05.11.2015 — Assets Can Be Seized to Ensure Administrative Fines’ Payment - Administrative Code Authors Propose New Interlocutory Measure
A provision entitling the court to seize assets in order to ensure the payment of administrative fines may be included into the new Administrative liability code. According to the authors of the new version of the Russian Administrative Code, who are the members of the State Duma Committee on State construction, the proposed provision will preclude dissipation of assets.
The new interlocutory measure will be available when the defendant has to pay damages incurred as a result of an administrative offence, or a fine imposed for a gross or flagrant administrative offence. According to the bill, an offence shall be considered ‘gross’, if an individual shall pay a fine amounting to at least RUB 10.000 and not exceeding RUB 100.000, if an individual entrepreneur shall pay a fine amounting to at least RUB 100.000 and not exceeding RUB 400.000, and if a legal entity shall pay a fine amounting to at least RUB 5 million and not exceeding RUB 60 million. An offence shall be considered ‘flagrant’, if an individual shall pay a fine amounting to at least RUB 5.000 and not not exceeding RUB 10.000, if an individual entrepreneur shall pay a fine amounting to at least RUB 25.000 and not exceeding RUB 100.000, and if a legal entity shall pay a fine amounting to at least RUB 1 million and not exceeding RUB 5 million.
A court that has jurisdiction over the case will make a decision on the seizure of assets within 3 days as of the moment it receives a relevant motion. The value of the assets shall be proportionate to the maximum fine payable by the defendant as a result of a relevant administrative offence, or shall coincide with the amount of the recoverable damages. The assets’ owner or her representative, as well as two witnesses, shall be present when the assets are seized. Moreover, the seizure shall be videotaped. Notably, in urgent cases, the seizure can be carried out without the owner’s presence. The owner may be prohibited from disposing of the assets, and in certain cases - from using them. Assets may also be transferred for safe-keeping.
04.11.2015 — Senior Executives of Bankrupt Bank to Pay RUB 75 Billion for Bank’s Debts
The Moscow Arbitrazh court has satisfied the claim of the “Mezhprombank” bankruptcy trustee to bring the bank’s senior executives to subsidiary liability, holding that they shall pay RUB 75 billion. The court concluded that the bank’s senior executives were to be held liable for driving the bank into bankruptcy. The decision of the Moscow Arbitrazh court was upheld by the cassation instance court.
The Moscow Arbitrazh court has satisfied the claim of the “Mezhprombank” (a.k.a. International Industrial Bank) bankruptcy trustee to bring the bank’s senior executives to subsidiary liability, holding that they shall pay RUB 75 billion. The court concluded that the bank’s senior executives (i.e. the bank’s management until the bank was declared insolvent and its shadow director) were to be held liable for driving the bank into bankruptcy. The bank’s shadow director, Mr Pugachev, had built a multi-level ownership scheme, the purpose of which was to conceal that he was the bank’s beneficiary owner. Nevertheless, Mr Pugachev had his own office in the building where the bank was located, approved the bank’s essential documents, appointed the bank’s managers, presented himself as the bank’s beneficiary during negotiations etc.
The bank went bankrupt as a result of an unsecured loan indebtedness. The said loans had been provided by the bank’s management with the knowledge that the loans would not be paid back by the debtors. Most of the debtors had a minimum share capital, were in a pre-bankruptcy stage, ‘cooked’ their accounts etc. Furthermore the bank failed to perform default risk checks: no credit files or other confirmation thereof was provided by the bank.The bank incurred RUB 125 billion damages as a consequence of the credit extensions.
Some of the extended loans were secured by a pledge of shares of a Russian and a Cypriot companies effectively controlled by Mr Pugachev. Disposal of these shares could bring RUB 68 billion to the bank, and satisfy most of its creditors’ claims. Nevertheless, the encumbrance had been released just before the bank was declared bankrupt.
The court concluded that the actions of the bank’s senior management could be qualified as unconscionable and culpable. The senior managers failed to inform of the deterioration of the bank’s financial position, to take necessary measures in order to rehabilitate it, and they knowingly exacerbated the situation. Thus, it was the bank’s beneficiary who ordered that the pledge of shares of a company effectively controlled by him shall be released.
03.11.2015 — Constitutional Court Protects Investors under Bank Deposit Agreement
In its Resolution dated 27.10.2015 No. 28-P, the Russian Constitutional court concluded that actions of bank employees who received cash from an investor under a bank deposit agreement, but failed to deposit it in the cash desk, shall be considered unlawful. Moreover, the bank is liable for non-compliance with the requirements as to the form of a bank deposit agreement. The bank should be held liable, as it possesses special legal capacity and special knowledge in the banking sphere. Lower courts that held that bank deposit agreements not complying with the required form are void will have to reconsider their decisions in view of the Resolution of the Constitutional court.
The Constitutional court was asked to check whether the Civil Code provisions requiring that a bank deposit agreement shall be made in writing are constitutional. According to the court, these provisions do not infringe the legal rights and interests of the citizens, as the courts shall assess, whether the actions of the parties (i.e. transfer of cash and documents) shall be considered as complying with the said requirements, on a case-by-case basis.
The court further noted that it is the bank that should be held liable for non-compliance with the requirements as to the form of the agreement, as the bank possesses special legal capacity and special knowledge in the banking sphere. The court pointed out that an individual investor does not usually have the opportunity to insist on the change of the legal form of the agreement.
Lower courts that held that bank deposit agreements not complying with the required form are void will have to reconsider their decisions in view of the Resolution of the Constitutional court.