5. Bankruptcy procedures and conditions of application

Federal Law "On Insolvency (Bankruptcy)" on October 26, 2002 № 127-FZ, a system of measures applied to the debtor, in order to restore capacity to pay and satisfaction of the creditors. This system of measures bankruptcy procedures are aimed at the proportional satisfaction of creditors and improving the financial position of the organization. Procedures applied to the debtor, are provided by the legislation set of factual and legal action aimed at restoring the solvency of the debtor or its liquidation. Under the laws of the procedure can be divided into two groups: the judicial and non-judicial. For non-judicial prejudicial procedures include sanitation and voluntary declaration of the debtor-enterprise about bankruptcy.

Prejudicial sanitation (in accordance with Article 2 of the Federal of the Bankruptcy Law) - measures to restore the solvency of the debtor, the debtor's property made ​​by the owner, the founders of the debtor, the debtor's creditors and other persons in order to prevent bankruptcy. Such procedures allow without appeal to the Court of Arbitration resolve questions about the future of the organization or voluntarily to liquidate. The law provides for the following bankruptcy proceedings: observation financial recovery, external control, bankruptcy proceedings, the settlement agreement.

Observation (Art. 2, Sec. IV of the Act) - the procedure of bankruptcy applied to the debtor in order to ensure the safety of the debtor's property, the analysis of financial condition of the debtor, a roster the claims of creditors and holding the first meeting of creditors. The procedure begins with the excitation of the arbitration court of the bankruptcy case of enterprises, continues for a specified period and ends with a court decision to recognize the company as bankrupt, or appointing any other insolvency procedures or rejection to recognition of the bankrupt. Bankruptcy procedure lasts up to seven months. At this point the company does not stop conducting business, opportunities are being sought to pay down debt and restore solvency, creditors' claims on an individual basis are not satisfied.

Manager of the organization continues to manage the organization, but for this period restrictions are imposed to issues of reorganization of the debtor enterprise, payment of dividends, profit distribution, the acquisition of securities. If the government violates the above rules, the decision of the arbitral court at the request of a temporary administrator, they can be suspended from their duties. Implements bankruptcy procedure temporary administrator appointed by the arbitral court. In accordance with Art. 20 of the Act temporary (arbitration), manager may be a citizen of the Russian Federation, registered as a private entrepreneur, having higher education, trained on the preparation of arbitration managers, with no criminal record in the economy.

Temporary administrator monitors the safety of property of debtors, conducts a thorough in-depth analysis of the financial condition of the organization in order to determine signs of bankruptcy of the debtor, creditors, and identifies the register of their claims, convene and hold the first meeting.

After the procedure of observation temporary administrator shall prepare a report, submit it to the review of an arbitration court for making decision. On the basis of a court decision the procedure of financial recovery can be assigned.

Financial recovery (Art. 2, ch. V of the Act) - the bankruptcy procedure applied to the debtor in order to restore its solvency and repayment the debt under the debt repayment schedule. The purpose of the procedure of financial recovery - analyzing the financial condition of the organization, making a plan of financial recovery This procedure is introduced arbitration court on the basis of the decision of the creditors meeting, up to two years.

Administrative manager appointed by arbitration court implements maintenance of procedure.

During the procedure reference of the company occurs follows:

• prepared financial recovery plan, which identifies the main measures to raise funds needed to pay off by creditors, developed by the debtor's founders and approved by the creditors' meeting; • if at the time conducting procedure become term of execution on obligations, the requirements apply to the debtor only in the order of presentations of the requirements established by law; • suspended execution the action of documents on property penalties, except to satisfy the requirements of the first stage; • is prohibited the allocation of shares to the debtor and redemption placed shares by the debtor; • prohibits the payment of dividends and other payments on equity securities; • other actions specified in the law.

Administrative manager may be dismissed from their duties on the basis of an application of manager, based on the decision of the creditors meeting, in case of violation of the legitimate rights of the debtor and creditors, and in other cases provided by law. At the end of procedure of financial recovery arbitration manager shall prepare a report and sends to the Arbitration Court to examine and make decision on the end of the procedure and termination of the bankruptcy case, the introduction of external management, the introduction of bankruptcy proceedings.

External management (Art. 2, ch. VI of the Act) - the bankruptcy procedure applied to the debtor in order to restore its solvency. This procedure is introduced at a meeting of creditors in bankruptcy and there is evidence of the award, for a period not exceeding 18 months. It can be extended to six months if the company has a real opportunity to restore solvency. By law, this procedure does not extend to credit institutions, the citizens, including entrepreneurs, to liquidated debtor, debtor on the missing, to cases where the debtor voluntarily declare about bankruptcy.

The external manager, appointed by the court on the same basis as and arbitration, implements the procedure for , appointed by the court on the same basis as and arbitration.

The company's management is carried out by an external manager. The previous management suspended from their duties. Manager collects information about the company's creditors, create the registry of satisfaction the requirements in order of priority established by law and the Civil Code, carries an inventory of property and calculations , maintaining accounting exercises.

Bankruptcy proceedings (Art. 2, ch. VII of the Act) - the bankruptcy procedure applied to the debtor declared by the bankrupt, in order to satisfy the proportional requirements of the creditors.

The decision Arbitration Court about declare the debtor to be bankrupt and the opening of bankruptcy proceedings taken in following cases: • if the organization is unable to satisfy claims of creditors on monetary obligations and (or) to fulfill the obligation to make mandatory payments; • if the the relevant obligations and (or) the obligation of the organization not fulfilled within three months from the date when they should have been done; • there are no grounds for leaving the application declaring the debtor to be bankrupt without consideration, the introduction of financial recovery, external management, approval of a settlement or termination of proceedings in bankruptcy.⁷

The bankruptcy proceedings enters for one year. Arbitration Court approves bankruptcy manager, who acts up to end date of bankruptcy proceedings. Manager of the debtor and temporary manager, administrative manager, within three days from the date of approval of bankruptcy manager must ensure the transfer of accounting and other records of the debtor to bankruptcy manager.

Settlement Agreement (Art. 2, ch. VIII of the Act) - the bankruptcy procedure, applied at any stage of the bankruptcy case to stop the the production of the bankruptcy proceedings by reaching an agreement between the debtor and creditors. Settlement Agreement concluded in written form and may be approved by the arbitral court only after the repayment of claims of creditors of the first and second stage.

Chapter 2: the bankruptcy in practice, development and Russian main features, trends.