I. I. Grechenko author of the article, Ascon consultant on accounting and taxation
According to statistics, at least 500 lawsuits are filed in the courts every week to declare individuals financially insolvent. In January-June 2021, courts declared 29,017 Russian citizens bankrupt, including individual entrepreneurs, which is 52.3% more than in the same period in 2021, according to reports from arbitration managers in Fedresurs. In Russia as a whole, 20 new bankrupts per 100 thousand population were recorded in the first half of the year.
Thus, every year the likelihood increases that your company employs bankrupt citizens.
In this connection, a logical question arises: does such an “interesting” position of an individual affect the procedure for calculating personal income tax on remunerations paid to him within the framework of labor or civil law relations?
Notifying employees of dismissal
The basis for dismissal is the liquidation of the organization, which begins in connection with its declaration of bankruptcy. As a rule, in case of bankruptcy, bankruptcy proceedings begin, within which a bankruptcy trustee is appointed. He is responsible for notifying employees of the upcoming termination of employment contracts. Notifications are sent within one month from the start of bankruptcy proceedings.
Reference! Art. 180 of the Labor Code of the Russian Federation obliges the employer to maintain the employee’s workplace for 2 months after delivery of the notice.
The notice is given to the employee personally, on paper, indicating the reason for dismissal - liquidation of the organization. The employee must read and sign.
If there is a trade union in the liquidated organization, the head of the bankrupt enterprise is obliged to negotiate with the leadership of the trade union to ensure measures are taken to protect the interests of all employees and to prevent violations of their rights.
Notifying union employees has its own characteristics.
The difference from the notification to the main staff is that employees who are members of a trade union are informed a maximum of three months before dismissal.
When an organization is trying to survive
The manager is obliged to inform the employees of the enterprise about the introduction of the monitoring procedure within ten days from the date the court issues the relevant ruling.
Employees have the right to elect their representative at the general meeting, who will represent their interests in the arbitration process and during procedures provided for by bankruptcy legislation.
To restore solvency, changes may occur during this period: re-profiling or modernization of production, closure of unprofitable areas, an attempt to obtain a loan to restore solvency, etc. Based on the objectives of the financial recovery of the enterprise, this may entail the following management decisions regarding personnel :
- changing the terms of the employment contract, with the exception of the labor function;
- introduction of part-time work for up to six months;
- downtime announcement;
- reduction of staff or number of employees.
All these savings must be carried out in compliance with the relevant legal requirements; the Labor Code does not provide for any exceptions in these matters.
Cash compensation for employees
The types of payments upon liquidation are regulated by the Labor Code in Article 178, namely, the employee receives the following amounts:
- severance pay (equal to the average monthly salary);
- payment of benefits in the amount of average earnings for two months after dismissal (it is assumed that the employer supports the employee during the period of searching for a new job).
All specified payments are credited to the employee’s account in a single amount on the last working day. In addition, there is the opportunity to receive another payment, also in the amount of the average monthly salary. The conditions for receiving it are as follows:
- registration with the employment service within two weeks from the date of termination of the employment contract with the bankrupt employer;
- absence of fact of employment at a new place of work within 2 months after dismissal.
In total, an employee of a liquidated company will receive 3 or 4 times his average monthly salary. In addition, on the last day of work the following are subject to payment: compensation for unused vacation days and bonus payments (if provided).
In what cases does the order of payments to employees change?
If severance pay or other compensation upon dismissal is established by the employment contract in an increased amount, then the part of the debt exceeding that established by Art. 178 of the Labor Code of the Russian Federation, amount of severance pay:
- does not apply to the requirements of the second stage;
- repaid after satisfying the interests of third-priority creditors.
Such cases, paragraph 3 of Art. 136 of Law No. 127-FZ allows for certain officials of the debtor and its branch (representative office):
- the head and his deputies;
- chief accountant and his deputies;
- members of the collegial executive body.
How to fire a woman on maternity leave
Pregnant women and employees on maternity leave, as well as child care leave, do not have any privileges during liquidation. Employment contracts with them are terminated in accordance with the general procedure. The only difference is that such employees, in addition to the basic payments, are entitled to benefits for a child up to one and a half years old.
Important! Even if a woman does not plan to go to work, after dismissal due to layoff due to the liquidation of the enterprise, she is obliged to contact the Employment Center and register. In addition, you need to independently notify the Social Insurance Fund in order to receive further payments for the child.
In addition to women on maternity leave, the category of employees who cannot be fired according to general rules, but can be dismissed in the event of a massive layoff, includes: employees on sick leave and employees on annual leave.
What is bankruptcy
Bankruptcy (insolvency) is a court recognition of the debtor’s inability to repay debts. A sign of bankruptcy is a delay in fulfilling obligations for 3 months or more (Article 3 of the Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”). If the amount of debt is over 300 thousand rubles. Bankruptcy proceedings may be initiated at the request of creditors or the debtor himself.
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The procedure involves an attempt to improve the financial condition of the debtor. If the organization's solvency cannot be restored, the bankruptcy trustee appointed by the court will decide how to satisfy the largest number of creditors' claims.
An organization declared bankrupt by a court decision is liquidated (Article 65 of the Civil Code of the Russian Federation). In this regard, employment contracts with employees are terminated under clause 1, part 1, art. 81 Labor Code of the Russian Federation.
Arbitrage practice
The opinions of the courts on the issue of the moment of dismissal of employees are ambiguous. The following positions of the court take place: Position 1 If an organization is declared bankrupt and therefore initiates liquidation, this does not mean that it will definitely cease its activities. Therefore, the dismissal of employees is unlawful. Position 2 From the moment the decision on liquidation is made until its actual completion, a number of measures are carried out, which include the termination of labor relations with employees. That is, if the organization is already liquidated and excluded from the register of legal entities, then it will no longer be possible to carry out the dismissal procedure.
How are payments made to employees in bankruptcy?
The procedure for repaying debts to employees is established by clause 5 of Art. 136 of Law No. 127-FZ:
- First, payments are made based on no more than 30 thousand rubles. for every month;
- then the remaining amounts are paid within the framework of the employment relationship;
- then the authors of the results of intellectual activity receive remuneration.
Payments between employees and authors within each stage are distributed in proportion to the amount of debt owed to each person.
By the way, bankruptcy of the employer may also follow due to delayed wages.
The employees received payments before the debtor's bankruptcy. When can they be challenged?
Tatyana Ivanova, lawyer at Exiora Law Firm
Arbitration practice. 2021. No. 1.
Labor relations occupy a special place in bankruptcy. On the one hand, the legislator protects the debtor’s employees from the negative consequences of the introduction of banknote procedures. Their demands for wages are satisfied in second place, preferentially before other creditors for monetary obligations (clauses 2, 4 of Article 134 of the Bankruptcy Law).
On the other hand, the law allows the use of bankruptcy mechanisms to suppress abuse by the debtor’s employees. So, the rules of Ch. III.1 of the Bankruptcy Law on challenging the debtor’s transactions can be applied to challenging actions to fulfill obligations within the framework of labor relations (clause 3 of Article 61.1 of the Bankruptcy Law). Let's consider in what cases the court will side with the creditors.
Special grounds for challenging employee benefits
Recently, bankruptcy rules are increasingly used to challenge transactions within the framework of labor relations: employment contracts and additional agreements to them, orders for bonuses to employees, etc. Basically, payments to employees are disputed on the basis of Art. 61.2 of the Bankruptcy Law (suspicious transactions).
| In accordance with Art. 61.2 of the Bankruptcy Law, suspicious transactions of the debtor are disputed: | |
| Committed in case of unequal counter-execution (Clause 1, Article 61.2 of the Bankruptcy Law) | Committed for the purpose of causing harm to the property rights of creditors (Clause 2 of Article 61.2 of the Bankruptcy Law) |
| Period: the transaction was completed within 1 year before the court accepted the application to declare the debtor bankrupt or after the acceptance of this application | Period: the transaction was completed within 3 years before the court accepted the application to declare the debtor bankrupt or after the acceptance of this application |
| What needs to be proven: ¾ Inequality of counter performance. | What needs to be proven*: ¾ The transaction was concluded with the intent to harm the property rights of creditors; ¾ As a result of the transaction, damage was caused to the property rights of creditors; ¾ The other party to the transaction knew about the specified purpose of the debtor at the time of the transaction. (Clause 5 of the resolution of the Plenum of the Supreme Arbitration Court dated December 23, 2010 No. 63) |
* If at least one of these circumstances is not proven, the court refuses to recognize the transaction as invalid on this basis (paragraph 6, paragraph 5 of the resolution of the Plenum of the Supreme Arbitration Court of December 23, 2010 No. 63).
Payments to employees can also be challenged according to the rules of Art. 61.3 of the Bankruptcy Law. (decrees of the Administrative Court of the North Caucasus District dated April 13, 2018 in case No. A61-1055/2016, FAS of the Ural District dated September 16, 2013 in case No. A71-8362/2012)
| In accordance with Art. 61.3 of the Bankruptcy Law, payments that entail preference to one of the creditors over other creditors are disputed: | |
| Clause 2 Art. 61.3 of the Bankruptcy Law Period: the transaction was completed after the court accepted the application to declare the debtor bankrupt or within 1 month before the court accepted the application to declare the debtor bankrupt. | Clause 3 Art. 61.3 Bankruptcy Law Period: the transaction was completed within 6 months before the court accepted the application to declare the debtor bankrupt |
| What needs to be proven: ¾ Giving preference to one of the creditors over other creditors in relation to satisfaction of claims (for example, payment of a bonus to an employee led to a change in the order of satisfaction of creditors’ claims) | What needs to be proven: ¾ Giving preference to one of the creditors over other creditors in relation to satisfaction of claims; ¾ The employee was aware of the indication of insolvency or insufficiency of property or of the circumstances that allow such a conclusion. It is assumed that the interested party knew about the insolvency or insufficiency of the property, unless the contrary is proven (paragraph 3, paragraph 3, article 61.3 of the Bankruptcy Law). |
The practice of successfully challenging payments to employees by the manager and creditors
| Condition | Case Study | Base | Judicial act |
| The employee did not actually perform the job duties assigned to him | The bankruptcy trustee challenged the payment of wages as a transaction made with unequal consideration. The debtor's employees did not show up for work, which was confirmed by a time sheet. The courts took this circumstance into account, and three instances agreed with the bankruptcy trustee’s arguments. | Clause 1 Art. 61.2 Bankruptcy Law | Resolution of the Volga-Vyatka District Court of October 17, 2016 in case No. A43-6772/2014 |
| Inconsistency between qualifications and working conditions and established wages | The bankruptcy trustee successfully challenged payments in favor of the debtor's employee. The court noted that the increase in the amount of payments was not due to the performance of work outside the scope of the employee’s job duties as provided for in the employment contract. | Clause 1 Art. 61.2 Bankruptcy Law | Resolution of the Arbitration Court of the North-Western District dated 06/09/2018 in case No. A05-3604/2014 |
| The arbitration manager successfully challenged the payment of wages to the employee. In this case, a lawyer employee (who was also an interested party in relation to the debtor) received a salary of 15 thousand rubles. for one hour of work in a five-day work week. At the same time, the courts took into account that the employee did not have a legal education and did not meet the qualification requirements for the position held. | Clause 1 and clause 2 of Art. 61.2 Bankruptcy Law | Resolution of the Volga-Vyatka District Arbitration Court dated September 11, 2017 in case No. A79-10357/2015 | |
| Employees occupy leadership positions in the organization | Three instances agreed with the bankruptcy trustee’s arguments to invalidate the clause of the employment contract establishing the payment of five official salaries to a member of the board upon dismissal. The courts took into account that, being a member of the board, the employee could not but know that at the time of concluding the disputed agreement the debtor had signs of insolvency. At the same time, the courts also examined the debtor’s charter and the terms of the collective agreement, which provided for additional payment of severance pay only when an employee was dismissed due to retirement, and the employee did not have such a right at the time of dismissal. | Clause 1 and clause 2 of Art. 61.2, Art. 61.3 of the Bankruptcy Law, art. 10 GK | Resolution of the Volga District Court of July 18, 2017 in case No. A57-8898/2013 |
| The arbitration manager obtained the invalidation of the payment of wages to an employee of the debtor holding a managerial position. The bankruptcy trustee presented a calculation according to which the justified salary for 16 months was less than 1 million rubles, while the amount of actual payments made was four times higher. The courts took into account that over a long period the debtor's losses had been steadily increasing, which the employee should have known about. In addition, being the person actually controlling the debtor, the employee received payments unreasonably, since the wages of employees holding similar positions in the company were tens of times lower. | Clause 2 Art. 61.2 of the Bankruptcy Law, art. 10 and art. 168 Civil Code | Resolution of the Arbitration Court of the Ural District dated May 23, 2017 in case No. A76-9270/2014 | |
| Payments are not provided for either by the collective agreement or by the internal local acts of the debtor | The bankruptcy trustee challenged the payment of the “golden parachute” to the employee, pointing out that the head of the personnel department could not but know that the establishment of such compensation and its payment during the period of insolvency of the debtor reduces the bankruptcy estate and harms the property rights of creditors. Two authorities disagreed with the manager’s arguments. The cassation overturned the judicial acts of the lower instances, pointing out that the establishment of unreasonable excessive compensation in the absence of any local normative and administrative acts economically and legally justifying it, is essentially arbitrary in nature, which together indicates an abuse of law by the parties in establishing it. | Clause 1 and clause 2 of Art. 61.2 of the Bankruptcy Law, art. 10 GK | Resolution of the Moscow District Court of September 3, 2018 in case No. A40-26474/2016 |
| The arbitration manager challenged the payment of additional compensation to the employee. The courts noted that, due to the provisions of labor legislation, the payment of compensation to an employee, including those related to the termination of an employment contract concluded with him, must be provided for by law or by the wage system in force in the organization, established by a collective agreement or local regulations. | Clause 2 Art. 61.2 of the Bankruptcy Law, art. 10 and art. 168 Civil Code | Resolution of the Moscow District Court of February 14, 2018 in case No. A40-240735/2015 |
Judicial practice in favor of employees
| Condition | Case Study | Base | Judicial act |
| The salary increase is due to the assignment of additional responsibilities to the employee | The courts refused to invalidate the bankruptcy trustee's request to invalidate the additional agreement to the employment contract to increase wages. The courts indicated that the increase in official salary 12 days before the introduction of the temporary administration was due to an increase in the volume of official duties performed by the employee and work on weekends. | Clause 1 and clause 2 of Art. 61.2 of the Bankruptcy Law, art. 10 GK | Resolution of the Moscow District Court of January 12, 2018 in case No. A40-232020/2015 |
| The arbitration manager was unable to achieve invalidation of the clause of the employment contract regarding the establishment of the official salary. The court indicated that the employee was the only specialist in accounting for property, liabilities and business transactions of the company, which is also confirmed by the expanded list of job responsibilities, and his salary was commensurate with the salary for the positions he held. | Clause 1 and clause 2 of Art. 61.2 Bankruptcy Law | Resolution of the Far Eastern District Court of April 5, 2016 in case No. A51-2827/2014 | |
| Bonuses are based on the employee’s special professional achievements | The bankruptcy trustee challenged the orders to award bonuses to employees. Three authorities refused him. The courts noted that the calculation of bonuses under the contested orders was carried out in accordance with the Regulations on the Commercial Department, according to which the bonus part represents an approved percentage of the planned marginal income for the object. The courts took into account that the bonus system was used when determining wages before; all employee income received from the employer is reflected in 2-NDFL certificates submitted by employees to the court. | P. and clause 2 art. 61.2 Bankruptcy Law | Resolution of the Arbitration Court of the Ural District dated February 20, 2017 in case No. A60-7507/2015 |
| All employees of the organization received similar payments (for example, bonuses) | The arbitration manager was unable to get the bonus orders annulled. The courts found that the bonuses were conditioned by the adoption of a decision at a meeting of the Board of Directors on the payment of bonuses to employees based on the results of work for the year, the employee did not participate in the adoption of this decision by virtue of his position, the issuance of the contested order was conditioned by the employee’s performance of a labor function, and the decision of the Board of Directors applied to all without excluding bank employees. | Clause 2 Art. 61.2 of the Bankruptcy Law, Art. 1 GK | Resolution of the Far Eastern District Court of November 25, 2016 in case No. A59-1704/2015 |
| The employee’s salary level generally corresponds to the average salary level for similar work in the region | The court rejected the bankruptcy trustee because, challenging the deal to increase the remuneration stipulated by the employment contract, he did not provide evidence confirming a different amount of wages that is paid to an employee of similar qualifications under comparable circumstances, and also did not indicate in what part the wages established by the contested additional agreement employee exceeds the salary usually accepted in such cases. | Clause 1 and clause 2 of Art. 61.2 Bankruptcy Law | Resolution of the Administrative Court of the East Siberian District dated September 14, 2017 in case No. A58-3001/2015 |
| The increase in official salary is associated with the transition to a new remuneration system | The courts refused to invalidate the bankruptcy trustee's request to invalidate the additional agreement. The courts noted that the employee held the position of head of the personnel department. The increase in official salary was a planned event in connection with the transition to a new remuneration system - an increase in official salary with a decrease in its bonus part. | Clause 1 and clause 2 of Art. 61.2 of the Bankruptcy Law, Art. 10 and art. 168 Civil Code | Resolution of the Moscow District Court of January 24, 2018 in case No. A40-232020/2015 |
If payments to employees are declared invalid, the courts most often indicate that payments in excess of a certain (justified, in the court’s opinion) amount must be returned. However, it is not entirely clear how this relates to the position of the Supreme Court, according to which, when challenging an unequal transaction, it is impossible to recover the difference between the price of the transaction and its market value. (Decision of the Supreme Court dated December 24, 2015 in case No. A51-17166/2012).
Additional ways to return amounts paid to employees
1. Recovery of damages from a manager who unreasonably made payments to employees.
To hold a manager accountable for damages, it is necessary to prove:
— presence of losses and their size;
— illegality of behavior that caused harm;
— a cause-and-effect relationship between the illegality of behavior and the resulting losses. (resolutions of the Presidium of the Supreme Arbitration Court dated July 25, 2011 in case No. A45-5420/2010, dated May 21, 2013 in case No. A60-53822/2011)
In one of the cases, the director of the debtor issued an order to pay a bonus to one of the employees, on the basis of which funds were transferred to the latter. Subsequently, the court declared these payments invalid, but the employee did not return the funds to the debtor. The arbitration manager filed a claim in court to recover damages from the now former director in the amount of the bonus paid. Three instances agreed with the arguments of the manager (resolution of the Arbitration Court of the West Siberian District dated December 29, 2016 in case No. A67-874/2014), noting that satisfaction of the requirement to recover damages from the director does not depend on whether it was possible to compensate for the property losses of the legal entity using other methods of protecting civil rights (in this case, the possibility of collecting money from the employee). (Clause 8 of the Resolution of the Plenum of the Supreme Arbitration Court dated July 30, 2013 No. 62 “On some issues of compensation for losses by persons included in the bodies of a legal entity”) The Supreme Court refused to transfer the cassation appeal of the former director for consideration to the Judicial Collegium. (Definition of the Supreme Court dated May 2, 2017 No. 304-ES15-14771(13).
2. Bringing persons controlling the debtor to subsidiary liability for unreasonable payments to employees . In one of the cases, one of the grounds for bringing the director of the debtor to subsidiary liability was the transfer to himself of unreasonably large sums, indicating the payment of wages as the purpose of payment. (Resolution 9AAS dated August 21, 2018 in case No. A40-39549/18-30-56B)
Often, in the context of bankruptcy, compensation accrued to employees upon dismissal (or “golden parachutes”) is disputed. The mere inclusion in an employment contract of conditions for the payment of additional compensation upon termination of the employment contract cannot be considered an abuse of right or discrimination. The possibility of establishing conditions for the payment of severance pay in an increased amount is provided for in Part 4 of Art. 178 TK. These payments are a common practice, especially for employees in management positions. However, if an employment contract with a provision for the payment of significant compensation upon dismissal is concluded on the eve of bankruptcy, in conditions of the inevitability of termination of the employment relationship, the court may conclude that such a transaction is economically inexpedient and declare it invalid. (Decision of the Supreme Court dated March 16, 2018 in case No. A12-61050/2015).
3. Write-off of payments (including bonuses, allowances) from the accounts of senior bank employees as part of measures to prevent bank bankruptcy . This possibility is provided for in Art. 189.48 of the Bankruptcy Law. According to this norm, the bank’s obligations to management employees and controlling persons are terminated on the day of approval of the Bank of Russia’s participation plan in the implementation of measures to prevent bank bankruptcy or the Agency’s participation plan in the implementation of measures to prevent bank bankruptcy, providing for the assignment of the functions of a temporary administration for managing the bank to the Management Company or Agency. That is, funds can be quickly written off from the accounts of controlling persons opened in the bank itself.
If the bank’s obligations to senior employees arose from an employment contract, then the amounts of such payments cannot be written off. However, this rule does not apply to additional payments and incentive allowances, bonuses and other incentive payments. (paragraph 5, clause 12.1, article 189.49 of the Bankruptcy Law).
Conclusion . Judicial practice widely uses the norms of Chapter. III.1 of the Bankruptcy Law to labor relations. At the same time, a uniform approach to resolving the problem of recognizing payments to the debtor’s employees as invalid has not yet been developed. Despite this, at the moment both those disputing payments and the debtor’s employees have sufficient tools to challenge the relevant transactions.
