Voidable transactions: which transaction is voidable, types and terms

1. Which transaction is voidable?
2. Legislative regulation of the procedure
3. Kinds
4. Examples
5. Challenging transactions in bankruptcy
6. What transactions can be canceled
7. Invalidation of a contested transaction
8. Limitation periods
9. Consequences

The answer to the question of which transaction is voidable is quite simple: one that contradicts the requirements of current legislation and the interests of the parties. First of all, we are talking about contracts that are concluded by financially insolvent market participants, that is, actual bankrupts.

The article discusses in detail the grounds for declaring a contestable transaction invalid, examples of such transactions and the statute of limitations for filing a claim in court.

The relevance of the concept of a contestable transaction is explained by the fact that appealing it through an appeal to the judicial authorities often becomes the only way to protect the interests of a business entity.

It is important to answer the question of which transactions are recognized as voidable and void. The first is declared as such by a court decision, and the second does not require judicial proceedings.

It is necessary to note one more fundamental difference between the terms. The conclusion of a void transaction is not accompanied by any legal consequences. For the contested person the situation is completely opposite.

Until judicial cancellation, all provisions of the transaction apply. That is why it is extremely important to identify such operations in a timely manner and challenge their implementation in court.

Which transaction is voidable?

A transaction is a transaction as a result of which one party (individual or organization) acquires, loses or transforms any rights or obligations.

A voidable transaction is one that has two key features. The first is the possibility of legally challenging it through the courts. The second is that the plaintiff has the right to appeal to the courts.

The key feature of the term under consideration is the complexity of the legal interpretation, which resulted in the appearance of Resolution No. 25 of the Plenum of the Armed Forces of the Russian Federation, dated June 23, 2015. The document explains the rules for recognizing a transaction as voidable and regulates the procedure for making a court decision on this issue.

Legislative regulation of the procedure

In addition to the above Resolution of the Plenum of the RF Armed Forces, the procedure for declaring a transaction voidable is regulated by a large number of other legal documents. The most important of them are the following:

• Resolution No. 6/8, issued on July 1, 1996 by the Plenums of the Armed Forces of the Russian Federation and the Supreme Arbitration Court of the Russian Federation;
• Art. 288 Arbitration Procedure Code of the Russian Federation. The Code was adopted after the signing of No. 95-FZ of July 24, 2002. Today, the version of the document approved on December 2, 2021 is in effect;
• No. 127-FZ, signed by the President on October 26, 2002 and introducing bankruptcy procedures in Russia;
• No. 229-FZ, adopted on October 2, 2007 and defining the procedure for enforcement proceedings;
• Federal Law No. 4015-1, issued on November 27, 1992 and establishing the rules of insurance in Russia;
• No. 179-FZ, dated December 21, 2001. Contains the basics of state policy in the field of privatization of property owned by the state and municipalities;
• No. 161-FZ, approved on November 14, 2011. Includes rules for the activities of state unitary enterprises and municipal unitary enterprises;
• No. 1-FKZ, signed by the President of the country on April 28, 1995 and introducing the institution of Arbitration Courts on the territory of the Russian Federation;
• Resolution No. 6288/02, adopted by the Presidium of the Supreme Arbitration Court of the Russian Federation on November 12, 2002;
• Resolution No. 5-P, issued by the Constitutional Court of the Russian Federation on April 10, 2003;
• No. 208-FZ, approved by the Head of State on December 26, 1995 and defining the rules of operation of joint-stock companies.

Cost of legal services

Types of voidable transactions

The basic classification of voidable transactions is made by the provisions of the currently valid Civil Code of the Russian Federation. The characteristics of each of them are described in a separate article of the Code. The current version of the document allows us to define several main types of voidable transactions:

• exceeding the legal capacity of a legal entity (Article 173). We are talking about transactions that are not contemplated by the internal regulations of the enterprise;
• concluded by a representative or collective body that does not have sufficient powers (Article 174). An example of such a person is a deputy general director who does not have the right to sign a major transaction;
• concluded by persons aged 14-18 years and potentially having the right to carry out such operations (Article 175), limited in legal capacity by a court decision (Article 176) or who do not understand the meaning of the actions performed (Article 177). In all of the above cases, the transaction is considered voidable, since one of the parties does not have the rights to complete it;
• concluded by persons misled (Article 178), the meaning of which is decisive;
• concluded by persons deceived or under the influence of violence, threat or any other difficult circumstances (Article 179).

The last item on the list deserves a separate and more detailed consideration. Transactions under pressure (a typical example is the conclusion of an agreement for the sale or gift of real estate with a so-called “black” realtor) are rightly considered a common occurrence.

Their main feature is that the transaction is not only declared voidable with the abolition of all legal consequences of its conclusion, but also the guilty person is brought to criminal liability, often under serious charges.

When can a transaction be contested?

Competent legal support will help you avoid further challenges to your real estate purchase and sale transaction.

In legal practice, a voidable transaction is a transaction that was completed without complying with the mandatory requirements of the law. In this case, the transaction may be either void initially or contestable in court under certain circumstances. In any case, when concluding a real estate purchase and sale agreement, you should strictly comply with all legal requirements for each specific transaction.

Most often, a challenge to a real estate purchase and sale agreement can occur on the following grounds:

1. Violation of the mandatory form of a transaction for the acquisition of real estate. This is a written form with mandatory state registration of the transfer of rights. Any deviation from the requirements – the transaction is invalid!
2. Lack of necessary consent of persons interested in the transaction. For example, consent from a spouse - if a citizen is a party to the transaction, or approval of the transaction by the governing bodies of a legal entity. The absence of such consent gives the right to unconditionally challenge the real estate purchase and sale transaction.
3. Violation of the pre-emptive right to purchase. Relevant for shared ownership when the terms of Art. 250 of the Civil Code of the Russian Federation, which gives the right to co-owners of property to apply for its purchase.
4. Concluding a transaction by an unauthorized person. The lack of rights to complete a transaction (for example, signing an agreement by a deputy manager who does not have such powers) also entails its invalidity.

This is a list of only the most common grounds for canceling a purchase and sale transaction. But challenging real estate transactions is also possible in a number of other cases, which can only be assessed by a practicing lawyer.

Arbitrage practice

Examples of a voidable transaction

It is extremely important to understand that any transaction can theoretically become voidable. This requires the presence of circumstances discussed in detail in the previous section. A typical example of a contestable transaction is the purchase of an apartment from so-called “black” realtors.

It is accompanied by obvious deception of the buyer, who considers the purchase legitimate. At the same time, the purpose of the actions of the second party is to make a profit, and in clear violation of the law.

To obtain an objective idea of ​​the legal nature of the concept under consideration, it is necessary to provide examples of transactions - both void and voidable:

• voidable – concluding a contract under the threat of violence. It is required to prove the fact of threatening actions on one of the parties;
• void – concluding an agreement to donate an apartment to a relative without the actual transfer of real estate. The operation has no legal consequences, since the previous owner continues to live in the premises, pay taxes and utility bills for housing;
• Another example of a void transaction is the conclusion of a contract for the sale of housing by a person under 14 years of age. In this case, no evidence is required, since such operations without the participation of a guardian are not provided for by law.

Challenging transactions in bankruptcy

The term “contested transactions” is often applied to bankruptcy. This is because such illegal actions are often taken by companies and individuals who have serious financial problems. The initiators of declaring a transaction voidable during bankruptcy are:

• a manager who can act either independently or as a representative of creditors;
• an alternative representative of the interests of creditors, directly one or a group of creditors, if they believe that the insolvency administrator is not able to protect their interests;
• party to the transaction.

Key legal nuance: voidable transactions during the bankruptcy of individuals are practically no different from similar transactions for organizations. In this case, the grounds for committing certain actions play a particularly noticeable role when making a judicial decision.

What transactions can be canceled

With some degree of convention, contested transactions can be divided into three categories. Each of them has its own characteristics:

1. Purchase and sale. The most common type of contested transactions. It is with purchase and sale agreements that the verification of the activities of the bankrupt begins - it does not matter whether it is an individual or an organization. Among the most indicative signs of such transactions are the following:
   selling a product or service at a price significantly lower than the market average;
2. acquaintance of the parties to the transaction;
3. awareness of the second party about the presence of financial problems of the first.

Invalidation of a contested transaction

One of the results of classifying a transaction as voidable is the possibility of invalidation. The procedure for making such a decision is regulated by Article 166 of the Civil Code of the Russian Federation. The main legal features of recognizing a voidable transaction as invalid are:

• a voidable transaction is declared invalid solely by a court decision;
• the requirement to recognize a voidable transaction as invalid is put forward either by its party or by a person specified in the legislation. Another acceptable option is a representative of a person who is one of the parties to the transaction;
• the judge also has the right to initiate the recognition of a transaction as invalid when such actions are provided for by law or are necessary to protect public interests;
• the applicant in the case of invalidating a transaction must act in good faith, otherwise his application has no legal significance.

The wording used in the text of the Civil Code of the Russian Federation does not allow for ambiguous interpretation. However, cases of declaring a contested transaction invalid are deservedly considered one of the most difficult.

The fact is that most of them require proving the intent or knowledge of one of the parties, which is extremely difficult to do in today’s conditions.

How to challenge a deal as old as a mammoth

Have you ever wondered how and where to challenge a transaction if the general 3-year statute of limitations has expired? There is an answer. Of course, in a bankruptcy case.

It should be noted that challenging transactions in a bankruptcy case, in contrast to classic litigation proceedings, is a complete blessing.

The legislator has provided a number of special signs that, with a skillful approach, fit into almost any picture of what is happening.

Just imagine, you are going to challenge the deal.

Here you have the timing to choose from. Three years, a year, half a year, a month, or maybe after excitement?

And deals to choose from. Suspicious, preferential.

And signs to choose from. Unequal consideration to the detriment of creditors, with preference.

And also a bunch of various presumptions. Low price, dishonest counterparty, insolvency, affiliation, change of address, loss of documents, change in the order of satisfaction of creditors' claims, and so on.

In general, choose - I don’t want it.

But what to do if for some reason the one-year statute of limitations established for declaring a contestable transaction invalid was missed?

As is known, the transactions specified in Art. 61.2 and 61.3 of the Bankruptcy Law are voidable and not void.

What if the transaction desired to be challenged was completed by the debtor outside the 3-year period before the date of initiation of the bankruptcy case? Therefore, special grounds for challenging automatically disappear. And the general statute of limitations seems to have expired.

In both cases, general civil grounds for invalidity of transactions come to the rescue.

As the Plenum of the Supreme Arbitration Court of the Russian Federation indicated in Resolution No. 63 dated December 23, 2010, the presence in the Bankruptcy Law of special grounds for challenging transactions provided for in Articles 61.2 and 61.3 does not in itself prevent the court from qualifying a transaction in which an abuse of right was committed as void (Articles 10 and 168 of the Civil Code of the Russian Federation), including when considering a claim based on such a transaction.

So, the first option for using Articles 10/168 of the Civil Code of the Russian Federation is an attempt to “pull up” the one-year statute of limitations that was missed for any reason, established for declaring a contestable transaction invalid, referring when filing an application to abuse of right, and not to the special grounds of the Bankruptcy Law .

The method works, but certain difficulties may arise here.

The fact is that challenging transactions made with abuse of rights is possible only if there are defects that go beyond the defects of transactions challenged on special grounds of the Bankruptcy Law (resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation dated June 17, 2014 No. 10044/11 in the case No. A32-26991/2009, rulings of the Supreme Court of the Russian Federation dated 04/29/2016 No. 304-ES15-20061 in case No. A46-12910/2013, dated 04/28/2016 No. 306-ES15-20034 in case No. A12-24106/2014) .

Otherwise, references to abuse of right are regarded by the courts as a way to circumvent the statute of limitations established for voidable transactions.

It is often very difficult to prove the presence of “other vices,” but it is still possible.

The difficulty lies in the fact that the defects of invalid transactions specified in Art. 61.2 and 61.3 of the Bankruptcy Law in themselves are nothing more than a special case of abuse of right.

Due to the similarity of these “defects,” it is very likely that the court will refuse to challenge a transaction due to the absence of “other defects,” but in some cases it is still possible to prove their presence.

The second option for using Articles 10/168 of the Civil Code of the Russian Federation is to challenge a transaction that was completed by the debtor outside the 3-year period before the date of initiation of bankruptcy proceedings. That is, in a situation where special grounds for challenging transactions cannot be applied due to how long ago the transaction itself was completed.

As follows from paragraph 1 of Art. 181 of the Civil Code of the Russian Federation, the limitation period for claims to apply the consequences of the invalidity of a void transaction and to recognize such a transaction as invalid (clause 3 of Article 166) is three years. The limitation period for these claims begins from the day when the execution of a void transaction began, and in the event of a claim being brought by a person who is not a party to the transaction, from the day when this person learned or should have known about the beginning of its execution.

We take the figure of the bankruptcy trustee as a person who was not a party to the transaction and acting, among other things, in the interests of the civil community of creditors, and submit on his behalf an application to invalidate the transaction on the basis of Art. 10/168 Civil Code of the Russian Federation. Deadline missed - Profit.

The result of such a challenge may be the return of property alienated by the debtor three or five years ago.

Thus, the completion of a void transaction outside the general 3-year limitation period does not guarantee the debtor and its controlling persons to avoid possible liability for its completion in the event of such a transaction being challenged in a bankruptcy case, which gives creditors an additional opportunity to satisfy their claims.

Limitation periods

The limitation period for voidable transactions is determined by the Civil Code of the Russian Federation and specifically by Article 181. It is equal to one year. This is the time period given to interested parties to file an application with the judicial authorities.

The date of counting the period for recognizing a voidable transaction as invalid is important for the issue under consideration. It begins either from the moment the illegal influence (threat, violence, misrepresentation) on one of the parties ceases or it is informed about the circumstances of the transaction that allow it to be considered unlawful.

It is necessary to note one more significant difference between voidable and void transactions. For the latter, the statute of limitations is set at 3 years. The term of voidable transactions, as already noted, is noticeably shorter and amounts to only 1 year.

Consequences of a voidable transaction

A judge's decision to set aside a disputed transaction has several serious consequences. The first and most obvious of them is the restoration of ownership of property alienated under a contract of sale, exchange, gift, etc. Other no less significant consequences of the invalidity of a voidable transaction are:

• inclusion of property in the bankruptcy estate formed by the arbitration manager;
• renewal of the buyer's claims against the debtor who violated the law during the conclusion of the contested transaction;
• inclusion of the buyer in the register of creditors, which is especially important during the procedure for declaring the debtor bankrupt.

Considering the seriousness of the consequences of declaring contested transactions invalid, it is necessary to involve professional lawyers in the case. Qualified assistance from specialists will protect the interests of participants in such transactions with minimal negative consequences and a reasonable level of associated financial costs.

In what cases do you need the help of a lawyer?

A lawyer for the purchase and sale of real estate will not only help you cope with problems that arise, but also prevent them.

Qualified legal support may be required in the following cases:

• Acquisition of residential real estate for business purposes (renting, providing as office housing).
• Purchase and sale of non-residential premises, buildings, structures.
• Purchase of real estate as part of an enterprise, as a property complex.
• Purchase and sale of land plots.
• Acquisition of unfinished real estate.

If any legal problems are identified with the acquired property, the lawyer will either take measures to resolve the dispute or initiate a challenge to the real estate purchase and sale agreement.