FBK Legal Expert on Transferring Bankrupt Business to Another Entity
The website ‘Probankrotstvo’ has published a report on the bankruptcy case of CityLift LLC (Case No. A41-79862/2019), which involved holding a party liable for transferring business to a ‘mirror company’.
Vladislav Korneychuk, Head of Practice at FBK Legal, commented on the case:"This issue has been known in Russian bankruptcy law since at least 2011—courts apply the so-called piercing of the corporate veil and examine not only legal but also factual relationships and profit extraction. Among the first cases of this kind in Russia were disputes involving MUE Achinskiye Kommunalnye Sistemy vs. Zykov (Case No. A33-18291/2011), the Parex bank case (Case No. A40-21127/2011), the Shulginsky Brewery case (Case No. A03-14308/2015), and many others. Affiliation and continuity between the debtor and its 'mirror' entity are not always explicit, but in cases of such unfair behavior, controlling parties often leave ‘tell-tale signs’ sticking out—similar names and lines of business, both businesses registered at the same address, using the same phone number, email address, overlapping employees (including top management), and other indicators. The 2017 amendments to the Bankruptcy Law concerning subsidiary liability are a direct consequence of applying the corporate veil piercing principle. Under the mechanisms provided by the Law, the amendments allow to hold liable those who derive unfair advantage from the debtor’s insolvency".
