Bankruptcy reform: new tools for business rescue

OVERVIEW OF KEY CHANGES

• 1. Corporate debt restructuring 

  Debt restructuring is introduced as a standalone rescue procedure in bankruptcy proceedings. The procedure may be initiated at the request of the debtor, a creditor or an authorized body, or pursuant to a resolution adopted at the first meeting of creditors, and requires the involvement of a crisis trustee. The trustee will assess the debtor’s financial position, monitor progress towards restructuring, maintain the register of creditor claims, participate in the approval of significant transactions and, where necessary, apply to the court for suspension of the debtor’s chief executive officer.

  The debtor has four months from the commencement of the procedure to prepare a restructuring plan setting out various debt resolution options. The implementation period of the plan may not exceed four years, with an option to extend for a further four years.

• 2. Debt rehabilitation agreements

  2.1 “Standard” rehabilitation agreement

  A debtor may enter into a “standard” rehabilitation agreement with one or more creditors, or a series of separate agreements with different creditors, or a single agreement with all creditors. Parties to a debt rehabilitation agreement may also include other persons, such as investors, lenders or guarantors.

  Creditors or other parties may take rescue measures under a rehabilitation agreement both before and after the commencement date of bankruptcy proceedings, but only to the extent that the debtor has not yet entered any of the procedures applicable in bankruptcy proceedings.

  A rehabilitation agreement may, in particular, provide for:

  • A deferral or installment payment plan, or a change in the amount or currency of the debt;
  • Provision of compensation, additional guarantees, debt forgiveness, novation, or conversion of creditors’ claims into shares or participation interests;
  • An obligation on the debtor to obtain creditors’ approval for certain transactions;
  • An obligation on creditors to temporarily refrain from filing a bankruptcy application or presenting enforcement documents.

  An agreement whereby creditors agree not to initiate bankruptcy proceedings or not to present enforcement documents must be notarized. 

  2.2 Comprehensive rehabilitation agreement

  A comprehensive rehabilitation agreement is introduced for debtor companies holding assets with a total carrying amount of more than RUB 1 billion. 

  Unlike a “standard” agreement, a comprehensive agreement may also cover creditors who are not parties to the agreement, but whose claims must be satisfied on terms no less favorable than those of participating creditors.

  For a comprehensive rehabilitation agreement to be formally approved, it is necessary to:

  • Give notice to each creditor accounting for 5% or more of the debtor’s total financial liabilities, as well as to the Russian Federation in respect of the debt owed to it, no later than 20 business days before applying to the court;
  • Publish the relevant notice in the Unified Federal Register of Information on the Operations of Legal Entities (Fedresurs);
  • Ensure that creditors unrelated to the debtor, together accounting for more than 50% of the debt owed by the debtor, have acceded to the agreement;
  • Submit  a document drawn up by an audit company based on the results of consideration of a comprehensive rehabilitation agreement and a statement on the debtor's financial condition regarding the impossibility of fulfilling obligations on the original terms and there are grounds to believe that the debtor's solvency will be restored upon the implementation of such agreement.

  The term of a comprehensive rehabilitation agreement is limited to four years, with an option to extend for a further two years.