The Insolvency Law admitted “insolvent”
Yesterday, a long ago expected event took place: Vladimir Putin vetoed the federal law On Insolvency. According to the president, the law as it is now cannot be used. In the meanwhile, it was successfully passed by the State Duma and approved of the Federation Council.
The 1998 law caused the dissatisfaction of both representatives of capital and many state functionaries. German Gref, economic development and trade minister, many spoke many times about the necessity to introduce amendments to the law. While Prime Minister Mikhail Kasyanov once said that the law allows companies to deviate from paying taxes and to use the insolvency procedure for the repartition of property. It should be noticed that experts have many times talked about theobvious advantages of the new edition of the law in comparison with the previous laws. The first insolvency law was passed in Russia in 1992. However, it mainly protected the interests of debtors, but not creditors. While the 1998 law allowed a firm to be insolvent for the most formal reasons. It caused a real insolvency orgy and a tide of repartition of property.
For example, in 1999, 10,000 insolvency cases were registered, while, in the first six months of 2001, 14,900 were registered. An insolvency action was often brought because of small debts, while the debtor simply had no opportunity to pay off his debts. The creditors started to withdraw dirt cheap the assets from the management of normally functioning enterprises. Bankruptcy threatened hundreds of enterprises, while dozens of them in the most legal way were classified to be bankrupt. Therefore, some companies(Sayankhimrpom and Schebekin Chemical Works, Khimvolokno, and others) avoided bankruptcy only thanks to help of local administrations. According to the experts, the insolvency law is now successfully used both by local authorities and criminal structures. Local functionaries often bankrupt companies and, in some time, become their leaders or place their relatives into the administrations of the companies. There are also cases when creditors cause a company to go bankrupt and then laer buy at a rock-bottom price. This was why Vladimir Putin insisted in his letter to State Duma speaker Gennady Seleznev to withdraw the point from the law, according to which creditors or their affiliated persons can participate in auctions.
The latest version of the law introduced for the president's signature gave the widen cognizance to the state. While creditors need to prove the existence of debts and only then use the judges' services. The judges will have one month to make the enterprise answer for its debt, and these attempt had been unsuccessful, they could start the procedure of bankruptcy.
There is the opinion that, thanks to this point, debtors could have for years avoided bankruptcy, paying only a small part of the debt according to receiving order, and every time returned the procedure to the very beginning.
Moreover, to avoid criminal structures from using the law, a procedure of financial reorganization was foreseen. In other words, co-owners have an opportunity to pay debts and to, therefore, rescue their businesses. The owner may now participate in the bankruptcy action and, in this way, avert selling his property dirt cheap. One more novelty is the toughening of control over the activities of arbitration managers. For these aims, self-regulating organizations of arbitration managers are planned to create, which should control the managers.
However, Vladimir Putin did not like this variant of the new edition. Now, we have only to wait for what the parliamentarians offer next time. Finally, every state needs an insolvency law, while property will only decay with bad owners who cannot manage it.
Dmitry Slobodyanyuk PRAVDA.Ru
Translated by Vera Solovieva
Read the original in Russian: http://www.pravda.ru/main/2002/08/07/45293.html
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