Escape Atlanta's fate. How not to be subject to subsidiary liability?
As a bona fide CEO and/or founder (the debtor's controlling person — “hereinafter referred to as the CDL”), how can a bankrupt company not be subject to subsidiary liability for its obligations?
It may seem that acting reasonably and in good faith, the KDL cannot be brought to subsidiary liability. In case of bankruptcy, the court will figure it out for itself, the perpetrators will be punished, and there is no need to take any action.
However, this is one of the most common and critical mistakes, and now we will explain why.
There are three most common grounds for subsidiary liability:
- Failure to submit (late submission) of the debtor's insolvency application;
- The inability to fully repay creditors' claims as a result of the actions (inaction) of the CDL;
- Failure to transfer accounting and other documentation to the bankruptcy trustee.
These points are independent grounds for attraction, but they can also be attracted for several of them.
So what should a bona fide person do to avoid being held accountable?
- A universal recommendation for any legal dispute — don't let things go by themselves! We can say with 100% certainty that if you do not participate in the trial in the court of first instance without a valid reason, or (even worse) you participated but for some reason did not submit your legal position and documents to the court, then it will be much more difficult to cancel the decision of the court of first instance in the future, due to the peculiarities of the procedural legislation.
- If your business partners enter into bad or too risky deals, build business models with affiliates, and distort accounting, all this can lead to subsidiary liability. Don't wait for the situation to become critical and creditors start bankruptcy proceedings; it may be too late.
- The current legislation regarding the CDL presumes guilt, so it is necessary to prove that you are not involved strategically and as efficiently as possible. Entering a case at the appeal or cassation stage can significantly reduce the chances of success.
We would like to remind you that subsidiary liability is not “written off” as part of a citizen's personal bankruptcy procedure, and, taking into account the activities of companies, can reach from hundreds of millions to several billion rubles. It is wiser to prevent its occurrence than to bear the burden of others' debts for decades.
If you think or know for sure that your partners are conducting unreasonable or openly illegal activities in your common company, consult with relevant specialists as soon as possible. This will help you develop the right behavioral model in relation to partners, as well as build a strategy to protect your interests at an early stage.
Of course, we should not neglect independent audit, due diligence, and, in some cases, even business consultants from forensics. But since these are very expensive procedures, it is wiser to start by consulting specialized lawyers.
The C Cases team has extensive experience in protecting against subsidiary liability, confirmed by numerous court decisions of arbitration courts of all instances.
We are ready to help you assess the current situation in your business in order to understand what actions can be taken to protect your rights and interests.