How assets are withdrawn on the eve of bankruptcy

Imagine that you are a business owner who is in a difficult financial situation. It is necessary to pay off large debts, but there are not enough assets.

In this case, an unscrupulous entrepreneur may decide to withdraw the remaining assets and leave his organization. During our practice, we have come across similar schemes more than once, and today we will talk about them.

K&P.Group strongly recommends against resorting to such actions.

Unfair actions to withdraw assets on the eve of bankruptcy:

• transfer of assets without counterliabilities;
• transfer of assets to insolvent persons;
• unequal exchange;
• unfair assessment of contributions to the share capital;
• replacing the obligations of solvent persons with those of insolvent persons;
• purchase of assets at the debtor's expense;
• loss of control over assets;
• creating fictitious debts;
• alienation of assets without which the debtor's main activity is impossible.

In practice, combinations of these methods are most common. Let's consider the first one today — transfer of assets without counterliabilities.

This is a situation where the debtor transfers or undertakes to transfer assets, but receives nothing in return. This may include:

• dividend payment;
• payment of excessively high salaries and bonuses to individual employees (sometimes limited to simple payments without real payment with the expectation of receiving money as part of bankruptcy proceedings as part of the second priority);
• the debtor's withdrawal from the LLC;
• contribution to the property of another LLC.

Dividend payment it is now used as one of the ways to withdraw funds from the debtor before bankruptcy.

The logic is as follows: dividends are paid from profits that only participants are entitled to. The payment of dividends does not violate the interests of other creditors. The distribution of profits does not fall under special grounds for challenging transactions, since commercial and fiscal requirements do not compete with corporate requirements.

At the same time, the courts have long “declassified” this method of withdrawing assets. They assume that the presence of signs of bankruptcy and negative net assets are an obstacle to the payment of dividends, which is enshrined in corporate laws.

The signs of bankruptcy and the state of net assets are determined not by the debtor's reports (which may be incorrect), but by factual information about its liabilities and the value of the property.

Thus, dividend payments in the context of the debtor's property crisis are qualified as deliberately unfair actions to the detriment of creditors and are successfully challenged under special (Article 61.2, paragraph 2, of the Bankruptcy Act) and general (art. 10 et Article 168 of the Civil Code) reasons (Resolution of the AC of the Ural District dated March 5, 2021 in case No. A50-509/2018).

This example is just one of the possible ways to withdraw the debtor's assets on the eve of bankruptcy. With the development of technology, more and more sophisticated and tricky methods are emerging, for example, using cryptocurrency or tokenized civilian objects.

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