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When the risk arises. Subsidiary liability threatens a manager or controlling person if it is proved that their actions (or inaction) led the company into bankruptcy or caused loss to creditors.
What is most often alleged. Failure to hand documents over to the bankruptcy trustee, entering into transactions unfavourable to the company in the period before bankruptcy, and failure to take steps to prevent bankruptcy despite clear signs of insolvency.
How to reduce the risk in advance. Record the economic rationale for management decisions at the time they are made, rather than reconstructing the logic after the fact: these are the documents most often missing when defending a case in court.
Who is recognised as a controlling person
Formal criteria. The law automatically classes as controlling persons the sole executive body, a participant holding more than 50%, the holder of a power of attorney authorising transactions on the company’s behalf, and a member of a governing body whose signature appeared on key decisions. For this group, fault is presumed in certain circumstances, and it is the defendant who has to prove otherwise.
Actual control. The status of controlling person is not tied to a position in the staffing table. The court will also recognise as such a person with no formal authority, such as a relative, a consultant or a beneficiary behind a nominee structure, if it is proved that their instructions determined the company’s key decisions in the period before bankruptcy.
Why this matters at an early stage. The whole defence strategy depends on whether a particular person is recognised as a controlling person, and the body of evidence is built differently for a nominee director and for the actual beneficiary.
Who is most often targeted as a controlling person:
Liability after personal bankruptcy
The debt is not written off. Personal bankruptcy releases an individual from most debts, but not from claims arising from subsidiary liability: this is an express exception in the legislation on individual bankruptcy. After the procedure ends, such a debt remains and continues to be enforced in the usual way.
Why the strategy of “wiping the slate clean through personal bankruptcy” does not work. Creditors and the financial manager usually know about this exception and do not treat the controlling person’s personal bankruptcy as a reason to reduce their claims. Moreover, a hasty bankruptcy filing right after the first claim appears is often viewed by the court against the debtor.
What actually helps. The realistic options are paying the judgment by instalments and working on the size of the liability before the court fixes it: the share of fault among several controlling persons and the proportionality and amount of the alleged loss can be reviewed, whereas the very fact that the debt has arisen, as a rule, cannot.
Does liability pass by inheritance
The general rule. A subsidiary liability claim is a property obligation, not a personal one, so it does not end with the death of the controlling person. Heirs answer for such a debt within the value of the inherited property: this is a general principle of inheritance law, not a special rule for bankruptcy disputes.
If proceedings have already begun. The death of the defendant while the application is being heard does not end the dispute: the court substitutes the heirs (or the estate, if the inheritance has not yet been accepted) as the party, and the case continues on the merits.
What this means for planning. For business owners this is an argument for dealing with the structuring of assets and the controlling person’s potential risks during their lifetime, rather than leaving them to heirs together with the business itself, especially since the creditor’s time limit for bringing such a claim runs for years.
Liability and spouses’ joint property
Joint ownership does not protect against enforcement. Property acquired during marriage is presumed joint regardless of whom it is registered to. Recovery for one spouse’s subsidiary liability can be levied against that spouse’s share of the property. For this, the share is first separated by court order, and the spouse who was not held liable is compensated for its value in money, rather than the property itself being taken.
Transactions that are checked first. Division of property on divorce, a prenuptial agreement, and a gift of a business interest or real estate to a spouse: if such transactions were made shortly before the first subsidiary liability claim appeared, they are challenged as aimed at removing assets from enforcement, regardless of the formal reason for the divorce or the gift.
What reduces the risk in advance. A prenuptial agreement and a division of property made in good time, before signs of the company’s insolvency appeared, are more resistant to challenge than the same documents signed after the fact.
What most often becomes the subject of a separate dispute:
Subsidiary liability or a claim for damages
The difference in substance. Subsidiary liability is possible only within bankruptcy proceedings and only where the company’s assets were not enough to pay its creditors. A claim for damages against a director or controlling person is a separate claim that can be brought whether or not the company is bankrupt, and both before and after such a case ends.
A different burden of proof. On a number of grounds for subsidiary liability, the controlling person’s fault is presumed. In a claim for damages, the claimant as a rule has to prove the fault, the amount of loss and the causal link on their own. The dispute is objectively harder for the claimant, but it does not require waiting for bankruptcy to be opened and completed.
When damages are a workable alternative. If the time limit for applying for subsidiary liability has been missed, the company has not entered bankruptcy proceedings, or the issue is a one-off unfavourable transaction rather than driving the company into bankruptcy as a whole, a claim for damages often remains the only working mechanism for recovery from the manager personally.
Enforcement abroad: the controlling person’s assets outside Russia
A Russian decision is not enforced automatically. A Russian court ruling imposing subsidiary liability does not give the right to attach a foreign account or real estate directly. In most jurisdictions that have no legal assistance treaty with Russia, the creditor must separately seek recognition of the decision by a local court or bring independent proceedings under local law.
What the outcome depends on. Courts abroad check whether the defendant’s procedural rights were observed in the Russian proceedings, whether enforcement contradicts local public policy, and how clearly the link between a specific asset and the controlling person is proved. Ownership structures through trusts, nominee holders and foreign holding companies make the process more complex and longer, although in themselves they do not protect against enforcement if they were created after the claim arose.
Why to take this into account in advance. Structuring personal and family assets makes sense only before a specific claim arises. Movements of assets after the controlling person learned of the risk of subsidiary liability are examined by the court separately and usually only strengthen the creditors’ position.
Frequently asked questions
How long does a subsidiary liability case last?+
From a few months to 1-2 years, depending on the court instance and the difficulty of proving fault.
Can you insure in advance against the risk of subsidiary liability?+
Direct insurance is rare under Russian law, but properly documenting management decisions is a workable way to reduce the risk.
Already received an application for subsidiary liability?+
Send us a request and a partner from the bankruptcy practice will contact you within one working day.