SHAM DEALS IN BANKRUPTCY: WHAT IS NECESSARY TO CONSIDER WHEN CHALLENGING THEM

The Supreme Court of the Russian Federation has recently considered a case on challenging the supply agreement, which the bankruptcy manager of the debtor demanded to be recognized as a sham transaction. According to manager, the parties to the agreement had no intention of generating real legal consequences, but pursued only the goal of creating additional fictitious debt.

The court of the first instance agreed with this position and satisfied the claim. However, the higher courts considered the statute of limitations missed and canceled the judicial act issued by the first instance.

Then the manager applied to the Supreme Court and made the right decision.

The Supreme Court not only canceled the decisions of the appellate and cassation instances, but also clarified a number of important legal aspects.

First of all, the board recalled that when challenging a sham transaction, a three-year limitation period should be applied.

In addition, the beginning of the course of this very term should be determined by the moment the bankruptcy manager should have learned about the formal nature of the execution of the challenged agreement. This circumstance was not indicated by the courts.

What is more, the question of the reality of the performance of the contract by the supplier in favor of the debtor was not subject to proper verification.

The result of the consideration of the complaint was the cancellation of the court decisions and the referral of the dispute for reconsideration (judgment No. 304-ES18-4037 (9) of March 18, 2021).