Cassation: 30% Remuneration of Insolvency Practitioner from Subordination Liability Includes Legal Fees

According to PRObankrotstvo, the cassation court has ruled that the incentive remuneration provided for in paragraph 3.1 of Article 20.6 of the Bankruptcy Law includes compensation for the costs of persons engaged by the practitioner and is recovered in full from the controlling person (Case No. A55-18763/2021).

Anna Aktanaeva, FBK Legal’s Head of Dispute Settlement Practice, commenting on the case, says:

The position of the circuit court represents a notable reinforcement of the pro-creditor approach in disputes over the recovery of incentive remuneration for bankruptcy managers under paragraph 3.1 of Article 20.6 of the Bankruptcy Law.

The court explicitly stated that 30% of the amount of recovered subordination liability includes not only the personal remuneration of the manager but also the compensation of expenses for engaged specialists, including lawyers who assisted in the dispute over holding controlling persons liable.

In essence, the cassation court views incentive remuneration as a comprehensive mechanism designed to motivate the practitioner to achieve a result — the actual recovery of funds into the bankruptcy estate. Consequently, any subsequent ‘splitting’ of this amount into separate expense and remuneration components has been deemed impermissible.

From a practical standpoint, she notes, this decision significantly reduces the risk of subsequent challenges by controlling persons regarding the manager's expenses for legal support in subordination liability disputes. Previously, controlling persons would argue that the payment of 30% remuneration already covered the manager's activities, and therefore expenses for external lawyers should be additionally reviewed for duplication of functions or excessiveness. The circuit court has limited the possibility of such arguments.

The novelty of this position lies precisely in a direct of link of incentive remuneration to the reimbursement of expenses for engaged specialists. The court not only confirmed the manager's right to engage specialists but also indicated that the corresponding expenses are part of the economic model of remuneration provided for by the Bankruptcy Law. This could serve as an additional argument for insolvency practitioners in future disputes over the recovery of legal costs and the justification for engaging external consultants. At the same time, this position reinforces the trend of recent years: courts are treating subordination liability as a tool to maximise the replenishment of the bankruptcy estate, allowing for broader protection of the procedural and economic interests of practitioners. For controlling persons, this means a further increase in the overall financial burden in bankruptcy cases, including not only the subordination liability itself but also the associated costs of recovering it.