In addition to recent measures supporting the economy and preventing spread of COVID-19 a new law No. 166-FZ dated 8 June, 2020 «On amendments to certain legislative acts of the Russian Federation with a view to taking urgent measures aimed at ensuring sustainable economic development and preventing the consequences of the spread of a novel coronavirus infection» was adopted (hereinafter referred to as Law no. 166). Law No. 166 amended regulations provided by the Bankruptcy law1 with several novels.
Judicial installment plan
Law No. 166 introduces additional defense mechanisms for debtors, which can be applied in bankruptcy proceedings.
Eligible debtors: individuals and legal entities which are in first bankruptcy procedure (debt restructuring or supervision, correspondingly) have a right to file a petition to the commercial court to approve judicial installment plan. It provides the suspension of the bankruptcy proceedings for a certain term with a simultaneous installment of the obligations to creditors.
Conditions for judicial installment plan
The following conditions must be fulfilled for the judicial installment plan to be approved:
- Bankruptcy proceedings must be initiated by a debtor’s voluntary petition filed not earlier than one month following the introduction of the moratorium (April 6, 2020) (see also );
- The debtor’s revenue in the taxable period of the calendar year when the bankruptcy proceedings were initiated decreased by 20 % or more as compared with the same period of the previous calendar year. If at the time bankruptcy proceedings initiated, the taxable period has not expired, the debtor’s revenue for the two-year period preceding the initiation of bankruptcy proceedings shall be considered. The debtor has no creditors of the first and second orders of priority.
- The creditors’ meeting has abstained from the decision to conclude an amicable agreement or voted against its conclusion.
- There are no petitions to declare the debtor as bankrupt, that were filed before the moratorium was introduced and returned by the commercial court in accordance with paragraph 2 of Article 9.1 of the Bankruptcy law.
Obligations which are subject to judicial installments
Law No. 166 provides for the possibility of installment payments for all financial obligations that are overdue on the date of initiation of bankruptcy proceedings, as well as those slated to become due within one, from the date of the court’s approval of the judicial installment plan.
Judicial installment plan applies to the claims of all creditors, including those not included in the register of creditors’ claims. Also judicial installment plan applies regardless of the terms of the contract providing for the acceleration of the obligations and other negative effects for the debtor due to changes in its financial condition, violation of the payment schedule and (or) the introduction of bankruptcy proceedings against the debtor.
Procedure for introducing judicial installment plan
Judicial installment plan is provided upon an application of the debtor. Based on this application, the court issues a ruling containing conditions for approval of the judicial installment plan. The ruling can be appealed. Once judicial installment plan is granted, bankruptcy proceeding shall be terminated.
Performance of obligations during the installment period
Obligations shall be performed monthly in equal installments during the installment period. This period shall be 1 year by default. However, it may be prolonged up for to 2 years if the debtor’s revenue for the reporting period of the calendar year in which the bankruptcy proceedings were initiated fell by 50 % or more as compared to the same period of the previous calendar year. Under similar circumstances the installment period for strategic enterprises may be 3 years.
If the judicial installment plan is granted for a period longer than a year, the debtor must provide creditors whose claims are not secured with a bank guarantee or pledge of their property or a property of a third party, which market value is subject to determine by the appraiser.
Rights of creditors during the period of judicial installment plan
Creditors whose claims exceed 10% of the total debt (except persons affiliated with the debtor) that is included in the register of creditors’ are entitled to access information of property, property rights and obligations of the debtor during the period of judicial installment plan. The debtor must provide the information requested by the creditors within a reasonable time.
Legal effects of granting judicial installment plan
After the court issued a ruling approving judicial installment plan, certain restrictions that were imposed in with the supervision procedure stay in force:
- it is not permitted to satisfy the debtor’s shareholders claims for the appointment of a share or payment of the actual value of their shares, or to redeem or pay for the debtor’s outstanding shares;
- it is not permitted to terminate the debtor’s monetary obligations by the means of set-off;
- it is not permitted to pay dividends, share income and to distribute profit among the debtor’s participants;
- no penalties or other pecuniary sanctions accrue for default in monetary obligations and compulsory payments, except for current payments.
The consequences of failure to comply with the judicial installment plan
If the debtor does not comply with the terms of the judicial installment plan, the creditors may petition before the court to cancel it in relation to all the creditors. In this case bankruptcy proceedings shall be resumed, unless the debtor is subject to the procedure applied in a new bankruptcy case.
In case the commercial court cancels the judicial installment plan or a new bankruptcy proceeding is initiated whilst there is unfulfilled judicial installment plan, the periods provided by Articles 61.2 and 61.3 of the Bankruptcy law shall be calculated from the date of the moratorium and include the relevant periods until the date of the moratorium, the period of the moratorium, the period until the date of the commercial court adopted a ruling cancelling the judicial installment plan or until the date of initiation of a new bankruptcy case when there is unfulfilled judicial installment provided previously.
1Federal Law of October 26, 2002 No. 127-FZ On Insolvency (Bankruptcy)