Russian Federation: Russian Insolvency Law Recently Amended To Expand Vicarious Liability. A New Rescue Procedure May Also Soon Appear

Last Updated: 7 September 2017
Article by Timothy Stubbs and Andrei Strijak

Expanded vicarious liability rules

New Federal Law No. 266-FZ dated 29 July 2017 (the Amendment Law) introduces notable changes to Russia's insolvency rules. Importantly, the law does away with the original provisions on vicarious liability of controlling persons in RF Law No. 127-FZ on Insolvency of 26 October 2002 (the Insolvency Law). The Amendment Law expands this concept in a series of new clauses. The rules came into force 30 July 2017.

The new rules define a controlling person as any individual or entity who, during three (3) years prior to emergence of signs of insolvency or the court's acceptance of a bankruptcy application, was able to give the debtor mandatory instructions or otherwise direct its actions, including by exerting influence over entry into transactions and determining their terms.1

The Amendment Law gives specific examples of how such a person may "direct the actions of the debtor," e.g., by being related to the debtor or its executive officers, by authority granted under a power of attorney, and the like.

The following persons are presumed to be controlling unless proven otherwise:

  • The CEO of the debtor or its management company, or members of the debtor's executive board, liquidator or members of the liquidation committee
  • Any shareholder holding, individually or together with interested persons, (i) 50% or more of the debtor's shares, (ii) more than half the debtor's charter capital, or (iii) the power to cast more than half the votes in a shareholders' meeting of the debtor, or a shareholder that could otherwise elect the debtor's CEO 
  • Any person receiving some benefit from the unlawful or bad-faith actions of persons authorized to represent the debtor under its constituent documents or by power of law2

However, additional persons can also be deemed controlling if they meet relevant general criteria. Meanwhile, the Amendment Law specifically establishes a safe harbor provision stating that a shareholder below 10% is not a controlling person solely by virtue of such shareholding.

Controlling persons may be held vicariously liable if:

  • Their action or inaction precludes full satisfaction of creditors' claims, including if:

    • Bankruptcy proceedings were terminated due to a lack of funds sufficient to finance them, or the Federal Tax Service bankruptcy application was returned.
    • Their action or inaction subsequently seriously harmed the debtor's financial condition, even where the debtor's insolvency arose irrespective of the controlling person's action or inaction.3
    • They failed to take obligatory actions to ensure submission of the bankruptcy application4 (the Amendment Law also introduces new and expanded obligations with respect to the proper submission of the bankruptcy application).5
    • They violated the Insolvency Law, including if a bankruptcy procedure was initiated while the debtor was still capable of paying its obligations in full, or if the debtor failed to challenge unjustified claims in the bankruptcy proceedings.6

The Amendment Law does provide exemptions from liability (or otherwise limits liability) for persons who can prove that while acting as executive officer or shareholder of the debtor they could not actually determine its actions, if such persons provide information identifying actual controlling persons or revealing concealed assets of the debtor or the controlling person.

An application to subject a controlling person to vicarious liability (an Application) can be submitted by a receiver, creditors, a representative of the debtor's employees and employees or former employees to whom the debtor is still indebted. An Application must be submitted within three (3) years from the date the applicant became or ought to have become aware of grounds for vicarious liability, but no later than three (3) years after the debtor was declared bankrupt (or termination of bankruptcy proceedings or return of a Federal Tax Service application). This may be extended in certain cases, subject to a longstop of ten (10) years after the relevant action or inaction took place.7

The court will review the Application as part of the debtor's bankruptcy case and may as a result freeze a controlling person's assets as interim relief for a vicarious liability claim.

Where an Application is submitted due to a controlling person's action or inaction that precluded full satisfaction of creditors' claims, the amount of vicarious liability may not be immediately evident. In this situation, the court will confirm that grounds for vicarious liability exist, and then postpone review of the claim until settlements with creditors are finalized. Once the settlements are finalized, the receiver is to request that the court resume the vicarious liability proceedings and submits information on creditors' remaining unsatisfied claims.8

The court's decision on a vicarious liability claim will include specific instructions on the manner of satisfaction of the claim, depending on how the creditors dispose of the right to vicarious satisfaction.

Each creditor may demand:

  • That a claim be repaid as part of the insolvency proceedings
  • That a claim be sold according to the rules for sale of the debtor's rights of claim in insolvency
  • Partial assignment of the claim to the creditor in value equal to the value of the creditor's claim (this option is not available, however, in cases of insolvency of financial and credit institutions and real estate developers)9

While creditors acting under the third option become direct claimants against the controlling person, the remainder of the claim is satisfied either by way of the first or second option, depending on a majority vote (by volume of claims) of the creditors.

After satisfying the claim, the controlling person will have a subrogated claim against the debtor, to be satisfied last in bankruptcy.

If the Application is submitted after the conclusion of bankruptcy proceedings, it must name all creditors whose claims were not satisfied. The court then reviews the claim as one made in defense of the interests of a group of persons, regardless of how many persons actually joined the proceedings (with some exceptions). An offer to join the proceedings may be made via the Unified Federal Register of Bankruptcy Information.10

Parties may also settle vicarious liability claims where settlement is reached between all claimants and all respondents, provided a controlling person discloses assets sufficient to satisfy all claims.11

New draft law introducing rescue proceedings is submitted to State Duma

Entering bankruptcy in Russia is almost invariably a death knell for a business. Although rescue procedures (that is, judicial proceedings aimed at restoring debtors' solvency) do exist, they are rarely if ever utilized. Bankruptcy is always viewed by creditors and debtors alike as a 'last resort.' Bankruptcies therefore almost always are brought when it is too late to restore the debtor's business.

Problematically, bankruptcy rules always require an initial six-month so-called 'supervisory' period (with exceptions for some categories of debtors). During this period the debtor's business (and goodwill) invariably atrophies. This initial period is then ordinarily followed by liquidation and cessation of business.

Russian legislators have previously made various attempts to introduce a viable rescue procedure into Russian law. It appears another may be in the works.

The RF Government recently submitted a draft bill on amendments to the Insolvency Law and several other laws (the Restructuring Bill) to the State Duma.12

The amendments aim to introduce a new formal rescue procedure into the Bankruptcy Law: judicial debt restructuring. The debtor or any of its creditors may apply for this procedure, in lieu of applying for more "traditional" insolvency procedures. As a key point, this new procedure cannot, by definition, result in liquidation. This feature is designed to encourage parties genuinely interested in rescuing the debtor to utilize this procedure in lieu of insolvency procedures that may lead to winding up.

Within four (4) months following entry into a judicial debt restructuring, the debtor should submit a restructuring plan. This can also be done by the creditors, the receiver, the debtor's shareholders or various other entities. The plan should aim to restore solvency of the debtor and settle existing indebtedness (there should be no overdue indebtedness left after completion of the plan). The plan should provide for full payment of current expenses and to the first- and second-priority creditors within three (3) months of the bankruptcy court's approval of the plan, prior to settlement of overdue indebtedness to other creditors. Additionally, before tax and treasury legislation is amended following the potential adoption of the Restructuring Bill, the plan should provide for the full payment of mandatory debts to the state and state funds.

A plan may also include various approaches to corporate governance of the debtor for the restructuring period, as well as special rules for the creditors whose claims are to be satisfied under the plan.

A plan may be approved by a vote of creditors and then confirmed by the bankruptcy court. Notably, only a simple majority of participating creditors with voting rights is required to approve the plan. However, the Restructuring Bill provides that terms and conditions of the plan with respect to creditors voting against the plan (except interested party creditors) may not be less favorable than those with respect to creditors voting in favor of the plan (except secured creditors). Other limitations exist: for example, debt to equity conversions may only occur for those creditors that voted in favor of it.

The term for completion of a plan as a rule should be no longer than four (4) years following the court's approval of the plan, though this period can also be extended by another four years. During the first two months of the restructuring, the debtor may unilaterally terminate pre-existing contracts if performance thereunder would materially complicate rescue of the debtor's solvency or would carry losses compared to similar transactions on the market (with the exception of facility agreements and security arrangements).

The Restructuring Bill also appears de facto to allow prepack bankruptcies. In particular, the bill allows a debtor to obtain creditors' consents to a draft plan in advance (during a period of up to six (6) months prior to commencement of judicial proceedings on debt restructuring, or more where a creditor is a credit institution). That said, advance consents may also be revoked. It would improve on the procedure significantly if the legislature would amend the Restructuring Bill expressly to state that a plan may be filed simultaneously with the application for judicial debt restructuring, with the consent of the majority of creditors.

The new procedure would appear to be a sensible concept. If successfully introduced it would hopefully bring the Russian bankruptcy system more in line with developed countries' models, which heavily rely on rescue procedures. However, implementation in Russia will require a major shift in attitudes by debtors, their shareholders and creditors. As a rule, successful restructurings in Russia have only been carried out on a contractual (non-judicial) basis, with the judiciary being used instead for insolvent liquidations.

Notably, the proposed amendments would also introduce the possibility of proceeding immediately with a debtor's liquidation, in lieu of having to wait the current mandatory six-month supervisory period. This should hopefully cut the costs and time frames for bona fide liquidations.


1. Art. 61.10(1) of the Insolvency Law, as amended by the Amendment Law.

2. Art. 61.10(4), Ibid.

3. Art.61.11(1), Art.61.11(12), Ibid.

4. Art. 61.12, Ibid.

5. Art. 9(3.1), Ibid.

6. Art. 61.13, Ibid.

7. Art. 61.14, Ibid.

8. Art. 61.16(7), art. 61.16(9) Ibid.

9. Art. 61.17(2), Ibid.

10. Art. 61.19(4), Ibid.

11. Art. 61.21, Ibid.


Dentons is the world's first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the Firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world's largest law firm, Dentons' global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

To print this article, all you need is to be registered on

Click to Login as an existing user or Register so you can print this article.

Similar Articles
Relevancy Powered by MondaqAI
Some comments from our readers…
“The articles are extremely timely and highly applicable”
“I often find critical information not available elsewhere”
“As in-house counsel, Mondaq’s service is of great value”

Related Topics
Similar Articles
Relevancy Powered by MondaqAI
Related Articles
Up-coming Events Search
Font Size:
Mondaq on Twitter
Mondaq Free Registration
Gain access to Mondaq global archive of over 375,000 articles covering 200 countries with a personalised News Alert and automatic login on this device.
Mondaq News Alert (some suggested topics and region)
Select Topics
Registration (please scroll down to set your data preferences)

Mondaq Ltd requires you to register and provide information that personally identifies you, including your content preferences, for three primary purposes (full details of Mondaq’s use of your personal data can be found in our Privacy and Cookies Notice):

  • To allow you to personalize the Mondaq websites you are visiting to show content ("Content") relevant to your interests.
  • To enable features such as password reminder, news alerts, email a colleague, and linking from Mondaq (and its affiliate sites) to your website.
  • To produce demographic feedback for our content providers ("Contributors") who contribute Content for free for your use.

Mondaq hopes that our registered users will support us in maintaining our free to view business model by consenting to our use of your personal data as described below.

Mondaq has a "free to view" business model. Our services are paid for by Contributors in exchange for Mondaq providing them with access to information about who accesses their content. Once personal data is transferred to our Contributors they become a data controller of this personal data. They use it to measure the response that their articles are receiving, as a form of market research. They may also use it to provide Mondaq users with information about their products and services.

Details of each Contributor to which your personal data will be transferred is clearly stated within the Content that you access. For full details of how this Contributor will use your personal data, you should review the Contributor’s own Privacy Notice.

Please indicate your preference below:

Yes, I am happy to support Mondaq in maintaining its free to view business model by agreeing to allow Mondaq to share my personal data with Contributors whose Content I access
No, I do not want Mondaq to share my personal data with Contributors

Also please let us know whether you are happy to receive communications promoting products and services offered by Mondaq:

Yes, I am happy to received promotional communications from Mondaq
No, please do not send me promotional communications from Mondaq
Terms & Conditions (the Website) is owned and managed by Mondaq Ltd (Mondaq). Mondaq grants you a non-exclusive, revocable licence to access the Website and associated services, such as the Mondaq News Alerts (Services), subject to and in consideration of your compliance with the following terms and conditions of use (Terms). Your use of the Website and/or Services constitutes your agreement to the Terms. Mondaq may terminate your use of the Website and Services if you are in breach of these Terms or if Mondaq decides to terminate the licence granted hereunder for any reason whatsoever.

Use of

To Use you must be: eighteen (18) years old or over; legally capable of entering into binding contracts; and not in any way prohibited by the applicable law to enter into these Terms in the jurisdiction which you are currently located.

You may use the Website as an unregistered user, however, you are required to register as a user if you wish to read the full text of the Content or to receive the Services.

You may not modify, publish, transmit, transfer or sell, reproduce, create derivative works from, distribute, perform, link, display, or in any way exploit any of the Content, in whole or in part, except as expressly permitted in these Terms or with the prior written consent of Mondaq. You may not use electronic or other means to extract details or information from the Content. Nor shall you extract information about users or Contributors in order to offer them any services or products.

In your use of the Website and/or Services you shall: comply with all applicable laws, regulations, directives and legislations which apply to your Use of the Website and/or Services in whatever country you are physically located including without limitation any and all consumer law, export control laws and regulations; provide to us true, correct and accurate information and promptly inform us in the event that any information that you have provided to us changes or becomes inaccurate; notify Mondaq immediately of any circumstances where you have reason to believe that any Intellectual Property Rights or any other rights of any third party may have been infringed; co-operate with reasonable security or other checks or requests for information made by Mondaq from time to time; and at all times be fully liable for the breach of any of these Terms by a third party using your login details to access the Website and/or Services

however, you shall not: do anything likely to impair, interfere with or damage or cause harm or distress to any persons, or the network; do anything that will infringe any Intellectual Property Rights or other rights of Mondaq or any third party; or use the Website, Services and/or Content otherwise than in accordance with these Terms; use any trade marks or service marks of Mondaq or the Contributors, or do anything which may be seen to take unfair advantage of the reputation and goodwill of Mondaq or the Contributors, or the Website, Services and/or Content.

Mondaq reserves the right, in its sole discretion, to take any action that it deems necessary and appropriate in the event it considers that there is a breach or threatened breach of the Terms.

Mondaq’s Rights and Obligations

Unless otherwise expressly set out to the contrary, nothing in these Terms shall serve to transfer from Mondaq to you, any Intellectual Property Rights owned by and/or licensed to Mondaq and all rights, title and interest in and to such Intellectual Property Rights will remain exclusively with Mondaq and/or its licensors.

Mondaq shall use its reasonable endeavours to make the Website and Services available to you at all times, but we cannot guarantee an uninterrupted and fault free service.

Mondaq reserves the right to make changes to the services and/or the Website or part thereof, from time to time, and we may add, remove, modify and/or vary any elements of features and functionalities of the Website or the services.

Mondaq also reserves the right from time to time to monitor your Use of the Website and/or services.


The Content is general information only. It is not intended to constitute legal advice or seek to be the complete and comprehensive statement of the law, nor is it intended to address your specific requirements or provide advice on which reliance should be placed. Mondaq and/or its Contributors and other suppliers make no representations about the suitability of the information contained in the Content for any purpose. All Content provided "as is" without warranty of any kind. Mondaq and/or its Contributors and other suppliers hereby exclude and disclaim all representations, warranties or guarantees with regard to the Content, including all implied warranties and conditions of merchantability, fitness for a particular purpose, title and non-infringement. To the maximum extent permitted by law, Mondaq expressly excludes all representations, warranties, obligations, and liabilities arising out of or in connection with all Content. In no event shall Mondaq and/or its respective suppliers be liable for any special, indirect or consequential damages or any damages whatsoever resulting from loss of use, data or profits, whether in an action of contract, negligence or other tortious action, arising out of or in connection with the use of the Content or performance of Mondaq’s Services.


Mondaq may alter or amend these Terms by amending them on the Website. By continuing to Use the Services and/or the Website after such amendment, you will be deemed to have accepted any amendment to these Terms.

These Terms shall be governed by and construed in accordance with the laws of England and Wales and you irrevocably submit to the exclusive jurisdiction of the courts of England and Wales to settle any dispute which may arise out of or in connection with these Terms. If you live outside the United Kingdom, English law shall apply only to the extent that English law shall not deprive you of any legal protection accorded in accordance with the law of the place where you are habitually resident ("Local Law"). In the event English law deprives you of any legal protection which is accorded to you under Local Law, then these terms shall be governed by Local Law and any dispute or claim arising out of or in connection with these Terms shall be subject to the non-exclusive jurisdiction of the courts where you are habitually resident.

You may print and keep a copy of these Terms, which form the entire agreement between you and Mondaq and supersede any other communications or advertising in respect of the Service and/or the Website.

No delay in exercising or non-exercise by you and/or Mondaq of any of its rights under or in connection with these Terms shall operate as a waiver or release of each of your or Mondaq’s right. Rather, any such waiver or release must be specifically granted in writing signed by the party granting it.

If any part of these Terms is held unenforceable, that part shall be enforced to the maximum extent permissible so as to give effect to the intent of the parties, and the Terms shall continue in full force and effect.

Mondaq shall not incur any liability to you on account of any loss or damage resulting from any delay or failure to perform all or any part of these Terms if such delay or failure is caused, in whole or in part, by events, occurrences, or causes beyond the control of Mondaq. Such events, occurrences or causes will include, without limitation, acts of God, strikes, lockouts, server and network failure, riots, acts of war, earthquakes, fire and explosions.

By clicking Register you state you have read and agree to our Terms and Conditions