Challenging the Debtor's Transactions
Usually bankruptcy does not happen overnight. Before filing an application with the court, both the debtor and the creditors can already assess the financial condition of the company and the prospects for repayment of debts and carry out most of the work to prepare for the trial.
The debtor, in order to save the assets, can make various transactions so that the creditors do not get money and property. Creditors, in turn, already in the process of a court case are trying to recover these assets, challenging the transactions concluded by the debtor. The key figure in this process is the insolvency practitioner, which we talked about in the previous post.
Today we will cover the special grounds for challenging transactions provided for by the Bankruptcy Law.
Which transactions may be challenged?
–those for which the counter execution was unequal. For example, the transaction price is below the market, or the contract includes conditions that significantly worsen the welfare of the debtor.
Transactions may be disputed that were made within 1 year before the bankruptcy petition are accepted by the court.
– transactions that are made with the aim of harming the interests of creditors. Such goal is automatically assumed if, at the time of the transaction, the debtor had signs of insolvency, and the counterparty knew about this, for example, was an affiliated or interested person.
Transactions may be disputed that were made within 3 years before the bankruptcy petition is accepted by the court.
- With unfair preference.
– these are those that entail, or may entail, the preference for one of the creditors over others. For example, a debtor before bankruptcy repays a large loan to some counterparty, and does not pay the rest of the debts.
You can dispute transactions made:
- within 1 month before the court accepts a bankruptcy petition, if the transaction has led or may lead to early satisfaction of the claims of some creditors to others.
- within 6 months before the court accepts a bankruptcy petition for those transactions that change or may change the order of satisfaction of creditors' claims.
If the transactions are successfully challenged, they are considered void and all received under such transactions (money, property) shall be returned to the debtor and immediately taken into account in the bankruptcy estate for distribution among the creditors.
The greatest difficulty in challenging transactions within the framework of bankruptcy is hidden not even in the delimitation of the grounds for filing a claim, but in the correct calculation and compliance with the deadlines, in proving the circumstances and in the actual return of assets. Usually the dispute process takes more than a month, and during this time the counterparties of the debtor have time to withdraw assets in order not to return everything received under the transactions.
TEAM has repeatedly faced complex and extremely confusing situations in bankruptcy, but we have always been able to efficiently carry out work on challenging transactions together with insolvency practitioners. If you need help in this matter, please contact TEAM!