Challenging of the transactions with the perceived inequality

Challenging of transactions/protection against challenging of transactions is one of the most typical, but at the same time labor cost procedures. On the one hand, this is an effective means of replenishing the insolvency estate, and on the other hand, it is the risk of depriving a faithful purchaser of property, the risk of recovering of damages, etc. At present, we are going to consider challenging of the transactions at undervalue, as well as on other, bankruptcy grounds, and on the grounds established by civil law.

As a rule, transactions at undervalue are made by debtors on the eve of bankruptcy for concealment of property. In fact, the following situations are quite common:

• the debtor transferred the property and received payment at a reduced value, while the market value of the property is significantly higher than that is established in the agreement;
• the debtor acquired the property at an inflated cost, but the market value of the property is significantly lower than the price that is established in the agreement;
• the debtor transferred the property at market value, but received only a partial payment from the counterparty or did not receive it at all, while, as a rule, the fact is taken into account that the debtor was aware that the counterparty in the transaction would not provide in full.

Key aspects of challenging:

• term: it is possible to challenge the transaction on the basis of perceived inequality only if it was completed within 1 year before the court accepts the application for declaring the debtor as bankrupt or after the adoption of the application;
• the perceived inequality is a transfer of property / performance of obligations, when the market value of the transferred property or other performance of obligations that are carried out differs substantially from the received counter-performance.

It is possible to fully evaluate the perceived inequality of the counter - performance at the time of the transaction only during the pre-trial / judicial examination. And the key to a positive outcome of the process is the competent articulation of issues to the expert, the choice of the expert organization and the expert, the moment of the examination. In this situation, legal assistance by the specialists of the Tsentralny Okrug Law Firm is necessary. Our lawyers, already at the stage of assessment of documents, are able to evaluate the feasibility of challenging the transaction, considering the trends in legal practice, through which, the criteria for inequality were developed.

Challenging of transactions on other (bankrupt) grounds: What do you need to know

This category of transactions includes transactions that are made in the bankruptcy proceedings with violation of the prohibitions and restrictions that established by the Bankruptcy Law, including in the form of the need to receive the consent of the arbitral receiver / meeting of creditors (committee of creditors) of the debtor to make certain transactions.

Key aspects of challenging:

• For each of the bankruptcy procedures, both for natural and legal entities, there are their own restrictions that established by law. For example in the clause 5 of article 213.11 of the Bankruptcy Law, there are transactions for the disposal of the debtor's property, which during the restructuring procedure he can only make with the written consent of the financial manager. Such transactions include: transactions for the alienation of assets, the value of which is more than 50 thousand rubles, real estate, securities, vehicles, etc.
• To evaluate the debtor's activities according to the current legislation, it is necessary to know the legislation perfectly. Also, you have to analyze the Debtor's activities to identify violations of the prohibitions established by the bankruptcy legislation.
• Lawyers of the Tsentralny Okrug Law Firm in the process of challenging the debtor's transactions conduct a comprehensive analysis according to the bankruptcy legislation.

Challenging of transactions on the grounds established by civil law: What do you need to know

The establishment in the specialized bankruptcy legislation of the grounds for declaring transactions invalid does not prevent the arbitration court from qualifying as well as the party to the case from declaring the invalidity of the transaction on general civil legal grounds. Practice shows that transactions aimed at creating artificial debt from the debtor with its subsequent inclusion in the register of creditors' claims, as well as transactions aimed at withdrawing the debtor's assets, are usually disputed on civil grounds.

The most typical grounds for challenging of transactions:

• making a transaction abuse of rights (Article 10, 168 of the Civil Code of the Russian Federation)
• making a transaction without the intention of actually changing the legal status (the debtor sells property on paper, while continuing to use it, own it, receive income from it, etc. is ostensibility (clause 1, article 170 of the Civil Code of the Russian Federation)
• the conclusion of a transaction, according to structure of one transaction, but in fact is according to legal structure of another transaction is sham nature of the transaction (for example, conducting a sale and purchase transaction on paper, but in fact is donation) (clause 2 of article 170 of the Civil Code of the Russian Federation)

Key aspects of challenging:

Judicial practice assumes the fact that the rules established by bankruptcy legislation for challenging transactions are mainly used in challenging transactions involving persons declared as bankrupt. In relation to these circumstances, the applicant is subject to increased requirements in proving:

1. Non-compliance of the transaction with the conditions for making transactions that are challenged on special grounds;
2. The intent of the debtor's counterparty in the transaction to cause property damage to the debtor's creditors, expressed in the transaction with a purpose that is against the law, or with abuse of the right.

The indicated category of transactions requires a lawyer to be fully prepared, to know the legislation perfectly and to have similar experience, as well as knowledge of current legal practice on disputes in this category. Lawyers of the Tsentralny Okrug Law Firm are fully in keeping with indicated criteria that may be confirmed with successful experience in similar cases.

Author is Dmitry Prosvirin