According to the Draft Decree of Plenum of the Supreme Court in the cases concerning bringing controlling persons to liability courts shall take into account their degree of involvement in the company’s affairs and their influence on the actions and decisions of the bankrupt company. Moreover, the Supreme Court intends to allow the courts to regard the claims to controlling persons as damages claims if the claimant is unable to present sufficient proof for bringing the controlling persons to subsidiary liability.

In June 2017 a new chapter was introduced to the bankruptcy law that toughens the liability of the controlling persons and increases the creditors’ chances to recover their debts in bankruptcy proceedings. In November the Supreme Court published the Draft Decree of Plenum explaining the application of new legal developments regarding the determination of the company’s controlling persons. The new provisions are aimed at suppressing opportunistic methods of business, on the one hand, and ensuring the directors’ rights and the freedom of business operation, on the other hand.

In accordance with the Draft Decree of Plenum of the Supreme Court in order to identify the company’s controlling persons the courts shall consider their degree of involvement in the company’s affairs and their influence on the actions and decisions of the bankrupt company. At that nominal directors shall bear subsidiary liability as well as the de facto directors. Still, if a nominal director gives information on the beneficiary that contributes to the repayment of the creditors’ debts, the nominal director may be released from liability in full. Thus, these rules create an incentive of using transparent business schemes.

At the same time, if the actions of the controlling persons do not go beyond the “normal business risk” (business judgment rule) and do not violate the rights and interests of the creditors, such controlling persons shall not be liable for the company’s debts.

The Supreme Court is also looking to explain the courts that if the claimant is unable to present sufficient proof for bringing the controlling persons to subsidiary liability the courts may adjudicate that case as a damages claim.

The register of unauthorized constructions is available on the website of the state and municipal services in the Moscow Region. The service allows checking whether any unauthorized constructions have been identified on the land plot and taking the necessary steps to register them. Moreover, the fact that the construction has been included in the register may evidence that it may be subject to demolition in accordance with law as unauthorized construction. 

The Ministry of Property Relations of the Moscow Region goes on with its persistent efforts to identify the objects of property that are not registered in due course. According to the Ministry’s rough calculations there are more than 500 thousand unregistered buildings in the Moscow Region.

Unregistered constructions are included in the register of unauthorized constrictions available at the portal of the state and municipal services in the Moscow Region. To perform search it is necessary to insert the cadastral number of the land plot in the search field. Unregistered constructions cannot be sold or transferred otherwise. Moreover, unauthorized constructions may be subject to forcible demolition.

After the project was launched the owners of more than 200 thousand unregistered properties registered them, what is a guarantee of ownership title and allows entering into transactions in respect of the properties without limitation. 

The Supreme Court adjudicated a claim brought by the customer to the contractor on the termination of the construction contract due to delay in the performance of works. Namely, the first stage of the work was performed by the contractor beyond the term provided for the final completion of all stages. Therefore, the customer claimed for the recovery of the advance payment and penalties and refused to accept the performed works. The customer argued that he has lost interest in the performance of the contract and has entered into a replacement transaction with another company. The Supreme Court granted the customer’s claim and declared that the customer in fact has the right to refuse to accept the work performed with delay and to claim back the advance payment.

The case on the termination of the construction contract was included in the Supreme Court’s Case Law Digest No. 4 (2017) (see the Decision of the Supreme Court No. 4-КГ17-5). In this dispute the customer paid to the contractor all the advance payments, yet when the final completion was due only the first stage was completed. Thus, the customer filed a claim to the court on the termination of the construction contract and on the recovery of the advance payment and penalties. The customer argued that he has entered into a replacement transaction with another company and the works were performed by another contractor. The decisions of the court on whether the customer shall have the right to claim back the advance payment in this case differed.

The court of the first instance granted the claim. Yet, the appellate court revoked this decision and argued that the customer paid the second advance payment (which was due after the completion of the first stage) before the first stage was in fact completed. Moreover the second advance payment was made after the timeframes for the performance of all works expired. In the opinion of the appellate court such conduct of the customer amounted to his consent to the prolongation of the terms for the performance of works.

The Judicial Chamber of the Supreme Court reversed the decision of the appellate court. The judges of the Supreme Court explained that in any case the customer shall have the right to terminate the construction contract due to delay as a result of which the customer has lost interest in the performance of the contract. Moreover the Supreme Court believed that no evidence of the performance of the works and their transfer to the customer was presented to court. Therefore, the Supreme Court remanded the case for a new trial and advised the courts of lower instances to examine these circumstances more thoroughly. 

In its recent case the court awarded damages to the landlord from the potential tenant, which unexpectedly disrupted the negotiations after the parties had already agreed on the execution version of the lease contract. The landlord was able to prove that he relied on the seriousness of the counterparty’s intentions, and therefore after the parties agreed on all the terms of the contract, the landlord terminated the contracts with the current tenants, and also refurbished the premises in accordance with the potential tenant’s demands. The courts granted the landlord’s claim and recovered damages from the potential tenant in the amount of the lost income from rental payments for 6 months that amounted to Rubles 15.6 million.

In the case No. A41-90214 / 2016  the parties have been negotiating the lease contract for more than half a year. During the negotiations the tenant requested the necessary documents for examination, negotiated the particular terms of the transaction on all legal, commercial and technical issues. In other words, he positioned himself as the one who had real intention to enter into the lease agreement with the landlord. Therefore, the landlord terminated the lease contracts with the current tenants in order to vacate the premises and prepare them for renting out for the potential tenant in accordance with his demands. However, after the parties agreed on the final version of the contract and sent it to the tenant for signing, the tenant repeatedly postponed the signing, and then terminated business contact completely.

The landlord filed a claim on recovery of lost profit – lost rental payments for 6 months (Rubles 15.6 million), i.е. for the period he will need to find new tenants. Having considered the dispute, the courts agreed with the arguments of the claimant and considered that the tenant acted unfairly when he disrupted negotiations unreasonably and unexpectedly in the situation when the other party could not reasonably expect it, and granted the claim with reference to Art. 434.1 of the Russian Civil Code (pre-contractual liability, culpa in contrahendo). At the same time, the court dismissed the tenant’s arguments that the landlord could reasonably foresee that the tenant could withdraw from the negotiations because of the failure to receive corporate approval. The courts noted that this issue has been never raised during the negotiations.

This case is a first major dispute after the civil law reform and the introduction of the pre-contractual liability mechanism in the Russian Civil Code (Article 434.1). Therefore now not only the law, but also the court practice incentivizes good faith negotiations.

As a result of review of the individuals’ application the Constitutional Court declared that tax authorities shall have the right to recover the company’s tax arrears from the employees, whose illegal actions lead to the company’s failure to pay the respective taxes to the budget according to the rules on liability in tort. At that the Constitutional Court established the limits of the employees’ liability. Thus, except for the cases when the legal entity is an “alter ego” for its controlling persons, the claim to the individuals may be filed only after the remedies to recover tax arrears from the company are exhausted. Furthermore, the Constitutional Court explained that the individual’s tort liability in these cases shall be limited by the amount of the tax arrears and delay penalties, and fines imposed on the companies shall not be recovered in such a way.

On 8 October 2017 the Constitutional Court declared its decision on the application of several individuals that challenged the laws providing for the recovery of the company’s tax arrears from its employees responsible for paying taxes (Decision of the Constitutional Court No. 39/P-2017). The application was filed by two former directors and a chief accountant that have been brought to criminal liability and were released from liability due to amnesty. Soon after the criminal prosecution was over, the tax authorities filed claims to recover the companies’ multimillion tax arrears from the individuals.

The Constitutional Court concluded that the contested provisions are in line with the Russian Constitution and declared that possibility to recover damages inflicted by tax crimes from the company’s employees on a claim of a public prosecutor or tax authority is consistent with laws. Such damages shall amount to the respective tax arrears and delay penalties that have not been paid to the state budget. This rule is especially relevant to the general director and the chief accountant, but may also concern other persons whose guilt in tax evasion is proven.

At that the Constitutional Court established limitation of liability of the company’s employees; in particular, their liability is limited by the tax arrears and delay penalties, while the fines for the company’s failure to pay taxes shall not be recovered from the former employees.

The Constitutional Court emphasized that the tax arrears may be recovered from the employees only if other remedies on the recovery of the debt from the company itself are exhausted. Particularly, if the company has been closed down or the court declared that the company is actually dormant and unable to pay its taxes on its own. Still, if the company is de facto an “alter ego” for the illegal actions of its controlling persons (e.g. its sole shareholder or beneficiary) the tax authorities shall be entitled to file the claim to such a controlling person directly even before it is proven that the company is unable to perform its tax duties.

Moreover the Constitutional Court mentioned that when the courts determine the amount of damages to be recovered from an individual the court may take into account the individual’s financial situation, degree of guilt and other material circumstances.