At the same time, the formal (non economic) character of the re quirements to the buyer has remained unchanged. Indeed, a dishonest buyer may slightly reduce the personnel’s number, while at the same time dramatically lowering the average wage at an enterprise. In fact, this may result only in keeping “hidden unemployment” at the same level as before, or even making it higher. Therefore, it appears neces sary to establish also a certain framework for changing the enterprise’s general payroll fund, at the same time envisaging more opportunities for personnel cuts.
10. In terms of preventing premeditated bankruptcies, implementing reorganization procedures and maintaining the businesses of large so cially and economically relevant enterprises, the norms established by the 2nd Law in respect to enterprises forming company towns deserve a positive estimation. The 2nd Law envisages that in the bankruptcy pro cedures established for this debtor category, a local self government body is to participate; the arbitrage court, in a petition filed by the bod ies of executive authority, may impose external administration, includ ing against a decision to the contrary made by a creditors’ meeting (when such bodies issue a suretyship in respect to the debtor’s liabili ties), and in some cases the period of external administration may be extended for up to ten years; also, on a petition filed by the bodies of executive authority, an enterprise may be sold at a tender, provided that certain conditions are specified.
The new Law on bankruptcy also stipulates the specific features of the bankruptcies of enterprises forming company towns (Articles 168– 176). However, the innovations in this sphere appear dubious. The “modified” criteria for placing enterprises in the “enterprises forming company towns” category are rather disputable.
Firstly, although the threshold level has been lowered from 50% to 25%86, at the same time, on the one hand, the families of an enterprise’s employees are not taken into consideration, while on the other, the number of those employed at the enterprise is compared not to the to tal size of population in a given settlement (Item 1 of Article 132 of the 2nd Law on bankruptcy), but to the size of the working population. Thus, the criterion for defining enterprises forming company towns in the draft law on insolvency has been tightened, as compared to the existing regulation.
Secondly, the formal character of defining company town forming category of enterprises has remained as before. The formal fact that many employees are registered as working at an enterprise does not See Item 1 of Article 169 of the new (third) Law on bankruptcy: “For the purposes of this Federal Law, it is those juridical persons that shall be recognized as enterprises forming company towns, whereat the number of employees constitute no less than twenty five percent of the total working population of a given settlement”.
necessarily mean that it is a large scale business, while the fact that those employees constitute a considerable percentage in a settle ment’s total work force is not always an evidence of the enterprise’s actual company town forming role, especially if it has substantial ar rears of wages, or these wages are very low. In our opinion, it is more important to apply criteria like the percentage of an enterprise’s tax payments in the total taxes collected in a given settlement; an enter prise’s dominant position on the commodities market; etc. It should be noted that it is specifically those enterprises which generate a substan tial percentage of tax revenues that may become an object for applying bankruptcy procedures with the purpose of property redistribution, be cause this is a more vivid sign of their financial potential.
11. The 3rd Law on bankruptcy (Article 172) has dramatically reduced the opportunities for reorganizing company town forming enterprises, because presently financial rehabilitation or external administration can be extended for no longer than one year, and the terms even for this modest prolongation have become tougher. If the 2nd Law (Article 135) allowed that the arbitrage court may extend the period of external ad ministration for up to one year, given a petition to this effect and a pre pared financial rehabilitation plan, in accordance with the new law the extention for a similar period is allowed only when there are both a peti tion to this effect and a suretyship. The main drawback of insolvency regulation in respect to city forming enterprises within the framework of the 2nd Law was the insufficiently strict procedure for issuing suretyships by bodies of executive authority. In some cases such suretyships are, in fact, “soft guarantees”, being granted without any specific terms as to the status of local budgets and the estimation of the financial capacities for implementing the suretyships, and are limited by the local leaders’ tenure of office. However, in the new Law this problem has largely been solved.
Company town forming enterprises probably represent the most dif ficult object in terms of financial rehabilitation. The inefficiency of such enterprises is due not so much to intrinsic factors (bad administration, outdated equipment, etc.), but to external ones – the region’s general economic slump, low effective demand, low level of the local banking system’s development, etc. For this reason, it would be unrealistic to expect that the reorganization of an enterprise which forms a company town may result in at least a breaking even level of operation in less that 4 or 5 years. It is not accidental that, according to the arbitrage statis tics, in 2000 the period of external administration was extended to 2.years for 187 enterprises and to 10 years for 47 enterprises, and in 2001 – for 146 and 31 enterprises, respectively.
2.3. The formation of a subordinate legal base and regulation of the powers of the bodies of state authority during the period of the new Law being in force The adoption of the new Law on bankruptcy, resulting in an impor tant modification of the institution of insolvency, determined the neces sity to reconsider the subordinate normative base in this sphere. After the Law’s coming into force, various bodies of state authority issued a number of subordinate acts, including the following ones:
• Decree of the RF Government of 30.11.2002, No. 855, “On the em powered and regulating body in bankruptcy cases and bankruptcy procedures” (hereinafter – Decree No. 855);
• Decree of the RF Government of 14.02.2003, No. 100, “On the em powered body in bankruptcy cases and bankruptcy procedures and the regulating body for effectuating the control over self regulating organizations of bankruptcy commissioners” (hereinafter – Decree No. 100);
• Decision of the Plenum of the RF Supreme Arbitrage Court (SAC) of 08.04.2003 No. 4 “On some issues relating to the enactment of the Federal Law “On insolvency (bankruptcy)”;
• Order of the RF Ministry of Justice of 09.04.2003 No. 84 “On ap proving the Provision on the procedure for keeping a single State Register of the self regulating organizations of bankruptcy com missioners”;
• Decree of the RF Government of 15.04.2003 No. 218 “On the pro cedure for presenting claims concerning the liabilities to the Rus sian Federation in bankruptcy cases and bankruptcy procedures” (hereinafter – Decree No. 218);
• Decree of the RF Government of 20.05.2003 No. 295 “On the rep resentative of the owner of a debtor’s property – a state unitary en terprise – during the implementation of bankruptcy procedures” (hereinafter – Decree No. 295);
• Decree of the RF Government of 22.05.2003 No. 299 “On approv ing the general rules for preparing the reports (estimations) of a bankruptcy commissioner”;
• Decree of the RF Government of 28.05.2003 No. 308 “On approv ing the rules for a theoretical examination according to a unified program for preparing bankruptcy commissioners” (hereinafter – Decree No. 308);
• Decree of the RF Government of 25.06.2003 No. 365 “On approv ing the provision concerning the verification of the activity of a self regulating organization of bankruptcy commissioners by a regulat ing body”;
• Decree of the RF Government of 25.06.2003 No. 366 “On approv ing the rules for a verification by a self regulating organization of bankruptcy commissioners of the activity of its members”;
• Decree of the RF Government of 25.06.2003 No. 367 “On approv ing the rules for the conduct of a financial analysis by a bankruptcy commissioner”;
• Decree of the RF Government of 09.07.2003 No. 414 “On approv ing the rules for the conduct of training on the job for the assistants of bankruptcy commissioners”;
• Letter of the RF Ministry for Taxes and Levies of 25.07.No. ÑÀ 6 04/825 “On some issues concerning the taxation of the incomes of bankruptcy commissioners”;
• Order of the RF Ministry of Justice 06.08.2003 No. 189 “On approv ing the procedure for the operation of boards for organizing a theo retical examination in accordance with a single program for training bankruptcy commissioners”;
• Decree of the RF Government of 14.11.2003 No. 688 “On the inter departmental board for determining the feasibility of filing petitions that debtors be deemed to be bankrupt” (hereinafter – Decree No. 688).
It seems reasonable to discuss briefly the most important acts among those listed above.
In accordance with Decree No. 855, the functions of an empowered body representing in bankruptcy cases and bankruptcy procedures the claims concerning mandatory payments and the Russian Federation’s claims concerning financial liabilities, as well as the functions of a regu lating body effectuating control over the activity of self regulating or ganizations of bankruptcy commissioners, were temporarily (for the period of three months, from the moment of coming into force of the new Law on bankruptcy) delegated to the Federal Service for Financial Recovery and Bankruptcy (FSFRB) of Russia.
Decree No. 100, adopted to replace this document, on a permanent basis consolidated to the FSFRB the functions of an empowered body which represents in bankruptcy cases and bankruptcy procedures both the claims concerning mandatory payments and the Russian Federa tion’s claims concerning financial liabilities. As for the functions of a regulating body effectuating control over the activity of self regulating organizations of bankruptcy commissioners, they, in accordance with Decree No. 100, from 3 March 2003 were to be transferred to the RF Ministry of Justice.
In accordance with Decree No. 295, the powers of a representative of the owner of a debtor’s property – a federal state unitary enterprise – are executed, during the implementation of bankruptcy procedures, by the Ministry for the Management of State Property of Russia, excepting the instances when by decision of the RF Government the said powers are delegated to another federal body of executive authority or to a ju ridical or physical person.
Decree No. 308, in addition to approving the rules for a theoretical examination according to a single program for preparing bankruptcy commissioners, delegates to the RF Ministry of Justice the powers to create the boards for organizing and conducting such an examination.
Decree No. 218 deserves special attention. Below we are going to discuss its main provisions in more detail.
1. The Decree establishes that in the event of a non execution, by a debtor, of the liabilities concerning mandatory payments, or the Rus sian Federation’s claims concerning financial liabilities, in the amount sufficient for initiating bankruptcy procedures, the appropriate bodies of state authority shall submit to the FSFRB of Russia or its territorial agency a notification concerning those debts.
2. The Decree recognizes four debtor categories:
A – debtors, the amount of whose non liquid assets exceeds 5 billion roubles, or strategic organizations, or those in respect to which the RF President or the RF Government have issued an order concerning the consideration of the filing against them a petition in bankruptcy;
B – debtors, the amount of whose non liquid assets is between and 5 billion roubles;
C – debtors, the amount of whose non liquid assets is between million and 1 billion roubles;
D – all the other debtors.
3. The level for making the decision concerning the initiation of bankruptcy procedures is determined in accordance with a debtor category.
The decision concerning the petition to deem a Category A debtor to be bankrupt is made by the RF Government, the Chairman of the RF Government, or, by the latter’s commission, by the Deputy Chairman of the RF Government.
The decision concerning the filing of a petition to deem the debtors belonging to Categories B–D to be bankrupt is made, in accordance with the established procedure, by the FSFRB of Russia.
4. The feasibility of petitioning to deem the debtors belonging to Categories A and B to be bankrupt is determined by the Interdepart mental Commission, whose composition is approved by the RF Gov ernment. The responsibility for conducting the sessions of this Com mission is imposed on the FSFRB of Russia.
The proposals concerning the feasibility (or non feasibility) of filing a petition in bankruptcy against a Category A debtor, with the protocol of a session of the Interdepartmental Commission, formalized in coordina tion with the RF Ministry for Economic Development and Trade, are submitted by the FSFRB to the RF Government.
The proposals concerning the feasibility (or non feasibility) of filing a petition in bankruptcy against a Category B debtor, with the consent of the RF Ministry for Economic Development and Trade, is formalized by order of the FSFRB of Russia. In the event of an absence of such a con sent, in the meeting’s protocol a substantiated conclusion made by the RF Ministry for Economic Development and Trade is entered, on the basis of which the FSFRB of Russia prepares a report and submits it, with the protocol, to the RF Government.
5. The feasibility of filing petitions in bankruptcy against debtors be longing to Categories C and D is determined by the interdepartmental meeting, the composition of which is approved by the FSFRB of Russia in coordination with the RF Ministry for Economic Development and Trade.