On April 6, 2020, the Russian Government introduced a moratorium on bankruptcy of debtors, companies and sole traders, who are most hit by the coronavirus pandemic: lenders shall be prohibited from filing bankruptcy claims against such debtor.

Who Shall Be Protected by the Moratorium:

(a) businesses operating in the areas most affected by the worsening situation due to the spread of the new coronavirus infection:

• air transportation, airport operations, road transportation;
• culture, leisure and entertainment;
• health and fitness activities and sports;
• travel agencies and other tourist service providers;
• hotel business;
• catering services;
• further education and non-governmental educational institutions;
• organization of conferences and exhibitions;
• provisions of household services to people (repair, laundry, dry cleaning, hairdressers and beauty parlors).

The company’s / sole trader’s nature of business shall be determined based on the code of its core economic activity (OKVED) referred to in EGRUL / EGRIP as of March 1, 2020. Where a respective moratorium activity is an additional activity for such a company / sole trader, no bankruptcy moratorium shall apply to them. The OKVED code that clearly identifies whether the moratorium shall apply to a particular company / sole trader, are posted on the Russian Federal Tax Service website;

(b) The list of systemic companies is to be approved on April 10, 2020 by the Governmental Commission for Improvement of Russian Economic Stability. The list shall be compiled based on the proposals made by the relevant ministries, companies’ sales performance and number of employees (Chairman of the Russian Government Mikhail Mishustin earlier said that the list would number over 650 companies);

(c) strategic enterprises and strategic joint-stock companies from the list approved by the Russian Presidential Decree No. 1009 dated August 4, 2004;

(d) strategic enterprises from the list approved by the Russian Governmental Decree No. 1226-р dated August 20, 2009.

Moratorium Period:

The moratorium has been introduced for 6 months, and the Russian Government may extend the period and do so more than once.

Advice:

1. Assess whether the moratorium shall apply to your company and/or counterparties, and monitor any amendments of the above lists.

2. Plan activities and all business processes subject to restrictions introduced by the moratorium:

(a) when entering into each deal, check if the moratorium applies in the case of the counterparty’s bankruptcy, whether the deal is in the ordinary course of business, and if its value exceeds 1% of the assets book value;

(b) where the moratorium shall apply to your counterparties delaying performance of their obligations, remember the following restrictions:

• bankruptcy applications against debtors and enforcement against their assets shall be prohibited;
• indebted counterparties shall be released from penalties and other financial sanctions for delayed performance of financial obligations;
• enforcement against the assets shall be suspended (while seizures and other restrictions on disposal of assets shall be preserved);
• no set-off shall be possible, where it leads to disruptions in the priority of creditors’ claims;

(c) where the moratorium shall apply to your company, bear in mind that dividend payments / profit distribution / withdrawal from the company and payment of the real value of a participatory interest shall be prohibited.

3. Keep track of the moratorium’s deadlines in order to timely file petitions for bankruptcy of the counterparties.

4. Keep track of the moratorium’s deadlines in order to timely file a petition for the debtor’s self-bankruptcy (where necessary). This would rule out the risk of controlling entities’ secondary liability for the late filing of such a petition.

Authors: counsels Evgeny Gurchenko and Denis Golubev, associates Dmitry Kukshinov and Yulia Sevastianova