Moratorium on bankruptcy is back to Russia

In Russia, Government Decree No. 497 dated March 28, 2022 introduced a moratorium on initiating bankruptcy proceedings at the request of creditors. It will be valid for the next six months - from April 1, 2022 to October 1, 2022. The moratorium applies to citizens, individual entrepreneurs and all legal entities. An exception is made only for developers from the Unified Register of Distressed Objects and persons who refused to apply the moratorium. At the same time, debtors have the right to initiate voluntary bankruptcy, if they realize that they will not be able to fulfill their obligations.

Such a business support measure also has a downside - excessive use by debtors who are not going to fulfill their obligations, hiding behind a moratorium, which in the end may affect the state of bona fide creditor.

Therefore, in the current conditions, any agreements should be preceded by a thorough check of the counterparty and all the circumstances of the counterparty’s past and present:

• financial condition and tax burden;
• arbitration cases and cases in courts of general jurisdiction;
• claim load and payment arrears;
• status of pledge and leasing agreements;
• presence of terminated public procurement transactions
  etc.

The Information and Analytical system Globas assists early warning of unfair counterparties and helps to reduce risks using over 120 verification criteria.

Globas shows whether a counteprarty has signs of insolvency, information about the application of a moratorium on bankruptcy, facts of delayed payments, overdue pledges, participation in legal proceedings, both arbitration and general jurisdiction courts. Upon completion of the verification procedure, you can download a report that is customized according to your criteria. We also recommend putting your counterparties on monitoring: Globas will notify of important changes in the activities of counterparties by e-mail and in your Globas Personal Account.

About moratorium

For the first time, business owners heard about a moratorium on bankruptcy in 2020. When Russian entrepreneurs began to lose income during the period of restriction of business activity.

Effective April 3, 2020, the Federal Law No. 127-FL “On Insolvency (Bankruptcy)” was supplemented with Article 9.1. Moratorium on initiating bankruptcy proceedings. The right to introduce a moratorium and determine the duration of its validity is assigned to the Government of the Russian Federation. The main goal of the moratorium is to ensure economic stability within the country. In 2020, the moratorium was introduced for six months: from April to October, and was later extended until January 2021.

Since April 1, 2022, the second moratorium on bankruptcy has been in effect in the Russian Federation, introduced by the Government Decree No. 497 dated March 28, 2022. Its goal is to help improve the financial situation of companies and adapt business owners to new economic conditions. The refusal of foreign contractors to cooperate, sanctions and the complicated geopolitical situation have put Russian entrepreneurs in a difficult position. No suppliers and buyers, new markets have not been explored, revenues are falling and debts are rising. The development of this scenario could inevitably lead to a wave of bankruptcies.

Comparison of two moratoruims

To start applying the moratorium on bankruptcy, you do not need to submit special applications or confirm the type of activity. The moratorium automatically applies to all economic entities in Russia, except for unscrupulous developers.

Rules coming into force during the moratorium

1. Claims of creditors are not considered by the court, but are returned back to the applicant. The return of the application does not preclude re-applying to the court. If the moratorium expires and the debtor is unable to restore solvency by that time, the creditor has the right to re-apply for bankruptcy.

2. Fines, penalties and interest for use of another's money are not charged (does not apply to interest on a loan).

3. The moratorium applies only to bankruptcy applications. One can collect a debt through lawsuits on general terms. However, if the delay under the contract falls during the period of the moratorium, it will not be possible to recover it.

4. If there are signs of insolvency, there is no obligation to apply to the court for voluntary bankruptcy.

5. Enforced recovery for enforcement proceedings is suspended. However this does not mean that courts and other authorities cease to issue writ of execution, and bailiffs to initiate enforcement proceedings on them. Enforced recovery will begin after the end of the moratorium. The rule does not apply to arrests, recovery of wages, alimony, severance payments and penalties due to harm to life and health though.

Waiver of moratorium on bankruptcy

In addition to the advantages of applying a moratorium, there are also significant limitations:

• the shareholders of the debtor cannot distribute profits among themselves, and the participants cannot receive dividends and income by shares;
• the debtor's obligations cannot be repaid by offset if this changes the order of creditors;
• a shareholder of the company cannot leave it and ask to pay the cost of the share in cash.

Therefore, as in the period of the first moratorium on bankruptcy, it can be waived. In this case, all restrictions are removed from the applicant and the bankruptcy procedure can be initiated as usual (independently or through creditors). The waiver is made through the Unified Federal Register of Legally Significant Information by publishing a corresponding message.

Globas analyzes all messages of business entities in public registers. If a company, individual entrepreneur or citizen declares a waiver to apply the moratorium on bankruptcy, a corresponding marker appears in Globas.

Pros and cons of a moratorium on bankruptcy

The moratorium on bankruptcy allows you to improve the financial position of the company and rebuild the business model for the new economic reality. However, the moratorium may have a negative impact on the creditors themselves, who expect to receive payment for a product or service in the near future. Late payment and the inability to recover money from the debtor can disrupt the financial stability of creditors, provoking a delayed increase in bankruptcy cases.