders, payment of dividends and other payments on equity securities is not allowed;
- interest and penalties are not accrued for non-fulfillment or improper fulfillment of monetary and non-monetary obligations and mandatory payments (Article 64 of the Bankruptcy Law as amended by the Draft).
The work of arbitration managers
Now candidates for arbitration managers are proposed by the debtor or the creditor. This often leads to controlled bankruptcy procedures and deliberate delays in procedures. The Draft proposes to appoint arbitration managers randomly based on the rating (Article 44.1 of the Bankruptcy Law as amended by the Draft).
Self-regulatory organizations (SROs) of arbitration managers will be assigned a rating depending on how quickly previous bankruptcy procedures were completed, debts were repaid, and whether there were violations. The most effective SROs will be randomly assigned to bankruptcy procedures and select a manager from among their members (Article 44.1 of the Bankruptcy Law as amended by the Draft).
The Draft provides for a detailed procedure and formulas for calculating the scores of arbitration managers (Article 44.2 of the Bankruptcy Law as amended by the Draft). Thus, for each approved restructuring plan, managers will receive 60 points, and for the successful implementation of each such plan - another 140 points (Clause 3, Article 44.1 of the Bankruptcy Law as amended by the Draft).
The remuneration paid to the arbitration manager in a bankruptcy case will consist of a fixed amount and an amount of interest. The fixed amount depends on the procedure and the group of the debtor. For example, for completing bankruptcy proceedings/introducing debt restructuring/terminating bankruptcy proceedings, the manager will receive from 100,000 to 500,000 rubles.
The anti-crisis manager will be able to receive a lump sum for the period from the date of introduction of debt restructuring to the date of approval of the debt restructuring plan or termination of bankruptcy proceedings from 150,000 to 300,000 rubles. (Clause 3 of Article 20.6 of the Bankruptcy Law as amended by the Draft).
The draft introduces mandatory state registration of arbitration managers, similar to individual entrepreneurs. It requires membership in one of the SROs, and all current insolvency practitioners must be included in the state register.
The draft also provides for the emergence of a new body that will take exams for the status of an arbitration manager, and a body that will verify the conclusions of the arbitration manager on signs of deliberate or fictitious bankruptcy with the authority to bring managers to administrative responsibility. The minimum insurance amount for arbitration managers increases to 20 million rubles. (Clause 2 of Article 24.1 of the Bankruptcy Law as amended by the Draft). Now this amount is 10 million rubles.
Debtors will be divided into groups
The Project divides all debtors into three groups (Clause 1, Article 45 of the Bankruptcy Law as amended by the Project). The debtor's group affects the number of points that the manager will receive when working with such a debtor, and the very procedure for appointing an arbitration manager.
The first group of debtors includes:
- citizens who are not individual entrepreneurs;
- companies and individual entrepreneurs whose income for the year preceding bankruptcy does not exceed 800 million rubles, and the total value of assets according to the accounting (financial) statements as of December 31 of the previous calendar year does not exceed 300 million rubles. (for legal entities).
The second group of debtors are companies and individual entrepreneurs whose income for the year preceding bankruptcy does not exceed 2 billion rubles, and the value of their assets does not exceed 1.5 billion rubles. (for legal entities).
The third group is all other debtors who do not meet the conditions of the first and second groups (clause 2 of Article 45 of the Bankruptcy Law as amended by the Draft).
The appointment of an arbitration manager will depend on which group the debtor belongs to: the SRO of the first group can propose an arbitration manager only for debtors of the first group, the SRO of the second group - for debtors of the second and first groups, and the SRO of the third group - for any debtors. If there is no SRO of the third group, candidates for managers may be proposed by the SRO of the second group. The SRO's membership in a particular group will be determined by its members at a general meeting, and information about this must be contained in the state register.
Sale of bankrupt property
The draft amendments provide for the sale of the debtor's property at the highest price with minimal expenses and in the shortest possible time (Clause 3 of Article 84 of the Bankruptcy Law as amended by the Draft).
It will be possible to put up for sale both the entire property complex intended for carrying out entrepreneurial activities, and the debtor’s property in parts (clause 1 of Article 85 of the Bankruptcy Law as amended by the Draft). The procedure for the sale of property may provide that if the debtor's enterprise was not sold at the first auction, then after that the debtor's property is subject to sale in parts, starting with a new first auction. In this case, the calculation of the deadlines established for the sale of property begins anew (clause 5 of Article 90 of the Bankruptcy Law as amended by the Draft).
In order to attract more buyers to the auction, including individuals, all advertisements for the sale of bankrupt property will be published in a convenient form on a special website. Information will appear 30 days before the start of the auction (Clause 1, Article 92 of the Bankruptcy Law as amended by the Draft).
Bidding
Now it is impossible to conduct trades both for increasing and decreasing prices in one session. The first two stages go up, after which the unclaimed assets are sold through a public offering.
The project proposes to conduct auctions through a sequential step-by-step change (increase or decrease) of the initial price by one bidding step. Moreover, during each stage, only one offer can be submitted at a price equal to the price of this stage.
The price of the first stage is the initial price indicated in the bidding notice (clause 2 of article 95 of the Bankruptcy Law as amended by the Draft).
Now, on average, assets in bankruptcy are sold for five times less than market value, and as a result, creditors receive no more than 5% of the debt.
Entry into force
The proposed amendments to the Bankruptcy Law, if approved, will come into force six months after their publication. It is important that the amendments will have a retroactive effect - most of the new rules will work in bankruptcy cases, proceedings for which were initiated before the date of entry into force of the amendments (Article 19 of the Draft).
It is expected that the State Duma will begin to consider the Project in the spring session of 2021. Entry into force is scheduled for 2021.
Acceleration of trading thanks to the “swing”
Bidding for the sale of property during bankruptcies now lasts more than a year. At an open auction (for price increases), the share of successful bids is approximately 6%. The fact is that the current rules do not allow trading to both increase and decrease prices in one session. The first two stages go up, after which the unclaimed assets are sold through a public offering.
- The introduction of the Anglo-Dutch auction will allow for one trading session to conduct bidding for an increase in price, and if there is no one willing to buy the asset, for a decrease.
Currently, 48 platforms sell the property of bankrupt people, the largest ones being Russian Auction House, B2B-Center, Kommersant Kartoteka, Fabrikant.ru and others. The Ministry of Economic Development proposes to transfer all auctions in the bankruptcy procedure to online platforms for public procurement selected by the government: RTS-tender, Sberbank-AST, Electronic Trading Systems, Russian Auction House, Unified Electronic Trading Platform, TEK-Torg ", Electronic trading platform of Gazprombank and the Agency for State Order of the Republic of Tatarstan.
Only three of the eight selected sites have bankrupt sections, Igor Sorokin, chairman of the board of the national union “Council for Professional Activities in Electronic Trading,” told RBC. In his opinion, the current system of 48 sites is transparent, 90% of them have been operating on the market for more than six to eight years, and phantom fly-by-night sites have disappeared since 2021 after the mandatory requirement to be a member of an SRO. “They don’t explain to us what motivated the abandonment of the current system,” Sorokin noted.
Marketplace with bankrupt property
Due to low demand and competitive bidding, on average, assets in bankruptcy are sold for five times less than market value, and as a result, creditors receive no more than 5% of the debt. The procedure is complicated for potential buyers; Only specialists understand how to buy property during bankruptcy, Deputy Head of the Federal Tax Service Konstantin Chekmyshev previously explained to RBC.
The Ministry of Economic Development announced the launch of a marketplace with bankrupt property Economics
In order to attract more buyers to the auction, including individuals, all advertisements for the sale of bankrupt property will be published in a convenient form on a special website. Moreover, information will appear 30 days before the start of trading.
The government will determine the operator of the marketplace, and the terms of reference for the development of the platform and an approximate cost estimate are already ready, Torosov clarified.
“The bankruptcy marketplace is a breakthrough idea that will really help move the market and launch sales into a completely new orbit,” says lawyer Sergei Kislov.
Separately, the Ministry of Economic Development proposed special rules for conducting bankruptcy procedures for strategic organizations, enterprises of the military-industrial complex (DIC) and developers. In particular, the functions of managers for such enterprises can be performed by the legal entity itself (Rostec, Roscosmos, Rosatom, Promsvyazbank, etc.), and the state will have a preemptive right to purchase.
