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Defence of a Company in Dispute on a Transaction Invalidation

17 November 2020

Case Description


Our client received a request to refund moneys received for the supplied equipment. The reason for the request was that the Buyer of the equipment began to meet the signs of insolvency (bankruptcy), and receivership was introduced against it. The receiver appointed to conduct the bankruptcy process filed a claim to challenge the debtor's transactions.

The signed and sealed documents directly confirming the supply, were not returned by the buyer (debtor). This made it extremely difficult to prove that the supplier had fulfilled its obligations.

BBNP lawyers analyzed all documents available to the client and statements of managers, correspondence, records of negotiations between the parties and prepared a legal strategy to defense the client's interests in court. Taking into account the fact that the actual location of the goods was established, the strategy of defense was based, in particular, on the supply chain from the Client to the final buyer. Challenging the transaction in this case could have led to a number of lawsuits and claims to law enforcement agencies, which undoubtedly had to be taken into account by the court when considering the dispute.

Result


The strategy of the defense in court was based not on the primary documents confirming the fact of deliveries, but on the analysis of the combination of circumstances and the testimony of the persons involved in the deliveries. BBNP lawyers managed to defend the client in an extremely difficult situation from a legal point of view, and to have the transaction recognized as a valid one.

For Reference


The practice of challenging debtors' transactions made three years prior to the bankruptcy process has become common. This is due to the fact that the challenging of a debtor's transactions to replenish the bankruptcy estate is the duty of a receiver. There is a practice of brining receivers to liability for non-performance of the said duty. For example, Ruling No. 308-ЭС19-18779 (1,2) under the claim for recovery of losses from the arbitration receiver of a bankrupt citizen in favor of his main creditor for his failure to challenge transactions in respect of the sale of real estate by the debtor.

Thus, the burden of proving the fulfillment of its obligation to supply equipment and provide services to the company against which the bankruptcy process has been introduced, falls on the defendant. It often happens that duly executed documents are not available, in particular, due to the buyer's bad faith in returning the signed original documents. This problem is especially relevant when the buyer begins to experience financial difficulties and the due attitude to document management fades into the background.

The main problem for the supplier of goods and services, in addition to the lack of documents, is that in the bankruptcy process, the court appoints a Receiver, who accepts only the primary original documents, instead of the head of the buyer's company, with whom the supplier has had business relations. When such documents, namely, acceptance certificates and consignment notes are not available, the Arbitration Receiver always claims a transaction to be invalidated. He has little interest in other documents and, in most cases, the court takes the side of the receiver. General Director cannot make such statements because the fact of proving the delivery means that he knowingly makes false statements to the court, which is a crime. Receiver has the right to refer to his non-participation in the company's activities.

In turn, in the case under consideration, the court attached primary importance to the fact of delivery, and not to violations of the rules of document management. In particular, the court's Ruling¹ states that "the non-compliance of some documents with the requirements of the legislation does not rebut the reality of the legal relations between the parties. The fact of violation of book-keeping by a business entity shall be established in administrative proceedings by the competent authorities, and the execution of book-keeping documents in itself does not indicate a failure to fulfill obligations to transfer goods."

Thus, a comprehensive approach to the collection of evidence and the development of a strategy is assessed by the court very seriously.
In turn, each case of challenging transactions in bankruptcy is individual, and requires development of a strategy of defense, taking into account all the circumstances that can be proved.
In some cases, it is possible to build the strategy on the information received under requests to customs and tax authorities, and in others, it is possible to rely on the electronic correspondence between managers. Sometimes it is more effective to establish the history of the supplied goods and confirm the final part of the supply chain.

BBNP lawyers have experience in such analytical work, as well as in making speeches in court debates, and will be happy to help bona fide suppliers protect their interests.

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¹ Ruling of the Thirteenth Arbitration Court of Appeal, Case No. A56-38205/2016/сд.62
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