An insolvency moratorium first introduced during the COVID-19 pandemic applies to nearly all Russian legal entities, individuals, and sole entrepreneurs, and bans the commencement of insolvency proceedings against Russian obligors.
On April 1, 2022, the Russian Federation reintroduced the insolvency moratorium with effect until October 1, 2022. The moratorium not only bans the commencement of insolvency proceedings against Russian obligors, but also affects their day-to-day activities (such as payment of dividends, set-off, contractual penalties, and enforcement of judgments). However, the application of the moratorium may be renounced at the discretion of each affected person at any time.
The regime was originally introduced in 2020 in response to the COVID-19 pandemic. At the time it applied only to certain businesses that had been most affected by the global pandemic, but it has now been extended to virtually all Russian residents.
The insolvency moratorium applies to all Russian legal entities, individuals, and sole entrepreneurs except for those real estate developers listed on the unified register of distressed objects.
Each Russian obligor is entitled to renounce the application of the moratorium. To do so, it must publish a notice to this effect with the special register. If the government extends the moratorium beyond October 1, 2022, the relevant notice shall be published again; otherwise, the extended moratorium will apply to the Russian obligor by default.
During the term of the moratorium, the following insolvency law restrictions apply:
Further, if a Russian obligor has filed for bankruptcy during the term of the moratorium, it is entitled to petition the court for compulsory debt restructuring for a period of one year. Such debt restructuring is available if certain statutory conditions are met (one of such conditions being the creditors voting against voluntary arrangement).
The moratorium further affects the day-to-day activities of Russian obligors:
Many loan agreements include provisions that may be breached by the introduction of the moratorium and result in a technical default. In order to protect the rights of lenders, it is usually advisable to push the Russian obligor to renounce the application of the moratorium.
Our lawyers have long been trusted advisers to clients navigating the complex and quickly changing global framework of international sanctions. Because companies must closely monitor evolving government guidance to understand what changes need to be made to their global operations to maintain business continuity, we offer this centralized portal to share our insights and analyses. To receive the latest updates, subscribe to our Ukraine Conflict: How to Maintain Global Business Continuity mailing list.
If you have any questions or would like more information on the issues discussed in this LawFlash, please contact any of the following Morgan Lewis lawyers:
Ukraine Conflict Task Force
Giovanna M. Cinelli
Kenneth J. Nunnenkamp
Georgia M. Quenby
Carl A. Valenstein
Jiazhen (Ivon) Guo
Katelyn M. Hilferty
Daniel Lopez Rus
Charles C. Rush