In the Digest of case law on bankruptcy cases for 2022, the Russian Supreme Court indicated cases in which it is permissible to consolidate the bankruptcy estates of all entities in a group of companies to satisfy the claims of creditors of one of its members.

In one of the cases included in the Digest of case law on bankruptcy cases for 2022, the Russian Supreme Court stated that complexity in a group’s corporate structure that causes a free flow of assets between various group members, as well as creation of entities with substantially identical economic activities as an insolvent entity, indicates that the group does not treat its individual members as having independent legal personality. As a result, the court may consolidate the bankruptcy estates of the entire group into a single bankruptcy estate to satisfy creditor claims of its individual member if it becomes insolvent  (Para. 31 of “Digest of case law of resolving disputes on insolvency (bankruptcy) for 2022” approved by the Presidium of the Supreme Court of the Russian Federation on 26 April 2023).

A company instructed a Russian bank to make a money transfer to its foreign supplier, but the funds were never credited to the recipient’s bank account because they were blocked in the United States. The lower courts ordered the bank to pay damages to the client, but the cassation court reversed and remanded the case for reconsideration, stating that the courts failed to take into account the bank’s argument that the actions of foreign intermediary banks were beyond its reasonable control.

In March 2022, a Russian company (the buyer) instructed a Russian bank to transfer U.S. dollars to a foreign supplier. As these funds were never credited to the foreign counterparty’s bank account, the company applied to the court to recover damages from the Russian bank.

The court of first instance granted the claim, stating that the losses were caused not by any legal prohibition on banking operations by the U.S. authorities, but by the actions of the bank’s contractual partners (intermediary banks), which blocked the money as part of their enhanced compliance control in respect of payments by the Russian residents. Thus, the bank cannot invoke the intermediary banks’ failure to transmit the payment as a force majeure circumstance pursuant to Article 401(3) of the Russian Civil Code. The appellate court agreed with this position.

The cassation court reversed the decision of the court of first instance and the ruling of the appellate court and remanded the case for a new trial, stating that the courts failed to take into account the company’s argument that from February 2022 Russian banks cannot carry out cross-border transfers of U.S. dollars due to foreign sanctions and due to unfriendly actions of foreign banks. In addition, the courts unfairly disregarded the bank’s argument that the actions of the foreign intermediary banks were beyond its reasonable control. According to the cassation court, the courts should also have looked into whether the claimant had applied to the Office of Foreign Assets Control of the U.S. Department of the Treasury for authorization to unblock the money (Ruling of the State Arbitrazh (Commercial) Court of the Moscow District dated 05 April 2023 on case No. А40-109469/2022).