Supreme Court confirms Pugachev’s innocence

The Supreme Court confirmed the illegality of the involvement of ex-senator of subsidiary liability in the amount of 75 billion rubles

Supreme Court dismissed the Deposit Insurance Agency request to cancel the 9th Arbitration Court of Appeal decision issued in September 2015 regarding the unlawful extension of the bankruptcy of International Industrial Bank ("IIB"). This Supreme Court Order confirms the illegality of the DIA complaint of subsidiary liability against former Senator Sergei Pugachev in the amount of 75 billion rubles.

The Order of Judge Ivan Kleandrov of the Moscow Arbitration Court issued on 15 July 2016 to extend the term of bankruptcy proceedings of IIB was overturned by the Ninth Arbitration Court of Appeal due to the unlawful composition of the court with only one judge (starting July 9, 2012 Judge Kleandrov issued all orders decisions unilaterally and alone although the law required that all court decisions must be issued with a panel of three judges).

The Court of Appeal decision means that the previously adopted decision by a singularly by Judge Kleandrov during the IIB bankruptcy proceedings were unlawful. However, the deadline for the appeal of each of those illegal orders issued by Judge Kleandrov has already passed and therefore no appeal can be filed procedurally, stated Ilya Rachkov, partner of King & Spalding law firm, and Grigory Chernyshov, partner at G.P.Chernyshova law firm in September 2016.

Revision of those court decisions can be achieved only by obtaining an annulment decree from the Supreme Court - which is a very high threshold. DIA tried to appeal the decision of the Court of Appeal to the Supreme Court, however on December 19, 2016 the Supreme Court dismissed the complaint in its decision №305-ES14-3834 (16) of the Russian Federation.

On December 14, 2016 the Moscow Arbitration Court held for the first time since 2012 a hearing with the correct panel comprised of three judges. That panel issued an Order extending the bankruptcy proceedings of IIB, but only until December 7, 2016. In this regard, the DIA, as the IIB bankruptcy trustee, has not resumed control over the bankruptcy that the DIA originally lost control of on 15 July 2016. Nevertheless, the decision (issued on 14 December 2016) was appealed by one of the creditors of IIB, CJSC "Virazh", and until that appeal is finalized the bankruptcy proceedings of IIB cannot be extended from July 15, 2016.

It is noteworthy that Judge Elena Solopova was appointed to deal with the IIB creditor complaints submitted to the Ninth Arbitration Appeals Court in mid-January 2016. The "Ninth" and an automated system of distribution of appeal files (with their distribution among judges being done automatically) and information about the appointment of the judge appeared for the arbitration case file.

However, on January 24, 2017 other information was posted - namely that the case will be considered instead by Judge Oleg Mishakov, Vice Chairman of the Ninth Arbitration Court of Appeal. By virtue of his position, Judge Mishakov, unlike other judges, may use his administrative powers and take the matter himself. It is possible however that this decision (to take the file) was not an initiative of Mishakov, but instead as directed by the Chairman of the Ninth Arbitration Court of Appeal Igor Gladkov.

"Automation of the process of distribution of cases is the best way to avoid involvement in the formation of the court. The judge in this model receives a randomly selected case, and from that point onward no one can tell him about the proceedings. This is the best way to implement the principle of impartiality and non-interference in the selection of officials and judges for consideration of a particular dispute", notes Igor Kazakov, analyst of" ProVED ".

"Automatic distribution is said to provide at least some fairness in the selection of judges", says Sergei Zuikov, CEO of the law firm "Zuikov and Partners". "If the Chairman of court or president of the panel of judges interferes in the process then the independence of the court may suffer" agrees Julius Tai, managing partner of law firm "Bartolius"

The transfer of the case to the Judge Oleg Mishakov in fact may indicate that the distribution of the case is "required" and may indicate corruption and improper influence in the case. Any judge can hear the case, given one's specialization in accordance with the law, however, any transfer of the case from one judge to another without a legitimate reason demonstrates a personal, direct or indirect interest in the outcome of the case or there are other circumstances that may call into question its impartiality. If this is true it will become clear after the February 3rd hearing when the Court of Appeal will consider the complaint of the IIB creditor.

Be that as it may, the Supreme Court's last "IIB" decision has already confirmed the illegality of the court decisions issued by Judge Ivan Kleandrov for the past several years due to an illegal composition of the court (including approximately one hundred decisions on various relevant matters). And includes the most significant of those court orders - to order subsidiary liability for the debts of IIB in the amount of approximately 75 billion rubles against former Senator Sergei Pugachev and a number of the bank's top managers. Bankruptcy proceedings include bringing claims of subsidiary liability. It is not possible to consider the imposition of subsidiary liability without proper and legal bankruptcy proceedings and since 2012 those proceedings have been illegal due to their prolongation by the illegal composition of the court. One of the creditors of IIB has already deposited to the Russian Investigative Committee a request to initiate a criminal investigation against Judge Ivan Kleandrov pursuant to article 305 of the Criminal Code ("Submission of knowingly unjust decisions"), which provides up to 4 years of imprisonment. In addition, a creditor has filed a request to the High Qualification Board of Judges requesting the cancellation of Kleandrov's status as a judge.

Lawyers for Pugachev have said that Pugachev was ready to seek the cancellation of illegal court orders against Mr Pugachev in Russia and in other jurisdictions, including the United Kingdom. In the United Kingdom, the DIA was required by the High Court in London to reserve $100 million to compensate Mr Pugachev for damage caused to Mr Pugachev by the UK court proceedings related to Russian subsidiary liability order.

Pugachev's representative stated that "due to the recognition by the Russian Supreme Court of the illegality of the IIB bankruptcy proceedings since July 9, 2012, the DIA has no legal right to continue the IIB bankruptcy proceedings, including all litigation or recovery of funds through court decisions issued in Russia and abroad. Any current action by the DIA for seizure or sale of assets of Mr. Pugachev based upon a decision on the recognition of the Russian subsidiary liability order against Mr Pugachev and its enforcement is illegal. "

In turn, the independent creditors of IIB require the DIA to pay them money from the remaining estate of IIB and to compensate the damages caused by illegal actions of the DIA related to expenses the DIA totaling about 2 billion Rubles during the past six years. Payments to creditors amounted to only 2.6% of the amount of the claims and payments were discontinued by DIA in August 2014.

On 14 December 2016 the Moscow Arbitration Court ordered the DIA to provide a report on the performance of the estate for the past six years, and the creditors' lawyers announced their intention to apply to law enforcement authorities with a complaint about misappropriation by the DIA related to insurance required for IIB deposits.

On 26 December 2016 the Moscow Arbitration Court issued a ruling in which the DIA is obliged to take measures for the completion of the bankruptcy of International Industrial Bank.

By Sergey Kiselev, NV daily

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Author`s name Dmitry Sudakov