The matter in brief
How it went
Situation. In a company’s bankruptcy case, the bankruptcy trustee applied to hold the former director subsidiarily liable, regarding some of his management decisions as the cause of the company’s insolvency.
What we did. We demonstrated the economic justification of the contested management decisions at the time they were taken and presented evidence that the bankruptcy was caused by objective market factors, not by the director’s actions.
Result. The court refused to hold the director subsidiarily liable, and the RUB 85 million claim was dismissed in full.
A similar situation? Let us discuss the details at a consultation.
The legal framework for a director’s subsidiary liability
The liability of persons controlling the debtor is governed by Chapter III.2 of Federal Law No. 127-FZ on Insolvency (Bankruptcy). The law describes who counts as a controlling person, which presumptions of fault apply to them and how the burden of proof is allocated in such a dispute.
Who is a person controlling the debtor (Article 61.10 of Federal Law No. 127-FZ). Not only the formal director, but anyone who in the three years before signs of bankruptcy appeared had the actual ability to determine the company’s actions: a participant with a decisive share, a beneficiary, a person who gave the debtor binding instructions.
Presumptions of fault (Article 61.11(2) of Federal Law No. 127-FZ). The law presumes the controlling person at fault if, among other things, accounting documents were not handed over or were falsified, a transaction was made that caused significant harm to creditors, or more than half of the register of third-priority claims consists of debts arising from an offence for which the person has been held liable. Each presumption can be rebutted.
A separate ground: late filing of the bankruptcy petition (Article 61.12 of Federal Law No. 127-FZ). If the manager did not apply to the court in time, liability can arise for obligations that came into being after the deadline expired, regardless of what caused the bankruptcy itself.
Who needs this kind of defence
The range of people the law treats as controlling the debtor is wider than is commonly assumed.
How a defence against subsidiary liability usually runs
The general sequence of steps in this category of dispute. The tactics in a particular case depend on the ground the applicant relies on.
Analysing the grounds of the application
We work out which presumption or provision of the law the trustee or creditor relies on and what exactly has to be rebutted: fault, the causal link or the amount of harm.
Gathering evidence of good faith
We collect documents confirming the economic justification of the decisions at the time they were taken: correspondence, expert opinions, minutes, the market terms of transactions.
Building the legal position
We prepare the response to the application and, where necessary, the argument that the bankruptcy was caused by objective market factors, not by the controlling person’s actions.
Appearing at court hearings
We present the client’s position in the commercial court at every stage of the application and, if the outcome is unfavourable, prepare an appeal or cassation appeal.
Common mistakes and misconceptions
“The company went bankrupt, so the director is to blame.” This is not so: the law requires proof of a causal link between the person’s specific actions and the inability to repay creditors, not merely the fact of bankruptcy.
“I left before the bankruptcy, so I have nothing to worry about.” A former manager answers for the period in which he actually ran the company, and a change of director shortly before bankruptcy does not in itself remove liability.
“Subsidiary liability applies only to the general director.” The law treats participants with a decisive share, beneficiaries and those who actually determined the company’s decisions without holding any official position as controlling persons too.
“Personal bankruptcy will write off such a debt.” Debt arising from subsidiary liability is expressly excluded by law from the debts from which an individual is released at the end of their own bankruptcy (Article 213.28 of Federal Law No. 127-FZ).
Statutory time limits and thresholds
General benchmarks from bankruptcy legislation, not figures for any specific case.
Frequently asked questions
Can a director avoid subsidiary liability if the company went bankrupt through no fault of theirs?+
Yes, if they can prove the economic justification for their decisions and the absence of fault for the bankruptcy. This is the key line of defence.
Can assets that the debtor stripped out before bankruptcy be returned?+
Yes, by challenging such transactions within the bankruptcy case, if it can be proved that the parties were affiliated or the price was understated.
Is this a real case or a generalised example?+
It is a real matter from the firm’s practice. We publish it without company names or the names of the participants, as every client agreement includes a non-disclosure clause.