The SC took up the beneficiaries of abandoned companies

The Supreme Court returned to the court practice concerning the old and familiar to the market scheme of withdrawal of business to a new structure and leaving an “empty” company for creditors. The lawyers point out that difficulties in interpretation of such cases may be caused by the necessity to carefully separate ordinary corporate actions from deliberate violation of creditors’ rights.

On Dec. 23, the Supreme Court published a ruling on a dispute over the subsidiary liability of controlling persons (CPLs) with whom communications had been lost by the time of the company’s bankruptcy. The story began in November 2019, when Comprehensive Energy Solutions LLC (KER) recovered 4.45 million rubles from Steelcraft LLC. Having not received the money, OOO KER filed for bankruptcy of Steelcraft. But the court dismissed the case as the debtor had no money. The creditor demanded to bring to justice the former owner and manager of “Steelcraft” – brothers Andrey and Timofey Tretyakova.

The ERC explained that in September 2019, “Stroymarket” LLC became the second participant of “Steelcraft” LLC with a 20% share, and the director was also changed. In October 2019, Andrey Tretyakov withdrew from “Steelcraft” membership, leaving “Stroymarket” as the sole owner. In parallel, in August 2019, the brothers created a new LLC “GC SteelCraft” with the same type of activity (wholesale trade of metals). According to the ERC, the defendants acted to the detriment of the original company’s creditors.

The Arbitration Court of Moscow dismissed the claim for subsidiary liability, believing the unreasonableness and bad faith of the actions of the defendants, who were no longer related to the company when the bankruptcy case of “Steelcraft” was initiated. The Court of Appeal and the Court of Cassation upheld this decision. CARE LLC appealed to the Supreme Court. The creditor insisted that the courts had distributed the burden of proof incorrectly, so the brothers were relieved of the obligation to refute his arguments about the withdrawal of funds immediately after the filing of the lawsuit to collect the debt, about the transfer of the business to another person, and so on. The case was referred to the Economic Collegium of the Supreme Court, which overturned all court decisions.

The Supreme Court explained that former CEOs can be held liable if the company’s inability to pay debts is “provoked by the implementation of the will of controlling persons, whose behavior did not meet the criteria of good faith and reasonableness and was not related to market or other objective factors. Or if a member of the LLC or another KDL violated the principle of segregation of property of the legal entity (for example, used the company’s accounts for personal settlements), which “led to a mixture of their assets” and made it impossible to pay debts.

If KDLs ignore the corporation’s rules, they too will “ignore the principles of limited liability and protection of business judgment,” the SC noted.

To bad faith behavior can also include a business model that reduces the assets of the company and does not take into account its interests, such as “the transfer of business to a newly created legal entity in order to eliminate liability to counterparties,” the SC acknowledged.

As a result, the panel sent the case for reconsideration, noting that the creditor has brought sufficiently compelling arguments, and the defendants have the burden to refute them. In addition, the courts must evaluate the defendants’ claims that the business model was profitable and based on their lending to the debtor to purchase goods.

“Transferring a debtor’s business to another company is a very common way,” the practice even has a special expression “creation of profit and loss centers,” says Dmitry Yakushev, an attorney in the Bankruptcy practice of Andrey Gorodissky & Partners. According to him, court practice in recent years has generally “successfully fought such business models,” but they “still exist in one variation or another.” Since 2018, recharging firms with debts to nominees has become less attractive, as courts often hold KDLs liable subsidiarily, explains Ruslan Petruchak, a counsel in BGP Litigation’s dispute resolution and bankruptcy practice. “Pursuing beneficiaries rather than nominees” is in the trend of court practice, confirms Svetlana Tarnopolskaya, partner at Yukov & Partners. In such a situation, the need to explain the scheme to the courts at the level of the Supreme Court in 2022 “is worrying,” adds Orchards counsel Vadim Borodkin.

The problem of such disputes is that not always the establishment of a company with the same name as the debtor is aimed at harming creditors, Mr Yakushev notes

The problem of such disputes is that creation of the company with the same name as the debtor is not always aimed at damaging the creditors, Mr. Yakushev notes.

As a general rule, it is the creditor as the plaintiff who has to convince the court of the illegality of the target, the lawyer explains, but often his arguments “look like assumptions”. In this regard, lawyers note the importance of the fact that the Supreme Court put the burden on the brothers to refute the plaintiff’s arguments.

Svetlana Tarnopolskaya points out that there are two different principles of civil law colliding here: ensuring stability of the turnover and inadmissibility of abuse by its participants. According to her, one cannot always turn a blind eye to the violation of the second principle for the sake of the first one. In the “Steelcraft” case, continues Ms. Tarnopolskaya, the SC noted the “obvious suspiciousness of what is happening”, but did not make a final conclusion, and now the lower courts will have to investigate whether the KDL acted in good faith.

Source: https://www.kommersant.ru/doc/5748025