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Corporate bankruptcy

The discussion in this chapter of Doing business in Russia focuses on the Russian bankruptcy regime applicable to companies and also mentions specific features of the regime applicable to credit institutions.

General approach

The most important laws governing corporate bankruptcy proceedings are (i) Part I of the Russian Civil Code; and (ii) Federal Law No. 127-FZ “On Insolvency (Bankruptcy)” dated 26 October 2002, which is the principal piece of legislation on bankruptcy in Russia (the “Insolvency Law”). In addition, bankruptcy rules are set out in a number of regulations of the Government of the Russian Federation and other state bodies and are interpreted by the court practice, primarily in decisions and resolutions of the former Supreme Commercial Court and, currently, of the Supreme Court.

The Insolvency Law also includes the bankruptcy regime applicable to individuals (which falls outside the scope of this chapter).

There are no specific bodies responsible for conducting or overseeing bankruptcies in Russia. Bankruptcy proceedings are generally conducted by a commercial (“arbitrazh”) court in the Russian region where the debtor’s registered office is located. 

Insolvency criteria

Under the Insolvency Law, the main criteria used to determine whether a debtor is insolvent are the debtor’s inability to meet creditors’ claims or to fulfil mandatory payment obligations for a period of three months from the date on which they fall due.

Stages of bankruptcy proceedings

Depending on the circumstances, the insolvent company may be subject to five different stages of bankruptcy proceedings:

  • supervision;
  • financial rehabilitation;
  • external management;
  • bankruptcy liquidation; and
  • voluntary arrangement.

Preliminary step: initiating bankruptcy proceedings

As a general rule, bankruptcy proceedings may be commenced against all types of legal entities, with the exception of certain forms of state-owned enterprises, political parties and religious organisations.

The following are permitted to file a bankruptcy petition with a commercial court to have a debtor declared bankrupt:

  • the debtor itself (i.e. its management bodies);
  • a bankruptcy creditor;
  • the competent authorities: the Federal Tax Service of the Russian Federation (the “FTS”) or the Federal Customs Service of the Russian Federation (the “FCS”); or
  • a current or former employee of the debtor.

A debtor must file a bankruptcy petition with a commercial court to initiate its own bankruptcy proceedings if one of the insolvency criteria below is met:

  • if the claims of one or more creditors are fulfilled, the debtor will be unable to fulfil its payment obligations towards other creditors;
  • persons who are authorised to take a decision to apply for liquidation on behalf of the debtor decide to petition the court for the commencement of bankruptcy proceedings;
  • if claims against the debtor’s assets are enforced, the debtor will be unable to continue, or will be significantly restricted in continuing, its operations;
  • the debtor meets the “inability to pay” criterion (i.e. the debtor fails to perform its payment obligations when due as a result of insufficient funds);
  • the debtor meets the “insufficient assets” criterion (i.e. the value of the debtor’s payment obligations exceed the value of its assets); and/or
  • as a result of insufficient funds, the debtor is unable to pay wages and other payments due and payable to its current or former employees pursuant to the Russian labour laws that are outstanding for more than three months.

The right of a bankruptcy creditor, the FTS or the FCS to file a bankruptcy petition with a commercial court to initiate bankruptcy proceedings arises if an unsatisfied aggregate debt of a corporate debtor exceeds RUB 300,000 (EUR 3,333 1 At the notional exchange rate of RUB 90 = EUR 1, as used for convenience throughout this guide. ), which is confirmed by an enforceable court decision or arbitral award (Russian or foreign).

Under the Insolvency Law, when a creditor is a credit institution, it is entitled to initiate bankruptcy proceedings with respect to its debtor immediately after the latter has met an insolvency criterion under the Insolvency Law. Credit institutions, unlike other creditors, do not require a court decision or arbitral award in order to ascertain their claims. From 2 January 2021, this rule will also apply to facility agents 2 The facility agent can be a Russian credit institution, VEB.RF, a foreign bank or an international financial institution. acting as bankruptcy creditors on behalf of other creditors under syndicated loan agreements.

Moreover, a right to file for bankruptcy becomes conditional and arises only if a creditor has published a notice of its intention to file an insolvency petition against the relevant debtor in the Unified Federal Register of Legally Significant Data about the Facts of the Activities of Legal Entities (available at www.fedresurs.ru) at least 15 days before filing the relevant petition with the court.

Initiation of bankruptcy proceedings is not automatic, and the applicant, being a creditor (except when it is a credit institution) or a debtor itself, must prove to the court that the debtor is insolvent.

A current or former employee of the debtor is entitled to file a petition for the initiation of bankruptcy proceedings if he/she has any severance or salary payment claims against the debtor.

In addition, amendments to the Insolvency Law adopted in April 2020 entitled the Russian Government to impose a moratorium on the initiation of bankruptcy proceedings 3 In April 2020, a bankruptcy moratorium was introduced with respect to organisations from sectors of the economy most affected by the spread of COVID-19 and listed by the Russian Government. These sectors included air and road transport, airports, culture, sports, hotels, catering, education, the organisation of conferences and personal services. The moratorium is in force until 7 January 2021 and there are no plans to further extend it. . The Government was empowered to determine the duration of this moratorium and the sectors (or specific categories of persons or list of persons) to which it applies. When the moratorium is imposed, the courts must return applications for declaring a debtor bankrupt to their creditors. At the same time, debtors who are subject to the moratorium are exempt from the obligation to file for their own bankruptcy and are subject to certain restrictions, the most significant of which include the following:

  •  The debtor’s shareholders/participants are not allowed to withdraw from the company, and the debtor is not allowed to buy out the placed shares/participatory interests. 
  • The debtor’s obligations cannot be terminated by set-off if it disrupts the priority of creditors’ claims.
  • It is not permitted to pay dividends or to make distributions on participatory interests, and to distribute profits between the debtor’s participants.
  • Penalties and other financial sanctions for the non-performance of monetary obligations and mandatory payments do not accrue.
  • Enforcement over pledged assets is not allowed, whether through court or out-of-court procedures.
  • Enforcement proceedings on pecuniary sanctions for claims that arose before the introduction of the moratorium are suspended (but the seizure of the debtor’s property and other restrictions on the disposal of the debtor’s property remain in force).

Debtors are entitled to opt out of the bankruptcy moratorium if they do not require its protection and want to avoid the respective restrictions and unnecessary complications in their day-to-day activity.


Supervision is a provisional stage of bankruptcy proceedings. Once supervision is introduced (automatically when the first bankruptcy petition is accepted by a court), a temporary manager is appointed to oversee the activities of the debtor. Such manager supervises the management bodies of the debtor, which remain in place. Supervision aims to (i) preserve the debtor’s property; (ii) analyse its financial state; (iii) complete a creditors’ register; and (iv) hold the first creditors’ meeting.

When the court accepts the bankruptcy petition, it may also impose interim measures (e.g. an arrest, a freezing order). The court’s ruling applies immediately. However, even though the ruling may be appealed, the appeal process will not suspend the execution of the court’s ruling.


As of the date of the court’s ruling, the debtor’s business will be restricted as follows:

  • Creditors’ claims against the debtor and its assets are to be submitted only through the commercial court supervising the bankruptcy proceedings. That court decides on their inclusion in the creditors’ register maintained by the temporary manager (including the amount of the claim).
  • The debtor is prohibited from paying out profits and dividends, as well as effecting set-offs that violate the order of priorities established by the Insolvency Law (subject to certain exceptions relating to liquidation (close-out) netting as provided below). The debtor may not alienate or purchase shares, facilitate the apportionment of a participatory interest or pay out its fair value, issue securities (excluding shares), reorganise its company structure or incorporate subsidiaries.
  • Any property transactions with a value exceeding 5% of the debtor’s balance sheet value and any credit-related transactions are only permissible with the prior written consent of the temporary manager.

The debtor in the form of a joint-stock company is entitled to increase its share capital but only by way of a private placement of additional ordinary shares to be allotted to the shareholders or certain third parties. No issuance of any other emission securities is allowed. However, a debt-to-equity conversion is permitted. If the debtor’s shareholders/participants or third parties repay the full amount of creditors’ claims according to the creditors’ register, the bankruptcy proceedings will be terminated.

Temporary manager

The temporary manager is nominated from members of a self-regulated organisation of insolvency practitioners. The party filing a bankruptcy petition must propose a self-regulated organisation or nominate an individual from that organisation. Where the party filing the bankruptcy petition fails to suggest an individual, the temporary manager is nominated by the self-regulated organisation of insolvency practitioners. In both circumstances, the appointment is subject to the court’s approval.

The temporary manager is entitled to, amongst other actions, (i) seek injunctions to preserve the debtor’s assets; (ii) obtain information from the debtor; (iii) obtain documents relating to the debtor’s activities; (iv) claim before a court that transactions made by the debtor are invalid; (v) request the court to remove a director; and (vi) challenge any claims brought by a creditor.

Termination of supervision

Supervision is terminated on the date when a court makes a ruling to that effect. Possible outcomes could be the termination of the bankruptcy proceedings if the debtor’s solvency has been restored or the introduction of one of the following stages of bankruptcy proceedings: (i) financial rehabilitation; (ii) external management; (iii) bankruptcy liquidation; or (iv) voluntary arrangement (as applicable).

Under the Insolvency Law, supervision is to be conducted within the statutory time period applicable to insolvency proceedings in general (which is seven months) within which the bankruptcy case has to be examined by the court. The statutory period starts from the date of initiation of supervision and ends with the first creditors’ meeting deciding on the next stage of the bankruptcy proceedings (subject to confirmation by the court). If the creditors are unable to make a decision, the court will make a ruling and introduce the next stage of bankruptcy proceedings (if necessary) at its own discretion.

Financial rehabilitation

This procedure is aimed at restoring the debtor’s solvency and rescheduling (re)payment of the outstanding debts. Financial rehabilitation may last up to two years and commences immediately upon a court’s ruling on its introduction.

Financial rehabilitation proposal

Debtors or both corporate and state creditors can propose financial rehabilitation at the first creditors’ meeting. The details of the proposal depend on the party applying, but it would include at least: a financial rehabilitation plan, a debt repayment schedule, information on the security offered for performance of the debtor's obligations under the debt repayment schedule and, in the case of a debtor’s proposal, minutes from the general meeting of shareholders/participants authorising the decision.

Administrative manager

When the court initiates financial rehabilitation on the basis of a decision of a creditors’ meeting, an administrative manager will also be appointed by the court. The role of the administrative manager predominantly involves monitoring the existing management bodies of the debtor, which remain in place. His/her key duties include: (i) maintaining a register of creditors’ claims; (ii) examining reports on the progress of the financial rehabilitation plan; (iii) monitoring the debtor’s discharge of current claims; and (iv) enforcing security provided to the debtor.

The powers of the administrative manager are, in broad terms, similar to those of the temporary manager.


The following restrictions will take effect from the date of the court’s ruling to implement financial rehabilitation:

  • Monetary and property claims are only to be submitted to the debtor in the course of the bankruptcy proceedings supervised by a commercial court.
  • Previously introduced interim measures are cancelled. 
  • Penalties do not accumulate further (and they are calculated by reference to the last day of the indebtedness repayment schedule).
  • Setting-off counterclaim(s) (subject to certain exceptions), alienating or purchasing shares or property, facilitating the apportionment of a participatory interest or paying out its fair value, and allocating profits and dividends are prohibited.

The debtor must obtain the consent of a creditors’ meeting in order to perform the following: (i) approving interested party transactions; (ii) approving property transactions with value exceeding 5% of the debtor’s balance sheet value; (iii) lending and issuing guarantees; and (iv) adopting any decisions about its reorganisation and the incorporation of subsidiaries.

An administrative manager’s consent is necessary for transactions, which increase the debtor’s level of indebtedness by more than 5%, any sale and purchase of the debtor’s property, assignments and borrowings.

External management

This stage of bankruptcy proceedings intends to restore the debtor’s solvency and may last up to 18 months (with a possible six-month extension). The combined duration of financial rehabilitation and external management may not exceed two years. External management commences upon a court ruling, which must be based on the relevant decision of a creditors’ meeting.

External manager

The court approves the appointment of an external manager when it decides to introduce external management.

Amongst other actions, the external manager is entitled to:

  • manage the debtor’s property;
  • claim on behalf of the debtor;
  • challenge the validity of the debtor’s transactions and claim any resulting damages before a court;
  • refuse to perform a debtor’s transaction, when this transaction was not performed earlier in full or in part, if it creates a loss in comparison with other transactions;
  • challenge creditors’ claims; and
  • implement the external management plan and report on the implementation of the creditors’ meetings.

The external manager’s authority is terminated on the date the court appoints a bankruptcy manager (when the debtor is declared bankrupt), or upon the appointment of a new executive of the debtor (when bankruptcy proceedings are terminated if debtor’s solvency is restored).


When external management is introduced, the powers of the debtor’s general director are terminated and transferred to the external manager. However, the debtor’s management is afforded limited powers relating to transactions concerning capital, additional share issues and entry into specified major transactions (subject to the consent of the creditors’ meeting).

A wide-ranging moratorium is imposed upon satisfaction of creditors’ claims (excluding current payments (e.g. judicial expenses and payment of salaries)).

Similar to the financial rehabilitation stage, interim measures which have been introduced earlier are cancelled. Monetary and property claims (including mandatory payments) may only be submitted in the course of bankruptcy proceedings which are supervised by the relevant commercial court.


External management will be terminated prematurely if the debtor discharges all creditors’ claims.

Following the external manager’s report, the creditors’ meeting will adopt one of the following decisions by making a petition before the commercial court to:

  • terminate the external management on the ground that the debtor’s solvency has been restored and to proceed with paying creditors’ claims;
  • terminate the external management on the basis that all registered claims have been satisfied;
  • declare the debtor bankrupt and start bankruptcy liquidation;
  • consent to a voluntary arrangement; or
  • extend the term of the external management.

The court will evaluate the external manager’s report and is entitled to approve or reject it. The court should approve the external manager’s report if (i) all registered creditors’ claims have been satisfied; or (ii) the creditors’ meeting has decided to terminate the external management on the ground that the debtor’s solvency has been restored and to proceed with paying out the creditors’ claims; or (iii) the creditors and the debtor have consented to a voluntary arrangement; or (iv) the creditors’ meeting has extended the term of the external management. The court should reject the external manager’s report if (i) the registered creditors’ claims have not been satisfied; or (ii) there are no grounds for restoring the debtor’s solvency; or (iii) there are some circumstances that prevent a voluntary arrangement. 

If (i) the creditors have petitioned the court to have the debtor being declared bankrupt; or (ii) the court has rejected the external manager’s report; or (iii) such a report has not been presented to the court in due course, then the court may declare the debtor bankrupt and introduce the bankruptcy liquidation. 

Bankruptcy liquidation

This stage of bankruptcy proceedings is designed to satisfy creditors’ claims through the sale of the debtor’s assets. Bankruptcy liquidation can be instituted for up to six months (with a possible further six-month extension(s)).


The immediate effects of the bankruptcy liquidation include the following:

  • Monetary obligations and mandatory payments of the debtor are accelerated by virtue of statute.
  • Interest no longer accrues. The same applies to financial (or other) sanctions arising from a failure to fulfil monetary obligations and mandatory payments (other than current payments).
  • Information on the debtor’s financial state is no longer deemed to be confidential.
  • Existing encumbrances over the debtor’s property are removed and no further encumbrances are allowed.
  • The powers of the debtor’s general director and board of directors are terminated and vested with the bankruptcy manager.

Bankruptcy manager

The court appoints a bankruptcy manager when a ruling for bankruptcy liquidation is issued. The bankruptcy manager acts until the bankruptcy liquidation is completed.

The principal duty of the bankruptcy manager is to search, return, evaluate, pool and arrange for a sale of the debtor’s assets, and to pay out the debts to creditors. The bankruptcy manager also dismisses the debtor’s employees. The bankruptcy manager assumes the powers of the debtor’s general director, board of directors and meeting of shareholders/participants. The bankruptcy manager must publish notice of the debtor’s bankruptcy within ten days of his/her appointment.

Bankruptcy liquidation: order of priorities

The Insolvency Law provides a specific priority order by which creditors’ claims are to be satisfied. The priority order includes first, second and third priority claims.

Creditor claims made after the court’s acceptance of the bankruptcy petition (so-called “current claims”) are not included in the order of priorities as such and should be satisfied when they become due.

Current claims are satisfied in the following order: (i) judicial expenses and remuneration of persons involved in administering the bankruptcy proceedings; (ii) remuneration of employees (save for top management compensation packages), as well as contractors engaged for the purposes of the bankruptcy proceedings; (iii) remuneration of persons engaged by the bankruptcy manager for the purposes of administering the bankruptcy proceedings; (iv) operational expenses; and (v) other current claims. 

First priority claims include personal injury claims and moral damage claims. Second priority claims include: (i) severance benefits; (ii) the wages of the debtor’s employees; and (iii) copyright royalties. Third priority claims include all other claims (both secured and unsecured, where secured claims mean claims secured by a pledge or a mortgage) including compensation to the debtor’s top management. 

Notwithstanding that the claims of secured creditors are accounted for in the third priority, they are satisfied in accordance with a special procedure largely separate from that applying to the unsecured creditors, i.e. the proceeds from the sale of the pledged property (capped to the principal amount and any accrued interest) are allocated as follows among secured creditors:

  • For claims under a secured credit agreement, the lenders are entitled to 80% of the realised proceeds, with the remaining 15% for the first and second priority claims, and 5% for insolvency expenses.
  • For other secured claims (other than under a secured credit agreement), the respective thresholds are 70%, 20% and 10% respectively. 

Possible transition to external management

Where the financial rehabilitation or external management stages have not previously been instituted, the creditors’ meeting may petition the court for a transition to the external management stage during the bankruptcy liquidation stage. To do so, grounds must exist to believe that the debtor’s solvency can be restored, and these must be backed by financial data. The transition will only be permitted if the debtor has sufficient assets to pursue independent economic activity.

Liquidation (close-out) netting

Obligations under qualifying financial agreements that are concluded on the basis of certain recognised master agreements 4 Order No. 11-62/pz-n of the Central Bank of Russia dated 29 November 2011 recognises as “master agreements” only those master agreements which were prepared by International Swaps and Derivatives Association, Inc. (ISDA) or International Capital Market Association, Ltd (ICMA) respectively. (derivative or repo), stock exchange trading rules or clearing rules are terminated in accordance with the terms of these agreements, stock exchange trading rules or clearing rules. This leads to the determination of a close-out amount which is calculated in accordance with the terms of the relevant master agreement, stock exchange trading rules or clearing rules, and the calculation of which can be made using close-out netting.

The Insolvency Law stipulates additional requirements for an agreement to be qualified as a master agreement. These criteria apply to domestic and cross-border transactions and agreements.

The above rules are applicable to financial agreements concluded prior to temporary administration or prior to the implementation of one of the stages of bankruptcy proceedings or, in the case of a credit institution, prior to the revocation of the banking licence. Temporary administration only applies to credit and other financial institutions (as defined in the Insolvency Law). This is a temporary governing body that is appointed by the supervisory body of the relevant credit institution in order to restore its solvency, preserve its assets and retain its licence, which is a mandatory requirement for credit institutions to operate in Russia.

Voluntary arrangement

A voluntary arrangement can be entered into by the creditors and the debtor at any stage of the bankruptcy proceedings, in order to terminate such proceedings and give effect to an agreement between the debtor and the creditors. The debtor, creditors, third parties and authorised bodies are entitled to enter into a voluntary arrangement.

The decision to enter into a voluntary arrangement with the creditors or an authorised body must be approved at a creditors’ meeting. The voluntary arrangement requires subsequent approval of the relevant commercial court.

A voluntary arrangement can only be terminated by a court, and only in respect of all creditors and/or authorised bodies. An application for termination may be put forward by creditors and/or authorised bodies which hold at least a quarter of the value of creditors’ claims on the date the voluntary arrangement was entered into.

The parties are entitled to file for the termination of the voluntary arrangement if the debtor defaults or significantly breaches the terms of the voluntary arrangement.

Key contacts

Konstantin Baranov
Head of Banking & Finance
T +7 495 786 40 70
Sergey Yuryev
Head of Dispute Resolution
T +7 495 786 30 81


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