THE SUPREME COURT OF THE RUSSIAN FEDERATION INDICATED THE GROUNDS FOR CHALLENGING THE DEALS WITH PROMISSORY NOTES IN CASE OF THE BUYER’S BANKRUPTCY

Within the framework of the insolvency case of the debtor, his bankruptcy administrator and one of the creditors attempted to challenge the deal for the sale of the promissory note. However, the courts of three instances refused to satisfy the claims, which was the reason for the appeal to the Supreme Court of the Russian Federation.

The judges mentioned the discount for the purchased securities, provided by the seller, which in their opinion was a lucrative offer. In addition, the deal was concluded 2 years before the onset of the bankruptcy in the absence of signs of insolvency of the future debtor. It means that the counterparty to the deal could not have known about the potential harm to the future creditors.

However, the creditor and the manager of the debtor insisted that the parties were aware of the illiquidity of the securities at the time of the deal’s conclusion. The fact is that the companies named in the promissory notes were already in the stage of bankruptcy at the time of signing the agreement, and one of them was even liquidated.

However, the lower courts did not pay attention to these circumstances.

The Supreme Court reminded the colleagues that the liquidity of a security depends on the solvency of the issuer named in it.

Accordingly, the legal entities indicated in the promissory notes could hardly fulfill the obligation that arose before the new buyer, which significantly affected the liquidity of the securities.

Thus, the panel of judges concluded that the parties were likely to be aware of the disadvantage for the buyer of the promissory notes, which may become the basis for invalidating the contract (definition No. 305-ES19-20861 (4) of October 1, 2020).