Vedomosti: “Bankruptcy gets the green light”
Prime Minister Vladimir Putin has authorized amendments submitted to the State Duma that will allow citizens to declare bankruptcy and seek to restructure their debt in a court of law. After two years in limbo, the draft has been included in the list of anti-crisis measures.
The plan of anti-crisis measures signed by Putin gives the government until July of 2010 to introduce amendments at the State Duma "establishing rehabilitation procedures for debtor-citizens." As early as 2008, the Ministry of Economic Development prepared amendments to the Law on Insolvency that legalize the bankruptcy of citizens through restructuring their debt in a court of law. The item is listed in the anti-crisis plan as a measure for "supporting social stability and protecting the population."
The draft was first submitted to the government in April 2008 and has since been working its way through the bureaucracy. With the onset of the crisis, however, the idea was put on hold: the banking system was foundering, and the introduction of private bankruptcy would have had an unpredictable impact on the market, a government official told Vedomosti. In the interim period, the minimum size of outstanding debt that can be considered grounds for bankruptcy was cut from 100,000 to 50,000 roubles by the draft law. The law in question was submitted to the government last year, says Deputy Director at the Ministry of Economic Development Dmitry Skripichnikov.
At present, citizens are under the obligation to repay their debt until death, even if the court bailiffs have confiscated personal property, but the proceeds from the sale do not cover the whole debt. Under the Ministry of Economic Development draft law, the bankruptcy procedure can be initiated at the Arbitration Court if unpaid debt over six months exceeds 50,000 roubles. Both the lender and the debtor can file an application. Thereafter, the court imposes a moratorium on debt collection even if such collection has already begun. But in filing an application, the debtor must prove to the court that he has the money to pay for two months of work by the external manager, amounting to 20,000 roubles.
The process may be concluded either by restructuring the debt over five years or by repaying it partially or in full through receivership. Thereafter, the person will be relieved of the majority of the debt: in any case, harm to life or health as well as moral damages will have to be remunerated, and claims linked directly with the lender's personal life (such as alimony) will have to be paid. One can resort to bankruptcy procedure only once every five years. If before that term expires the citizen is declared insolvent on the strength of a lawsuit filed by the lender, an ordinary writ of execution will be issued until all the debt is paid. The debt will not be deemed paid if the court finds that the bankruptcy was deliberate or if it discovers that the debtor had tried to get rid of property before the trial.
The law represents a very important government decision, says Dmitry Yanin, chairman of the board of the International Confederation of Consumer Societies, but the fact that the draft has been in the works for two years shows that the lenders and collectors are lobbying against it. The first reading of the law is likely to be passed in the form in which it has been submitted by the government, says Viktor Pleskachevsky, Chairman of the State Duma Property Committee, as the concept raises no questions. However, it is necessary to study the arguments for or against the proposed timeframe, quantity restrictions, and procedures, he explains. In Mr Pleskachevsky's opinion, the current draft tends to favour the debtor.
It is a necessary law, but in its present form, it encourages an irresponsible attitude to borrowing, says director-general of the collecting agency Pristav, Artur Alexandrovich. 50,000 roubles is equal to the unpaid credit for an LC television set, and the sum should be raised to at least 300,000 roubles, he says, otherwise the law will greatly increase the cost of credit for the majority of borrowers. In practice, people will have recourse to the law on debt restructuring anyway, beginning from 300,000 roubles, considering that one must pay 20,000 roubles upfront for the services of the manager, Mr Yanin says.
Whether the bankruptcy procedure will become popular in its present form is unclear, but it will definitely attract the attention of businessmen who act as personal trustees on the credit of their companies, says arbitration manager Yevgeny Semchenko. The procedure will benefit them by lifting encumbrances on personal property and bans on foreign travel. With the filing of a bankruptcy application, the execution procedure on debt is suspended, he explains. One high profile example is Vadim Varshavsky, a State Duma deputy and owner of the company Estar, who was arrested and forbidden to travel abroad last year under the current law. His companies owed the Bank of Moscow more than 364 million roubles, with Varshavsky himself acting as the trustee on the loans. Mr Varshavsky was not available for comment yesterday.
Dmitry Kazmin
