By law, a debtor filing for bankruptcy is required to finance the costs of the bankruptcy procedure. What are these expenses? They are indicated in Art. 20.7 Federal Law “On Insolvency (Bankruptcy)” - postage, duties, publications, auctions, storage of property, etc.).
Be sure to check the amount of costs for the procedure when choosing a financial manager, because it may differ significantly. For us it is less than 9,000 rubles. for the procedure, and we openly publish these statistics monthly - for example, see Bankruptcy of individuals: results of July 2020.
Let's talk about what will happen to the bankruptcy procedure if there is no money to pay the costs of the case.
A debtor applying for bankruptcy is obliged to:
- Deposit the amount of the financial manager’s remuneration of 25,000 rubles into the deposit of the arbitration court;
- Attach to the application also evidence that he has property sufficient to pay off the costs of the bankruptcy case.
According to the law, if these two points are not met, then the debtor’s application is left without progress for 1 month to eliminate the violations, and then until returned without consideration.
In reality, the court does not often check circumstance No. 2 and introduce bankruptcy proceedings.
Template for consent to finance bankruptcy proceedings
It should be noted that, based on the provisions of paragraph 4 of Article 213.7 and paragraph 4 of Article 213.9 of the Bankruptcy Law, the publication of information during the procedures applied in a bankruptcy case and the payment of a fixed amount of remuneration to the financial manager is carried out at the expense of the citizen. Since a citizen, along with other documents specified in paragraph 3 of Article 213.4 of the Bankruptcy Law, is obliged to confirm to the court that he has the funds to pay the relevant legal expenses by depositing funds into the deposit of the arbitration court to pay remuneration to the financial manager in an amount equal to the fixed amount of remuneration of the financial manager for one bankruptcy procedure, and also attach to the application evidence of the existence of property sufficient to pay the costs of the bankruptcy case.
Financing of debtor bankruptcy proceedings
According to information published by the Federal State Statistics Service for 2020, the number of people with monetary incomes below the subsistence level in the country is 19.1 million people, or 13.3% of the total population of the Russian Federation <2; in the Northwestern Federal District - 14.1% of the total population of the subject (indicators for the subjects of the district: Republic of Karelia - 16.6%, Komi Republic - 14.6%, Arkhangelsk region - 15.9%, Vologda region - 14 .1%, Kaliningrad region - 14.5%, Leningrad region - 10%, Murmansk region - 13.3%, Novgorod region - 14.3%, Pskov region - 19.5%, St. Petersburg - 8.1% <3).
Financing bankruptcy proceedings for an absent debtor
In addition, according to the explanations set out in paragraphs two and three of paragraph 28 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated June 30, 2011 N 51 “On the consideration of bankruptcy cases of individual entrepreneurs” <11, unsatisfied claims for compensation for harm caused to life or health, for the collection of alimony, as well as other claims inextricably linked with the personality of the creditor, regardless of whether they are related to the business activity of the debtor, remain in force regardless of whether they were presented during the bankruptcy procedure. The debtor’s obligation to pay court costs in the bankruptcy case also remains, if they were borne on behalf of the debtor by the bankruptcy trustee or another person, as well as the remaining outstanding current payments. <11 Bulletin of the Supreme Arbitration Court of the Russian Federation. 2011. N 9.
Financing bankruptcy proceedings
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Costs associated with the case - 2 Obligation to pay bankruptcy
- 3 Who has the right to finance bankruptcy
Termination of an enterprise by declaring it bankrupt entails a number of expenses that must be paid without fail. They are compensated by the debtor through the sale of fixed assets listed on the balance sheet during the procedure. Also, in some cases, it is possible to finance bankruptcy proceedings by a creditor or other person who has filed a petition with the court about the debtor’s insolvency.
Costs associated with conducting a case Launching bankruptcy proceedings involves a number of costs, the payment of which must be unconditionally fulfilled, regardless of the result obtained - declaring the debtor bankrupt or rejecting the applicant's claims due to the unfoundedness of the received application.
Financing bankruptcy proceedings
Resolution of the Federal Arbitration Court of the West Siberian District dated August 2, 2013 in case No. A45-4227/2011 The Bankruptcy Law does not provide grounds for imposing the obligation to repay expenses in a bankruptcy case on a person who is not a debtor or applicant in the case, with the exception of cases bankruptcy of the liquidated debtor. Resolution of the Federal Arbitration Court of the Central District dated August 2, 2013 in case No. A14-6575/2005 The court noted that the agreement was concluded six months before the initiation of bankruptcy proceedings, therefore the costs associated with its execution are not the costs of carrying out the procedures applied in a bankruptcy case Determination of the Supreme Arbitration Court of the Russian Federation dated April 16, 2013
Arbitration manager
Important
Bankruptcy Law) and their subsequent transfer to the current creditor by the debtor is not required. Thus, having applied to the procedure for financing bankruptcy procedures by analogy with the provisions of Article 59 of the Bankruptcy Law and the above explanations, it should be noted that they can be accepted only if the citizen’s creditors agree to finance the bankruptcy procedure. At the same time, it is unlikely that there will be anyone willing to contribute money if reliable information is received regarding the debtor’s lack of any property, through which in the future it is possible to compensate not only the funds spent on financing the debtor’s procedure, but also the satisfaction of their accounts payable included in the register of claims creditors.
There is only one interested party left who wants to be released from obligations, and this is, of course, the debtor himself.
Bankruptcy procedures are financed through
We believe that taking into account the experience established in judicial practice and the experience gained in relation to bankruptcy cases of legal entities in financing the procedures of debtors with a lack of funds in an amount sufficient to finance bankruptcy procedures, by analogy it is also possible to apply to procedures in relation to debtor citizens. Thus, for the purpose of confirming the sufficiency of the debtor’s funds to pay court costs, we believe it is possible to deposit at the stage of filing an application with the court on the deposit of the arbitration court, in addition to funds to pay remuneration to the financial manager, also funds in an amount sufficient to cover other expenses provided for the relevant procedure. To confirm the sufficiency of the funds contributed, attach a calculation reflecting each expense line and the amount of funds necessary to repay it.
Costs in a bankruptcy case
Is it the duty of the insolvency administrator to conduct an analysis of the financial condition of the debtor personally, or the right of the insolvency administrator to engage third-party specialists for this purpose and pay for their activities at the expense of the debtor’s property?
Currently, in arbitration practice, there is a contradiction regarding the interpretation of the substance of the arbitration manager’s performance of one of his duties—conducting an analysis of the debtor’s financial condition. A study of judicial practice on this issue indicates the ambiguity of the legal approaches used to resolve it. Some courts believe that the above-mentioned duty must be performed by the insolvency practitioner personally. Proponents of a different approach do not rule out that the arbitration manager has the right to delegate the performance of this duty to third-party specialists. Thus, a small part of arbitration courts believes that the arbitration manager does not have the right to engage third-party specialists. This is evidenced by the Resolutions of the Federal Arbitration Court (hereinafter - FAS) of the Volga-Vyatka District dated 03/28/2011 in case No. A29-7862/2009, FAS Moscow District dated 08/08/2012 in case No. A40-24676/11-73-121, FAS Ural District dated January 30, 2013 N F09-14149/12.
To substantiate their position, arbitration courts refer to the presence in the Federal Law of October 26, 2002 N 127-FZ “On Insolvency (Bankruptcy)” (hereinafter referred to as the Bankruptcy Law) indicating a set of duties that the arbitration manager must perform personally without entrusting it to external specialists . In this regard, the courts believe that paragraph three of paragraph 1 of Article 67 of the Bankruptcy Law provides for the obligation of a temporary manager to conduct an analysis of the financial condition of the debtor personally, therefore they consider it a violation of the law to delegate to the temporary manager the obligation to analyze the financial condition of the debtor to external specialists.
According to the author, this legal position is erroneous.
The majority of arbitration courts adhere to the second approach. An example of this is the Determination of the Arbitration Court of the Orenburg Region dated November 11, 2011 in case No. A47-12261/2009, the Resolutions of the Nineteenth Arbitration Court of Appeal dated July 3, 2012 and the FAS Central District dated September 24, 2012 in case No. A14-2179/2008, the FAS North Western District dated December 19, 2012 in case No. A52-1992/2011, Determination of the Arbitration Court of the city of St. Petersburg and Leningrad Region dated June 21, 2012 in case No. A56-23033/2011 (cancelled by the Resolution of the Thirteenth Arbitration Court of Appeal dated October 24, 2012, but on a basis other than the subject of discussion).
Indeed, the Bankruptcy Law contains an indication of a set of duties that the arbitration manager must perform personally without entrusting it to external specialists.
According to paragraph three of paragraph 1 of Article 67 of the Bankruptcy Law, the temporary manager is obliged to analyze the financial condition of the debtor. Actions related to carrying out this analysis are within the terms of reference of the interim manager.
The Bankruptcy Law does not contain a legal norm, and the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation (hereinafter referred to as the Supreme Arbitration Court of the Russian Federation) dated December 17, 2009 N 91 “On the procedure for paying off expenses in a bankruptcy case” does not contain relevant explanations regarding the mandatory possession of comprehensive knowledge by the arbitration manager areas of accounting.
In accordance with paragraph 1 of Article 20.3 of the Bankruptcy Law, the arbitration manager in a bankruptcy case has the right to attract other persons to ensure the duties assigned to him in a bankruptcy case on a contractual basis with payment for their activities at the expense of the debtor, unless otherwise established by this Federal Law , standards and rules of professional activity or an agreement between the arbitration manager and creditors.
Thus, since paragraph three of paragraph 1 of Article 67 of the Bankruptcy Law does not indicate that the temporary manager is obliged to personally analyze the financial condition of the debtor, he has the right to involve third-party specialists for this purpose.
According to the author, such an approach and its legal justification are fully consistent with the provisions of the Bankruptcy Law.
At the same time, if disputes arise regarding the involvement of specialists by the arbitration manager for the purpose of analyzing the financial condition of the debtor, one should take into account the explanations given in paragraph 10 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated July 23, 2009 N 60 “On some issues related to the adoption of the Federal Law dated December 30, 2008 N 296-FZ “On Amendments to the Federal Law “On Insolvency (Bankruptcy)”, in particular in paragraph four, which states that powers that cannot be transferred to third parties include, for example, making decisions on approval and signing a report on the financial condition of the debtor and other reports.
That is, the conclusion on the financial condition of the debtor, prepared by the involved specialists, based on the documents presented by the insolvency administrator, must be approved and signed by the insolvency administrator.
In turn, expenses incurred at the expense of the debtor to pay for the services of the involved persons must be justified and reasonable.
Is the fixed amount of the arbitration manager's remuneration subject to reduction in the event of improper performance of the duties assigned to him?
Today, in arbitration practice, there is a contradiction regarding the presence or absence of legal mechanisms that make it possible to reduce the fixed amount of the arbitration manager’s remuneration. According to some arbitration courts, such mechanisms exist. Proponents of a different approach exclude the possibility of such a reduction, citing the absence of relevant provisions in the Bankruptcy Law.
Some arbitration courts believe it is possible to reduce the size of the fixed amount of remuneration of the arbitration manager. This position is confirmed by the Determination of the Arbitration Court of the Oryol Region dated 03/02/2012, the Resolution of the Nineteenth Arbitration Court of Appeal dated 07/12/2012 and the FAS of the Central District dated 10/09/2012 in case No. A48-4021/2009, the FAS of the East Siberian District dated 04/28/2011 in the case N A74-3661/2008.
As follows from the essence of judicial acts, the basis for reducing the amount of the arbitration manager’s remuneration may be a court-established fact of improper performance by the arbitration manager of his duties, while the violations committed by the arbitration manager must be significant.
In our opinion, this legal position is erroneous.
At the same time, it should be noted that subsequently the named arbitration courts abandoned the established practice, despite the fact that corresponding changes were not made to the Bankruptcy Law regarding the payment of a fixed remuneration to the arbitration manager.
The overwhelming majority of arbitration courts consider it impossible to reduce the size of the fixed amount of remuneration of the arbitration manager. This is evidenced by the Decree of the Arbitration Court of the Tambov Region dated June 26, 2013 and the Resolution of the Nineteenth Arbitration Court of Appeal dated August 28, 2013 in case No. A64-8545/05, Resolution of the FAS Volga District dated October 30, 2012 in case N A55-6133/2010, FAS Ural District dated August 16, 2012 in case No. A71-4848/2009, FAS Volga-Vyatka District dated October 25, 2011 in case No. A29-3488/2009, FAS East Siberian District dated June 30, 2011 in case N A74-1265/2010, FAS of the West Siberian District dated 02.21.2012 in case No. A81-5577/2009.
In support of this position, arbitration courts refer to the absence in the Bankruptcy Law of the possibility for the court to reduce the amount of the arbitration manager’s remuneration.
Thus, other approaches to the issue of reducing the fixed amount of remuneration cannot be considered justified.
At the same time, the remuneration paid to the arbitration manager, if the fact of improper performance by the arbitration manager of his duties is confirmed by a judicial act that has entered into legal force, may be recovered in any part of it in the form of damages, provided that the totality of the conditions for the civil liability of the arbitration manager is proven.
Who is the subject of collection of the arbitration manager's remuneration upon termination of bankruptcy proceedings in connection with the satisfaction of the claims of bankruptcy creditors, but in the absence of property from the debtor?
At the moment, the issue of establishing the appropriate entity for collecting the arbitration manager’s remuneration in the event of termination of the proceedings in connection with the repayment of all creditors’ claims and the debtor’s lack of property is relevant. Analysis of judicial practice indicates the ambiguity of legal approaches to its resolution.
Some arbitration courts consider it possible to recover the arbitration manager's remuneration from the applicant in the case. This is confirmed by the Resolutions of the Federal Antimonopoly Service of the Central District dated November 20, 2012 in case No. A54-3687/2009, and the Seventeenth Arbitration Court of Appeal dated February 11, 2013 in case No. A60-9428/2011.
In accordance with the legal position set out in paragraph 12 of the above-mentioned Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 17, 2009 N 91, based on paragraph 3 of Article 59 of the Bankruptcy Law, if the debtor does not have funds sufficient to pay off the costs of the bankruptcy case, the applicant is obliged to pay the specified expenses in the part not repaid at the expense of the debtor's property, with the exception of expenses for the payment of interest on the insolvency administrator's remuneration.
Thus, if the proceedings in the case are terminated due to the satisfaction of the claims of all creditors, and the debtor has no property, the remuneration of the arbitration manager is subject to recovery from the applicant in the case.
As can be seen from the Resolutions of the Federal Antimonopoly Service of the North Caucasus District dated July 31, 2012 in case No. A32-23755/2009, the Federal Antimonopoly Service of the Ural District dated April 11, 2013 in case No. A60-9428/2011, there are supporters of the opposite position, according to whom, when the proceedings are terminated bankruptcy case in connection with the debtor's repayment of creditors' claims, legal expenses in the bankruptcy case are subject to reimbursement at the expense of the debtor.
The legal position is motivated by reference to paragraph 1 of Article 59 of the Bankruptcy Law, according to which the costs of paying remuneration to the arbitration manager in a bankruptcy case are attributed to the debtor’s property.
According to the author, the assignment of recovery of the arbitration manager's remuneration to the applicant in the case seems justified and most convincing due to the fact that the decisive moment for the application of paragraph 1 or paragraph 3 of Article 59 of the Bankruptcy Law in this case is the debtor's lack of property, and not the termination of proceedings in the case in connection with the debtor's repayment of creditors' claims.
In addition, the applicant, after paying remuneration to the arbitration manager, has the right to demand reimbursement of expenses incurred from the debtor.
Are the arbitration manager's travel expenses incurred in connection with moving to the actual location of the debtor subject to reimbursement?
The issue of reimbursing the arbitration manager for transport expenses is not complicated or controversial. At the same time, arbitration courts, due to different qualifications of the arbitration manager’s travel expenses, have different approaches to the issue of the advisability of their reimbursement.
According to the legal position set out in the Resolution of the Federal Antimonopoly Service of the Volga District dated April 23, 2012 in case No. A55-19299/2009, these expenses should be called travel expenses, and they, in turn, are not provided for by the Bankruptcy Law, and therefore are not subject to compensation for debtor's property account.
In accordance with the approach used in the Resolutions of the FAS Central District dated November 16, 2011 in case No. A35-4363/07, the FAS Ural District dated November 21, 2012 N F09-11116/12, the FAS Far Eastern District dated March 27, 2012 in case No. A59- 1080/2010, FAS North-Western District dated November 14, 2012 in case No. A13-4474/2009, these expenses are subject to reimbursement in the general manner - in accordance with Article 59 of the Bankruptcy Law.
According to the author, arbitration courts using the second approach are right.
According to paragraph 1 of Article 59 of the Bankruptcy Law, all legal expenses, including the cost of paying the state duty, which was deferred or spread out, the cost of publishing information in the manner established by Article 28 of this Law, and the cost of paying remuneration to the arbitration manager in the bankruptcy case bankruptcy and payment for the services of persons engaged by insolvency practitioners to ensure the execution of their activities are attributed to the debtor’s property and are reimbursed from this property out of turn.
Transport costs of the arbitration manager should be classified as legal costs, which are discussed in Article 59 of the Bankruptcy Law, therefore they are subject to recovery from the debtor’s property, and in its absence, from the applicant in the case.
The judgment that these are travel expenses, which are not named in Article 59 of the Bankruptcy Law, is not based on the norms of the current legislation. The concept of travel expenses is not covered by the subject of civil law, and therefore by “bankruptcy law,” which by its specificity is an institution of civil law.
The definition of travel expenses is established (Labor Code Article Labor Code of the Russian Federation) and is applicable only to strictly special entities: the employer and the employee. Since the arbitration manager is not in an employment relationship with the debtor and is not one of the above entities, he has no right to claim compensation for travel expenses.
According to the author, the presented examples are indicative in the sense that when considering bankruptcy cases, arbitration courts encounter numerous difficulties in interpreting the law and its subsequent application, and therefore completely different legal positions are formed.
Shirokova E.K., assistant judge of the Nineteenth Arbitration Court of Appeal, Associate Professor of the Department of Civil Law of the Central Branch of the Federal State Budgetary Educational Institution of Higher Professional Education "Russian Academy of Justice", Candidate of Legal Sciences.
Financing of bankruptcy procedures is carried out
Resolution of the Ninth Arbitration Court of Appeal dated October 8, 2012 No. 09AP-28521/2012 Expenses for the examination carried out at the initiative of the bankruptcy trustee outside the framework of the consideration of the case cannot be attributed to legal costs Resolution of the Federal Arbitration Court of the Ural District dated October 1, 2012 No. F09-11405/10 The appellate court rightly recognized as unlawful the attribution of the bankruptcy trustee’s travel expenses to the costs of bankruptcy proceedings and the bankruptcy trustee’s involvement of specialists as unjustified. Determination of the Supreme Arbitration Court of the Russian Federation dated September 28, 2011.
