Administrative liquidation of a legal entity will protect its owners

The Supreme Court of the Russian Federation (SC) has softened the approach to subsidiary liability of debtor controlling persons (CDL) in case of exclusion of an organization from the Unified State Register of Legal Entities for failure to submit reports. The SC considered that administrative liquidation in itself does not mean bad faith of a controlling person in the presence of debts and that creditors have to prove that they did not receive money because of the conduct of the manager or owner of the company. Some lawyers support the position of the Supreme Court, but a number of experts believe that it will “indulge in bad faith.”

On November 4, the Supreme Court published a decision concerning subsidiary liability for the debts of a liquidated company. In July 2019, IE Viktor Atroshenko leased a land plot to Maxistroy LLC, but soon discovered that it was not being used for its intended purpose and had “actually turned into a sand quarry.” In September 2019, the IE terminated the lease, and in November 2020 he sued the LLC for 2.68 million rubles in losses (the cost of land reclamation, the debt on the lease, and the cost of the expertise). But he could not get the money – in December Maxistroy was excluded from the Unified State Register of Legal Entities.

The entrepreneur demanded that the sole participant and the general director of the LLC Roman Ermolaev be brought to subsidiary liability for the company’s obligations.

The plaintiff claimed that the organization was excluded from the Unified State Register of Legal Entities due to the lack of funds flow through accounts and failure to provide statements, so the general director should be held liable for the losses.

The Moscow Arbitration Court upheld the claim, and the appeal agreed with this. They applied the position of Russian Constitutional Court (CC) of May 21, 2021 in Galina Karpuk’s case to simplify bringing a CEO to responsibility when a company is excluded from the Unified State Register of Legal Entities. According to the courts, being the sole owner and manager, Roman Ermolaev, “acting reasonably and in good faith, could not be unaware of the need to submit documents to the authorized bodies, which indicates the defendant’s bad faith behavior. This behavior “led to the exclusion of the legal entity from the Unified State Register of Legal Entities, depriving the IE of the opportunity to collect the debt. Moreover, the lease agreement was concluded at a time when the company already met the signs of an inactive legal entity.

But the district cassation dismissed the claim stating that the position of the Constitutional Court allows bringing to responsibility only for the claims of natural persons unrelated to business activities. Mr Atroshenko complained to the Supreme Court, insisting that the ruling of the Constitutional Court does not prohibit creditors-entrepreneurs to make similar claims. The case was referred to the Economic Collegium, which sent the dispute for reconsideration.

Although it was the creditor who had obtained a reconsideration of the case, the decision of the panel was not actually in his favor.

On the one hand, the SC clarified that the ruling of the Constitutional Court also applies to disputes on the applications of entrepreneurs. However, the exclusion of an organization from the Unified State Register of Legal Entities by itself “cannot serve as irrefutable evidence of the commission of unfair acts by the KDL,” the SC held. The creditor has to prove damages, bad faith or unreasonable conduct of CODL and that its conduct was a “necessary and sufficient reason for inability to repay” the debt. In addition, it is not known whether the sole proprietor exercised his right to apply to the tax inspectorate so that the debtor company would not be excluded from the Unified State Register of Legal Entities, nor is it clear whether at the time of signing the lease the LLC had sufficient property to pay the debt. All of this the courts will have to find out when they reconsider the case.

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Managing partner of AB RI-consulting Elena Gladysheva believes it is correct to prove the connection between the actions of KDL and the inability to repay the debt. According to Denis Danilov, the head of projects of RCT consulting group, the Supreme Court “is fighting against the approach in which the losses will be collected from the managers and owners by default”.

At the same time, ProLegals lawyer Maxim Lukhmanov finds the position of the SC “highly questionable”: “The problem is that the economics board sees nothing to criticize in the conduct of KDL, which allowed the liquidation of the company as inoperative in the presence of outstanding obligations to creditors. In his opinion “absence of transactions on accounts and non-submission of statements within a year already implies that the controlling person has left the company to its fate”. The new approach of the Supreme Court, the lawyer believes, puts the CDLs in a privileged position and may “indulge their unfair conduct”.

Source: https://www.kommersant.ru/doc/5653028