Debtor bankruptcy as a recovery tool

What is happening

The debtor is alive on paper and files its accounts, but money no longer passes through its accounts: revenue goes to a new company with the same director at the same address. The bailiffs return the writ for lack of assets.

In the year or two before, the debtor sold equipment and property to a related company, lent money to 'its own people' or paid off affiliated creditors. In bankruptcy such transactions can be challenged so that the assets or their value go into the estate.

Sometimes bankruptcy is defence rather than attack: other creditors have already moved against the debtor, and it is important to lodge your claim in time so as not to be left out when the money is distributed.

What the law says

• The grounds and procedure for bankruptcy are set by Federal Law No. 127-FZ of 26 October 2002 "On Insolvency (Bankruptcy)" (the Insolvency Law).
• A legal entity shows signs of bankruptcy if claims have not been met within three months of falling due and their amount is not below the threshold set by the Insolvency Law.
• As a general rule a creditor may file a petition if its claim is confirmed by a court judgment in force; there are exceptions for certain categories of creditor, such as banks.
• At least 15 calendar days before filing, the creditor must publish notice of its intention to petition in the Unified Federal Register of Information on the Activities of Legal Entities.
• Transactions for inadequate consideration, made to the detriment of creditors or preferring a particular creditor, are challenged on the special grounds in the Insolvency Law.
• Persons controlling the debtor can be held subsidiarily liable if their actions or omissions made it impossible to pay creditors in full.

What we do

• We analyse the debtor: its assets, transactions within the periods open to challenge, related parties, other creditors and their claims.
• We work through the economics: the cost of the procedure, the prospects of adding to the estate, and where your claim ranks.
• We publish the notice of intention, prepare the petition and nominate a self-regulatory organisation of insolvency practitioners.
• We have your claim entered in the register and represent the company at creditors' meetings.
• We initiate or support challenges to transactions and claims for subsidiary liability against controlling persons.
• We monitor the insolvency practitioner and challenge their actions where necessary.

What we will need from you

• The judgment, the writ of execution and records of the enforcement proceedings.
• The contract and documents on which the claim is based.
• Everything known about the debtor and its circle: related companies, directors, shareholders, movements of assets.
• Information on other creditors and disputes with the debtor, if any.
• A management decision on the time horizon and level of expenditure the company is prepared to commit.