Today, the problem of bankruptcy of developers remains relevant, which cannot but upset and cause anxiety and concern. The planned housewarming is moving away or seems completely impossible. But there is no need to despair. You should thoroughly understand all the intricacies of the bankruptcy process and begin to act actively.
ATTENTION : our Ekaterinburg lawyer will help in the bankruptcy procedure of the developer: professionally, on favorable terms and on time. Call and schedule a consultation today!
Who can initiate bankruptcy of a developer?
The shareholder himself can initiate bankruptcy of a construction organization if the developer has a debt exceeding 300,000 rubles, which he has not repaid for more than 3 months. However, in practice this is quite expensive and difficult, even if you create an initiative group. Therefore, it is easier to apply to the state supervisory authorities at the local and regional level (for example, to the Department of State Housing and Construction Supervision), as well as to the Fund for the Protection of the Rights of Citizens - Participants in Shared Construction. These entities have the right to file an application to declare the developer bankrupt to the arbitration court.
It happens that government authorities themselves initiate bankruptcy proceedings against a construction company. This usually happens when the results of one or another inspection reveal signs of financial insolvency of a construction company. Another option is when the developer himself initiates the bankruptcy process.
How much will the prices of new buildings rise?
It is impossible to answer this question - the project has just been launched, and it is too early to judge the results. But they will certainly rise. At a minimum, the amount of interest on the loan taken by the developer. Do the math for yourself. The average construction period for a high-rise building is 3 years. The annual interest on the loan is not less than 10. Logically, the price of each apartment should increase by 30%.
On the other hand, a further increase in housing prices does not make sense for the construction industry. Apartments in new buildings are not selling very well anyway due to the high cost. After all, Russians’ incomes are growing much slower than real estate prices. And unsold apartments - no matter how much they cost - do not bring any profit to the developer.
So we will not take the liberty of predicting anything. Only one thing is clear - the construction industry, due to the liquidation of the share segment of housing construction, will face difficult times. But on the other hand, there will be fewer “defrauded shareholders.”
In the meantime, they exist, and some are right now in the process of bankruptcy of their developer. The main goal of our article was to explain to them as much as possible the procedure for action in such a situation.
Developer bankruptcy procedure
In case of bankruptcy of the developer, it is possible to introduce an external management procedure, conclude a settlement agreement and conduct bankruptcy proceedings.
With external management, the court appoints a manager, who effectively becomes the head of the construction organization. His tasks include: restoring the solvency of the company and completing the construction of the house. The option of concluding a settlement agreement is possible when the developer and the shareholder come to some kind of agreement in court, as a result of which the construction participant can receive a certain amount in a short time, but at the same time he will have to make some concessions to the developer. The procedure for external management and the conclusion of a settlement agreement are rare in practice.
Most often, when a developer goes bankrupt, bankruptcy proceedings are used, the essence of which is to sell all the property of a construction organization at auction and collect debts from the debtors of the developer himself. The funds received are then used to pay off creditors, including equity holders. How long this procedure will last is decided by the court. According to the law, bankruptcy proceedings are introduced for a period of up to 6 months, but the judicial authority always has the right to extend this period for another six months. And most often the court actively uses this right, so there is no need to say that everything will go quickly and easily.
Claim to declare the developer bankrupt
A statement of claim to declare the developer bankrupt is filed with the arbitration court. It must contain the following information:
- about the amount of debt, the reasons and time of its occurrence, as well as the documents that confirm it
- about the circumstances of why the developer does not fulfill its obligations, indicating references to the company’s financial papers
However, it should be understood that if the construction company has already been declared bankrupt and bankruptcy proceedings have been opened, the shareholder must submit an application to the arbitration court for inclusion in the register of creditors' claims, attaching all the necessary documents. A copy of this application and all attachments must first be sent to the bankruptcy trustee by a valuable letter with a list of the attachments.
After which the bankruptcy trustee publishes his decision on your appeal in the “Unified Federal Register of Bankruptcy Information,” which can always be appealed in an arbitration court.
USEFUL : order a statement of claim from our lawyer using the link, and also watch the video with additional advice from a lawyer
How can I find out about the developer's insolvency procedure?
If the developer is declared bankrupt, the manager must notify all shareholders of this event by mail. Information about the bankruptcy of a construction company will appear in the Kommersant newspaper. You can also obtain the necessary information on the websites of the State Registration Bulletin and the Unified Federal Register of Bankruptcy Information.
In addition, you can find out about the bankruptcy of the developer on the website of the arbitration court, where you need to open the section: “Case file” and enter the details (TIN or OGRN) of the developer, after which you will be presented with a list of all court cases of this company.
Why does a party become insolvent?
The main reasons for the bankruptcy of a developer are:
- incorrectly calculated business plan at the initial stage;
- there were violations of the work process;
- a sharp increase in the cost of building materials and, accordingly, the cost of services;
- circumstances that arose through no fault of the developer after receipt of funds and start of construction.
Each circumstance has negative consequences both for the developer, who cannot complete the work on time, and for equity holders, who cannot obtain finished residential premises.
To protect yourself from negative factors, you should pre-insure yourself or regularly check the risks of difficult financial situations.
What should defrauded shareholders do if a developer goes bankrupt?
After an announcement about the bankruptcy of the developer has appeared in official information sources and a corresponding notification from the manager has been sent to your postal address, you must, within three months, decide what you want: money or an apartment, and then state your demands indicating the chosen option .
If you decide to receive money, your application is entered into the “Register of Claims of Construction Participants”. After which the price of the residential property, as stipulated in your contract, must be established by an independent appraiser, who is hired by the bankruptcy trustee at the expense of the developer. After the assessment, the report is sent to you for review and, if you are not satisfied with it, you can always challenge it in court, including on the basis of another assessment report. If you choose the option of obtaining an apartment, your application is included in the “Register of Requirements for the Transfer of Premises”. And here there are some peculiarities:
- when the residential complex is put into operation, you have every reason to qualify for the property;
- when the house is not ready for use, the law provides for the option of completing construction by transferring the unfinished construction project to a housing construction cooperative or other consumer cooperative. You need to understand that this process can be very lengthy and difficult.
In this regard, it is difficult to determine exactly what is better: choosing an apartment or demanding money. Each specific situation is individual and requires a comprehensive assessment and comprehensive analysis.
FOR MORE DETAILS, follow the link to material about the protection of shareholders on our website
Recognition of property rights in bankruptcy
It is important to understand that if bankruptcy proceedings have already been initiated against the developer, an application for recognition of ownership of the apartment can only be submitted to an arbitration court.
It should be submitted when the property already has permission to put it into operation, and the residential premises, as a separate property, are transferred to the shareholder under the transfer and acceptance certificate. Moreover, this happened before the court accepted the application to declare the construction company bankrupt. In this case, there is every chance that the arbitration court will recognize the construction participant’s right of ownership of the residential property. However, in practice it happens that the court recognizes the above-mentioned right of the shareholder even when there is no document on the transfer of residential premises.
Therefore, in order to determine whether an appropriate claim should be filed in your particular case, it is necessary to assess all the circumstances of the case. And remember that if there is still an opportunity to recognize ownership of a property, it is better to use it, since the option of including your requirements in the “register of claims for the transfer of residential premises”, unfortunately, does not always guarantee the receipt of housing in the future.
Cancellation of equity participation agreements in 2021
It is clear that the use of escrow accounts actually defeats the purpose of shared-equity construction as a source of affordable housing. But this is not an “oversight” of the state, but, apparently, a deliberate policy aimed at ousting this model from the construction market. The reasons for this are also quite understandable.
Although initially reasonable and beneficial for both parties, the “construcción de la equidad” model has not proven itself to be the best in Russia. The massive deception of shareholders continued for decades. Until now, in our country there are about one and a half thousand “long-term construction” of shared construction with not fully clear prospects. The register of “defrauded shareholders” includes more than eighty thousand families.
It is clear that a new type of relationship is required between builders and equity investors. This is what is called project financing.
Consequences of developer bankruptcy
It may turn out that the funds received as a result of the sale of all the developer’s property at auction will not be enough for everyone. Then the money will be divided between shareholders proportionally, depending on how much each of them paid for the future apartment. In this case, the money will be returned to you only partially. In this situation, you can also try to get help from the State Compensation Fund for Shared Construction.
The worst option: if it turns out that the construction company has nothing at all. This is possible when property is registered under shell companies and other illegal schemes for siphoning money are used. The bankruptcy proceedings will end here and it will be officially recognized that there are no funds and it is not possible to satisfy the demands of the construction participants. And this picture, unfortunately, is very common these days. The introduction of escrow accounts into the work scheme of developers from July 1, 2021 may change the current situation for the better.
Thus, if the developer is declared bankrupt, you should not fall into despair and despondency. Currently, there are various mechanisms that allow both to complete the construction of objects and to compensate shareholders for their financial losses. The most important thing is your active actions and regular monitoring of the progress of the bankruptcy process. And the help of qualified lawyers will greatly increase your chances of success.
Reanimation or liquidation?
If bankruptcy is initiated by the problematic company itself, it is important to decide on one of two possible options.
The purpose of resuscitation is to restore the company's solvency. This is done through attracting investments, rationalizing production, restructuring debts, etc.
The purpose of liquidation is to preserve valuable assets, repay creditors' claims, legally write off debts, etc. Typically, this option is chosen when maintaining a legal entity is impractical or not possible.
SIGNS OF BANKRUPTCY
