A new development in the bankruptcy law

Beginning from January 29th, 2015 a Federal law №482-FZ regulating amendments to the Federal bankruptcy law came into force. The new developments will significantly influence on prosecution practice of insolvency cases. In particular the amendments will refer to rules of bringing the petition in bankruptcy before the court, rules of provisional liquidator appointment at the debtor’s bankruptcy, as well as the list of pledge lender’s rights.

One of the main changes is granting of the right for banks to apply a claim to arbitration court on declaration of the debtor’s bankruptcy without preliminary reference to the court and acceptance of legally effective court decision. Thus the law sets a privileged position for creditors – credit organizations.

According to the new rules, a credit organization may bring the petition in debtor’s bankruptcy before the court in case of his/ her breach of financial liabilities within 3 months upon condition of preliminary notification of the debtor and all the creditors known to the claimer of intention to file such kind of claim.

From January 29th till July 1st, 2015 it will be appropriate to make a written notice no less than 30 days before applying to arbitration court. Beginning from July 1st, 2015 the bank is obliged to publish the notice of intention to bring the petition in debtor’s bankruptcy before the arbitration court in the Unified State Register of Information Сoncerning Activity of Legal Entities no less than 15 calendar days before applying to court.

Thus firstly, the banks were entitled the right to initiate the bankruptcy proceedings without additional legal proceedings; secondly, now they are able to commence the insolvency proceedings ahead of other creditors obtaining access to the documents and debtor’s property in the course of the monitoring procedure.

Moreover, according to the new norms, the debtor can’t initiate the bankruptcy proceedings with the guaranteed appointment of candidate for provisional liquidator loyal to him/her. Now the provisional liquidator will be appointed from the list of members of self-regulated organization being chosen by random selection. The method of choosing of the self-regulated organization will be set by the Ministry of Economic Development of the Russian Federation. Up to that moment the self-regulated organization will be chosen by the court at the applying of the claim by the debtor.

At the same time the debtor is obliged to notify all the claimers known to him of the intention to bring the petition in bankruptcy. The notification is provided in the same manner and within the same terms as the notification of the credit organization of the intention to bring the debtor’s petition in bankruptcy.

Thus the adopted amendment significantly mitigates the risks of abuse on the part of the debtor, but it doesn’t remove it completely. The possibility of abuse lies in the potential agreement between the debtor and the management of randomly chosen self-regulated organization of court-appointed liquidator on appointment of the loyal liquidator. Thus the risk of management of the monitoring procedure by the debtor is reduced, but not eliminated completely.

The adopted amendments are also relevant to the amount of claims that allows initiating the bankruptcy procedure. Thus the amount of claims for starting of the legal entities bankruptcy procedure was increased from 100 to 300 thousand RUR. At the same time, the threshold for agricultural companies is left untouched at the level of 500 thousand RUR. Concerning strategic enterprises and natural monopolies the amount of claims is increased from 500 thousand RUR to 1 million RUR. In addition, in future in order to avoid expensive bankruptcy proceedings due to small debts there may be increase of this threshold for the legal entities in case of serious fluctuation in exchange-value of ruble.

It is the smallest part of the introduced amendments concerning the bankruptcy proceedings. However it’s getting clear that many terms are aimed at the protection of creditors, primarily - credit organizations. According to experts, it is related to the fact that in the current economic situation resulting from the high level of the general debt load, the banks turned out to be in the risk group. At the same time, due to the high professional level and interest in the efficient solution of the conflicts, they are assigned the leading role in the procedure of control of debtors during performance of necessary proceedings.

Deterioration in business conditions in manufacturing has continued in March

In March manufacturing industries of Russia has continued the reduction, that is confirmed by results of the investigation of Purchasing Managers' Index (PMI), prepared by the company «Markit» for HSBC. According to the investigation, general deterioration in business conditions takes place against the context of maximum drop in production and new orders for almost five years. Rise in inflation has led to the fact that the growth rates of purchase prices have reached a three-year maximum.

The main indicator of the investigation is the seasonally adjusted PMI index of manufacturing industries. The index monitors the overall state of the market and consists of five components: new orders, production output, employment status, delivery period and stock of materials. Any PMI index being above 50 points indicates an increase, index being below 50 points - a business decline.

Following the results of March PMI index has not passed the critical threshold of 50 points, indicated a worsening business conditions in manufacturing industries. Note that a similar situation is observed for five months. The main indicator of March has reached 48,3 points, slightly dropped from February’s 48,5 points. The average score of the Index for the first quarter 2014 has made 48,3 and it has been minimal since second quarter of 2009.

Deterioration has resulted in all key indicators of business activity. Note that the growth rates of export demand have showed the maximum reduction since 2009, that indicates a probable continuation of the reduction in production in the coming months.

The growth in new orders and production volumes has been observed only in the group of producers of consumer goods. At the same time, this group has sharply increased its reserves, that is a negative signal for the future business activity.

Particular attention should be paid to PMI price indexes. So, the index of purchase prices has risen almost by 10 points to its maximum level over the last three years. The index of output prices has come closely to its three-year maximum, but its growth had been less rapid. At the same time, the inflation in selling prices has been the highest in the group of producers of consumer goods. It may testify to the effect of transfer of devaluation of ruble and deterioration of inflation expectations amid fears of further weakening of the Russian currency in the future. Retail prices have not reached the peak of producer prices yet, therefore the effect of transfer is not exhausted yet.

Experts note that the increase in prices and reduction in business activity are a dangerous combination for financial markets and requires deliberate monetary policy.