Subsidiary Liability

The range of persons against whom claims are brought is not determined by position alone. A person controlling the debtor is a person who had the right to give binding instructions or was otherwise able to determine the debtor's actions.

The Bankruptcy Law sets out two grounds for subsidiary liability. First, debts to creditors cannot be paid in full as a result of the actions or omissions of the controlling person. Second, the obligation to file a debtor's petition with the court has not been complied with, in which case the amount of liability is determined by the obligations that arose after the expiry of the statutory period for filing such a petition and before the bankruptcy case was opened.

The law treats certain circumstances as grounds for rebuttable presumptions: the applicant proves the circumstances themselves, and the link between the controlling person's actions and the insolvency is presumed. These circumstances include significant harm to creditors' rights caused by the debtor's transactions; missing or distorted accounting records that significantly hindered the procedures applied in the bankruptcy case; debts arising from an offence, in the proportion established by law; and inaccurate or missing information required to be entered in the Unified State Register of Legal Entities. The presumption is rebuttable: the controlling person may prove the absence of fault, the good faith and reasonableness of their actions in the debtor's interests, and that the insolvency was caused by external circumstances.

Causation is assessed. Liability for the inability to pay debts in full arises from actions without which the insolvency would not have occurred. Actions that did not go beyond ordinary business risk are not treated as such a ground. Liability also arises where the position of a debtor that was already unable to pay has been significantly worsened by subsequent actions of the controlling person. If the harm caused does not constitute grounds for subsidiary liability, the claim is considered under the rules on compensation for harm caused to the debtor: the legal characterization is determined by the court.

The amount of liability for the inability to pay debts in full is determined by the aggregate of unpaid debts to creditors, as defined by law, less debts owed to the controlling person and to parties interested in relation to that person. If the inability to pay was caused by the actions of several controlling persons, they are jointly and severally liable; where the actions of each of them alone would not have been sufficient, liability is apportioned in shares. The amount may be reduced: account is taken of the effect of external circumstances and of a nominal director having disclosed information about the de facto director or about concealed assets.

• Liability of directors and other executivesDisputes over claims against current and former directors of the company based on transactions, decisions of management bodies and the state of the documentation.
• Liability of participants and beneficial ownersDisputes over claims against persons who determined the company's actions, including those who held no position in it; substantiating the extent of their involvement in decision-making.
• Liability for failure to file a petitionDisputes over whether the circumstances requiring a debtor's petition had arisen and which obligations arose after that.
• Disputes over company documentationThe consequences of documents being lost, incomplete or distorted, and their handover to the insolvency practitioner.
• Liability for debts outside insolvencyDisputes over claims brought after the case has been completed or terminated and over claims against persons who determined the actions of a limited liability company struck off the Unified State Register of Legal Entities.
• Acting for creditorsPreparing an application with arguments on the grounds for and amount of liability, choosing the method of disposing of the claim against the controlling person.

• Written assessmentAn analysis of the grounds for the claims and the consequences of each of the available options.
• Position in the disputeAn application or objections, 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 stepsDisposal of the claim against the controlling person or an appeal against the ruling issued.

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.

   • CompanyComposition of management bodies, participants, and changes in them over past periods.
   • Client's rolePositions held, powers, involvement in decision-making.
   • DocumentsAccounting and primary records, information on their condition and on their handover to the insolvency practitioner.
   • TransactionsContracts and payments cited in the claims made or which may be cited in them.
   • LiabilitiesThe creditors, the amounts of the debts and the grounds on which they arose.
   • CaseThe application to impose subsidiary liability, the court's procedural rulings and the bankruptcy case materials, if received.
   • Purpose of the requestDefence against the claims made or bringing claims against controlling persons.

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.