20.11.08

State Duma’s Committee on Ownership approved a set of amendments to the Bankruptcy Law. A draft of the Law was passed in a first reading in 2005, but never passed a second reading due to disagreements among government departments. Now, all the fundamentals are coordinated and agreed upon, and a second reading will take place on November 14.

The amendments will allow for the sale/purchase of state debts in bankruptcy cases. Currently, companies not able to pay tax debts are doomed to bankruptcy. The amendments will allow company’s owner or another person (for example, creditors) to redeem the debt based on court’s decision: officials will not be able to refuse selling them. The authors of the amendments believe that it will help to reorganize such companies.

After redeeming the debt, creditors will be able to settle amicably with the debtor. At first tax debts will be available for redemption for full amount; later a discount rate may be introduced.

Russia’s Tax Code prohibits payments of taxes by third parties. Tax authorities are almost always against amicable settlements, and companies are not allowed to restructure their debt or exchange it for company assets. If the company’s owner would decide to pay up company’s debt to the state, he will have to pay debts to other creditors as well. Proposed amendments will increase flexibility in bankruptcy processes: often Federal Tax Service (FTS) is the only main creditor.

In some cases in the past, when creditors settled amicably with a debtor, he paid up his debt to the FTS, and then creditors annulled the settlement and started a new bankruptcy procedure without governmental control with a simplified company organizational form.

However, amendments may stimulate takeovers. Having removed FTS from the list of creditors, other creditors may found a new business based on a bankrupt company, or help the company to pay its debts in exchange for issuance of additional shares for them.

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Source: “Vedomosti”