“With the development of the law, coprorate raiding became a piece thing”: Andrey Mikonin interview for “Delovoy Peterburg”
Andrey Mikonin, a partner at S&K Vertical, which one of the largest law firms in St. Petersburg – on the changes in the area of bankruptcy, the current situation on the local legal market and the forecast as to its future given that the RF Supreme Court is moving here.
Is their number increasing due to the crisis developments in the economy?
- According to court statistics, the number of bankruptcy proceedings in St. Petersburg increased by 2% last year.
This however does not manifest any changes in the economy, at least in light of the fact that in other Russian regions the number of such processes, on the contrary, decreased. It is probably the position of local tax authorities that affect these dynamics, since they are paying more attention to identifying insolvent companies than their counterparts in other cities.
In recent years, it was a popular practice of many companies to avoid financial liability through bankruptcy, leaving creditors with virtually nothing.
How things work now?
- In principle, bankruptcy procedure is created specifically in the interests of the debtor so that he could protect his property and hold the creditors from tearing it into pieces. Debtor runs away, while the creditor tries to catch him, and there is nothing wrong with that. But with the development of bankruptcy legislation, which has become especially vivid since 2009, the number of legitimate ways to "catch" a bad faith debtor is increasing. Now, for example, a new practice emerged to identify affiliation of an appointed receiver with the debtor or with one of the creditors. Another trend is that procedure to hold transactions invalid is gaining momentum. Sometimes, though, this procedure is even abused in order to review old transactions carried out in the normal course of business. For example, by forcing the bank to put a loan, which has been already repaid long time ago, within the bankruptcy estate and as a result to become one of the registered creditors. Another tool that became popular recently is to bring a business owner to personal liability. Before 2010, this practice was used in most cases only in respect of directors of municipal and federal enterprises, as well as of members of governing bodies of banks. Now there are dozens of decisions in respect of the management of companies of various industries and forms of ownership.
How often is it possible to prove that a bankruptcy is intentional?
- It is not that the police lack interest to deal with such cases. The thing usually is that the material provided to law enforcement agencies appears to be not enough for initiation of a criminal case. And in order to collect all necessary information, one would need about two years of hard work. But during such a period of time either the whole situation may change or the creditors may “blow out”. And still, we are having some developments here. For example, in intentional bankruptcy cases the influence of the prosecutor's office is growing.
A new form of bankruptcy for construction developers has been recently created in Russia. Is it effective?
- The goal for the new rules is adequate. At this moment, however, the law still leaves something to be desired and its provisions are too legalese. For instance, it does provide interest holders with an opportunity to protect their rights to apartments. But there are also shares in common property, the land parcel and the non-residential premises adjacent to the residential ones. The law does not consider their legal fate. Moreover, protection of property is only a half of the battle. It is also essential to finish the building. And there is no unified mechanism that would help to do that. Indeed, the law gives some instruments, but it still needs refinement. The latter may be done either through legislation, or the consistent practice of its application emerge by itself, but this will take time. Some contribution to that will be probably laid down by us too, since we are taking part in the bankruptcy procedure of M-Industriya. This company is one of the pioneers of that model of bankruptcy proceedings.
How frequent is corporate raiding at this time?
- Now everything has become more difficult and more expensive, and therefore, with the developments in legislation and in practice, raiding became a peace thing in the sense that this word was used 10 years ago. At that time one could produce a batch of documents, and then use them in claiming property as to all sorts of assets, especially as to the shares or stock in a company , and then – as to real estate, and it worked perfectly by itself. Now this does not take place any more. Raiders are now mostly interested in active enterprises working on a "long" state contract or possessing take a firm position in some production chain. And usually the one who is engaged in such an activity is close to the government or to the law enforcement system. But in general, the trends should be that eventually we will only have only what is called white raiding, that is hostile takeovers of assets through lawful or gray methods, such as corporate blackmailing.
Are there any changes as to the situation with the protection of the rights of minority shareholders in our country?
If we talk on joint-stock companies, the support for minority shareholders of such companies is close to being even superfluous. They have a guaranteed access to corporate information and courts often stand on their side. Moreover, the Higher Arbitration Court has recently adopted a number of system solutions that further simplify the task of protecting their rights in case if they are arbitrarily deprived of corporate control, for example through "dilution" of stock.
To which extent will the work of St. Petersburg lawyers be affected by the moving of the RF Supreme Court?
- I think it will not be affected in any way whatsoever. Do you really think that there is a special corps of attorneys wearing special expensive shirts, having special licenses to go only to the Supreme Court? Certainly not. The Russian Post is perfectly fine in maintaining most of the communication between applicants and supervisory courts, so the fact that the cases will be considered in St. Petersburg is unlikely to cause a sharp influx of lawyers or applicants into the city.
Does the legal market in St. Petersburg have any potential for growth?
- It has all been in Moscow, and it will remain there. Only in that city is there a sufficient number of customers and competition. Here, on the other hand, all lawyers are personally acquainted with their clients and legal aid is more of a personal nature. This is a normal situation for lawyers and advocates, but it cannot be called the market in the full sense. That is why we have a full-scale office in Moscow, and two of our partners are constantly located there.