Challenging the Debtor's Transactions

Transactions are challenged on two groups of grounds. The Bankruptcy Law sets out special grounds, and the general grounds for the invalidity of transactions apply alongside them. The ground chosen determines the circumstances to be proven and the period within which a challenge is possible.

First ground: inadequate consideration. A transaction may be declared invalid if its price or other terms are significantly worse for the debtor than the terms on which similar contracts are concluded in comparable circumstances. The comparison is made against market terms at the time of the transaction: the justification of the price and the supporting documents matter to both parties to the dispute.

Second ground: harm to creditors' property rights. Here, the purpose of causing harm, the harm actually caused and the other party's awareness of that purpose are established.

Third ground: preference given to one of the creditors. This includes the provision of security for a pre-existing obligation, a change in the ranking of claims, early repayment while obligations to others remain unperformed, and receipt of more than would have been received through payments in the established order. The further the payment is from the opening of the case, the more circumstances the applicant has to prove.

The law also protects the other party. Transactions made in the ordinary course of the debtor's business cannot be challenged on the grounds of inadequate consideration or preference if their value does not exceed the statutory threshold; they may, however, be challenged as transactions made with the purpose of causing harm. If the debtor received adequate consideration immediately after the contract was concluded, its performance of the obligation can be challenged on special grounds only as having caused harm to creditors. Demonstrating that an operation falls within the debtor's ordinary business forms part of the work in such a dispute.

• Dealings in assetsSale, transfer in lieu of performance and other grounds on which assets left the debtor's possession.
• Payments to individual creditorsPayments, set-offs and other means of discharging obligations shortly before the case was opened.
• Security for old debtsPledges and suretyships for pre-existing obligations, including those owed to related parties.
• Intra-group transactionsPayments and transfers of assets between companies of the same group, financing and redistribution of assets.
• Chains of transactionsSuccessive disposals of the same asset and the position of the last acquirer.
• Defending the counterpartyObjections to the application to challenge and substantiation of the circumstances in which the transaction was made.
• Acting for creditorsThe application to challenge and participation in the dispute.

• Written assessmentAn analysis of the grounds for challenge and for defence and the consequences of each option.
• Position in the disputeObjections or an application, explanations and annexes, prepared in the course of the proceedings.
• Participation in hearingsPresenting arguments and responding to the arguments of other parties to the dispute.
• Next stepsAction after the ruling is issued, including appeals and matters relating to the reinstated claim.

The outcome of the service is the work performed within the scope agreed with the client.

1. Materials

   The position is built on the documents and the circumstances of the case; the following points are relevant.

   • ContractSigned copies with all amendments and annexes.
   • PaymentsBank statements, payment orders, set-off and reconciliation statements.
   • Transfer of assetsAcceptance and transfer certificates, registration documents, information on subsequent ownership.
   • Price justificationValuations, commercial offers, correspondence on agreeing the terms.
   • Connections between participantsEquity participation, shared executives and other relationships between the parties.
   • Documents receivedThe application to challenge, the court's procedural rulings, communications from the insolvency practitioner.
   • Purpose of the requestDefending a completed transaction or returning assets to the bankruptcy estate.

2. Assessment

   On the basis of the materials, the strengths and weaknesses of the position, the risks and the possible courses of action are identified.

3. Plan

   For the chosen option, a plan is drawn up: the sequence of steps, timing and scope of work.