Vicarious liability, what is a subsidiary? Definition and types

Creditors are interested in collecting debt and use all legal instruments to do this. One of the most effective is considered to be subsidiary liability - this is the liability of third parties who are obliged to pay the debt if the main debtor is unable to do so. The grounds for bringing to subsidiary liability are fixed in the law. The interpretation of what subsidiary liability is lies in the term itself. Susidiarus is translated from Latin as reserve or auxiliary. Often, guarantors, company managers or controlling persons do not even suspect that they are exposed to high financial and legal risk. However, ignorance of the law or inattention to detail has never freed one from negative consequences. Legal provides qualified legal assistance to those who bear subsidiary liability and those who intend to return their money.

What is a subsidy?

If the opportunity to resolve the issue with the main borrower has been exhausted, claims are presented to subsidiary debtors, since this format of additional civil liability is enshrined in the Civil Code of the Russian Federation. That is, subsidiary is a common name for reserve liability in a narrow environment. Anyone can face it, from the director of a company that has become bankrupt, to the parents of a young boy who broke someone else’s window with a ball, but does not have the means to replace it. In both cases, the unifying aspect is the obligation to compensate, to pay the amount for another person. If a conflict in the yard can be resolved quite simply, then at the business level it is impossible to do without competent legal support, especially when it comes to financial insolvency due to the fault of managers. Lawyers at Yuridicheskaya perfectly know the subsidiary procedure and the intricacies of such legal relations, therefore they are ready to get involved at any stage and provide comprehensive protection.

Joint and several obligation to pay utility bills. Publications

We recommend materials previously published on the site on the topic:

Joint ownership and joint obligation to pay for housing and communal services
Joint and several liability of the owner's family members for payment of housing and communal services
Joint and several collection of debt for payment of housing and utilities from tenants under a social tenancy agreement
Statement of claim for collection of debt for utilities jointly and severally with the spouses - owners

Types of subsidiary liability

An auxiliary measure to ensure the interests of creditors can come from an agreement or law. That is, the main types are contractual and non-contractual. In accordance with the terms of the agreement, obligations are transferred to the subsidiary debtor, regardless of the fact of his guilt in the delay, provided that the main borrower has not fulfilled the obligations. As a general rule, his liability is joint and several, and only if there is a special provision in the contract does it become subsidiary. Thus, political parties are responsible for the activities of their cells and regional offices. Vicarious liability of shareholders occurs if their actions or inactions led to the bankruptcy of the company. The second type is also called statutory. Legal support will allow you to analyze the documents and legal status of the subject, assess the extent and nature of obligations, balance the consequences and develop the right strategy for protecting interests.

Joint and several obligations established by the contract

The legislation does not clearly indicate in what form joint liability is established in the contract, but from the analysis of Art. 322 of the Civil Code of the Russian Federation, it follows that it is necessary from the content of the agreement that each of the debtors has assumed responsibility for the debt as a whole and that the full fulfillment of an obligation by one debtor releases other joint debtors from fulfilling this obligation. In this case, it does not matter whether the concept of joint obligation or any similar concept is used in the contract. The term “joint and several liability” may be absent, but for it to arise, the essence of such liability must be clearly described.

Examples of joint and several liability from a contract can be:

guarantee agreement (Article 363 of the Civil Code of the Russian Federation), which states that in case of non-fulfillment or improper performance by the debtor of the obligation secured by the guarantee, the guarantor and the debtor are jointly and severally liable to the creditor, unless the law or the guarantee agreement provides for the subsidiary liability of the guarantor;
an agreement on the transfer of property encumbered with rent (clause 2 of Article 586 of the Civil Code of the Russian Federation), where it is possible to establish joint and several liability in the agreement.

Who is considered to be the person controlling the debtor?

In practice, subsidiary liability of controlling persons is common. These are entities that, for three years before the bankruptcy of the company, as well as directly during the arbitration proceedings, had the right to give binding instructions and orders. That is, such a legal entity or individual had the direct ability to manage actions, control transactions and the conditions for their completion. The head of the debtor is also a controlling person, unless otherwise proven in court. A similar status is vested in the liquidator, members of the liquidation commission, the executive body of the debtor or its management organization. In this case, two conditions must be met. Such an entity benefited from illegal or dishonest actions of members of the executive body, and also had the opportunity, independently or jointly with other participants, to dispose of 51% or more of the capital or voting shares of the company.

In what cases is the subsidiary procedure for the debts of a bankrupt company not applied?

In court, the circumstances of bankruptcy will be closely studied by the arbitration manager and creditors. You have nothing to fear if the ruin was not your fault.

Example No. 1. You purchased equipment at a price of 10 million rubles, but since the supplier is based in the USA, the calculations were made in dollars. The potential profit would be 33 million rubles. But the dollar suddenly rose. The client was unable to pay for the equipment and declared himself bankrupt.

You were included in the register, but after that your company was also forced to declare itself bankrupt because the receivables were never repaid.

Example No. 2. You entered into a supply deal with a large client and purchased goods in Japan. Then, in the process of active wholesale deliveries, your client found more profitable suppliers and refused further cooperation. You learned that a competitor has entered the market and supplies the same product at a price 1.5 times cheaper.

As a result, you lose regular customers, there is no more profit, and you need to close this business through bankruptcy liquidation.

In the presented circumstances, there is no fault of the managers and controlling persons; they acted honestly and did not bring the organization to bankruptcy. It is not their fault that the market dictates strict rules, and not everyone can comply with them.

When does subsidiary liability arise for a CDL?

The lack of the debtor's assets to cover all the creditors' claims makes it possible to foreclose on unscrupulous managers and compensate the debt at their expense. Grounds for subsidiary liability of controlling persons:

untimely initiation of bankruptcy proceedings;
proof of the status of a controlling person influencing the company’s decisions;
claims of the authorized body exceeding half of the total claims of all third-priority creditors;
proven dishonesty of the company's actions, which led to exceeding the limits of acceptable business risks and, as a result, to bankruptcy;
unfulfilled obligations to transfer reports, accounting documents, or prepared fictitious documentation.

It is important for the person controlling the debtor to understand what subsidiary liability means, to build a competent evidence base and to refute each point of accusation. Creditors can make claims against such entities even when the company has already been declared bankrupt and the process of selling the property has been completed. A qualified lawyer will quickly navigate the situation and develop the necessary strategy.

What actions of the CDL lead to a subsidy?

Vicarious liability for the controlling debtor of the person arises if he has not entered information into the Unified State Register of Legal Entities and into the federal resource at the time when a criminal bankruptcy case has already been initiated. The absence of accounting documents or the information they contain, as well as their falsification and distortion, are considered a violation. A situation where subsidiary liability arises is considered to be a violation by the controlling person of the rules for storing documents if, in accordance with the legislation on joint-stock companies, investment funds, and the securities market, they must be present at the time the person is declared bankrupt or supervision is introduced. The basis is also the totality of claims of third-priority creditors, if they arose as a result of the fact that the CDL or the debtor himself violated the law, therefore, at the time of closing the general register, the claims exceed half of the total amount claimed by third-priority creditors.

How is the amount of subsidiary liability determined?

The person controlling the debtor bears a subsidiary obligation in an amount equal to the total amount of all claims of creditors, provided that they are included in the relevant register at the time of bankruptcy and remain outstanding. In addition, current payments that are not repaid due to the fact that the debtor does not have funds are added to this amount. If it is proven that the amount of actual damage caused is significantly less than the amount presented, it will be reduced by the court. In accordance with the Civil Code of the Russian Federation, subsidiary liability is determined without taking into account the amounts required by the controlling person himself or persons interested and close to him. If all claims of creditors cannot be paid due to the actions or inactions of several controlling persons, such participants jointly and severally bear subsidiary liability. The participation of a lawyer will help protect against unfounded claims and minimize financial risks.

What bailiffs will take from a person, and what cannot be taken away

The result of subsidiary liability is a writ of execution to collect money from a person.

According to the sheet, money will be withdrawn from your personal account. They will leave only the subsistence minimum. If there is not enough money, the bailiffs will take over the property. It will be sold at auction, and the money will be given to the creditor. This is what the procedure for receiving money from the tax office or a stubborn counterparty looks like.

Personal responsibility does not mean that a person will be robbed dry. Bailiffs cannot touch the following according to Art. 446 Civil Code of the Russian Federation:

- the only apartment, house - except for mortgages;

- furniture, dishes, clothes;

— professional equipment no more than 110,000 rubles.

Cars and second apartments will be taken away. Well, of course, if they are registered in the name of the debtor.

Release from liability

A subsidiary obligation is an additional obligation. It does not apply to the person controlling the debtor if:

the actions fully complied with the standard conditions of civil transactions;
there was a conscientious attitude, diligence, reasonableness and expediency of actions;
there are no violations of the property rights of creditors;
it has been proven that the behavioral line of the controlling person was aimed at preventing significant harm and even greater damage to creditors.

Given the presumption of guilt, the burden of proof rests entirely with the secondary defendant. This is a difficult task. Legal offers professional legal support to prevent negative consequences for owners, managers, and business officials. Our scope of competence also includes subsidiary liability of individual entrepreneurs. The grounds for exemption are exhaustive and formulated in very abstract terms. The situation is complicated by the aggressive policy of the tax service, which proposes to check the financial sources of not only company managers, but also their family members, relatives, and colleagues.

What should company owners and managers do to protect their property?

The financial problems of a company can be shifted to its owners and management through subsidiary liability. Most often it is used in bankruptcy, but other situations are also possible, such as overdue loans or tax violations.

Pay your bills on time. If overdue debts do appear, take all possible measures to repay;
Before quitting your business, pay off your debts to your counterparties. Then, after the company is closed, they will have no grounds for claims against you;
When a loan is in arrears, negotiate with the bank to defer payments. If that doesn’t help, pay off the debt using the company’s property;
Pay taxes, and until you pay off your debts, do not do anything that tax authorities may consider evading collection: do not sell assets, do not split up your business, do not lay off employees en masse, do not transfer them to another tax status;
When going bankrupt, look for evidence that your actions did not harm the interests of creditors.

How do subsidiaries and joint liability relate?

These two concepts are often confused and mistakenly identified. The difference between joint and subsidiary liability lies in the nature of the obligations. In the first case, the claimant himself determines which of the joint defendants to submit claims to and to what extent. In fact, there is no legal difference - whoever can, covers the debts. Often in practice it looks like one person is responsible for everyone and incurs large losses. In the second case, there are specific entities that will pay for the obligations of the main debtor only if he cannot do this on his own and, in parallel, there are legal grounds for filing claims against the subsidiary debtor. With joint and several liability, the subject of the obligations cannot be divided: they are not performed jointly, and the damage is caused in the same way. The law provides that the same persons can bear obligations jointly and subsidiarily at the same time. An example is the shareholders of a company convicted of leading to bankruptcy.

In order to protect both the interests of persons who may be harmed, and to protect the interests of SROs and their members, it is necessary to either refine the current system of joint and several liability, or replace it with a subsidiary one, but not in the version in which it was before 07/01/2013 , but with changes.

The problem lies both in the imperfection of the current legislation in terms of joint and several liability, and in the simple transition from joint and several liability to subsidiary. The legislation does not provide clear answers, does not prescribe settlement processes, etc., which means that each specific situation will depend on the opinion of individual judges. Given the jurisprudence, justice cannot be expected for either party. In our opinion, the bill on the return to subsidiary liability should not pass the second reading unless other changes are made to it.

1. Joint and several liability implies shared liability, as opposed to subsidiary liability. Joint and several liability, in contrast to subsidiary liability, provides for shared liability of the persons on whom it is assigned as part of one obligation. If, for example, the state examination of design documentation misses an error in the design documentation, then it is obvious that it is the culprit in the destruction of the building built on the basis of the design documentation in which there was an error, just as the culprit is the design organization that made the mistake. Compensation for damage caused as a result of the destruction of a building must be carried out by all persons responsible for the destruction, which include the design organization and the state examination. The share of guilt of each of them is determined by the court. Initially, with joint and several liability, the creditor has the right to make a claim for performance, and, consequently, liability, both to all debtors jointly and to any of them separately, both in full and in part of the debt. A creditor who has not received full satisfaction from one of the joint and several debtors has the right to demand what was not received from the remaining joint and several debtors. If a creditor makes a claim against one of the debtors, the remaining debtors are liable to the debtor who satisfied the creditor's claim in equal shares, unless otherwise provided by law or agreement. And they should or have the right to sort things out for themselves in the future. (See Articles 321, 322, 323, 324, 325, 326 of the Civil Code of the Russian Federation) In this case, the courts may establish a different size of shares. The point in this paragraph was that it is impossible to force the SRO to compensate for damage both in full and in equal part with other debtors, since it (as well as other members of the SRO, who are obligated to replenish the comp. fund) in most cases are not involved in any way in the harm caused. Therefore, it is more correct to establish additional (subsidiary) liability rather than joint and several liability. With the current version of Art. 60 of the Civil Code of the Russian Federation, SROs also have joint and several liability, and judicial practice in the Russian Federation is such that the court, as a rule, does not establish specific shares for joint and several debtors, without understanding who is really to blame and how much, in fact, imposing on all debtors the obligation to compensate for damages in equal parts. Obviously, if the SRO has fulfilled all the requirements when issuing a permit and subsequent monitoring of the actions of its member, it should not be held liable for the damage caused, but under the current system of joint and several liability, it will be obligated to compensate for part of the damage without the possibility of recovering this amount from others debtors. If joint liability is not replaced by subsidiary liability, it is proposed to amend the Civil Code, which will determine in which cases the SRO may be the guilty debtor (for example, if the SRO’s permission to perform types of work, as a result of which defects caused harm, was was issued with violations (there were no appropriate specialists, equipment, etc.), and in some cases - to an innocent person. SROs that issue permits “in 3 days” for money to companies that have neither suitable employees, nor equipment, nor anything, must bear responsibility liability for the activities of such companies if they cause harm to third parties. Therefore, if it is determined that the permit was issued with violations, the SRO must compensate for the share of damage determined by the court. But the meaning of this paragraph is that the SRO must be held liable in the event that if the real culprit cannot do this for some reason. SROs were created for this, but if they pay for each claim instead of SRO members, then all members will go to other SROs and will no longer replenish the fund.

2. Joint and several liability, in contrast to subsidiary liability, allows compensation for damage caused by a member of an SRO when the member of the SRO has already been liquidated. In case of joint and several liability, victims can apply for compensation for harm to any of the joint and several defendants. Accordingly, if at the time of causing the harm the company that performed the work was already liquidated, the victims can compensate for the harm caused to them by appealing to any of the joint and several defendants. In the event of a return to subsidiary liability, the system will work in such a way that, on the basis of Art. 419 of the Civil Code of the Russian Federation, the obligation terminates with the liquidation of the legal entity. And if there is no main obligation, then there is no additional liability of the subsidiary debtor; accordingly, the victims will not be able to apply to the SRO for compensation for harm as a subsidiary defendant. In the event of a return to subsidiary liability of the SRO, we consider it necessary to amend the Town Planning Code, specifying who is responsible for damage caused by a member of the SRO who ceased its activities at the time of causing the damage or at the time of its collection. This was previously stated. Here is the text of the old version of Article 60 of the Civil Code of the Russian Federation. "4. In the event of damage caused by defects in work that affect the safety of capital construction projects, if the person who performed such work has an insurance contract for civil liability, which may occur in the event of damage caused by defects in such work, the said damage is compensated at the expense of funds received under the contract of this insurance, and at the expense of the person who performed such work. In this case, the provisions of parts 13 of this article, providing for joint and several subsidiary liability of the Russian Federation, a constituent entity of the Russian Federation, an organization that conducted a non-state examination of project documentation, a self-regulatory organization that issued a certificate of admission to such work, are applied in the presence of the following conditions: (as amended by the Federal Law of March 20, 2011 N 41-FZ) 1) the funds received under the liability insurance contract are insufficient to compensate for the specified damage; 2) the person who performed the work that affects the safety of capital construction projects refused to satisfy the demand for compensation for damage, or the customer or a third party did not receive a response from him within a reasonable time to the demand for compensation for damage. In this case, the liquidation of the contractor leads to the situation specified in paragraph 2, and Art. 419 is not applicable, since here the liability is rather tortious. Although, I agree that the judicial practice here is quite diverse... Moreover, in Art. 419 of the Civil Code of the Russian Federation states that an obligation is terminated by the liquidation of a legal entity (debtor or creditor), except in cases where the law or other legal acts assign the fulfillment of the obligation of a liquidated legal entity to another person (for claims for compensation for harm caused to life or health, etc. ). This “except in cases” means quite a lot to us. By law, the subsidiary obligation to compensate for damage to life and health was assigned to the SRO, the expert examination and the treasury. Courts can take advantage of these provisions and force SROs to pay in case of subsidiary liability. But in Art. 419 states that the fulfillment of the obligation is entrusted to another person. And subsidiary liability is additional. That is, the obligation is additional to the main one, and the main one is terminated simultaneously with the liquidation of the legal entity. If the main obligation does not arise, then there is no possibility for an additional one to arise. Any double interpretation in this case is unacceptable and therefore we propose changes to the Civil Code both in the case of joint and several liability.

3. In case of joint liability, all members of the SRO may suffer losses due to damage caused to third parties by one of them. If the regredient (building owner, concessionaire, etc.) applies for compensation for losses not to a member of the SRO, but to the SRO as a joint defendant, then it is possible that the SRO will make a payment from the compensation fund to all members of the SRO an obligation will arise (clause 5 of Article 55.16 of the Civil Code of the Russian Federation) to replenish the fund to the previous amount within two months. Moreover, if the SRO, as a joint defendant in accordance with Art. 325 of the Civil Code of the Russian Federation, there is a right of recourse to a member of the SRO who caused harm, then the remaining members of the SRO do not have such a right, even after they replenish the fund. Accordingly, if the SRO member who caused the harm does not compensate for the losses of the SRO within 2 months, it is possible that such losses will fall on the shoulders of all members of the SRO who are not related to the harm and have replenished the fund to the previous amount. It is enough for the causer of harm to simply stall for time and not satisfy the recourse demand of the SRO for two months. A similar situation may arise with insurers who insure the joint liability of an SRO or the liability of a member of an SRO responsible for damage caused. The insurer may delay the payment of insurance compensation until the comp. fund is replenished from the funds of other members of the SRO, and then there will be no reason to make a payment. The problem is that there are legislative holes for unscrupulous players, both SRO members and SROs and insurers. The current legislation makes it possible to pay off with SRO members who have replenished the fund, or not to pay off. We propose to clearly regulate this process in the Group of Companies. 4. Other legislative shortcomings in introducing joint and several liability, suggesting the creation of ambiguous judicial practice. The Group of Companies has appointed the SRO as a joint defendant, but there are no provisions in it about what the SRO should do with the funds received by way of recourse from the SRO member who caused the harm. According to the Civil Code of the Russian Federation, the SRO has the right of recourse to a member of the SRO; according to the Civil Code of the Russian Federation, members of the SRO must contribute funds to the compensation fund in case of payments from it. The existing contradiction in the two codes can lead to double replenishment of the fund or to misuse (since the intended use is not defined at the legislative level) by unscrupulous SRO managers of funds received by way of recourse from the culprit SRO member. The situation is similar with insurance payments. In case of leaving joint and several liability, it is proposed to clarify that the funds paid under insurance contracts also go to replenish the funds of the comp.fund, and if it has already been replenished, then the insurance payment is made to the members of the SRO who replenished it. If joint liability remains in the legal relationship under consideration, it is necessary to include in the law requirements for the mandatory involvement of joint and several defendants in the case by the courts immediately in the initial consideration of the case, since their rights are affected by the dispute under consideration. Emerging practice shows that courts on their own rarely involve, in particular, SROs, when considering disputes about the quality of work that affects the safety of the OKS, limiting themselves in the process to the plaintiff (customer) and the defendant (contractor), forgetting that the contractor is a member of the SRO, and the SRO as well interested party in this category of disputes. One of the headaches with subsidiary liability was also the non-involvement of the SRO to participate in the processes described above, when the SRO was already faced with the fact that a court decision had occurred and entered into legal force on a dispute in which it had no participation. This, by the way, had a negative impact on the insurance company, since with such a decision it also could not participate in the process and influence its outcome. Now almost all SROs, insurers and National Associations indicate the need to return to subsidiary liability. The main argument is that joint liability gives rise to irresponsibility of the direct causers of harm - prospectors, designers, builders, i.e. SRO members who begin to treat the profession less conscientiously, knowing that if something happens, the insurer or SRO, or the examination and state construction supervision, respectively, will answer for them. The State Duma is discussing a corresponding bill on the return of subsidiary liability, which we all know about. At the same time, the introduction of first-priority liability for owners of non-residential public housing buildings is taken as an example as an achievement, which, of course, defers the liability of both SRO members, the SROs themselves, and other subjects of responsibility. But the emerging law enforcement practice and, in particular, judicial practice, suggests that there is no need to rush to waive the joint liability of SROs. We need to think it over and weigh it again. The current system of joint liability protects the interests of victims more than the interests of SROs. This is most likely why all SROs are trying to return to subsidiary liability. But if this return occurs, changes in legislation are necessary.

Procedure for bringing to justice

The person controlling the debtor, who is brought to subsidiary liability, is given the status of a procedural defendant. This allows, with a competent approach, to take advantage of the wide possibilities of defense in court. At this stage it is important to provide professional support and representation. Legal's lawyers have significant experience in successfully handling such cases. Vicarious liability of the participants means that the arbitration court has received an application. The CDL has the right to draw up a review and present its reasoning. The outcome of the trial largely depends on its content. Each argument must be supported by evidence. Preparation includes the development of a behavior strategy, collection and legal analysis of documentation, and assessment of the current situation. The line of defense is built on an individual basis, including taking into account the anti-crisis plan and the management hierarchy in a particular company. An option is being considered where shareholders jointly and severally bear subsidiary liability. It is important to remember that what is at stake is not just the financial component, but also the business reputation.

Classic examples

For a clearer understanding of the term “subsidiary liability”, it is necessary to give several illustrative examples.

Example 1

Citizen A. entered into a loan agreement with the bank for a certain amount. The guarantor is citizen R. The contract states that R. bears subsidiary liability. If this condition had not been separately stated, then, as a general rule, R. would have been jointly and severally liable.

Borrower A., after some time, stopped making monthly payments to pay off the debt. The bank must send him a written demand for repayment of the debt. If no response is received or it is negative, the bank will send the same claim to guarantor R.

If he ignores the demand, the bank has the right to go to court to forcibly collect the debt.

Example 2

The participants of the partnership bear joint and several subsidiary liability for the obligations of the partnership. They respond either with their monetary resources or with property, if the latter is not enough to repay the debt and fulfill obligations. If the creditor has not received full satisfaction of his claims from the partnership, he will foreclose on its participants.

Advice for potential subsidiary debtors

Preventing negative legal consequences is always cheaper than incurring subsidiary liability. In this aspect it is important:

provide legal support and purity of transactions;
conduct legal analysis of contracts and documents;
prepare reporting and accounting documentation in a timely manner;
conduct financial audit and legal analysis of activities;
quickly restore lost and damaged documents;
initiate bankruptcy proceedings without delay if there are compelling reasons for this;
take a responsible approach to choosing contractors and partners;
improve personnel management.

Most of these points can be resolved by timely involvement of qualified lawyers through outsourcing. Vicarious liability of legal entities and officials is associated with material risks and serves as a direct threat to the business reputation of both debtors and creditors. Legal offers comprehensive support and the full range of legal issues. A business must have a reliable legal foundation, and we provide it!

Statements of claim for joint and several recovery under a contract and compensation for non-contractual damage

Statement of claim for compensation for damage caused by flooding of an apartment (in case of joint and several damage)
Statement of claim for recovery jointly and severally with the debtor and guarantor of debt under the lease agreement, fines and penalties
Statement of claim for recovery jointly and severally with the debtor and guarantor of the debt and contractual penalty under the purchase and sale agreement
Statement of claim for recovery from the joint and several defendant - guarantor of debt for work performed under a contract