Artur Zurabyan | comments for "The Lawyers Newspaper": The Supreme Court reminds subtleties of determining compensatory financing in bankruptcy proceedings

The Court has favoured lower  priority of claims, if the creditor did not claim the debt up to the debtor’s bankruptcy, allowing the debtor to continue business without disclosing the financial crisis to independent creditors.

According to a LN expert, if an overdue loan from a controlling party is not claimed after the expiration of the loan period, it is not always sufficient for making a conclusion on a lower priority. Another expert called logical and proper a number of questions raised by the Supreme Court in sending a case for a new trial. The Supreme Court pointed out the need for checking affiliation arguments.

Artur Zurabyan, Attorney, Head of the ART DE LEX Dispute Resolution and International Arbitration Practices believes that ipso facto existence of an overdue loan from a controlling party not claimed after the expiration of the loan period is not always sufficient for making a conclusion on a lower priority. “It is necessary to analyse actual circumstances of each specific case, namely, study absence or presence of actual market reasons for extension of the loan period. For example, in one of the cases in which I happened to participate, extension of credit relations (agreement on a later due date for repayment of the principal) in the presence of proper collateral and regular repayment of interest by the debtor was not interpreted as financing the debtor, although legal affiliation of the bank with the debtor was established”, he explained.

Artur Zurabyan added that a situation when the lending company is headed by a father, and the debtor – by his son meets the criteria of legal affiliation established by the law “On bankruptcy” and the practice of its enforcement.

The full version of the article is available here.