Liability of controlling persons is possible without contesting the liquidation of the debtor

The Supreme Court of the Russian Federation has increased the liability of controlling persons of those companies which have been liquidated at the suit of state authorities. Such persons will now bear subsidiary liability for the debts of the liquidated company.

Earlier, controlling persons of an already liquidated company could be held liable only after contesting the liquidation itself, and the need to prove their bad faith lay with creditors. Current changes:

• It is no longer necessary to contest the liquidation

In order to bring controlling persons to subsidiary liability, it is not necessary to initiate a procedure to challenge the liquidation of a debtor company.

• It is possible to hold controlling persons liable outside bankruptcy

For this purpose, the creditor need only point out the bad faith of the actions of these very persons. An example of such bad faith would be evasion from conducting a full-fledged liquidation procedure, failure to provide documentation required for storage or failure to explain the reasons for non-payment of the debt.

• The burden of proof is on the controlling person

The Supreme Court extends the presumption of “concealment of traces of what was done” to non-bankruptcy practice. Previously, controlling persons had to prove their innocence only in bankruptcy cases.

Now they will be required to prove their innocence even if they suspect bad faith. This will reduce the possibility of a controlling person to avoid liability for unlawful acts in case such a person is isolated from the society under his control.