A Resolution of the Plenum of the Supreme Arbitration (Commercial) Court of the RF (the "Resolution") concerning the application of Section 120 of the Civil Code with respect to state- and municipality-owned enterprises, was adopted on June 22, 2006 by the Court’s plenary session.
Section 120 of the Civil Code introduced the concept of an "establishment," an organizational form that may be used to set up a state-owned enterprise. An establishment is a legal entity that has no equity capital, but which is set up on the basis of a grant by the promoter of the entity of a pool of assets to which the entity acquires limited title. It has limited capacity, holds limited title to the assets made available by the owner, is funded by the owner of the assets on a budgetary basis, and corporate powers which are restricted to those necessary to attain the objectives set by the asset owner. This determines the issues that arise in the context of such entities doing business with third parties and the extent of its liability for trade debts.
The Resolution is a further restatement of the Court’s stance regarding the ability of businesses to pursue civil remedies against establishments. According to the Resolution, courts will rigorously enforce the limited capacity principle and hold contracts made and transactions executed, which are ultra vires of the establishment’s stated objectives, void. Assets held by an establishment, whether granted by the promoter or acquired with the establishment’s own revenue, do not become the property of the establishment and are not available to its creditors. The only monies liable to be applied in satisfaction of debts owing to creditors are revenues generated by establishments in the course of carrying out their permitted business, and cash held by them. Where the cash of an establishment is insufficient to cover its debts, the creditor can claim against the owner of the property held by the establishment on the basis of subsidiary liability. The courts will not allow creditors to seek recovery from the owner of the assets, however, unless a demand is made against the establishment itself and the entity is joined in the proceedings against the owner.
The Resolution provides that the exceeding by the establishment of the budget set by the owner or failure of the owner to finance the establishment will be no defense to a creditor’s claim. This approach is welcome since creditors are unlikely to have notice of the limits of the owner’s financing and the policy decision, leaving the promoter liable for the proper management of the financial affairs of the establishment, and protecting creditors.
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A trustee in bankruptcy's rights to obtain a possession order and order for sale against a bankrupt's property will not be suspended indefinitely even where there are exceptional circumstances.
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