Bankruptcy in foreign countries: is it possible to write off debts and keep property in Russia?

Bankruptcy in foreign countries: is it possible to write off debts and keep property in Russia?

Bankruptcy in foreign countries: is it possible to write off debts and keep property in Russia?
Do Russian citizens have the opportunity to avoid bankruptcy in Russia by obtaining bankruptcy status abroad?  Experts of the "ELKO profi" law firm Dmitry Shaportov and the chief legal adviser of the department of judicial work of the "ELKO profi" law firm Andrey Nemov are explaining the peculiarities of the issue.

You or your company is declared bankrupt abroad.  What's next?  How to legalize such a judicial act in the Russian Federation?  Law enforcement agencies have to interpret the existing rules.

When it comes to Russia, this is paragraph 6 of Art.  1 of the Federal Law "On Bankruptcy" and Art.  244 APC RF.
These norms are protective in nature and do NOT allow enforcement of decisions of foreign courts that may harm the rights and interests protected in the Russian Federation.
First of all, this is due to the unscrupulous behavior of the debtors themselves, as very often they just want to write off their debts (including debts to Russian creditors), but keep their property in Russia.

Let us take an example.  In case No. A56-27115/2016, a citizen of the Russian Federation Kekhman V.A., being declared insolvent in England, tried to obtain recognition of his bankruptcy status by the court of the Russian Federation.

In the court ruling of the AC of the North-Western District of November 14, 2016, Kekhman V.A.  was denied recognition and enforcement of a foreign judgment for several reasons, the main of which was the reference of the court to paragraph 7 of part 1 of Art.  244 of the Arbitration Procedure Code of the Russian Federation - a contradiction between the decision of the court of England and the public policy of the Russian Federation.

In case No. A60-29115/2019, on the contrary, unscrupulous creditors tried to conduct proceedings on the bankruptcy case of a Russian citizen abroad, appoint a foreign bankruptcy trustee and levy execution on the debtor's property in Russia, bypassing Russian jurisdiction.  When trying to obtain recognition of the powers of such a bankruptcy trustee in Russia, the courts similarly pointed to a violation of the public policy in Russia (Resolution of the Arbitration Court of the Ural District of 10/09/2019).
Even if a foreign country declares you/your company bankrupt, Russian courts will not allow debt forgiveness.
There is nothing surprising in this approach of the Russian legislation and the courts.  It is enshrined in many countries and international treaties, as all states strive to protect their public order.  For example, Article 6 of the UNCITRAL Model Law on Cross-Border Insolvency explicitly states that any of the rules described in that law cannot prevent a court from refusing to take any action if the action would be manifestly contrary to the public policy of this State.

The same regulation is accepted in the domestic laws of some other countries, for example, in Chapter 15 of the US Bankruptcy Code.

In general, when you, your company or your counterparty show signs of insolvency and at the same time there is a risk of facing the so-called cross-border bankruptcy (there is a foreign creditor, and (or) the debtors property is located in another state, and (or) the debtor-citizen permanently resides  in the territory of another state, and (or) the debtor's business is located on the territory of another state), you will have to face a lot of legal issues that are not clearly regulated in the current legislation, and there are no international treaties.

In this case, you should remember that it is better to take in the situation at the moment when the bankruptcy procedure is in the active stage, rather than when it has ended, and the debts have been written off by a court of one jurisdiction or another.  When signs of insolvency appear, we recommend that you monitor the initiation of bankruptcy proceedings in all potential jurisdictions.

28.04.2022