Questions and answers on subsidiary liability of controlling persons

Control may arise from office, ownership or actual influence. Relevant offices include director, executive board member, liquidator and liquidation committee member. Ownership includes majority holdings, including holdings of more than 50% through affiliated entities. Actual influence may operate through family relationships, a parent-company role or a corporate group. Each basis requires analysis of the person's real powers.

A company-register entry is not the whole test: the ability to direct the debtor matters. Supreme Court Plenum Resolution No. 53 of 21 December 2017 calls for assessment of the circumstances together, including business connections, family and personal relationships, and conduct in the disputed transactions.

Secondary liability concerns a controlling person's acts or omissions that prevent full payment of creditors. A company claim, or a shareholder's derivative claim, for losses under Article 53.1 of the Russian Civil Code is a separate remedy and may be available outside bankruptcy.

Article 61.11 of Federal Law No. 127-ФЗ addresses inability to pay creditors in full caused by a controlling person's conduct. Exposure is linked to unpaid creditor claims and may reach hundreds of millions of roubles for one defendant. Applicable presumptions can shift an evidential burden, but the claimant must first establish the facts that trigger them.

A damages claim under Article 53.1 of the Russian Civil Code or Article 61.20 of Federal Law No. 127-ФЗ concerns specific loss suffered by the company. The amount must be supported by evidence. Analyse wrongful conduct, loss, causation and fault separately, including any applicable presumptions and allocation of the burden of proof.

Presumptions may assist a claimant seeking secondary liability. A damages claim instead needs a calculation tied to the particular loss. A claimant may pursue secondary liability as the main remedy and damages for specific transactions as an alternative, keeping the grounds and calculations distinct.

The defence must reflect that distinction. For secondary liability, test each presumption against documents and the chronology. For damages, examine causation and the amount of loss.

1. A transaction causing substantial harm to creditors. Assess its value relative to the debtor's assets and its effect on solvency.

2. Missing, distorted or concealed accounting records that obstruct identification of assets and liabilities or recovery of the bankruptcy estate.

3. Tax or criminal liability, including under Article 199 of the Russian Criminal Code, linked to public-authority claims exceeding 50% of third-priority registered claims. The percentage alone does not establish every condition of the presumption.

4. Failure to file, or late filing of, the debtor's own bankruptcy petition when a filing obligation arose. This requires a separate analysis of the filing duty and resulting liability.

5. Missing or inaccurate mandatory corporate records that obstruct investigation or challenges to transactions.

Address each presumption individually. For transactions, gather the business rationale, market comparisons and independent approvals. For missing accounting records, locate handover records to the insolvency practitioner and evidence explaining any loss. For tax claims, distinguish the defendant's actions from those of other controlling persons. A general denial does not answer the underlying evidence.

Supreme Court Plenum Resolution No. 53 of 21 December 2017 is an important source of guidance on these presumptions. The defence should address the relevant explanations expressly.

The statutory framework also includes a ten-year outer period measured from the relevant acts or omissions. A later discovery of the alleged breach does not, by itself, remove that limit. Its application must be assessed alongside the other time limits.

The knowledge-based period does not necessarily start when bankruptcy proceedings begin. For an insolvency practitioner, the relevant date may involve an inventory, transaction review or a tax-authority response. For a creditor, access to related proceedings or financial analysis may matter. Establish when that particular claimant could reasonably identify the grounds for liability.

Check when the claimant could first have brought the claim. A three-year limitation defence may dispose of the claim without resolving the disputed transactions. Support it with a chronology of the information available to the claimant, rather than an assumed start date.

Claimants should record when information arrived, using incoming documents and creditors' meeting minutes, and file with sufficient time before the applicable deadline.

An unpaid creditor may, where the statutory conditions are met, bring a separate claim against a controlling person in a Russian commercial court without reopening the bankruptcy proceedings.

For the separate creditor-claim route, identify the commercial court that handled the bankruptcy, the eligible claimant and defendant, and the applicable claim procedure. The creditor seeks recovery of its unpaid claim for its own benefit rather than payment into the bankruptcy estate. Check the rules governing the amount and any participation by other creditors.

Closure of bankruptcy proceedings does not necessarily end a controlling person's exposure. This matters where the estate was small and major creditors, including banks or the tax authority, consider separate recovery proceedings.

Continue monitoring the matter after bankruptcy closes. Track creditor action and incoming court documents, and prepare substantive objections in advance. Separate creditor claims may follow the end of the main proceedings.

Record the date of receipt and check the court's actual deadline for the response; do not assume 30 days. Obtain every attachment and any case materials incorporated by reference. Identify the alleged acts or omissions, the presumptions relied on, the disputed transactions and the calculation of the claim.

Do not give unreviewed explanations or sign admissions, minutes or reconciliations with the insolvency practitioner before understanding their effect. Preserve documents and assets: destruction or concealment can seriously damage the defence. Any request for more time should have a proper procedural basis.

Reconstruct the entire period of alleged control. Gather the business rationale, market evidence and corporate approvals for each disputed transaction. Recalculate the claim for arithmetic and methodological errors. Test every presumption and prepare a documented response to each one.

Where several people allegedly controlled the debtor, distinguish their functions, periods of control and conduct. Under Article 61.11, the basis for joint and several liability and any allocation of responsibility must be assessed, not assumed. Independent acts or different periods may materially affect the amount attributable to each person.

A nominal director should document who actually made decisions. Relevant evidence may include signatures on key transactions and bank records, correspondence, other employment and whether owners sought the director's approval. A nominal role does not, by itself, remove a director's duties or establish a complete defence.

For a person without a formal office, examine whether they could actually give binding instructions. Family ties alone do not establish control where the person did not work in the company, sign documents or access its affairs. Equally, a holding below 50% is not conclusive: other evidence of control may still matter.

Compare the dates of alleged control and conduct with the full statutory period, including the three-year lookback before signs of insolvency. Establish those signs precisely. Do not assume that any act outside the lookback automatically excludes liability under every available ground.

The control presumptions are rebuttable; see paragraphs 7–9 of Supreme Court Plenum Resolution No. 53 of 21 December 2017. Where a presumption applies, a bare denial of control is insufficient. Provide specific evidence addressing the facts on which it rests.

Transactions requiring close examination include undervalue transfers to affiliates, transfers to subsidiaries without equivalent consideration, preferential payments to related creditors before bankruptcy under Article 61.3 of Federal Law No. 127-ФЗ, and intragroup loans or setoffs lacking a commercial explanation. Large dividends or management bonuses during insolvency and sales of core production assets followed by leaseback also need scrutiny.

For each transaction, identify the avoidance ground and its relevant period, then assess substantial harm and causation. A one-year undervalue period, a six-month preference period and a three-year period for other grounds cannot be used interchangeably. In particular, do not treat Article 10 of the Russian Civil Code as creating a universal three-year suspect period.

Explain why each transaction served the debtor's business. Support market terms with independent valuation or comparable transactions and show the consideration received. Establish whether signs of insolvency existed at the time and what the controlling person knew or should have known.

Documents establishing the commercial rationale for a transaction may help rebut an allegation of substantial harm. They must also address its financial effect and the other conditions of the presumption; commercial purpose alone does not guarantee a successful defence.

A tax audit may lead to additional assessments and tax penalties; related conduct may also become the subject of proceedings under Article 199 of the Russian Criminal Code. If the company cannot pay and enters bankruptcy, the tax authority or insolvency practitioner may seek secondary liability. Exposure can extend beyond tax debts to other unpaid creditor claims, subject to the statutory conditions.

Defence options:

1. Challenge the underlying tax assessment through the available procedure and within its own deadline. Article 198 of the Commercial Procedure Code and Article 54.1 of the Tax Code may be relevant. Setting aside the assessment may remove the factual basis relied on for the presumption.

2. Separate the roles of controlling persons who acted at different times or had different functions. In a corporate group, establish whether tax decisions were made by the parent company rather than the particular defendant.

3. Recalculate the 50% threshold using the legally relevant claims and denominator. Check the treatment of current payments and penalties rather than including or excluding them indiscriminately. A corrected calculation may change whether the threshold is met.

4. Document the substance of the disputed transactions. Where assessments concern VAT deductions involving allegedly non-substantive counterparties, gather evidence of actual performance and the checks made, and address the requirements of Article 54.1 of the Tax Code.

Coordinate any available challenge to the tax assessment with the separate liability dispute in bankruptcy. Each has its own evidence and deadlines; a defence in one does not automatically resolve the other.

Prepare for the possible four levels of review: the separate dispute in the first-instance commercial court, appeal, district commercial-court cassation and the Russian Supreme Court. Access to each later level depends on the applicable procedural rules.

Use precise statutory and Plenum references. Prepare any expert evidence for scrutiny throughout the available appeal process, not just at first instance. Recheck financial calculations before each stage and ensure the supporting documents are properly in the case file.

Do not postpone essential evidence on the assumption that it can be added on appeal. Supreme Court review works from the case record, and cassation has limits on new material. Article 291.2 of the Commercial Procedure Code generally allows two months, not three, for a Supreme Court cassation appeal. A missed deadline requires a separate assessment of whether reinstatement is available.

For a complex secondary liability dispute, plan the evidence, costs and possible appeals from the start. That applies to both the defendant and the insolvency practitioner or creditor bringing the claim. Preparation should support the case beyond the first hearing without assuming that every appeal will be admitted or succeed.