Media: about the range of persons who may be subject to subsidiary liability

Subsidiary liability in bankruptcy proceedings, which as it may seem in contrast to joint and several liability has a wide judicial practice and is more frequently applied, continues to be a source for the new research and future conclusions. An interesting discussion regarding this issue took place at the Eastern Ukrainian Bankruptcy Forum during a session dedicated to the peculiarities of the responsibility of owners and management of bankrupt enterprises for corporate debts. It concerned the persons involved into the bankruptcy of a legal entity – that is a business entity.

Positions of the Supreme Court

First, Serhiy Zhukov, Judge-Speaker of the Judicial Chamber for Bankruptcy Cases of the Supreme Court of Cassation, shared the current case law on joint and several and subsidiary liability. In his report, he addressed, in particular, the issue of claims against third parties who, in accordance with the law, may be subject to subsidiary liability for the obligations of the debtor in connection with bringing him to bankruptcy.

"If only the director is held jointly liable then the legislator has not clearly defined the range of persons who may be held liable for subsidiary liability. Some may not even suspect it," - declared the speaker.

According to the second part of Article 61 of the Bankruptcy Code of Ukraine, these are persons who have the right to give mandatory instructions to the debtor or have the opportunity to otherwise determine his actions. Subsidiary liability applies only to bankruptcy. The legislation does not provide other grounds yet.

“The person who is brought to subsidiary responsibility must prove the absence of his guilt himself. The liquidator only establishes the circle of these persons who are responsible for bringing to bankruptcy.”

Only the liquidator of the bankrupt has the right to submit applications to the third parties who, in accordance with the law, bears subsidiary liability. According to his words, there is often the question in judicial practice - whether to investigate the actions of the liquidator to establish the presence or absence of grounds for attracting third parties, which in accordance with the law are subsidiary liability for the debtor's obligations in connection with bringing him to bankruptcy in studying the liquidator's report and liquidation balance sheet to resolve the issue of the possibility of closing the bankruptcy case and liquidation of the debtor?

This is just the beginning

Fully agreeing with the legal positions of the Supreme Court and developing Serhiy Zhukov's allegations about the clearly defined by law the range of persons who may be subject to subsidiary liability, senior partner of the Law Firm "Laboratory of Bankruptcy", the attorney in law Andrii Spektor noted that as a defender in the interests of debtors, he believes that such a circle of persons should be wider than the one currently appearing in judicial practice.

Following his words, indeed the Code itself provides grounds for this, noting that subsidiary liability may relate to the director of the enterprise, its founders (participants, shareholders) "and other persons" (Paragraph 2 of Part 2 of Article 61 of the Bankruptcy Code of Ukraine).

"Of course, first of all it's the founders and the director. However, I consider that attention should also be paid to creditors, especially mortgage creditors. I think judicial practice will also come to this,” - the practitioner is convinced.

In his opinion, mortgage creditors can influence the economic activity of the debtor by their actions.

"If the collateral is property the value of which may be greater than the amount of the loan balance and the debtor is not against its sale, but the mortgagee who has a preemptive right does not respond, then other creditors may raise the issue of action or inaction of the mortgage creditor and bringing him to subsidiary liability due to the fact that the debtor was not able to pay off debts," - Andrii Spektor provided his idea.

Arbitration manager Yevhen Marchenko also supported Andrii Spektor's position.

"In the same way as the actions of the tax authority, through which the debtor's counterparty cannot pay, or the seizure of property in criminal proceedings - open a wide field for further expansion of judicial practice on this issue," - he confirmed.

The discussion participants even “imagined” if the subsidiary responsibility can be placed on the Cabinet of Ministers of Ukraine for making a decision that is an interference in the business activities of the business entity, and what affected the ability to fulfill the obligation.

However, everyone agreed that this is not realistic and premature at the moment.