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To reckon up our analysis, it seems necessary to pay attention to the following trends in the application of bankruptcy procedures in 2002156.

In 2002, a dynamic growth in the number of initiated bankruptcy cases continued during that year, a total of about 95,000 petitions were filed, as compared to about 48,000 in 2001. This growth was largely due to the suits against absent debtors. The proportion of cases involving absent debtors in the total number of accepted petitions in bankruptcy against debtors in 2002 grew to approximately 85%. At the same time, the number of initiated bankruptcy procedures in respect to real enterprises did not change to a significant degree and amounted in 2002, according to our estimations, to no more than 7500.

The load on the judicial system grew considerably as a result of a rapid growth in the number of bankruptcy cases being considered as Generally speaking, this is characteristic not only of Russia. Risk predictability for creditors at the macrolevel is ensured primarily by both the liquidation of defaulters and their timely petitioning to the court when they are incapable of fulfilling their obligations, and not by a high level of debt repayment.

See also: Simachiov Yu. (2003), Institut nesostoiiatelnosti v Rossii: spros, osnovnye tendentsii i problemy razvitiia (The institute of insolvensy in Russia: demand, main trends and problems of development). In: Voprosy ekonomiki. 2003, No. 4; Golikova V., T.

Dolgopyatova, B. Kuznetsov, Yu. Simachiov (2003). Spros na pravo v oblasti korporativ nogo upravleniia: empiricheskiie svidetelstva (The demand for law in the field of corporate governance: empiric strategies). Series Nauchnye doklady: nezavisimyi ekonomicheskii analiz (Scientific reports: Independent economic analysis) In: No. 148. M.: Moscow Pub lic Science Foundation. ANO Proekty dlia budushchego: nauchnye i obrazovatelnye tehknologii (Projects for the future: science and education technologies), 2003.

of 1 January 2003, almost 103,000 cases were uncompleted (as com pared to about 53,000 as of 1 January 2002).

In 2002, there was a noticeable growth in the number of petitions filed by creditors. This occurred largely due to the expected adoption of the new 3rd Law on bankruptcy, which was to significantly limit the possibilities for initiating bankruptcy procedures.

The moderate growth in the number of petitions filed by debtors in 2002 in accordance with Article 8 of the 2nd Law on bankruptcy was as sociated, among other things, with the desire to complete the proce dures of fictitious and premeditated bankruptcy (including those with the purpose to avoid taxation) while the old Law was in force.

There was a stronger tendency toward a reduction not only in the percentage, but also in the number of positive outcomes of bank ruptcy procedures (such as the termination of proceedings, including due to an amicable settlement and restored solvency). Thus, the growth in the number of decisions concerning the initiation of bankruptcy pro ceedings against substantive debtors resulted not so much from a greater number of petitions to this effect, but rather from a stronger orientation of the procedures of observation and external administration toward bankruptcy proceedings.

4.4. The 3rd Law on bankruptcy: the first results of its application in Judging by the results of applying bankruptcy procedures in 2003, some preliminary comments may be offered concerning the problems that have arisen in connection with the implementation of the new (3rd) Law on bankruptcy. Certainly, it can be argued that due to the absence of a well established judicial practice of applying the 3rd Laws provi sions, its potential has not yet been fully realized; but nevertheless, we may still make judgments as to its most obvious limitations, both in terms of the estimated situation in the sphere of applying bankruptcy procedures and of the existing flaws in the norms established by this Law.

In 2003, the scope of applying bankruptcy procedures was mark edly reduced: the number of petitions in bankruptcy against debtors went down by 7.5 times from 10,6647 in 2002 to 14,277 in 2003; the reduction in the number of accepted petitions was even more dramatic by 9.8 times, from 94,531 in 2002 to 9,695 in 2003.

12781 1998 1999 2000 2001 2002 Total number of petitions Total number of petitions, without those filed in respect to absent debtors Fig. 7. Changes in the number of petitions in bankruptcy This dramatic reduction in the number of petitions filed was caused, in about 85% of cases, by the fact that the tax authorities were actually no more petitioning against absent debtors in 2003, only 2129 peti tions in respect to absent debtors were filed, against 81251 in 2002.

Such was the effect of the norms of the 3rd Law on bankruptcy stipu lating that bankruptcy procedures be applied to absent debtors only when appropriate funds are available in the budget; however, as ex pected, in the 2003 budget there were no allocations for this purpose.

On the whole, the result was positive, because the system of arbi trage courts was relieved of an unreasonable burden; however, the problem of absent debtors has not yet been resolved by legislative means other than bankruptcy. Therefore, the leadership of the RF Su preme Arbitrage Court feel rather pessimistic about the nearest future, expecting that liquidation procedures might be soon renewed in re spect to approximately 1.5 million actually absent enterprises and or ganizations through applying simplified bankruptcy procedures157.

Against the background of large scale reduction in the number of petitions filed in respect to absent debtors, a similar reduction in re spect to substantive debtors does not seem so significant; however, in actuality the number of such petitions dropped by approximately one half. The number of accepted petitions, with supervision imposed, was 5351 in 2003, as compared to 10739 in 2002. This, obviously, was the result of toughened conditions for filing the petitions in bankruptcy:

the norms of the 3rd Law on bankruptcy determine that the initiation of bankruptcy procedures on a creditors petition can be possible only after the latter has produced a writ of execution stating that the creditor has attempted to ensure debt repayment within the framework of exe cution proceedings. However, most probably, this effect is going to be short lived it is just possible that many creditors have not yet had time to pass their debtors through execution proceedings.

4893 1998 1999 2000 2001 2002 Accepted for hearing Including with imposing supervision Fig. 8. Changes in the number of petitions in bankruptcy accepted for hearing Yakovlev V. F. Itogi raboty arbitrazhnykh sudov v 2003 g. Osnovnye zadachi na 2004 g.

(Results of the activity of arbitrage courts in 2003. Main goals for 2004.) Minutes of the conference of chairpersons of arbitrage courts of the Russian Federation. (11 February 2004).

At a first glance, the more dramatic reduction in the number of ac cepted petitions in bankruptcy, as compared to the number of petitions filed, may be interpreted in terms of a higher level of demands to the petitions on the part of the courts. However, the growth in the number of accepted petitions witnessed in 19992002 was associated with a higher proportion of the number of petitions filed in respect to absent debtors, and so in 2003, while the initiation of simplified bankruptcy procedures was becoming markedly less active, the percentage of re jected petitions became higher.

120000 77 70 60000 0 1998 1999 2000 2001 2002 number of filed petitions in bankruptcy (left scale) number of accepted petitions in bankruptcy (left scale) degree of petitions acceptance, as % of total number of petitions filed (right scale) proportion of petitions in respect to absent debtors, as % of total pe-titions filed (right scale) Fig. 9. Level of acceptability of petitions in bankruptcy On the whole, the exclusive character of the application of bank ruptcy procedures became markedly stronger, and its external aspect % (by the number of petitions filed, the percentage therein of suits against absent debtors), in 2003, resembles, in terms of scope, the situation typical of 19981999.

The Law on bankruptcy continues to compete, rather successfully, with the Law on privatization as regards the sphere of liquidation of uni tary enterprises158. Although the number of cases initiated against sub stantive debtors in 2003, as compared to 2002, was reduced by half, the number of state unitary enterprises (SUE) in respect to which it was decided to initiate the proceedings in bankruptcy, did not go down very noticeably from 643 in 2002 to 511 in 2003. According to the top offi cials of the Federal Agency for Managing Federal Property159, as soon as a plan emerges that a certain SUE is to become a joint stock com pany, its assets are dispersed, and it is made bankrupt, as a rule, by its own CEOs.

1998 1999 2000 2001 2002 SUE, during one year MUE, during one year SUE, as running total from 1998 MUE, as running total from Fig. 10. Changes in the number of bankruptcy proceedings in respect to unitary enterprises In 20002003, about 500 federal state unitary enterprises were privatized.

An interview with Valerii Nazarov, Head of the Federal Agency for Managing Federal Property. Vedomosti, 18 May 2004.

The practice of applying the 3rd Law on bankruptcy in 2003 does not make it possible to speak of any positive changes in respect to the so lutions to problems associated with reorganization and rehabilitation of enterprises in the course of bankruptcy procedures.

Approximately in 70% the supervision procedures culminated in the initiation of bankruptcy proceedings. The trend toward a reduction in both the number and the percentage of the decisions concerning the imposition of external administration was still visible (547 in 2003, as compared to 931 in 2002). The number of approved amicable settle ments went down remarkably: from 145 in 2002 to 54 in 2003.

100% 90% 80% 699 70% 60% 50% 40% 30% 20% 10% 0% 1998 1999 2000 2001 2002 concerning termination of proceedings concerning refusal to deem debtor to be bankrupt concerning imposing external administration concerning declaration of bankruptcy and initiation of proceedings Fig. 11. Supervision: structure of decisions At the same time, the percentage of refusals to recognize a debtor as bankrupt, as well as that of the decisions that the proceedings be terminated, became much greater, being an evidence of a higher role being played by arbitrage courts in protecting the interests of poten tially solvent enterprises. Only due to these factors the general orienta tion of supervision procedures toward bankruptcy proceedings became somewhat more limited.

% of total number of decisions made during observation The procedures of external administration were even less suitable for either amicable settlements or for the restoration of enterprises solvency. In more than 90% of cases considered in the year 2003, the procedures of external administration culminated in decisions to initiate bankruptcy proceedings. The trend toward a reduction in the number of amicable settlements was maintained (53 in 2003, as compared to in 2002), while solvency was restored only rarely (in 28 cases).

On the whole, considering all their phases, bankruptcy procedures in 2003 resulted in the rehabilitation of a debtors business in approxi mately 230 cases: in 170, the proceedings were terminated due to ami cable settlements, and in 56 due to restored solvency and satisfaction of the creditors claims.

Thus, despite the expanded mechanisms for preserving debtors businesses (the 3rd Law on bankruptcy envisages, in particular, the possibilities for returning from bankruptcy proceedings to external ad ministration, when there exists genuine chances to restore solvency, or for an additional issue of shares being carried out in the course of ex ternal administration with the consent of a debtors owner), one may hardly speak of any positive changes. The practice of applying bank ruptcy procedures in 2003 has shown that there is still a trend (even somewhat enhanced) of the orientation of bankruptcy procedures to ward the actual bankruptcy proceedings.

100% 90% 296 80% 70% 60% 50% 40% 30% 20% 10% 0% 1998 1999 2000 2001 2002 proceedings terminated due to restored solvency proceedings terminated due to approval of amicable settlement decision made that debtor be deemed to be bankrupt and proceedings in bankruptcy be in Fig. 12. External administration: structure of decisions concerning external administration % of total number of decisions (made during one year) When the norms established by the 3rd Law on bankruptcy were be ing elaborated, the owners motivations for reorganizing and develop ing their indebted businesses were obviously overestimated. It was as sumed that a considerable percentage of bankruptcies are not com pleted peacefully only because the owners had no opportunities for repaying the enterprises debts and rehabilitate them. Therefore, the 3rd Law on bankruptcy has introduced, as participants in the process, the owners of a debtor enterprise. Besides, the Law has determined the right of a debtor enterprise, its owners and any third parties, at any stage, with the consent of the bankruptcy commissioner, to terminate the bankruptcy procedure by repaying the enterprises debts. The Law has established a new reorganization procedure financial recovery, which, as thought, was to make it possible, under certain conditions, for the debtors founders (or participants) to keep control over the enter prises destiny even in a situation of initiated bankruptcy procedures.

However, in fact, all these innovations were really in small demand.

The procedure of financial recovery was introduced only in 10 cases.

The procedures of external administration only in 28 cases were termi nated by satisfying the creditors claims. Only in 19 cases there was a transition from bankruptcy proceedings to external administration.

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