Protecting the director and beneficial owner in insolvency

What is happening

The company is not yet bankrupt, but it is heading that way, and the owner wants to know in advance what he is likely to be accused of, which documents need to be in order and how to behave once an insolvency officer is appointed.

The officer is simultaneously demanding that the former director hand over documents, claiming losses from him over several transactions and challenging a bonus paid to him. Each claim is heard separately, and what he says in one may be used in the others.

The beneficial owner financed the company with loans for years and now wants them entered on the register. The officer and the creditors object, calling the loans compensatory financing, while preparing a subsidiary liability claim against him.

What the law says

• Federal Law No. 127-FZ of 26 October 2002 "On Insolvency (Bankruptcy)" (the Insolvency Law) requires the chief executive to hand over the debtor's accounting and other records, seals and valuables to the insolvency officer. Failure leads to a court order for their surrender and triggers presumptions in any subsidiary liability claim.
• Beyond subsidiary liability, the Insolvency Law allows losses caused to the debtor to be recovered from controlling persons, including on the Civil Code grounds for director liability. These are separate claims with different things to prove.
• The debtor's transactions with its director and participants, including payments, loans and disposals of property, are the first the officer examines, and interested parties are presumed to have known of the circumstances.
• Under established case law, a beneficial owner's claims arising from funding the company during a crisis may be subordinated, meaning they are paid after the claims of independent creditors.
• On subsidiary liability and loss claims the court may freeze the controlling persons' assets; in some cases the property of their relatives also comes under scrutiny.
• In practice, handing over documents promptly, disclosing information and cooperating with the officer affect both the court's overall view and the extent of any liability.

What we do

• Before bankruptcy, we audit the risks: transactions over the past three years, the state of the records, and the roles of the director, participants and de facto managers.
• We prepare the records for handover to the officer and document the handover so that its scope and date are evidenced.
• We run all the separate disputes against the client in a coordinated way: surrender of documents, losses, challenged transactions and subsidiary liability.
• We defend the beneficial owner's claims against the company at registration and oppose unjustified subordination.
• We challenge and narrow asset freezes affecting the personal property of the client and the client's family.
• Where it serves the client, we build a working relationship with the officer and creditors, including negotiating a settlement.

What we will need from you

• The bankruptcy case number or, if there is no case yet, the company's accounts and list of creditors.
• Documents on the client's role: appointment resolutions, employment contract, powers of attorney and shareholding.
• Details of transactions between the company and the client or related persons: loans, payments, sales and leases of property.
• Where the company's records are held, and any correspondence with the officer if the procedure has begun.
• Details of property acquired by the client and the client's family in recent years.