What should bankruptcy trustee do after the sale of collateral

The National Union of Anti-Crisis Management Professionals (NUACMP) has clarified a number of situations in which collateral is sold.  In its positions, the union referred to judicial practice and clarifications of the Supreme Court of the Russian Federation on controversial issues.  In this article, we will briefly touch on each of the points.

In a situation of insolvency of the mortgagor, the proceeds from the sale of collateralized property should cover the costs of paying land and property taxes on the sold item. This must be done before starting the settlement procedure with collateral and other creditors. We talked about the case in detail here.

When selling the subject of collateral at an auction, the funds received from the sale should be used to pay the current tax payments, before settling with creditors. This conclusion was made by the Supreme Court of the Russian Federation, considering a case in which the debtor continued to operate in bankruptcy, thereby increasing the value of the property, but also increased the tax debts.

Current utility bills, which are necessary for the safety of the collateral, must be paid from the funds received from its sale until the start of settlements with creditors. As an example, we can cite heating costs, in case of abandoning which real estate can simply become unusable and significantly fall in price, in connection with which the Supreme Court of the Russian Federation gave such an explanation in one of its decisions.

The application of the legal positions that are set out in the first three paragraphs, when considering other cases of insolvency of legal entities, is possible only from the moment of the official publication of the rulings of the Supreme Court of the Russian Federation containing clarifications. Thus, the positions of the Supreme Court of Russia do not have retroactive effect and cannot be applied before the date of their official publication.

In a situation where, in the course of bankruptcy proceedings, funds from the sale of property are distributed without taking into account the points listed above, the manager is obliged to offer creditors to return excessively received funds to the bankruptcy estate. If the creditors refuse, the anti-crisis manager has the right to initiate a lawsuit to recognize these payments as invalid.

The provision of paragraph 6 of Article 138 of the Insolvency Law can only be applied to insolvency proceedings that were opened after the entry of 482th federal law into force.

The full text of the clarifications can be found here.