Who will reward the trustee in a failed bankruptcy

The Supreme Court of the Russian Federation (SC) has decided who should pay the remuneration to the bankruptcy trustee (TA) in case of termination of the bankruptcy case due to the lack of money of the company even for the procedure. If the bankruptcy was initiated by the debtor himself, the costs are to be borne by the debtor’s owners. The experts welcome this approach, noting that otherwise the funding of bankruptcy would fall on АU which would refuse to lead knowingly futile procedures.

On October 27 the Supreme Court published its ruling in the case of reimbursement of the expenses of the trustee in bankruptcy administration. An important position for practice was expressed in the case of TEVOS LLC, which filed for its own bankruptcy in November 2018. The Arbitration Court of the Arkhangelsk region initiated the case and in December initiated the monitoring procedure. But the debtor did not have the funds to conduct bankruptcy, and in April 2019 the case was terminated.

Due to the company’s lack of money, Natalia Savelyeva, the appointed trustee, was unable to receive payment for the procedure. In January 2020, Ms. Savelieva claimed 140.4 thousand rubles from the debtor, including 119.8 thousand rubles for the remuneration of the AA. However “due to inability to find the location of the LLC and its property” it was impossible to collect the money, after what Natalia Savelieva asked the court to impose these expenses on the manager and the only shareholder of the company – Dmitry Finozhenkov.

The arbitration courts of three instances rejected the request of the AA. The courts pointed out that Mr Finozhenkov had not filed for bankruptcy, nor had he given his consent to the funding of the procedure, nor had he taken the decision on the liquidation of the LLC.

According to the court, the receiver may recover his remuneration only through “bringing the controlling person to subsidiary liability”.

Natalia Savelieva appealed to the Supreme Court, believing that the courts incorrectly applied Articles 61, 62 of the Civil Code (obligating the founder, who decided to liquidate the company, to reimburse the costs of the procedure). This resulted in the fact that “a participant of a debtor can shift the expenses of liquidation of a legal entity under his control to the AI. As a result the economic board of the Supreme Court reversed the judgments and collected 140,4 thousand rubles from Dmitry Finozhenkov for the benefit of the Agency.

The panel of judges stressed that оптима оптима оптима оптима оптима оптима оптима оптима оптима оптима has the right to compensation, it is paid by the debtor or the claimant in the case. If the debtor does not have funds, “the necessary expenses may be charged to the founders (participants),” the Supreme Court clarified. This happens “by virtue of the status and is not conditioned either by the fact of filing a bankruptcy petition or by taking measures to establish a liquidation commission,” the SC stressed. It will not be possible to recover the expenses of the Managing Director through subsidiary liability in this case, since the failure to repay voluntarily the court expenses on the liquidation of a legal entity “does not constitute an offence entailing subsidiary liability in bankruptcy.

The lawyers support the decision of the Supreme Court. Denying reimbursement of expenses at the expense of a participant of an LLC, “courts used formal arguments” and as a result “the manager was punished for absence of property of the debtor”, considers the lawyer of the “Gurichev, Malinin and partners” Polina Vizgina.

The position of the Supreme Court “helped prevent an error in practice that could later become a problem for managers in non-cash procedures,” adds Managing Attorney Victoria Tsarevskaya. According to her, the approach of the lower courts could have seriously “reduced the number of managers willing to consent to appointment in similar procedures.”

Now business owners should understand that if a company applies for bankruptcy, they will have to bear the costs of the procedure, says Denis Danilov, head of projects of consulting group RCT. However, he warns that if the participant of the company is nominal, it “can be problematic” to get money from him.

Valeria Gerasimenko, general director of the association of self-regulating organizations “Northern Capital” is confident that the participants (shareholders) of debtors will not pay voluntarily, but the recovery through the courts will now have “predictable results”. As the Supreme Court does not tie its decision directly to the initiator of bankruptcy, in theory, one may impose ACU expenses on company owners, even if the debtor’s bankruptcy was initiated by a creditor not able to pay, Mrs. Gerasimenko believes. Mrs. Gerasimenko also insists that the owners of a company may reduce the amount of their payments to the trustee if they can prove that the trustee failed to fulfill his obligations properly.

Source: https://www.kommersant.ru/doc/5645514?from=doc_vrez