The Supreme Court will consider a dispute about the recovery of damages from those who controlled the bankruptcy process

According to the plaintiff, in the situation of joint infliction of harm by the bankruptcy trustee and individual creditors, the entire group of harm causers is jointly and severally liable.

OOO Vyborgskaya Lesopromyshlennaya Korporatsiya (VLPK) was declared bankrupt. However, this did not prevent the company from continuing its operations with the approval of the creditors’ meeting. Under a contract with MFC Capital VLPK began to provide services of processing (processing) customer’s goods on commission and production of pulp and paper products. The Federal Tax Service was not satisfied with the deal and decided that the group of people who had controlled the VLCC bankruptcy process had caused losses to both the debtor and its creditors by means of this scheme with division of the profit and loss centers. The taxmen tried to recover 663.9 million rubles of losses from the bankruptcy manager of VLPK as well as from MFC Capital, Severnaya Cellulosa LLC and Tavrichesky Bank. However, the courts of the first and appellate instances dismissed the claims of the Federal Tax Service, and the District Court sent for a new hearing only the dispute on the recovery of damages from the bankruptcy trustee. As a result, this precedent dispute reached the Supreme Court, which decided to consider it on November 7 (case A56-45590/2015).

Background:

In April 2018, the court declared LLC Vyborgskaya Lesopromyshlennaya Corporation (VLPK) bankrupt. Nikolay Vlasenko was approved as bankruptcy trustee.

A month later, the creditors’ meeting of VLCC decided to continue the debtor’s business activities. At the same time, VLPK and International Financial Center Capital LLC (MFC Capital) signed an agreement under which VLPK undertook to provide comprehensive services for processing (processing) of customer’s goods on commission and production of pulp and paper products at its own production facilities.

Two years later, a meeting of the debtor’s creditors approved the processing agreement and related transactions.

This transaction raised questions from the Federal Tax Service. Believing that through the use of the processing scheme of economic legal relations with the division of profit and loss centers, the group of persons who controlled the bankruptcy process of VLPC, including bankruptcy trustee Nikolay Vlasenko, MFC Capital, Northern Cellulose and Tavrichesky Bank caused damages to VLPC and its creditors in the course of bankruptcy proceedings, the Federal Tax Service demanded in court to recover from the above persons 663.9 million rubles jointly, including 290.1 rubles in favor of the Tax Service.

The courts of the first and appellate instances dismissed the FTS claim. The district court sent the separate dispute on the recovery of losses from the bankruptcy trustee for a new hearing. The other part of the case was left unchanged by the District Court.

After that OOO Inzhpro, the bankruptcy trustee of VLPC Nikolay Vlasenko and the arbitration managers association “Siberian Center of Crisis Management Experts” filed appeals to the Supreme Court, which decided to consider this dispute on November 7, 2022.

What the lower courts decided:

The courts of the first and appellate instances proceeded from:

– failure to prove the fact of infliction of losses to the debtor and the tax authorities as a result of the actions of the defendants,

– their guilt,

– the existence of a causal link between the actions of the defendants and the losses caused.

The processing agreement was of a forced and necessary nature, since the debtor’s production base included particularly hazardous production facilities requiring maintenance. Stopping the production cycle and mothballing required significant expenses and entailed, among other things, termination of the supply of utilities to the settlement (Sovetsky settlement), for which the debtor is the non-alternative resource supplying company.

The courts also pointed out that it was inadmissible to hold the FNS claimants liable under the rules of Chapter III.2 of the Bankruptcy Law, since, by virtue of Article 61.10 of the Bankruptcy Law, they were not the persons who had controlled the VLPC in the pre-bankruptcy period. Moreover, these persons did not constitute a management body of the debtor, identical to the corporate one, so they could not be regarded as controlling persons of the debtor either.

The lower court had rejected the conclusions of the lower courts that there were no grounds for qualifying the scheme of legal relations applicable to the claim for damages.

The court proceeded from the fact that the processing agreement was unprofitable for VLCK and had been concluded in order to implement a business model according to which the debtor had formed a loss-making center, while the companies MFC Capital and Severnaya Cellulosa had formed a profit center.

At the same time, the district court upheld the conclusion that MFC Capital, Severnaya Tselulosa and Tavrichesky Bank could not be held liable for the recovery of damages, since, by virtue of Article 61.10, paragraph 1, of the bankruptcy law, they could not be held to be controlling persons of the debtor.

What applicants think:

According to LLC Inzhpro, the courts wrongfully released from liability MFC Capital, Severnaya Tselulosa and Tavrichesky Bank, as they acted together (including with the bankruptcy trustee), coordinated and sought to achieve a common goal – to illegally gain profit by causing losses to VLPC and its creditors.

The very activity of processing raw materials at the production base of VLPK is sufficiently profitable and with the organization of contractual relations on market conditions would eventually allow to pay the claims of creditors. However, the group of the persons specified by the Federal Tax Service had organized the scheme of legal relations in such a way that the VLCC not only did not receive any profit from its production activity, but, on the contrary, the debtor continued to accumulate losses.

The MFC Capital bought the raw materials from the “Northern Pulp” and gave them to the debtor for processing. Then MFC Capital took the debtor’s finished product and gave it to “Severnaya Tselulosa” for sale on the external market at a considerable profit. The VLPC was paid a price below its production cost for the processing of the raw materials.

The courts did not take into account that the participants in the processing scheme and those who controlled the debtor’s bankruptcy were part of the same group (Onexim Group) and profited from their joint illegal actions, including those involving the bankruptcy trustee. The defendants’ lack of status as controlling persons of the debtor during the pre-bankruptcy period really does not provide a basis for holding them liable for vicarious liability or for causing damages for that period.

However, this does not indicate that it is impossible to recover losses from the defendants into the debtor’s bankruptcy estate for the period in which the debtor was in bankruptcy proceedings and was engaged in production activities. Under this approach, Articles 10 and 15 of the Civil Code of the Russian Federation provide a sufficient substantive basis for the joint action to collect damages from the jointly acting group of tortfeasors.

Inzhpro LLC also referred to legal mechanisms that allow to resolve similar situations in business companies, when at the request of members of such companies the persons whose decisions caused losses to the legal entity can be held liable for their compensation (Article 53.1 of the Civil Code of the Russian Federation). At the same time, it is not required prior mandatory recognition of the transaction as invalid (paragraph 8 of the Resolution of the Plenum of the Supreme Court of the Russian Federation of 26.06.2018 № 27 “On contesting major transactions and transactions, in the commission of which there is an interest”).

Inzhpro LLC sees an analogy in the fact that in this case the debtor conducts production activities, and the decisions of the debtor-bankrupt determine the civil law community of creditors and the bankruptcy trustee selected by it, just as participants of a business company (shareholders) and their appointed manager do.

In the situation of joint infliction of harm by the bankruptcy trustee and individual creditors, the entire group of inflictors is liable jointly and severally. A different approach makes risk-free and leaves unpunished the unlawful activities of persons who participated in such a scheme of legal relations and accumulated all the profits from it.

The bankruptcy trustee and the association demanded that the decision of the District Court to send the dispute for a new hearing be set aside. They insist on upholding the decision of the trial court and the decision of the appellate court.

These appellants contend that the district court’s findings are designed to reevaluate the evidence. The continuation of the debtor’s activities was objectively necessary in view of the continuous production cycle at the VLPK facilities, and the bankruptcy trustee was not obliged to check their profitability when concluding transactions aimed at production.

What the Supreme Court decided:

Judge Sergei Samuilov of the Supreme Court found the arguments of the complaints worthy of attention and referred the dispute to the Economic Collegium, which will consider the case on November 7, 2022.

What the experts think:

“It is important to understand that in this case one of these creditors accumulated all the profits from the current economic activity of the debtor, i.e. the creditor and the counterparty in the loss-making transaction coincide in one person. The other creditors are members of the same group of persons as the direct inflictor of damage, their actions were coordinated and aimed precisely at building a business model that allowed them to receive money bypassing the bankruptcy estate. Thus, the situation is extraordinary, and therefore it is not necessary to say that any creditors who voted for the conclusion of the unprofitable transaction will be held liable under civil law.

“In this case, judging by the transfer ruling, the appellants’ argument was that the appellate court went beyond its authority by reevaluating the evidence in the case. From a legal standpoint, the approach that any persons causing harm to the debtor and the bankruptcy estate may be liable under Articles 10+15+1064 of the Civil Code, regardless of when that harm occurred and whether the defendants are debtor controlling persons (CCPs), is reasonable.”

“It is worth noting that the above dispute for recovery of damages stands out from the comparable ones. There are obvious errors committed by the lower courts in this case, which were partially corrected by the district court. At the same time, according to the appellants of the cassation appeal to the SCEC of the Supreme Court of the RF, the courts never investigated the issue of illegal profit making by a number of creditors, who approved the transaction by which they could illegally obtain profit by causing losses to the bankrupt company.”

“The reasoning of the Supreme Court’s ruling suggests an analogy to corporate relations, where controlling persons are liable for approving transactions that caused damage to the company. However, majority creditors cannot be recognized as controlling persons in the direct legal sense. After all, the Supreme Court has repeatedly proceeded from the fact that the approval by the creditors’ meeting does not automatically make the actions of the bankruptcy trustee legitimate. Instructions of creditors are not obligatory for the bankruptcy trustee, under the law he is fully independent. In contrast to the rules of corporate law, the provisions of the bankruptcy law provide a greater degree of independence to the bankruptcy trustee of the debtor. In this regard, there is no reason to fully apply the analogy of law and extend the status of controlling persons to the creditors who participated in the meeting. If the Supreme Court of the Russian Federation does grant majority creditors the status of controlling persons, this will lead to a significant change in the rules under which the economic activities of debtors are carried out.”

“The case under consideration is also interesting in the following aspects: First, as follows from the circumstances of the dispute, the scheme implemented was based on the processing agreement and related transactions, which were approved by the decision of the creditors’ meeting. At the same time, neither the transactions nor the decision of the creditors’ meeting were separately challenged. Apparently, the Supreme Court of the Russian Federation will also address the issue of their legal fate and the possibility of their recognition as unlawful without a separate challenge. Secondly, it seems that the issue to be considered will be whether the need to maintain the bankruptcy estate and fulfill the debtor’s “social obligations” can justify non-market conditions for the use of property.”

Source: https://probankrotstvo.ru/news/vs-rassmotrit-spor-o-vzyskanii-ubytkov-s-kontrolirovavsix-process-bankrotstva-lic-1096