The tax code won’t help determine inequality.

The “Case of the Month” section on bankruptcy.

The editorial board chose the ruling of the Supreme Court on the case of the Ravninnoe company as the case of May. In it, the SC forbade a formal approach to the evaluation of unequal value of transactions. Therefore, the fact that the price of the deal differs from the market price by more than 20% does not mean that the deal can be disputed. It is necessary to take into account all the circumstances. For example, to prove that the counterparty of the debtor could not fail to have suspicions about the unprofitability of the transaction.

This definition will solve the problem of contesting deals that are made without the intent to harm creditors, but with conditions that differ from market conditions.

Background of the case

We described the background of the case here. In January 2019, bankruptcy proceedings were initiated against the Ravninny Society. After the initiation of bankruptcy proceedings, the society “Proven Cars” bought a Toyota Land Cruiser car from “Ravninny”. The cost of the car amounted to 3 million rubles.

The bankruptcy trustee believed that this transaction was detrimental to creditors, because it was made on non-market terms.

The courts of three instances allowed the receiver’s claims. The expert evidence showed that the market value of the car was 3.8 million rubles. The courts referred to the paragraphs. 4, Art. 40, Paragraph 2 of the Tax Code, according to which the discrepancy between the transaction price and the market value is considered substantial if it is more than 20%. Since in this case, such a discrepancy is greater than 20%, the transaction shall be deemed unequal and invalidated by clause 1 of Art. 61.2 of the Bankruptcy Law.

The courts also drew attention to the fact that Proven Automobiles is a professional participant in the turnover. Therefore, they could not have been unaware of the existence of the bankruptcy case and the fact that the market value of the car was higher than the contractual value.

What did the SC say?

The Supreme Court did not agree with the position of the inferior courts and refused to declare the transaction invalid. It pointed out that the court had to take into consideration all the circumstances of the transaction. The very notion of unequivalence is an evaluation one and therefore formal criteria laid down in other normative acts cannot be applied to it, the panel pointed out. It is necessary to decide whether a transaction is unequal or not depending on the specific circumstances.

In the case under consideration, the SC pointed out that the difference between the market price and the transaction price is not in itself a basis for challenging it. Additional arguments had to be given to show that the buyer could not have had any doubt that the transaction was suspicious and disadvantageous to the counterparty.

Why is this decision important?

The position of the Supreme Court significantly improves the position of the parties to the turnover. The mechanical application of the criterion of unequal value seriously violated the reasonable expectations of all acquirers of an asset.

The risk of challenging the transaction even at a minimal discrepancy between the market price and the contractual price forced the participants of the turnover to spend considerably more effort to conduct an in-depth check of the transaction and the counterparty. Of course, this could not but affect the increase in transaction costs. In circumstances where the transaction price is not so large (as, for example, in the case considered), it would be strange to require the participants of the turnover to conduct several examinations to check whether the transaction price deviates from the market price.

All this led to the fact that quite bona fide participants in the turnover who did not seek to harm other creditors often suffered from the challenge of unequal transactions. Therefore we can only support the attitude of the Supreme Court, which calls for determining unequal value not mechanically by setting the threshold of 20%, but by assessing all relevant circumstances.

Of course, the position of the Supreme Court does not exclude that in some cases the difference between the market conditions and the contract price by more than 20% will lead to the contestation of such a transaction. But these must be cases in which any reasonable participant of the turnover in the place of the buyer would suspect that such a transaction is disadvantageous for the counterparty.

The position of the SC can also be justified from a theoretical point of view. Unequivalent transactions are only a type of fraudatory transactions and not some special composition of invalidity. The specifics of challenging unequivalent transactions is that it is not necessary to prove the counterparty’s knowledge of the fraudatory purpose of the transaction. However, this does not mean that the good faith of the counterparty is irrelevant. On the contrary, non-market transactions are challenged precisely because the counterparty knowingly negotiates a transaction price that cannot but harm creditors. In other words, the clause 1 of Article 61.2 of the Law on Bankruptcy establishes an irrefutable presumption of bad faith of the counterparty.

If you simply mechanically apply the statutory criterion of 20%, then there is a risk of challenging the transaction in a situation where the counterparty could not have known that the transaction was harmful. Again, because 20% is often an extremely insignificant amount. Therefore, the Supreme Court’s approach, guiding the courts to check exactly the fraudatory nature of the transaction, deserves all support.

Of course, it is possible that the claim to the criterion set forth in the Tax Code has to do not with the fact that such a criterion exists in principle, but with its magnitude. In other words, if the criterion were much larger, it is possible that the problem of violation of expectations of bona fide participants of turnover would not be so serious. However, the formulation of such a fair criterion is a long and difficult task.

At this stage the SC has chosen the best solution.

Source: https://zakon.ru/discussion/2022/06/21/nalogovyj_kodeks_ne_pomozhet_opredelit_neravnocennost__kejs_mesyaca_po_bankrotstvu