The largest debtors in the first half of 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
Perm territory
5 635 Development of predictive-analytical IT-systems А50-22272/2016 Appeal
4 812 Financial intermediation А56-73628/2016 First
3 562 Construction А56-96685/2015 Appeal
5 LLC «Savelovo machine-building plant»
Tver region
3 256 Mechanical engineering А66-10803/2016 First
3 246 Construction А56-68290/2016 Cassation
3 001 Power industry, generation А56-63788/2016 First
Republic of Mordovia
2 817 Construction А39-2735/2016 Appeal
Republic of Tatarstan
2 592 Production of building materials А65-24952/2016 Appeal
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.

On the national payment card system

According to the approved Strategy of Development of the National Payment System (NSPK), the 3rd stage of its development is being implemented now by the decision of the Supervisory board of NSPK JSC of February 6, 2015. The strategy envisages that the 3rd stage (2016-2018) is to focus on the NSPK product line enhancement by offering up-to-date payment products and services, their promotion and expansion on the territory of the Russian Federation. A multifunctional product line of payment products and services of NSPK is to be the key result of this stage, and it will allow NSPK to become competitive against international payment systems.

At the moment the development of NSPK shows the following results:

  • 380 banks have joined NSPK, 100 of them issue Mir payment cards. Over 10 mln cards are being held by citizens within Russia. 67 largest trade and service companies (hypermarket chains, gas filling stations and restaurants) accept the national card.
  • Since July 1, 2017 Mir cards have been available for use in departments and ATMs of all Russian banks. New employees of budgetary enterprises and old-age pensioners, that are to start receiving their pension benefit, have also begun getting the cards since July 1. Geolocation launched at locator.mironline.ru allows looking up the closest service points of Mir cards.
  • The Mir payment system has entered co-badging agreements with Maestro (a MasterCard brand, has limited functions compared to the main one), Japan’s JCB, and has signed corresponding contracts with American Express and Union Pay, China.
  • There are ongoing works on certification, adjustment of processing systems, calculation schemes and mechanisms under the pilot project of NSPK and the Armenian payment system ArCa, that provides for a mutual acceptance of national payment cards within both countries’ infrastructure: of ArCa cards in Russia, and Mir cards in Armenia.

However, a survey by the Russia Public Opinion Research Center (VCIOM) has revealed that the population is not ready for the reform. According to the results, about 70% of Russians are not going to get a Mir card at the moment. 3% are holders of the card, and 20% are going to get the card. 78% of Russian citizens are holders of at least one card.

In order to improve the development of NSPK, in future the obligation to accept Mir card is going to be included in the Consumer right protection code. The launch of a cashback service program is expected in autumn 2017. According to the program, every cardholder, regardless of the issuing bank, can get a bonus reward of a certain percent of the purchase by paying with the new Mir card in Russia (for food, fuel, tourism, etc.). Geolocation connected with the loyalty program is to be implemented as the 2nd – 3rd step of 2018, for it requires a rather complicated mechanism.

In addition to this, the first joint project of the international system Visa and national system Mir (possibly the first one within the framework of the Visa – Mir co-badging) is planned to be performed in the form of the VTB’s new Moscow social card, as well as promotion of business relations with Vietnam, United Arab Emirates, the CIS countries, and search for common grounds with a number of European Mediterranean and Central European countries – in order to make it possible to use Mir cards abroad.

After a successful realization of the mutual acceptance of ArCa and Mir cards, similar projects will be implemented in other Eurasian Economic Union countries, Belarus (Belkart payment system) and Kazakhstan (Tengri-card) in particular. Pilot projects in Belarus and Kazakhstan are to start before the end of 2018.

Evidence suggests that NSPK’s development goes in strict adherence to the Strategy. Experts recommend you to check a bank’s reliability in the Information and Analytical system Globas® before getting a Mir payment card.