THE SUPREME COURT OF RUSSIA ADMITTED OFFSETTING OF CLAIMS UNDER INDEPENDENT CONTRACTOR AGREEMENT IN BANKRUPTCY

The Economic Board of the Supreme Court of the Russian Federation considered the case at the request of a bankruptcy trustee. He demanded that the transaction must be invalidated by offsetting similar claims, and the parties to the agreement were the contractor (bankrupt company) and the customer.

The courts of three instances sided with the applicant, but the Supreme Court of Russia rejected his claim him.

The essence of the dispute arose as a result of the parties' performance of a contract, under which the debtor undertook to perform a certain amount of contract work. Under the terms of the agreement, the customer paid the contractor an advance. The contractor received the funds, but fulfilled his duties only by a third.

Having considered a part of the work completed, the contractor applied to court with a demand to recover the amount of money for what had actually been done. The court satisfied the application. After that, the customer filed an application for the recovery of the prepayment amount paid under the contract, and the court satisfied this application as well. 

Subsequently, the customer turned to the contractor with a notification of the offset of the claims and the termination of the counter financial obligations of the parties under the same agreement.

However, after the bankruptcy procedure had been introduced against the contractor, the trustee successfully challenged the offset of the claims, having convinced three courts of lawfulness of his actions.

In motivating their position, the judges proceeded from the fact that at the time of receipt of the notification of the offset of claims, the contractor already had other obligations to creditors, the claims of which were subsequently included in the register of creditors’ claims and have not been satisfied so far, which meant the preference of the interests of one creditor in relation to others.

However, the Supreme Court took a different position on this issue.

The Board noted that within the framework of contractual legal relations, the contractor is not entitled to receive the full amount under the contract in a situation where he fulfilled his obligations improperly.

In this case, the recalculation of the cost of the work performed is normal practice, and such measures cannot be considered a transaction that can be challenged in the way selected by the trustede (decision No. 308-ES19-24043 (2, 3) dated April 8, 2021).