The new law has introduced a new definition of the indicators of bankruptcy of a financial institution. While previously a petition for bankruptcy of a credit institution was primarily associated with a license recall and a court ruling confirming the existence of monetary obligations, the new procedure envisages the following indicators of bankruptcy:
1) the amount of claims against a debtor, constituting its monetary obligations and/or mandatory payments, is no less than 100 thousand rubles, and the debtor has failed to satisfy those claims over the course of 14 days;
2) a debtor has failed to implement, within 14 days from the entry into force of the court decisions on the recovery of the debt; in such cases, the debtor should be deemed as bankrupt irrespective of the amount of claims against it;
3) the value of a debtor’s property is insufficient to cover its money obligations to the creditors and its mandatory payment liabilities;
4) the solvency of a financial institution has not been restored in the period of its interim management team’s activity.
Section Institutional Issues It should be emphasized that a financial institution should be deemed to be incapable of meeting the demands of its creditors and/or fulfilling obligations in regard of mandatory payments even in the presence of only one of the above-listed indicators of bankruptcy.
As far as the peculiarities of insurance organization bankruptcy prevention are concerned, special attention should be paid to the additional grounds for the application of bankruptcy prevention measures to an insurance organization. These grounds are as follows:
- multiple violations, within one year after the discovery of the first violation, of the standard ratio between the amount of the entity’s own financial resources as established by the existing norms, and the amount of its assumed liabilities or the requirements to the composition and structure of its assets necessary for covering its insurance reserves and own funds;
- recall or suspension of the license for effectuating the established types of compulsory insurance, as well аs limitation of that license.
In these cases, interim management should be appointed by the Federal Insurance Supervision Service (Rosstrakhnadzor). The right to file with an arbitration court a petition in bankruptcy, in addition to some other entities, is granted to a professional association which is recognized to be endowed with the right to present claims to a debtor – insurance organization – within the limits equal to the amount of entrance fees, membership fees, special-purpose contributions and other payments transferred to the professional association, as well as compensatory payments and other related expenses.
Legal regulation was introduced with regard to the transfer (or sale) of the insurance portfolio during the implementation of the measures designed to prevent bankruptcy, as well as in the course of a proceeding in bankruptcy. The sale of the insurance portfolio may be effectuated upon its coordination with the Federal Insurance Supervision Service’s agencies. The transfer of the insurance portfolio (Article 184.9 of the Federal Law ‘On Insolvency (Bankruptcy)’) implies its transfer to another insurance organization(s) or to its management company.
In this connection, the insurance portfolio being transferred must include:
a) outstanding liabilities under insurance policies as of the date of the decision concerning the transfer of the insurance portfolio (or insurance reserve);
b) assets received in order to cover the insurance reserves created by the insurer.
The procedure for the transfer of the insurance portfolio, including the procedure for fulfilling the obligations assumed under insurance policies, and the procedure for fulfilling the obligations of the management company are established by the Federal Insurance Supervision Service. In an event of insufficiency or lack of assets at the disposal of that insurance organization, the outstanding liabilities under insurance policies may be covered by the professional association with the monies earmarked for covering compensatory payment.
The notification concerning the transfer of an insurance portfolio must be published.
Within the period of one month from the date of its publication, insurers and insurance policy holders have the right to present to the insurance organization a request that the insurance policy the rights and liabilities under which are to be transferred should be annulled.
Besides, the order of priority with regard to claims of third-priority creditors has been altered (Article 184.10 of the Federal Law ‘On Insolvency (Bankruptcy)’).
Highest priority will now go to claims under compulsory insurance policies. Previously this category included only compulsory individual insurance, while all the other types of compulsory insurance were given second priority. In addition, the Federal Law’s articles have RUSSIAN ECONOMY IN trends and outlooks been augmented by those regulating the claims concerning refunds of compensatory payments and insurers’ claims.
Second priority will go to the claims under life insurance policies and other types of personal insurance. The range of claimants has also been expanded by including therein insurers.
Third priority, instead of claims under individual insurance policies, will now be granted to claims under civil responsibility insurance policies presented for causing damage (harm) to the life or health.
Fourth priority, instead of ‘claims of other creditors’, will go to claims presented under civil responsibility insurance policies for causing damage property of third parties and under property insurance policies.
Fifth priority will be granted to claims presented by other creditors.
The specific feature of an amicable agreement concluded with an insurance organization is the necessity to redeem the outstanding claims of first- and second-priority creditors, the claims of insured persons, beneficiaries, insurers under compulsory insurance policies, as well as the claims pertaining to refunds of compensatory payments and related expenses.
It should be noted, among the specific features of bankruptcy of professional securities market participants 1, asset managers of mutual investment funds, investment funds and nonstate pension funds, that the primary goal of the interim management team after its appointment is to ensure safety of the monies and securities owned by their clients. Besides, interim managers must establish the sufficiency of monies and securities owned by the clients and kept on a special broker account, depo account, or a separate bank account for the satisfaction, in full, of the clients’ claims with regard to restitution in regard of their monies and securities (Article 185.2 of the Federal Law ‘On Insolvency (Bankruptcy)’).
On the whole, the relations arising in connection with bankruptcy of the aforesaid organizations are to be regulated by the same norms as the bankruptcies of financial institutions (which has been discussed earlier), with a few specific variations.
Thus, in order to satisfy the clients’ claims in the course of supervision or a proceeding in bankruptcy, the arbitration commissioner or register keeper keeps a register of the clients of a relevant professional securities market participant or asset manager. The participation of the register keeper is mandatory if the number of clients exceeds 100. The contract with the register keeper may be concluded only in an event of the latter having insurance liability coverage with regard to inflicting losses on the clients.
The claims of the clients of a professional securities market participant or asset manager are satisfied in full if the amount of the clients’ funds kept on their accounts is sufficient for satisfying their claims. If the amount of the clients’ funds pooled in one account is insufficient to satisfy their claims in full, these funds should be transferred to the clients in amounts proportional to their claims. The unsatisfied claims of the clients are to be entered in the creditor register and given a third order of priority.
Besides, there exist a number of specific features of the actual conduct of the procedures of supervision and a proceeding in bankruptcy. Thus, for example, the clients’ funds are not included in the bankrupt estate of a professional securities market participant, asset manager or clearing institution, if these are kept on a special broker account, depository account, transit In accordance with Federal Law of 22 April 1996, No. 39-FZ ‘On the Securities Market’, professional securities market participants are to be understood as persons carrying on broker, dealer, depositary activity, management of securities, keeping of securities registers, organization of trade on the securities market. From 1 January 2013, clearing will also be recognized as a type of professional activity on the securities market.
Section Institutional Issues account, depo account, individual account of a securities holder, or a separate bank account opened for carrying on settlements against transactions relating to trust management. This also applies to the funds transferred for trust management to an asset manager or credited as investment units.
The securities owned by a professional securities market participant or asset manager and circulating on an organized market must be sold through an organizer of trading on the securities market. The securities that cannot be traded in that way must be sold in the procedure determined in Article 111 of the Federal Law ‘On Insolvency (Bankruptcy)’.
Some specific bankruptcy features are also consolidated with regard to non-state pension funds.
1. Apart from the general grounds, the new legislation has established the following additional grounds for the imposition of bankruptcy prevention measures:
- the standard size of pension reserves for fixed-parameter pension schemes has dropped, by the end of a relevant quarter, below the level envisaged by the controlling agency;
- the actuarial deficit, as reflected in the latest annual actuarial assessment of a non-state pension fund, has increased on the previous year.
2. Liabilities under contracts on non-governmental pension provision and the composition of the list of creditors whose claims are due to be satisfied at the expense of pension reserves and pension savings, as well as the amount of payables, should be determined and entered in the register of creditors’ claims by the interim manager.
3. Within 6 months from the date of an arbitration court’s ruling that a non-state fund should be deemed to be bankrupt and bankruptcy proceedings should be initiated, the commissioner in bankruptcy should ensure:
- the transfer of pension savings to the RF Pension Fund and the conclusion of proper settlements with the creditors of the pension investment fund;
- the payment or transfer to other funds of the redemption sums or their transfer as an insurance premium payment under the pension insurance contracts concluded with insurance organizations;
- the transfer of the fund’s duty with regard to the payment of non-governmental lifetime pensions, and its pension reserves to another non-state pension fund.
4. A bankrupt pension fund’s pension savings and pension reserves should not become part of the bankrupt’s assets, and are to be used only for the afore-said purposes. The procedure for satisfying the creditors’ claims at the expense of pension reserves and pension savings is been regulated by Article 186.7, 186.8 of the Federal Law ‘On Insolvency (Bankruptcy)’.
5. When bankruptcy-prevention measures are being applied or bankruptcy proceedings are being implemented, the duties with regard to payment of non-governmental lifetime pensions and pension reserves can be transferred, with the concurrence of the controlling agency, to another non-state pension fund.
6. All transactions for the sale of non-state pension funds’ properties in which pension reserves and pension savings are invested should be registered by a specialized depositary.
The procedure for such accounting operations should be set by the controlling agency.
7. The sale of the enterprise and the replacement of any assets of a non-state pension fund are not permitted.
RUSSIAN ECONOMY IN trends and outlooks Thus, the State increases the levels of protection of the various types of pension savings, insurance contributions, share deposits and investments. On the macroeconomic and political levels, the positive social effect of such innovations is clear and evident. On the negative side, the implementation of these legal norms might end up with the State regulating the number of monetary asset management funds and companies and their mergers and takeovers, as well as redistribution of the corresponding markets in favor of influential big players with good political connections.
In February 20111, the bankruptcy law was extended to include the specific features of bankruptcy of clearing institutions, concerning, among other things, the determination of the size of the monetary obligations arising from financial contracts. Monetary obligations arising as a result of contracts concluded under a general agreement (or a joint contract) which corresponds to the model contractual terms (envisaged by Article 51.5 of the Federal Law ‘On the Securities Market’), and (or) the rules of the staged auction, and (or) clearing rules and regulations, should be terminated in the procedure envisaged by the afore-said general agreement (or joint contract), and (or) the rules of the staged auction, and (or) clearing rules and regulations. The afore-said termination inevitably results in a monetary obligation, whose size should be determined in the procedure envisaged by the general agreement, and (or) the rules of the staged auction, and (or) clearing rules and regulations.
An interim manager has the right to refuse to implement only those financial contracts concluded between the creditor and the debtor that belong to the afore-said contract types. Creditors whose claims relate to net obligations are deemed to be third-priority creditors.
The afore-said legal innovations have been in force since 11 August 2011.
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