An Insolvency officer (a trustee in bankruptcy) in a bankruptcy case is often considered to be a controversial figure. It might be because of this fact that the legislation has tightened the grip on the insolvency officers to minimize the risks of authority abuse. The imposition of administrative action is used as a leverage point against insolvency officers. Every year there is an increase in the number of cases opening under Parts 3-3.1 of Article 14.13 of the Code of Administrative Offences of the Russian Federation. At the same time, the sanctions for law infringement vary from a fine (RUB 25,000-50,000) to suspension (between 6 months and three years).
An insolvency officer can be held liable for a breach of duty he or she is supposed to exercise under insolvency law if such action (inaction) is not considered penal. Considering the impressive volume of insolvency legislation, it is possible to penalize almost any insolvency officer. On the one hand, it is an obvious advantage since creditors, and other interested parties can cut the officer's inaction short. Not all creditors and authorized agencies are honest, however, so they sometimes try to sabotage the officer for their benefit.
One such authorized agency tried to "sabotage the settlement officer" by filing a claim against an insolvency officer to Altai Krai Department of Rosreestr (the Federal Service for State Registration, Cadaster, and Cartography). The claim stated that the insolvency officer committed several violations with the settlement officer compiling the report. The report was lacking the "Information on making a third party liable for the debtor's obligations" section, and in the “Indebtedness amount” section, the insolvency officer put the amount to the date of the report instead of that specified by the debtor's executive director upon filing the documents. Considering these arguments, Rosreestr petitioned the Arbitration Court of Altai Krai to impose administrative action against the settlement officer under Part 3 of Article 14.13 of the Code of Administrative Offences of the Russian Federation.
In the course of court proceedings, we have proven that the mere law infringement should be considered against the factual background, as in why the insolvency officer committed these violations. The consequences of the violations ought to have been taken into consideration as well as if they affected the rights and legitimate interests of the creditors, the debtor, or the bankruptcy procedure itself. We explained the court that the absence of the "Information on making a third party liable for the debtor's obligations" section was because the insolvency officer had not yet filed the necessary statements as to the date of the report, thus rendering the section undescriptive (empty). However, the officer corrected this error under a pre-action protocol immediately after receiving a notice from Rosreestr.
As to the "Indebtedness amount" section, the insolvency officer did not have access to documents confirming the indebtedness of third parties. The primary accounting documents that would confirm the indebtedness amount were requisitioned from the Debtor's former executive director during enforcement proceedings. Including the unconfirmed indebtedness amount into liquidation assets seemed unreasonable as there was no chance of recovering funds through either court proceedings or bidding.
The Arbitration Court considered our arguments and stated that the violations committed by the insolvency officer did not affect property or rights and legitimate interests of any third party. At the same time, the committed violations were merely technical and did not infringe the rights of creditors to obtain credible information. The court also established that the insolvency officer had voluntarily removed the described violations at the time of court proceedings. In doing so, the imposition of administrative action under Part 3 of Article 14.13 of the Code of Administrative Offences of the Russian Federation was denied, and the insolvency officer only received a verbal warning.