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Counterparty bankruptcy: what transactions can be challenged and how to protect yourself?

When a bankruptcy proceeds, everything: creditors, a debtor, a bankruptcy trustee – are driven by a simple motive – to receive money. This gives rise to the struggle for the elusive property of the bankrupt, which, as a rule, is not enough for everyone.

Challenging completed transactions is one of the most common categories of disputes. This is the tool that will certainly be used against the counterparties of the debtor.Along with the manager, a creditor can also file a claim on the invalidity of the concluded transactions in the event that the amount of debt owed to him amounts to and exceeds 10% of the total amount of creditors’ claims included in the register.

However, this barrier is overcome. If the debt to you does not reach 10%, you have the right to demand from the manager an appeal of the transaction and provide the necessary evidence for this. If the manager does not follow your requirements, complain about him, demand damages, try to remove him.

It is important to understand that transactions that may be disputed mean absolutely all actions provided for by civil, labor and family laws, tax and customs laws, and so on.

If the transaction is disputed, then you will have to return the property received upon its completion to the bankruptcy estate. Then, having entered the register of creditors, you get a chance, albeit a ghostly one, to return the money in the framework of bankruptcy. But keep in mind that it can last for many years, and do not have high hopes that there will be enough competitive mass and enough money for everyone. Unfortunately, in full the claims of creditors are rarely satisfied.

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Current bankruptcy law is based on Roman law institutions. The laws of many countries make it possible to challenge a debtor’s transaction committed in order to harm creditors. And the legal basis for this was laid back in Roman law – this is the so-called Paulian lawsuit (actio Pauliana), which got its name from the ancient Roman lawyer of the first half of the III century, Julia Paul. Already in the III century in the economic life of Rome, such questions arose, the regulation of which in the modern period of Russia appeared at best in the 2000s.

What transactions can be challenged?

There are two types of transactions that can be challenged – suspicious (harmful) transactions and preferred transactions. In turn, in suspicious transactions, sub-transactions can be distinguished as a subspecies.

Suspicious (harmful) transactions

Transactions made with the aim of causing damage to the property rights of creditors may be challenged if they were completed three years before the adoption of the application for declaring the debtor bankrupt or after.

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