Supreme Court of the Russian Federation clarified what cannot be considered compensatory financing

The highest court considered the case, one of the creditors in which filed the claims for inclusion in the register of creditors’ claims.  The two first instances supported it, and the district court downgraded the debt in the registry, citing affiliation and, as a result, compensatory funding.  The applicant did not agree with this position, which was the reason for the consideration of the case in the Supreme Court of the Russian Federation.

The disputed debt was formed as part of the debtor's first bankruptcy case. Then the creditor announced his intention to pay off all the debts of the company, which he subsequently did, and the insolvency case was closed. However, this did not help - the debtor again ended up in bankruptcy proceedings.

As part of the second case, the creditor filed the claims, the courts of first and appeal instances found them justified and included in the register of creditors’ claims. The arguments of the district board boiled down to the fact that the repayment of the debtor's claims was made by an affiliate in order to minimize the negative consequences that were caused to the companies by the actions of the persons controlling it.

The court regarded this behaviour as a form of financing the debtor, additionally noting that the repayment of the debt and the termination of the insolvency case created the appearance of the debtor's financial stability among the creditors.

However, the Supreme Court of the Russian Federation expressed disagreement with the indicated arguments. The Economic Board noted that the bankruptcy legislation does not contain provisions according to which the affiliation of the debtor and the creditor is an independent basis for downgrading the claims of the latter outside the framework of corporate obligations. One of the reasons for the lowering of claims due to compensatory financing is an attempt to hide the financial instability of the debtor from creditors, which cannot be done within the framework of an already initiated insolvency case, the board concluded. Therefore, such actions cannot be regarded as compensatory financing.

As a result, the decision of the district court was cancelled, and the acts of the courts of the first and appeal instances were left in force (decision No. 307-ES21-14672 (1, 2) of January 31, 2022).