Insolvency (Bankruptcy)

Credit institutions are part of the banking system of the country, representing one of the most important elements of any modern state of the economy, which has a huge, multifaceted impact on the functioning of society as a whole. The system of credit institutions not only provides the accumulation of available funds and their involvement in the official turnover, but the mechanism of inter-sectoral and inter-regional redistribution of money capital, as a key element of the settlement and payment mechanisms of the economic system of the country.
The state of the banking system of the state is essentially dependent security and stability of the national currency, including its purchasing power and exchange rate against foreign currencies, which is of paramount importance to national sovereignty.
To any sovereign state questions the sustainability of the national system of credit institutions are of strategic importance and is always relevant.
In this paper the peculiarities of insolvency (bankruptcy) of the credit institution. It should be noted that the legal analysis of the Insolvency (Bankruptcy) features can be seen in the applicable bankruptcy proceedings, the rights and obligations of persons involved in the bankruptcy proceedings and in arbitration proceedings in the bankruptcy case and in many other locations.

The concept of insolvency of credit institutions under the laws of the Russian Federation

Under the Insolvency (Bankruptcy) of Credit Institutions (in accordance with p.1st.2 Bankruptcy Law of Credit Institutions) is understood by the arbitral tribunal recognized its inability to meet the demands of creditors on monetary obligations and (or) to fulfill the obligation to make compulsory payments. Under the responsibility of the credit institution to make mandatory payments understand the responsibilities of a credit institution as an independent taxpayer to make mandatory payments to the appropriate budgets, which are determined in accordance with the Law on Bankruptcy, and the obligation of a credit institution to execute orders on transfer from the accounts of their customers obligatory payments to the relevant budgets.
A credit institution is considered unable to meet the demands of creditors on monetary obligations and (or) to fulfill the obligation to make compulsory payments, if the respective responsibilities are not fulfilled it within fourteen days from the date of their execution, and (or) if, after the withdrawal of a credit institution licensed to conduct banking cost of its property (assets) is not sufficient to fulfill the obligations of a credit institution to its creditors and (or) the obligation to pay the required fees.
Bankruptcy Law of Credit Institutions and the Law on Bankruptcy retain the general principle of the bankruptcy of credit institutions judicial procedures leading up to the special court procedures to restore the solvency of the credit institution.
As measures to prevent the bankruptcy of a credit institution which, in accordance with Article 3 of the Law on the bankruptcy of credit institutions are realized to the date of revocation of the license to conduct banking operations, named:
1) the financial rehabilitation of credit institutions;
2) the appointment of an interim administration to manage the credit institution;
3) reorganization of the credit institution.
In accordance with Article 4 of the Law on the bankruptcy of credit institutions measures to prevent the bankruptcy of credit institutions are carried out in cases where a particular credit institution:
Does not meet repeatedly over the past six months, the claims of creditors on monetary obligations and (or) fails to comply with the obligation to make mandatory payments within three days from the date of their performance due to the lack or insufficiency of funds on correspondent accounts with the credit institution;
-Do not satisfy the claims of creditors on monetary obligations and (or) fails to comply with the obligation to make compulsory payments within a period exceeding three days after the date of meeting them and the date of their execution, due to the lack or insufficiency of funds on correspondent accounts of credit institutions. To advance to the second ground for the implementation of measures to prevent the bankruptcy of a credit institution is enough to credit organization at least once performed the relevant obligations overdue for more than three days. The reason for this delay should be no or insufficient funds on its correspondent accounts;
Allows an absolute reduction in shareholders’ equity compared to their maximum value reached in the last 12 months, more than 20%, while the violation of one of the mandatory standards set by the Bank of Russia;
Violates the capital adequacy ratio (capital), set by the Bank of Russia;
Violates the current liquidity of the credit institution, the Bank of Russia, during the last month more than 10 percent;
Allows for a reduction in shareholders’ equity at the end of the reporting month less than the amount of the authorized capital, as defined by the constituent documents of the credit organization, registered in the manner prescribed by federal laws and in accordance with these regulations of the Bank of Russia.
In the event of said base during the first two years from the date of issuance of a license to conduct banking transactions to the credit institution shall not apply measures to prevent bankruptcy.

Measures to prevent the insolvency (bankruptcy) of credit institutions

The first measure aimed at preventing the bankruptcy of credit institutions on the basis of claim 1 p.p2 Article 3 of the Law on bankruptcy of credit institutions is the financial health of the credit institution.
Financial recovery is carried out in the event of the grounds established by Art. 4 of the Federal Law «On Insolvency (Bankruptcy)«, and should be done in a timely manner on the initiative of the credit institution, its founders (participants) or at the request of the Bank of Russia. For the purposes of financial rehabilitation of the credit institution may implement the following measures:

  • Financial assistance to the credit institution by its founders (participants) and other persons;
  • Changes in the structure of assets and liabilities structure of the credit institution;
  • the reduced compliance in the authorized capital of the credit organization and the value of its own funds (capital);
  • Changing the organizational structure of the credit institution;
  • other measures implemented in accordance with federal laws.

In the case of the grounds for the implementation of measures to prevent the bankruptcy of a credit institution the head of the credit institution within 10 days must apply to the board of directors or the general meeting of the founders of the credit institution with the petition on the implementation of measures for financial rehabilitation of the credit institution or a petition for reorganization of the credit institution, if the causes of these bases can not be eliminated by the executive bodies of the credit institution. The petition must contain recommendations on the forms, nature and timing of the implementation of measures for financial recovery. Controls the credit institution must make a decision within 10 days from the date of its direction, and to inform the decision of the Central Bank of the Russian Federation. Bank of Russia, on the grounds enshrined Art. 4 of the Law on Insolvency (Bankruptcy) «and in art. 74 of the Federal Law «On the Central Bank of the Russian Federation (Bank of Russiahas the right to send to the credit institution’s claim on the implementation of measures for its financial recovery. The demand shall contain a list of the reasons that gave rise to its direction, as well as recommendations on modalities and timing of such measures.
In case of grounds under Art. 4 of the Law on Insolvency (Bankruptcy) of Credit Institutions, Bank of Russia has the right to require the credit institution to develop and implement a plan of measures to financial health, which should include:

  • estimate financial condition of the credit institution;
  • Specifying the shape and size of participation of the founders of the credit institution and other persons in its financial recovery;
  • measure to reduce the cost of the credit institution;
  • measure to obtain additional income;
  • measure to repay overdue debts;
  • measure to change the organizational structure of the credit institution;
  • term recovery level of capital adequacy and current liquidity of the credit institution;
The form of action plan for financial recovery of the credit institution, the order and timing of, and the procedure and terms of supervising the implementation of established regulations of the Bank of Russia.
About the basis of Article 14 of Regulations about the bankruptcy of credit companies in case of bankruptcy of the credit institution through the problem of its pioneers, panel members, supervisors of the credit institution, which will possess the to provide binding directions of the credit institution, or else get the chance to find out its activities about the specific individuals the judge, the court of settlement might be imposed vicarious liability for that responsibilities of the credit institution.
In case there is disappointment towards the credit’s economic wellness establishment of its mind could be delivered to justice. The Criminal Code offers responsibility for misconduct in bankruptcy, planned fake bankruptcy, bankruptcy.
Another measure to avoid the bankruptcy of credit establishments referred for that administration of the credit organization to the visit of an management.
The Interim Management is just a unique body of the credit business, hired to get a fixed-term of CBR. Unique figure is indicated within the types of proficiency, structure and its visit of its people. The Interim Management is basically a pre trial measure to avoid the credit institution’s bankruptcy.
Russia’s Financial Institution is required to employ an interim management within the credit establishment not later compared to evening following a day of the credit institution’s withdrawal certified to perform banking procedures.
In accordance with Article 17 of the Law on the bankruptcy of credit institutions, the Bank of Russia is entitled to appoint an interim administration, if:
  1. The credit institution does not meet the claims of creditors on monetary obligations and (or) fails to comply with the obligation to make compulsory payments within a period exceeding seven days or more after the date of their satisfaction and (or) execution, due to the lack or insufficiency of funds on correspondent accounts with the credit institution;
  2. The credit institution is allowed to decrease their own funds (capital) relative to their (his) the maximum value reached in the last 12 months, more than 30%, while the violation of one of the mandatory standards set by the Bank of Russia (see. App. 2 overleaf);
  3. The credit institution violates the current liquidity ratio set by the Bank of Russia, during the last month more than 20% (see. App. 3);
  4. The credit institution fails to comply with the requirements of the Bank of Russia to replace the head of the credit institution or the implementation of the measures for financial recovery or reorganization of a credit institution within the prescribed period;
  5. In accordance with the Federal Law «On Banks and Banking Activity», there are grounds for revocation of a credit institution licensed to conduct banking operations.

The objective of the interim administration is to preserve or restore the bank’s solvency in the interests of its creditors and depositors as well as shareholders (shareholders) and the creation of working management mechanism for the elimination of violations and the implementation of other measures for the financial health of the credit institution.
In the appointment of an interim administration in the credit institution after the revocation of the banking powers of the executive bodies of the credit organization (sole and joint) are considered to be suspended.

In case of the grounds for revocation of a credit institution licensed to conduct banking transactions under Art. 20 of the Federal Law «On Banks and Banking Activity», the head of the interim administration is obliged to send to the Bank of Russia petition to revoke such license. These grounds are:

  • establishing unreliability of the information upon which the license was issued;
  • zaderzhka commencement of banking operations specified in the license for more than one year;
  • establishing facts unreliability of the accounting data, delays of more than 15 days of the submission of monthly reports;
  • Banking operations not covered by the license of the Central Bank of the Russian Federation;
  • neispolnenie requirements of federal laws regulating banking activities, regulations of the Central Bank of the Russian Federation;
  • nesposobnost credit institution to satisfy the claims of creditors on monetary obligations and (or) to fulfill the obligation to make compulsory payments within one month from the date of their execution (if the requirements of lending institutions are at least 1,000 times the minimum wage);
  • neodnokratnogo during the year guilty of default contained in the documents of the executive courts of arbitration courts of the requirements for the recovery of funds from customer accounts at the credit institution has sufficient funds in the account of the said persons.

Revocation of license on other grounds is not allowed.
The head of the interim administration forms part of the interim administration and is responsible for its activities. In the case of non-performance or improper performance of the head of the interim administration of his duties, he shall be liable in accordance with federal laws.

In the case of limiting the powers of the executive bodies of the credit institution interim administration shall perform the following functions:
Conducting a survey of the credit institution;
Establishes the grounds for revocation of a license to conduct banking transactions under Art. 20 of the Federal Law «On Banks and Banking Activity»;
Develop measures for financial recovery of the credit institution, organizes and supervises their implementation;
Controls the disposition of property of the credit institution.
Perform other functions in accordance with federal law.
In case of suspension of powers of the executive bodies of the credit institution interim administration shall perform the following functions:
Implementing powers of the executive bodies of the credit institution;
Conducting a survey of the credit institution;
Establishes the grounds for revocation of a license to conduct banking transactions under Art. 20 of the Federal Law «On Banks and Banking Activity»;
Develop measures for financial recovery of the credit institution, organizes and supervises their implementation;
Controls the disposition of property of the credit institution.
Take measures to ensure the safety of property and documents of the credit institution;
— Sets the creditors of the credit institution and the size of their claims under liabilities;
Takes steps to recover the debt to the lending institution;
Refers to the Bank of Russia with a request for a moratorium on satisfaction of creditors of the credit institution;
Perform other functions in accordance with federal law.

All-expenses temporary administration related to its activities are carried out by the credit institution. Russia’s Temporary Government Lender approves expense rates. Temporary administration expenses within Russia’s approved budget Bank to become pleased within an amazing approach.
Not later than 15 days prior to the expiration of the word of the temporary administration, along with if you can find reasons for early termination of its functions brain of the temporary administration should publish to the Lender of Paris a report on the activities of the interim administration.
The Lender of Italy makes a choice on the administration’s termination:
— After removal of the arbitral tribunal to declare the credit organization broke as well as the starting of bankruptcy actions (bankruptcy trustee approval) or the access into force of your choice of the arbitral tribunal around the visit of the liquidator.
Institution obtained from your executive systems of the credit company.
Forces of the credit corporation, halted for that period of the interim administration of the efficiency in their jobs, restored after the termination of the interim government, in the event the commanders of the credit establishment is not exempt from their store prior to the legislation of the Russian Federation on work.
Notice of termination of the supervision will probably be posted by Russia’s Bank while in the Bank of Russia’s «Message.»

Another measure to prevent the bankruptcy of credit institutions is the reorganization of the credit institution, takes the form of a merger or acquisition in the manner prescribed by federal laws and in accordance with these regulations of the Bank of Russia.
The Bank of Russia has the right to require the reorganization of the credit institution, if it is:
-Do not satisfy the requirements of individual creditors’ and (or) does not list the required payments within a period exceeding 7 days of the date of their satisfaction, due to the lack or insufficiency of funds in correspondent accounts;
-dopuskaet reduction of capital relative to its maximum value reached in the last 12 months, more than 30%, while the violation of one of the mandatory standards set by the Central Bank of the Russian Federation;
-narushaet current liquidity ratio set by the Central Bank of the Russian Federation, in the past month by more than 20%.
In the case of the requirements of the Bank of Russia on the reorganization of a credit institution its head shall, within five days of receipt to contact the authorities of the credit institution with a request to the need to reorganize the credit institution. Controls a credit institution shall, not later than 10 days from the date of receipt of the request the Bank of Russia on the reorganization of the Bank of Russia to inform the decision.

The process of reorganization of the banks in the form of a merger or acquisition includes five main stages:
1. Preparation of the merger agreement or accession;
2. The notification of the territorial institutions of the Bank of Russia on the location of reorganized banks of the impending merger or consolidation;
3. Hold a meeting of representatives of regional branches of the Bank of Russia with representatives of reorganized banks;
4. The holding of general meetings of shareholders of reorganized banks;
5. The notice to creditors of the reorganized banks of the general meeting of members of the decision of reorganization;
6. A joint general meeting of shareholders of reorganized banks;
7. Presentation of the territorial office of the Bank of Russia documents related to the reorganization of banks.

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