Legislative Amendments to Allow Russian DIA to Expedite Bank Bankruptcy Procedures in the Russian Federation

The State Corporation “Deposit Insurance Agency” (DIA) will be able to acquire from bank creditors the rights of claim against individuals held subsidiarily liable for driving banks into bankruptcy, if these rights were not sold at auction.

The corresponding Law No. 208-FZ “On Amendments to Articles 61-17 and 189-96 of the Federal Law ‘On Insolvency (Bankruptcy)’ and Articles 19 and 39 of the Federal Law ‘On Insurance of Deposits in Banks of the Russian Federation'” came into force in July 2024.

The DIA puts up for auction the rights of claim against individuals held subsidiarily liable, like any other assets of a bankrupt bank, until their value drops to a minimum set by the creditors’ committee, with no possibility for further work with assets not realized at the minimum price. As a result, the process of settling with creditors is prolonged.

The Agency’s purchase of the aforementioned rights of claim will allow for faster settlements with creditors and the completion of bank bankruptcy procedures. Afterward, the DIA will be able to independently, outside the bankruptcy case, recover damages from the individuals held subsidiarily liable.

“The innovation will allow the DIA to settle with creditors more quickly and to more promptly launch the process of recovering funds from the individuals guilty of driving banks into bankruptcy. Furthermore, we now expect to reduce the duration of bankruptcy procedures by at least one year.”

Andrey Melnikov, General Director of the DIA

Also, according to the document, the rules for transferring unsold property of bankrupt banks to their creditors as compensation in lieu of payment are changing.

Currently, a mandatory condition for satisfying creditors’ claims by transferring the bankrupt bank’s property to them as compensation is the absence of outstanding first and second-priority claims, as well as claims for current payments, even if there are sufficient funds in the bank’s bankruptcy estate for this purpose.

Under the new law, creditors will be able to receive the bank’s property as compensation in the absence of claims for current payments and with sufficient funds in the bankruptcy estate to settle with second-priority creditors, as well as with creditors to whom the bank has obligations arising from harm caused to life and health.

The changes will allow for satisfying the claims of bankrupt banks’ creditors in a larger volume and more promptly.

Compensation in lieu of payment under the new rules can be provided if the bankruptcy proceedings for the bank were initiated from December 21, 2016.