Defence against subsidiary liability

What is happening

Several years ago a person served as a company director, then left, and the company later went bankrupt. Now the officer lists him among the controlling persons and seeks all unpaid debts from him jointly, although he was not the one making decisions at the time.

A participant with a small stake never involved himself in management and simply received dividends. The application calls him a beneficial owner because he signed meeting resolutions approving major transactions.

A hired director signed documents on the owner's instructions without seeing the whole picture. He is now accused of failing to file for bankruptcy and failing to hand documents to the officer, although the documents stayed with the beneficial owner.

What the law says

• The grounds and procedure for subsidiary liability are set out in Chapter III.2 of Federal Law No. 127-FZ of 26 October 2002 "On Insolvency (Bankruptcy)" (the Insolvency Law). Any person controlling the debtor may be a respondent, including one with no formal position.
• Control is assessed over the three years before signs of insolvency appeared and afterwards. The Insolvency Law creates presumptions of control, for example for the director and for a person who benefited from the director's unlawful acts, but they can be rebutted.
• The main grounds are that creditors cannot be paid in full because of the controlling person's acts, and failure to file for bankruptcy in time. The first comes with presumptions, including substantial harm to creditors from transactions and missing or distorted accounting records.
• Liability generally equals the creditors' unpaid claims but can be reduced if the respondent proves that the harm caused by his conduct is substantially smaller. Liability for failing to file is limited to obligations incurred after the deadline expired.
• A claim can be brought after the bankruptcy proceedings have ended and outside the insolvency case where the case was terminated or the company struck off the register. The court may freeze the respondent's assets as soon as the application is filed.
• Subsidiary liability is generally not written off in the individual's own personal bankruptcy, so the claim has to be fought on its merits rather than left for later discharge.

What we do

• We study the application and the insolvency file and reconstruct the client's role in the company year by year: positions, powers and actual involvement in decisions.
• We rebut the presumptions of control and fault by showing who actually took the decisions, the business rationale for the transactions and causes of the crisis unconnected with the client.
• We prepare the response and the evidence episode by episode and, where appropriate, apply to have the claim against the client heard separately.
• We oppose asset freezes or seek to narrow them so that the client can use income for living and working.
• We address the amount of liability, showing that the harm from the alleged conduct is smaller than claimed or unconnected with the bankruptcy.
• We represent the client in the commercial court at first instance, on appeal and in cassation.

What we will need from you

• The liability application and the court ruling accepting it.
• Documents showing your role in the company: appointment and dismissal orders, employment contract, powers of attorney and meeting resolutions.
• Documents and correspondence showing who actually decided on the disputed transactions.
• The handover record or correspondence about transferring documents to the officer, or details of who held them.
• Information about your assets and income, to deal with interim measures.