Fictitious and deliberate bankruptcy

The main goals of fictitious bankruptcy are to obtain a deferment (installment plan) for debt payment, reduction or forgiveness of debt by misleading creditors through a public announcement of its insolvency, before the announcement of which the organization’s liquid assets were transferred to the ownership of affiliated companies. To carry out a fictitious bankruptcy, as a rule, situations are created of a formal lack of funds to make payments to creditors.

Punishment for fictitious bankruptcy

The range of punishment for fictitious bankruptcy, according to Article 197 of the Criminal Code of the Russian Federation, varies from a fine of 100 thousand rubles to imprisonment for a fairly long period. But until recently, the opportunity to “respond with a ruble,” and even more so to go to prison for six years, seemed more mythological to entrepreneurs than real. One of the reasons was the lack of an established mechanism for investigating such crimes and the insufficient competence of law enforcement officials. Objectively, this is due to the complexity of proof, the connection of such cases with tax, administrative and other branches of law, as well as the need for knowledge in management and finance, knowledge of the specifics of the bankrupt’s business. A significant number of fictitious bankruptcies are not reflected in statistics due to lack of evidence. The latent (hidden) nature of crimes and their duration often do not make it possible to distinguish such acts from legal ones committed in the course of ordinary business activities.

Speaking about the victims of such crimes - creditors, it is worth noting that combating criminal bankruptcies is an extremely costly process. This is due to the duration of the procedure itself, the need to attract highly specialized specialists in this area, as well as directly in the debtor’s business, conducting assessments, examinations, collecting and preserving evidence, and carrying out other necessary activities. Often such procedures turn into long-term confrontations.

Cases when the organizers of a criminal bankruptcy faced an effective and lengthy confrontation could previously be counted almost on one hand. More often than not, the initiators did not meet worthy resistance; their opponents did not use even basic methods and means to defend their rights.

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Signs of preparation for fictitious bankruptcy: changing the composition of founders, concluding economically unfeasible transactions, creating new enterprises with the same composition of founders or management bodies.

The next standard move was practically a win-win - initiate bankruptcy and propose your own manager. In order to have a majority in the register of creditors and thus control the procedure.

There are many ways to illegally gain an advantage in the registry. One of them is the creation of artificial debt to initiate bankruptcy. The bottom line is that a creditor “friendly” to the debtor gets the opportunity to appoint a temporary trustee - as the first creditor who filed for bankruptcy, as well as a bankruptcy trustee - as the majority creditor in the first meeting.

As for the courts, in the overwhelming majority of cases they approached the problem of fictitious debts in bankruptcy, relying only on formal signs of the “reality” of transactions. This allowed “bankrupts of their own free will” to get away with it. But the situation is starting to change. Judge for yourself…

What it is

The purpose of deliberate bankruptcy is to deliberately bring an enterprise to a state where it is simply unable to pay off its debts. The founders and managers of the company take measures that lead the legal entity to ruin.

It is clear that there is nothing good for creditors in this situation, since they will lose the funds invested in the company. And if during normal business conduct the risk of ruin always remains and is accepted, then when the company is brought to bankruptcy under Art. 196 of the Criminal Code of the Russian Federation provides for criminal liability and fines, since these actions are a violation of the rights of creditors.

The analysis shows that there are at least two motives for the purposeful ruin of a company:

criminal intent, when a company was specifically created for “laundering” funds or other illegal actions;
“alternative” liquidation, i.e. a way to get rid of an ineffective business by “pushing” it to ruin.

Identifying signs of deliberate bankruptcy

Consider the discouraging thesis that identifying signs of deliberate bankruptcy is fraught with the prosecution of its organizers, but does not prevent the continuation of the procedure, contained in the decision of the Arbitration Court of the Krasnodar Territory dated 04/07/2015 in case No. A32-39749/2014.

Referring to paragraph 6 of the resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 15, 2004 No. 29 “On some issues of the practice of applying the Federal Law “On Insolvency (Bankruptcy)”,” the Krasnodar servants of Themis indicated that the company, which owed as much as four dozen counterparties, filed an application about bankruptcy, had to prove the excess of the amount of monetary obligations and obligations to make mandatory payments over the value of its property.

And she did it: according to the papers, it turned out that the company had unfulfilled obligations of 52 million rubles. There is no real estate, as well as movable property. There are a lot of receivables that are problematic to collect, and hard money to pay off debts is a breeze. The judges did not particularly bother themselves with the investigation of how many of the company’s partners were only “nominal” creditors and where all the fixed assets had disappeared.

Thus, the arbitration court comes to the conclusion that the petition of one of the creditors (the largest) to order a judicial financial and economic examination and to suspend the proceedings until the validity of the application for declaring the debtor bankrupt is verified is subject to rejection, taking into account the documents presented in the case materials unfulfilled obligations and insufficient property.

Protection of the rights of bona fide creditors

The dominance of the “documentary” or formal approach in “bankruptcy” cases can be put to an end by a very non-standard definition of the Economic Collegium of the Supreme Court of the Russian Federation (IES) dated July 25, 2016 No. 305-ES16-2411, aimed at protecting the rights of bona fide creditors.

As already mentioned, in practice, it is not difficult for an unscrupulous debtor to enter into an agreement with “friendly” creditors or to form “his own” accounts payable. The judges faced such a case.

So, in 2013, a large bank issued a loan to the company in the amount of 70.4 million rubles to purchase real estate. It was assumed that in the future this property would be rented out (this is exactly the kind of activity the company was then engaged in). However, instead, literally a month later, the company poured all the loan funds, and even part of its own, into some non-core assets. Namely, it entered into an agreement for the supply of 344 tons of meat products with a certain individual entrepreneur. Moreover, for a large amount - 78 million rubles.

Six months later, the entrepreneur went to court and, citing the fact that the goods had not been paid for, demanded that the company recover 78 million rubles of debt and 1.8 million rubles of interest. The company did not object to the claim, as a result of which in September 2014 the Arbitration Court of the Moscow Region satisfied it. A month later, the individual entrepreneur initiated another case - declaring the company bankrupt (A41-63886/2014). And again everything went like clockwork: on December 3, a monitoring procedure was introduced in relation to the company, and the individual entrepreneur was included in the register of creditors’ claims. In general, the rather crudely implemented “scheme” worked very effectively. Thus, the imaginary creditor was able to get ahead of the bankers and gain control over the bankruptcy procedure.

The bankers, who were never repaid the loan, decided to intervene in the situation by appealing the court decision in a dispute over debt under a supply agreement to the 10th Arbitration Court of Appeal. The deal is imaginary, the bank insisted, appealing to common sense. Its true goal is to create artificial debt.

Many reasons were given in support of this. Too much meat was supplied by one single entrepreneur in a very short time. Moreover, where did the company suddenly become so interested in meat products, and how was it going to use it? After all, this organization was not previously engaged in such activities at all, and it does not even have equipment for processing or storage. And what is this attraction of unheard-of trust? Before this, the company had never worked with this particular entrepreneur, and suddenly - it’s on you: the lion’s share of the goods (and contrary to the terms of the contract) is delivered without payment.

Alas, the entire argumentation of the bankers remained a voice crying in the wilderness. Neither the appeal nor the cassation (AS of the Moscow District), all these nuances did not seem like something out of the ordinary. They were quite satisfied with the invoices presented by the “supplier”, which confirmed the fact of the transfer of meat and were properly executed. As a result, the entrepreneur’s “bankruptcy” claim was once again fully satisfied.

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Intentional bankruptcy is the commission by the head of an enterprise, individual entrepreneur or citizen of deliberate actions or inaction, which subsequently led to financial insolvency (Article 195 of the Criminal Code of the Russian Federation). Fictitious bankruptcy is a deliberately false public announcement that a given economic entity is bankrupt (Article 197 of the Criminal Code of the Russian Federation).

Turning to the highest court for support, bank representatives indicated that the courts unreasonably limited themselves to examining circumstances typical of a normal delivery. However, the transaction between an individual entrepreneur and a bankrupt company was not such. The judges ignored the important arguments of the plaintiff and assessed the evidence formally.

The three judges of the Economic Collegium of the Supreme Court of the Russian Federation were also not satisfied with the superficial approach of their lower-ranking colleagues. In delivering their verdict, they recalled that a characteristic feature of a fictitious transaction is the absence of a goal to achieve the stated results.

“By making a deal just for show, the parties correctly draw up all the documents, but do not strive to create real legal consequences. This means that evidence of only the formal execution of the contract is clearly insufficient,” says the ruling of the Supreme Court of the Russian Federation. Moreover, the judges emphasize, if this affects the “bankruptcy” case - in particular, the question of inclusion in the register. The courts had to check the existence of an actual supply relationship, and if there was convincing evidence of its impossibility, shift the burden of proof to the defendant. However, the lower authorities generally ignored all the arguments of the bank, whose rights were infringed by the inclusion of a “supplier” “friendly” to the debtor in the register. As a result, the verdicts of all lower courts were overturned, and the case was sent for a new trial.

Yes, this is not the outcome of the confrontation yet. But the precedent is that for once it was a conscientious creditor, and not a bankruptcy trustee, who managed to convince the court of the fact of an imaginary transaction. In this case, the Economic Collegium of the Supreme Court of the Russian Federation issued fairly clear instructions to the courts on checking the validity of clearly suspicious claims. It directs courts to examine contracts in more detail already at the stage of including claims in the register of creditors. The positive effect of the decision of the “highest arbitrators” is that it continues to confirm specific legal mechanisms for ensuring the rights to judicial protection of persons not involved in the case. After all, the bank, as a creditor of the defendant in the case, intervened in the ordinary process, and not in the insolvency procedure. In general, the courts have been given an “instruction to be attentive,” and there is no hope that they will ignore it.

Bankruptcy of individuals in 2021 - conditions

To be declared bankrupt, a person must have a debt to a bank, organization or third party. Until September 1, 2021, a citizen could be considered bankrupt:

if the debt is at least 500 thousand rubles;
There is no possibility of a refund for at least 3 months.

From September 1, it is possible to declare bankruptcy even with more modest amounts of debt - from 50 to 500 thousand rubles.

In any case, a person may be declared insolvent if, after paying all debts, an amount remains in hand that does not reach the subsistence level. It is impossible to live on such an amount, but simply not letting creditors know about you is not the best idea. The only possible option to deal with the situation is to officially declare yourself bankrupt.

A prerequisite for recognizing the bankruptcy of individuals is to be a citizen of Russia. In addition, you must prove that there are circumstances that prevent the payment of debt obligations. This could be a layoff at work or an injury that prevents you from continuing to perform your job duties. The following conditions must also be met:

you are a bona fide borrower and have made attempts to deal with creditors on your own (you can provide correspondence with the bank);
you do not hide your income or property. Otherwise, the court will refuse to declare bankruptcy.
you are working or looking for a job (you must be registered with the official job exchange).

Since property will be sold to eliminate debts if you are declared bankrupt, you need to weigh the pros and cons of such a step.

We will write off all your debts through bankruptcy proceedings (127-FZ)

Write off debts

Preventing fictitious bankruptcies

As we see, not only servants of Themis, investigators or arbitration managers, but also creditors can resist fictitious bankruptcies. It is extremely difficult to understand where the risks of business activity, ineffective management, changes in market conditions, the impact of the economic crisis end and the illegal activities of an individual or group of individuals begin. Based on this, the most effective tactic of a creditor in any bankruptcy is preventive measures aimed at eliminating the very possibility of incurring losses. And this is quite achievable with proper organization of work with debtors.

Of course, the debtor may have such problems that he actually loses the ability to pay the debt. However, more often than not, such a development of events can either be anticipated by analyzing the debtor’s condition, or prevented by starting to act in time, without waiting for the debtor to go completely bankrupt.

Most creditors rarely collect information about a potential debtor before making a transaction, although there are plenty of ways and services for this. And completely in vain.

In order to prevent deliberate and fictitious bankruptcies, lawyers recommend the following to creditors:

It is mandatory to conduct a preliminary check of the counterparty. This can be done both through open sources (the Federal Tax Service website, files of arbitration cases, the website of the court of general jurisdiction at the address of the potential debtor, the Rosreestr website, etc.), and using various services for collecting information about legal entities and individuals;
carefully check the documentation provided by the debtor (constituent and title documents, orders and decisions confirming the authority of the manager, tax and accounting reports, management reporting data, other documentation);
exclude the possibility of transmitting documents for signature through third parties in order to prevent the possibility of them being signed by unauthorized persons;
regularly evaluate the financial condition of partners throughout the entire term of the contract;
monitor the financial condition of guarantors, guarantors, insurers and other persons throughout the entire period of execution of the contract;
include in contracts a condition on the provision of information by the counterparty in the event of a threat of bankruptcy;
more actively include in contracts, in addition to the terms on the penalty, also the terms on the pledge, retention of the thing, surety, independent guarantee, deposit, security payment. Moreover, the formal presence of collateral is not enough. The lender should periodically check its actual availability and safety. In some cases, it is advisable to install video surveillance, which will prevent the unauthorized removal of the collateral, as well as record this process in order to initiate a criminal case;
achieve timely inclusion of claims in the register of creditors;
publicly declare violations committed and signs of a fictitious bankruptcy process.

Yes, the introduction of some of the proposed measures (for example, video surveillance of the collateral) is only possible for large companies, but most are publicly available.

Signs of a possible fictitious bankruptcy:

deterioration of the debtor's financial condition;
the debtor commits actions aimed at reorganization or liquidation, withdrawal of assets, concealment of documentation and/or property, and other similar actions;
change of director, participants (shareholders) of the debtor company, change of location address, name;
identifying problems with ensuring the fulfillment of an obligation and the impossibility of providing additional security;
identifying the fact that accounting and/or tax reporting does not correspond to the real state of affairs;
a significant change in accounting and/or tax reporting indicators, including revaluation of assets and/or liabilities, replacement of assets, under/overstatement of the book value of property, registration of liquid assets as illiquid with subsequent write-off, write-off of assets, etc.;
refusal to provide any documents;
refusal of admission to the location of the collateral;
early fulfillment of obligations to other creditors;
the emergence of new creditors and/or debtors with a significant amount of obligations for the debtor;
issuance and/or purchase of bills of exchange for significant amounts;
carrying out non-core activities;
termination of the liability and/or property insurance contract of the debtor;
purchasing necessary goods at inflated prices;
reflection in accounting of non-existent data on accounts payable;
assignment of current income to deferred income;
assigning future expenses to current expenses.