Supreme Court Allows Bankruptcy of Foreign Companies with "Close Connection" to Russia

The Supreme Court has considered the Westwalk case and ruled that foreign companies can be legally recognized as bankrupt if there is a "close connection" with Russia.

Bankruptcy of foreigners was first commenced in 2016, but for a long was applied only to individuals1.

The Arbitrazh Court of the Chelyabinsk Region opened Pandora's box in 2022 with respect to a company from the island of Nevis, which was only formally registered there. This approach was actively adopted by other courts, and in 2023 we saw an increase in such cases2.

The court's ruling in the Westwalk case summarised the practice of the lower courts and resolved important practical issues.

Who can be declared bankrupt?

Foreign companies that have a close connection with Russia in the following cases:

• {{(A)}} The management body, branch or representative office of the foreign company is located on Russian territory

• {{(B)}} The entity has permanent economic activities in Russia that are oriented towards Russian individuals, including owning property and concluding transactions in Russia

• {{(С)}} The centre of the main interests of the controlling entities is located on Russian territory

What assets are covered by bankruptcy?

• {{(A)}} If the centre of the debtor's main interests is located in Russia, the foreigner may be subject to main proceedings with respect to all its assets abroad

• {{(B)}} If the centre of the debtor's main interests is located abroad, but there is a close connection with Russia, bankruptcy proceedings may only be initiated with respect to its Russian assets

It is now safe to say that both Russian and foreign creditors can commence bankruptcy proceedings with respect to both offshore companies and legal entities that are registered and act abroad and have a close connection with Russia.

For example, see Case No. А41-72478/2019, А28-8319/2016 and А40-248865/2016, among others. Courts have actively started bankruptcy proceedings against foreign companies, for example, Delvenisto Investments LTD (Case No. А40-5658/2023), Garant Bauinvestition GmbH (Case No. А40-9555/2023), Retail Chain Properties (Case No. А40-112325/2023), GEMONT ENDUSTRI (Case No. А65-23218/2023) and others.