From April 1, 2022, Russia Introduces a Moratorium on Initiating Bankruptcy Proceedings Under the Claims of Creditors

A Decree of the Government of the Russian Federation¹ introduced a moratorium on initiating of bankruptcy cases at the request of creditors for the second time. The previous moratorium was imposed to support the most affected by the coronavirus economy sectors and lasted for 9 months. The current moratorium has been introduced for half a year, but the possibility of its extension cannot be excluded.

This time, the moratorium applies to all industries and all debtors, except developers of apartment buildings and (or) other real estate objects included in the unified register of problematic objects. That means, that a company has no obligation to submit any special applications or apply to government authorities in order to apply the moratorium, each² debtor is already under protection. So what are the benefits³?

• All applications filed in respect of persons subject to the moratorium after the introduction of the moratorium, are subject to return. Applications that have not been accepted for processing yet must also be returned

• Published announcements of intention to apply for bankruptcy of the debtor become invalid, and the creditor will not be able to apply to the court on the basis of such an application

• The debtor's duty to file a bankruptcy application⁴ is suspended until the moratorium is over

• Penalties, fines and other financial sanctions are not charged for non-fulfillment or improper fulfillment of monetary obligations and obligatory payments (including those under Art. 395 of the Civil Code), with the exception of current payments (arising after the introduction of the moratorium)

• It is impossible to levy execution on pledged property of the debtor, including out-of-court proceedings

• Although writs continue to be issued, and creditors are still entitled to initiate execution proceedings, the execution proceedings on monetary claims⁵ that arose before the introduction of the moratorium are suspended. The possibility of execution of the court judgment by contacting the bank directly is also temporally canceled

• Arrest of the debtor's property and other restrictions imposed on its disposal under the execution proceedings remain in force

Taking into account the clarifications of the Plenum of the Supreme Court of the Russian Federation⁶, it should be noted that the moratorium does not prevent the filing and consideration of sues against persons who are subject to this moratorium, as well as that petitions for declaring a debtor as a bankrupt can be filed against a company that has decided on its liquidation.

On the other side, while protecting debtors from the property claims of creditors, the moratorium severely restricts their daily business activity, in particular, it is not allowed to:

• Pay dividends, income on shares, as well as distribute profits between the shareholders (participants) of the debtor

• Allocate shares in the property of the debtor in connection with the withdrawal from its shareholders (participants), redeem or acquire the placed shares by the debtor or pay the actual value of the share

• Sett-off claims, if such set-off may further affect the order of satisfaction of creditors' claims

• Seize the property from the debtor – a unitary enterprise by the property owner

In order to continue activities without mentioned restrictions, the debtor must declare the withdrawal from the moratorium by publishing the relevant information in the Unified Federal Register of Bankruptcy Information. If the moratorium is extended, the application becomes invalid, but the debtor has the right to waive such a support measure again.