IT IS POSSIBLE TO BANKRUPT FOREIGN ORGANIZATIONS IN RUSSIA

The Supreme Court of the Russian Federation recognized the right of Russian courts to introduce bankruptcy proceedings against foreign companies with "close ties" with Russia (case no. A40-248405/2022). Such companies include those who conduct business in the Russian Federation, whose property is located here, and a significant part of whose transactions are conducted on the territory of Russia. The procedure can also be introduced in relation to the beneficiaries of such organizations. It can cover both all the debtor's property and apply only to assets in the Russian Federation.

The Supreme Court came to such conclusions following the consideration of the cassation appeal of AMN Commercial Property Advisors Ltd against the refusal of lower authorities to introduce bankruptcy in respect of the Cypriot company Westwalk Projects Ltd., which owned three shopping malls in the Moscow region, which, as part of the division of property between Alexey and Konstantin Mauergauz, transferred to the authorized capital of AMN.

Along with the real estate itself, all rights and obligations under lease agreements were transferred to ANM. Westwalk undertook to transfer security payments from tenants, but ANM did not receive funds. As part of the litigation, the company sued Westwalk for over 6 million rubles. After that, ANM filed for bankruptcy of the Cypriot debtor in a Russian court, justifying this by the fact that Westwalk has a branch in Russia.

However, the application was refused by three instances. The courts pointed out that the Bankruptcy Law applies exclusively to legal entities. Bankruptcy of the branch is not provided. The courts also noted that the debtor does not operate in Russia, its branch does not work, and an application has been submitted to terminate its accreditation. However, the higher instance did not agree with the conclusions of the lower courts.

The Supreme Court noted that Russian law does not exclude the possibility of initiating bankruptcy proceedings by the court, which would be complicated by a foreign element.

The key to resolving the issue of the competence of the Russian court will be the fact of the presence (absence) of the debtor's close connection with Russia. The following factors can confirm this fact:

• The center of KDL's main interests is located in Russia;

• the company's activities are aimed at persons located in the Russian Federation;

• a significant part of the debtor's transactions were executed in the Russian Federation.

In the present case, the registration of the debtor abroad is formal, there is no activity outside Russia, while the sole shareholder and director of the organization is a citizen of the Russian Federation, whose son is the director of the branch.
In this regard, the Supreme Court annulled the judicial acts of lower instances and sent the dispute for a new consideration.


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