The region, in the person of an agency performing the creditor’s functions, as a rule, initiates a bankruptcy procedure in respect to an enterprise, if its total arrears of mandatory payments to the region’s budget within three months from the date established for their execu tion exceed 500 minimum salaries (without penalties and fines). How ever, this provision is usually augmented by other stipulations. Thus, in St. Petersburg the enterprise with such arrears must also fail to comply with the schedule of repayments, the bankruptcy procedure being initiated primarily in respect to those enterprises whose main activities are “commerce, public catering and providing services to the population”125.
In Moscow Oblast, the bankruptcy procedure is initiated against those enterprises which for more than one year, have failed to engage in financial and economic activity, do not submit reports to the tax au thorities, and have arrears of payments (for more than three months) to budgets of all levels and state off budget funds, in excess of minimum salaries, with an average number of employees of up topersons126.
Among the regions of the Russian Federation, the most well developed legislative base concerning bankruptcies of juridical per sons probably exists in the Republic of Tatarstan. In addition to nor mative acts concerning the usual issues (as those discussed above), the Republic has adopted documents containing methodological rec ommendations for evaluating the property of debtor enterprises127, the Decree of the Administration of Voronezh Oblast “On organizational measures de signed to implement the RF Law “On insolvency (bankruptcy)” in the territory of Voronezh Oblast” of 3 September 1998 No. 856.
Regulation of St. Petersburg’s Administration “On measures designed to extend the practice of initiating bankruptcy procedures in respect to organizations with arrears of payments to the budget of St. Petersburg” of 2 August 2001 No. 581 ra.
Decree of the Government of Moscow Oblast “On implementing in the territory of Mos cow Oblast of legislation of the Russian Federation on insolvency (bankruptcy) of enter prises” of 9 February 1998 No. 13/4.
Decree of the Cabinet of Ministers of the Republic of Tatarstan “The Provision concern ing the procedure for the evaluation and sale of the property (including property rights) of procedure for restructuring socially relevant debtor organizations128, the procedure for enforced liquidation of juridical persons (this Com mentary of the Arbitrage Court mostly addresses various aspects of federal legislation)129, the procedure for evaluating and selling the property of insolvent enterprises and organizations 130, the presence or absence of the indicia of fictitious or premeditated bankruptcy131, an accelerated procedure (within 21 days from the moment of submitting the documents) for registering the juridical persons being formed dur ing the effectuation of insolvency (bankruptcy) procedures and finan cial rehabilitation132, etc.
It should also be noted that the regions’ normative bases also con tain many various overviews as provisions and explanations of federal legislation (Krasnodar Krai133, Primorskii Krai134 (in Primorskii Krai, cer tain provisions of federal legislation are also explained in the “Meth odological Recommendations for applying legislation of the Russian Federation on insolvency (bankruptcy)135), Penza Oblast136, the city of debtor organizations in the course of insolvency (bankruptcy) procedures” of 26 October 2000 No. 746.
Decree of the Cabinet of Ministers of the Republic of Tatarstan “The Provision concern ing the procedure for restructuring socially important debtor organizations with the pur pose of their financial rehabilitation” of 26 October 2000 No. 742.
Commentary by the Supreme Arbitrage Court of the Republic of Tatarstan “Enforced liquidation and bankruptcy of juridical persons (The problems of legislation and the judu cual practice of arbitrage courts)”.
Decree of the Cabinet of Ministers of the Republic of Tatarstan “The Provision concern ing the evaluation and sale of the property of enterprises and organizations in the course of implementing the procedure of external administration and the proceedings in bank ruptcy in the Republic of Tatarstan” of 13 July 1999 No. 431.
Regulation of the Committee of the Republic of Tatarstan for issues of insolvency and financial rehabilitation “The procedure for making a conclusion as to the presence or ab sence of the indicia of fictitious or premeditated bankruptcy” of 6 July 1999 No. 4r.
Decree of the Cabinet of Ministers of the Republic of Tatarstan “On introducing an ac celerated procedure for registering the juridical persons being created during the imple mentation of insolvency (bankruptcy) procedures and financial rehabilitation” of 11 Au gust 1999 No. 503.
Information of the State Tax Inspectorate for Krasnodar “Enterprises undergo the bankruptcy procedure” of 29 December 1998.
Explanations of the State Tax Inspectorate for Primorskii Krai of 12 March No. 16 07.
Regulation of the Justice Institution “Primorskii Krai Registration Center” “Methodo logical Recommendations for applying legislation of the Russian Federation on insolvency Moscow137 etc.), as well as the practice of arbitrage courts (the Republic of Khakassia138, Krasnodar Krai139, Novosibirsk Oblast140, Penza Oblast141, etc.).
By way of conclusion, an extract from the Commentaries of the Arbi trage Court of the Republic of Tatarstan may be cited here: “Existing legislation, establishing the foundation and procedure for the liquida tion of juridical persons, is rather imperfect and has considerable gaps, which can be eliminated only by means of legislation. While the issues pertaining to the creation of juridical persons and the financing for the procedure of their State registration are to a certain extent determined by federal and regional legislations (although not fully, because the Law on the registration of juridical persons, the elaboration of which is en visaged in Article 51 of the Civil Code, has not been adopted yet), the procedure of enforced liquidation and the issues of funding for the liq uidation procedures are in need of legislative regulation, otherwise the court decisions concerning the liquidation of juridical persons are not (bankruptcy) when effectuating State registration of the rights to immovable property and the transactions therewith” of 10.08.1999 No. 71.
Recommendation of the Procuracy of Penza Oblast “On eliminating violations of legislation on insolvency (bankruptcy)” of 6 April 2000 No. 7 5 31 2000.
Letter of the State Tax Inspectorate for the City of Moscow “On providing information to bankruptcy commissioners” of 22 December 1998 No. 13 06/37857.
Annex to the Information Letter of the Presidium of the Arbitrage Court of the Republic of Khakassia “On some issues pertaining to the practice of implementing, by the Arbitrage Court of the Republic of Khakassia of the Federal Law “On insolvency (bankruptcy)”, when dealing with complaints concerning the actions of bankruptcy commissioners in insolvency (bankruptcy) cases” of 28.08.2000 No. 3.
Information of the Administration of the RF Ministry for Taxes and Levies for Krasnodar Krai “The implementation of bankruptcy procedure” of 30 November 2000.
“An overview of the arbitrage practice considering the complaints filed by employees of bankrupt enterprises against the actions of the bankruptcy commissioners in charge of bankrupt organizations”; “An overview of the practice of consideration, by the Arbitrage Court of Novosibirsk Oblast, of the complaints of depositors and physical persons against the actions of the bankruptcy commissioners in charge of bankrupt credit organizations”;
“An overview of the complaints of creditors of juridical persons against the actions of bankruptcy commissioners considered by the Arbitrage Court of Novosibirsk Oblast”;
prepared by the Arbitrage Court in 2001.
“A generalization of the judicial practice of the suits of tax agencies concerning the liquidation of juridical persons considered by the Arbitrage Court of Penza Oblast in the year 2000”, prepared by the Arbitrage Court in 2001.
going to be implemented, which will entail violations of the lawful rights and interests of both creditors and the State”142.
“Enforced liquidation and bankruptcy of juridical persons (The problems of legislation and the juducual practice of arbitrage courts)” A commentary by the Supreme Arbitrage Court of the Republic of Tatarstan.
Chapter 4. The economic aspects of the formation of the institution of bankruptcy and the dynamics of cases 4.1. The specific economic and institutional conditions for applying bankruptcy procedures In the Russian situation, the influence of the institution of bankruptcy on the economy appears to be quite ambiguous, especially in respect to large size business. The reason for this is not so much legal regula tion of insolvency in Russia, but rather those specific economic and in stitutional conditions in which the institution of insolvency is “sub merged”. We should like to point out some of these conditions, which appear to be the most important ones.
First. Stale debts of Russian enterprises are mostly represented by arrears of taxes and other mandatory payments to off budget funds – between January 2001 and June 2002, on the average at the enter prises of the main branches of the economy, the specific weight of ar rears of mandatory payments varied between 35% and 42% of the total volume of stale debts due to creditors. Moreover, in some of the most important branches of the processing industry the enterprises’ arrears of payments due to the State were dominating among their total stale debts. Thus, as of the end of June 2002, total stale debts in the timber processing complex, light industry and machine building amounted to about 59%, 54% and 50%, respectively.
On the whole, neither the State nor private creditors had any moti vation for applying bankruptcy procedures in order to ensure direct debt repayment. For the creditors in bankruptcy (fifth priority) it did not appear beneficial due to the high level of the enterprises’ debts to the State, the latter, in accordance with the 2nd Law on bankruptcy, being a preferred creditor (in respect to mandatory payments – fourth priority). For the State this was not the best procedure either, because prior to the enactment of the 3rd Law on bankruptcy it had no means of exerting genuine influence on the effectuation of bankruptcy proce dures.
Second. The State, for objective reasons, is unable to apply bank ruptcy procedures to all debtor enterprises. The main problem here is not so much the lack of appropriate law enforcement infrastructure ca pable of “servicing” the necessary number of bankruptcies, but rather the high probability of negative effects of sectoral and territorial nature.
The Russian Law on bankruptcy enacted in 1998 was oriented to a developed market economy, where the specific weight of economic subjects in respect to which it might be necessary to apply bankruptcy procedures is negligible (about 3–4%). However, the number of loss making enterprises in the Russian economy is much higher. After the August Crisis, the financial status of industrial enterprises improved, and the proportion of loss making enterprises in the total number of organizations in industry somewhat decreased – from 49% in late to 40% in late 2000; however, later, as the post crisis growth factors were exhausting their potential, the situation once again began to dete riorate, and by the second half of 2002 this index had grown to almost 47%. Judging by the results of a number of studies143, it can be stated that even by the beginning of 2000 (after a considerable increase in the liquidity of enterprises) the State, in accordance with the Law on bank ruptcy (i.e., when an enterprise’s arrears of taxes and other mandatory payments amount to more than 500 minimum salaries, delayed for more than three months), could have initiated the proceedings in bank ruptcy, according to our estimation, against every other industrial en terprise. The gravest situation existed in machine building, where the proceedings in bankruptcy could have been initiated against approxi mately 60% of all enterprises (while, for example, in light industry the same was true for only 20% of all enterprises).
Project of the Bureau for Economic Analysis “Napravleniia i faktory restrukturizatsii promyshlennykh predpriiatii” (Areas and factors of restructuring industrial enterpreises) (Project Director – Kuznetsov B. V.).
Table An estimation of the range of enterprises in respect to which the State had the legal right to initiate bankruptcy proceduresDistribution of enterprises within sample depends on ratio of their arrears of taxes as of beginning of 2000 to normative Industry threshold established for initiation of bankruptcy procedures Between 0 Between 1 Between 50 Over Total: