Foreign creditors applied to a Russian court for bankruptcy of a counterparty resident in Cyprus. Three instances denied this possibility, but the Supreme Court decided otherwise (Case No. A40-248405/2022).
Two Cypriot residents entered into a dispute over non-payment of security payments of 6 million rubles under lease agreements for shopping centers in the Moscow region. The plaintiff considered that the counterparty’s activities were closely connected with the Russian Federation and therefore jurisdiction should be chosen in Russia. The three instances took the position that the company no longer operated in Russia, that it had no assets or accounts in the jurisdiction of the Russian Federation, and that the shareholder, director and secretary were Uzbek citizens. According to the courts, they cannot refer to the difficulty of bankruptcy in another jurisdiction because they themselves chose this way of managing their business (the creditor and debtor are part of the same economic group within the holding company), and the attempt not to initiate bankruptcy in Cyprus is an attempt to circumvent territorial restrictions.
The Supreme Court initially refused to transfer the case to the economic panel, but the creditor stated, according to the APC, the debtor had a connection with the Russian Federation, but withdrew the assets shortly before filing the complaint, and another shareholder and director — the Supreme Court stated that the list of the debtor’s connection with the RF is open. If the circumstances make it clear that there is a connection, it is up to the debtor to disprove it. Also, courts further have to assess whether to bring a primary or secondary case. If the debtor is only formally located in a foreign jurisdiction, the case is primary. If the debtor is located in another jurisdiction, but its assets are in the Russian Federation, it is a secondary case.
The Supreme Court pointed out that the debtor was only formally, according to the creditor’s application, located in another jurisdiction, the territoriality should be assessed before the start of the procedure, because otherwise it opens the possibility to artificially change the competence of the court, regardless of the real economic situation. The Supreme Court overturned the decisions of the three instances and sent the case to the Moscow Arbitration Court for consideration of the case on the merits.