The largest debtors in the first half of 2017

newsletter 07/08/2017

Following the results of the first half of 2017, there are 418 debtor companies in Russia against which the monitoring procedure in cases of insolvency (bankruptcy) was introduced.

The monitoring procedure is an initial stage of bankruptcy aimed at ensuring the safety of the debtor's property, conducting of its financial condition analysis and compiling a register of creditors' demands. At this stage, the potential of restoration of solvency and the expediency of continuing the activities of the organization are studied, realistic terms for such recovery are settled. Alongside the current management, the temporary administrator (temporary administration) appointed by the court starts to work in the firm.

Introduction of a monitoring procedure does not necessarily lead to irreversible negative consequences. The decision can be appealed in higher instances, or the parties can reach an amicable agreement, or the court can completely stop the proceedings and break the bankruptcy procedure. Nevertheless, the fact of such situation gives reason the company’s current and potential counterparties to think over the question: how did the company allow the situation when creditors are forced to return their funds with a measure of last resort?

If the company failed to reach an agreement with the partners from the get-go and avoid a monitoring procedure, it is important for all the parties to understand what scenarios are possible. Following the summary statistics of arbitration courts for 2016, the scenario in the further examination of cases after the monitoring procedure introduction can be as follows: 80,4% of court decisions are aimed at recognizing the debtor as bankrupt and opening a bankruptcy proceeding; in 14,2% of cases the court closes the proceedings, including due to an amicable agreement between the parties - 2% of decisions; in 2,9% of cases, external management is introduced and only in 0,3% of cases financial recovery or refusal to recognize the company bankrupt is ordered– 0,2% of decisions (see Picture 1).

Picture 1. Results of monitoring procedure in cases of insolvency (bankruptcy), % of total number of decisions made by arbitration courts in 2016 Picture 1. Results of monitoring procedure in cases of insolvency (bankruptcy), % of total number of decisions made by arbitration courts in 2016

For the majority of companies against which the monitoring procedure was introduced, the situation goes not the best way and the bankruptcy proceeding being a final stage of bankruptcy of a debtor company in the Russian legislation is initiated. The main goal is an adequate consideration of creditors’ demands, determining priority and sources of payments. The bankruptcy proceedings is introduced for a period of 6 months with the possibility of extending at the request of one of the party, but not more than on six months.

The following is a summary analysis of all companies against which a monitoring procedure in the first half of 2017 was introduced: the majority of total 418 legal entities are registered in Saint-Petersburg, Saratov and Tambov regions; 65 companies are engaged in residential construction, 58 – in wholesale; 28 – in housing management. Industry classification of business captured by difficult economic factors is quite understandable: the current crisis is characterized by a significant reduction in real incomes of the population, and as a result - fall in demand for housing, and general decrease in consumption. As for managing companies, the sector of housing and communal services traditionally refers to loss-making and low-profitable segment of the economy. Other highlights of the debtors' activities are presented on Scheme 1.

Scheme 1. Highlights of companies against which the monitoring procedure was introduced in the 1st half of 2017. Scheme 1. Highlights of companies against which the monitoring procedure was introduced in the 1st half of 2017.

The largest company in terms of assets, against which the monitoring procedure was introduced in the 1st half of 2017, is Essen Production AG engaged in production of ketchup, mayonnaise, sweet cereals and snacks under “Makheev” and “Obzhorka” brands. Currently the case № А55-23870/2016, is in cassation instance, and it seems like the company will not be declared bankrupt, because courts of higher instances abolished the decision on the monitoring procedure made by the court of first instance. Since the process has not yet been completed, and the next hearing is scheduled for August 10, 2017, there is still no need to talk about the full rehabilitation of the debtor.

Table 1. The largest active companies in terms of assets, against which the monitoring procedure in cases of insolvency (bankruptcy) was introduced in the 1st half of 2017
Debtor Assets, mln RUB Scope of business Bankruptcy case No Instance
1 Essen Production AG
Samara region
9 509 Production of food products under “Makheev” and “Obzhorka” brands А55-23870/2016 Cassation
2 JSC PROGNOZ
Perm territory
5 635 Development of predictive-analytical IT-systems А50-22272/2016 Appeal
3 LLC MERIDIAN
Saint-Petersburg
4 812 Financial intermediation А56-73628/2016 First
4 JSC NOVAYA SKANDINAVIA (frm ZAO Gruppa Praim )
Saint-Petersburg
3 562 Construction А56-96685/2015 Appeal
5 LLC «Savelovo machine-building plant»
Tver region
3 256 Mechanical engineering А66-10803/2016 First
6 ZAO MEGALIT
Saint-Petersburg
3 246 Construction А56-68290/2016 Cassation
7 LLC OBUKHOVOENERGO
Saint-Petersburg
3 001 Power industry, generation А56-63788/2016 First
8 JSC TREST MORDOVPROMSTROY
Republic of Mordovia
2 817 Construction А39-2735/2016 Appeal
9 LLC VOLZHSKY PLANT OF CONSTRUCTION MATERIALS
Republic of Tatarstan
2 592 Production of building materials А65-24952/2016 Appeal
10 ZAO ORANGE-DEVELOPMENT
Saint-Petersburg
2 501 Construction А56-72827/2015 First

Bankruptcy gives a positive effect: it is a method of eliminating inefficiently operating organizations from the market. However, it is often accompanied with special circumstances and does not always have legal features: redistribution of property, monopolization of certain goods and services markets, connections to the criminal world. In view of the mentioned factors, it is especially important for the enterprise, industry and economy in general to obtain an objective picture of financial and economic state and stability level of the enterprise.

When checking counterparties, it is necessary to pay attention to cases of insolvency (bankruptcy), in which the company acts as a defendant. It is a rare occasion when outcome is favorable for the defendant. If the decision on the monitoring procedure is made, organizations are declared bankrupt in 80% of cases.

Existence of bankruptcy cases in which the counterparty acts as a creditor (plaintiff) is also has to be considering from a negative point of view. It is necessary to take into account the overall duration of the proceedings, which sometimes goes on for several years (consequently, costs are increased). In addition, it will be quite difficult to obtain the initially claimed amount: as a rule, the debtor does not have readily obtainable assets for sale. Not to bring the case to court is the best solution for parties.

Information and Analytical system Globas provides an overall assessment of the financial and economic activities of companies, as well as ability of immediate check of arbitration practices of counterparties.