• Legal Regulations
• What is a Bankruptcy in Accordance with the Russian Laws?
• Who May Become a Bankrupt?
• Indicators of Bankruptcy and Necessary Conditions for Filing Bankruptcy Petition
• Submitting Application to Arbitration Relating to the Act of Bankruptcy
• Stages of Bankruptcy Procedure

The main sources of legal regulation relating to bankruptcy are the following:

• Part 1 of the Civil Code of the Russian Federation as of November 30, 1994 (hereinafter referred to as the "Civil Code of the RF");

• the Federal Law No.127-FZ dated October 26, 2002 "On Insolvency (Bankruptcy)" (hereinafter referred to as the "Law on Bankruptcy");

• the Federal Law No.40-FZ dated February 25, 1999 "On Insolvency (Bankruptcy) of Credit Organizations".

An insolvency (bankruptcy) is an inability, which has been recognized so by an arbitration, of a debtor to satisfy in full the claims of his creditors relating to financial liabilities of that debtor and/or to settle the mandatory payments.

An individual, including sole entrepreneurs or legal entities, is deemed to be a debtor if that person is not capable to satisfy the claims of the creditors relating to financial liabilities of the said person and/or if that person fails to settle the mandatory payments within a period as provided for by this Federal Law. However, at the present time, the legal norms, which relate to individual who is not a private entrepreneur, do not apply and therefore only a legal entity or a private entrepreneur may be declared bankrupt.

An individual is deemed to be unable to satisfy the claims of the creditors relating to financial liabilities of that individual and/or to settle mandatory payments if the respective satisfaction of claims or settlement of mandatory payments have not been effected within a period of three months from the date, on which such satisfaction of claims or a mandatory payment should have been effected, and provided that the sum of that individual's liabilities exceeds the value of the property, which is in possession of that individual.

A legal entity is deemed to be incapable to satisfy the claims of the creditors relating to financial liabilities of that entity and/or to settle mandatory payments if the respective satisfaction of claims or settlement of mandatory payments have not been effected within a period of three months from the date, on which such satisfaction of claims or a mandatory payment should have been effected.

Taking into consideration the given indicators, a bankruptcy case may be instituted by an arbitration only provided that the claims in respect of an indebted legal entity represent, in total, not less than one hundred thousand Rubles, and such claims in respect of an indebted individual represent not less than ten thousand Rubles accordingly.

The claims in respect of a debtor shall, as a rule, be confirmed by a court decision being in effect or by decision of respective state authority.

A debtor, a bankruptcy trustee and an authorized bodies are entitled to submit an application to arbitration in order that a debtor be declared bankrupt.

Bankruptcy trustees mean any creditors in respect of whom the financial liabilities have arisen, except for the authorized bodies or individuals to whom a debtor is liable for the damage to life or health, or is responsible to pay remuneration to the authors of the results of intellectual activities, or the founders (participants) of a body indebted in relation to liabilities arising out of such participation;

Authorized bodies mean the Federal Taxation Service, the executive bodies of constituent entities of the Russian Federation, the municipal authorities that are authorized to be representatives at the bankruptcy case and during the procedures, which are applied in the course of such bankruptcy case, and to submit claims in relation to financial liabilities that are due to constituent entities of the Russian Federation and the municipal entities accordingly.

A debtor has right to submit a debtor's application to arbitration if such debtor anticipates a bankruptcy and provided that there are circumstances that give an express evidence of that a debtor will be unable to discharge the financial liabilities and/or settle the mandatory payments in a period specified.

The Law on Bankruptcy provides for the cases where a chief officer of a body indebted or a private entrepreneur must submit a debtor's application to arbitration. If that chief officer fails to meet this obligation then the said officer will bear, jointly with a debtor, a subsidiary liability (Clause 2, Article 10, Law on Bankruptcy).

The following procedures are applied in the course of consideration of debtor's case, whilst a debtor is a legal entity:

• supervision – a procedure, which is applied in the course of bankruptcy proceedings to a debtor in order to secure a debtor's property, to carry out the analysis of a debtor's financial standing, to prepare a register of that debtor's creditors' claims and hold the initial meeting of creditors;

• financial sanation – a procedure, which is applied in the course of bankruptcy proceedings to a debtor with a view to recover that debtor's solvency and to repay debts in accordance with a schedule of debts repayment;

• external management – a procedure, which is applied in the course of bankruptcy proceedings to a debtor in order to recover that debtor's solvency;

• receivership –  a procedure, which is applied in the course of bankruptcy proceedings to a debtor that has been declared bankrupt with a view to a proportioned satisfaction of the creditors' claims;

• amicable settlement – a procedure, which is applied in the course of bankruptcy proceedings at any of its stage with the purpose of termination of the proceedings by way of reaching an agreement between a debtor and its creditors.

If a debtor under bankruptcy proceedings is an individual then the following procedures apply:

• receivership;

• amicable settlement;

• other procedures as provided for by the Law on Bankruptcy.