Expiry of Bankruptcy Moratorium

Dear Ladies and Gentlemen,

On 28 March 2022, the Government of the Russian Federation adopted Resolution No. 497 which introduced a large-scale bankruptcy moratorium starting 1 April. We have already written about the moratorium and the consequences of its introduction for creditors and debtors in more detail here and here. The legal regulation of the moratorium was established in accordance with Article 9.1 of the Bankruptcy Law and the clarifications set forth in Resolution No. 44 of the Plenum of the Supreme Court of the Russian Federation.

Unlike the bankruptcy moratorium introduced in 2020 due to COVID-19 restrictions, the new moratorium has not been extended, and expired on 1 October 2022. Therefore, all restrictions and advantages provided under the bankruptcy moratorium ceased to apply from this date. At the same time, Resolution of the Government of the Russian Federation of 23 March 2022 No. 442, which rescinds fines and penalties for real estate developers, stays in force until the end of this year.

Consequences of moratorium expiry for creditors

• Creditors are entitled to initiate bankruptcy proceedings

  Creditors may apply for bankruptcy of the debtors without any restrictions. They have to provide the court with evidence of the existence of a debt confirmed in the judicial procedure, i.e. an effective overdue judgement shall be submitted.

• Creditors are entitled to commence enforcement proceedings

  After the expiry of the moratorium, all enforcement proceedings are resumed, and pledges may also be enforced. The previously suspended accrual of financial sanctions on debtors' obligations is also resumed.

• Debtors are not allowed to apply for an installment plan

  During the moratorium, debtors were entitled to file a bankruptcy petition and receive an in-stallment plan approved by a court. The installment plan allows debtors to repay to creditors the obligations which are due at the time of the installment plan introduction or will become due within a year after its introduction, in equal monthly payments. After the moratorium expiry, the mechanism of judicial installments is not applicable.

Consequences of moratorium expiry for debtors

• The debtor’s obligation to apply to the court for bankruptcy is resumed

  If there are signs of bankruptcy, the debtor is obliged to apply to the court for its own bankruptcy. During the moratorium this obligation was suspended. In accordance with the clarifications of the Supreme Court of the Russian Federation, controlling persons may be held liable for the failure to file a bankruptcy petition if the signs of insolvency had emerged before the moratorium was imposed.

• Restrictions on transactions with shares and payment of dividends are lifted

  Since the moratorium has expired, there is no more prohibition to sustain the claims of a share-holder for the separation of a share from a company’s authorized capital, for the debtor to purchase or acquire outstanding shares or pay the actual value of the share, to pay dividends or income on shares, as well as to distribute the profits of a debtor.

• Restrictions on offsetting with counterparties are also lifted

  The restriction on termination of debtor’s monetary obligations through offsetting with a counterclaim, providing the order of repayment of creditors’ claims established by the Bankruptcy Law is not violated, also ceased to apply. If the offset was performed during the moratorium, it can be challenged in the event of subsequent initiation of bankruptcy proceedings against the debtor. The creditors of both parties to the transaction also may challenge the offset outside the scope of the bankruptcy proceedings.

It should be noted that although the bankruptcy moratorium is no longer in effect, the issue of extending the moratorium for legal entities in the most affected industries is still being discussed at the level of the Government of the Russian Federation. However, no precise decision has been made so far.

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Note: Please be aware that all information provided in this letter was taken from open sources. Neither ALRUD Law Firm, nor the author of this letter bear any liability for consequences of any decisions made in reliance upon this information.