The Theoretical Underpinnings of Commercial Law: A Russian View of Bankruptcy and Securities
Authors:   Khokhlov, Bushev A.Iu. , Skvortsov O.Iu. 
Published: August 2005

AbstractPart One. The history of bankruptcy in Russian law both before and after the 1917 Revolution is the tool used to introduce the reader to this article. During the Soviet period, creditors of enterprises never participated in proceedings for their liquidation. This state of affairs began to change in 1992 with the adoption of the first bankruptcy legislation in the post-Soviet period.However, as reality soon showed to most observers, this was not a successful piece of legislation—at least as regards the needs of liberalized trade and commerce. This prompted the Russian legislator to promulgate new bankruptcy legislation in 1998; in turn, its life span was but a short four years. The reader here will be offered critical comments on the most recent RF Bankruptcy Law dating from 2002 and thoughts on how its provisions compare with those from prior versions of RF laws on insolvency. This will include views on bankruptcy practice in Russian courts the case load of which is growing each year.Part of the growth in application of bankruptcy legislation in Russia is a function of its use by entrepreneurs as a tool to divide up business assets. This has led to the phenomenon of fictitious bankruptcies. Another major problem in the application of bankruptcy legislation in recent years in Russia has been—the authors argue—a failure to take into account the interests of minority shareholders in corporate bankruptcies as well as of those corporate creditors who obligations are secured by collateral.Part Two. Transactions that are declared invalid during bankruptcy proceedings are the subject of this section. This analysis will be made using the approach of classic, continental law to the grounds for declaring a transaction to be invalid. The authors then highlight the logic in applying this institution to the area of bankruptcy. In doing so, the specific features are revealed of voiding transaction in bankruptcy proceedings.In particular, the authors draw the attention of the reader to the criteria under which a transaction concluded by an insolvent debtor is either void (nichtozhnaia) or voidable (osporimaia). They also underscore the necessity of striking a balance between the interests of creditors and those of an insolvent debtor. In this regard, the institute of the invalidity of transactions is examined from the point of view of providing a pro-creditor, pro-debtor, or neutral system in bankruptcy legislation.Part Three. The development of the generic institute of securities in Russia—as a form of debt instrument—is the focal point of this section. The influence of the Pandect system of Russian law on securities is illustrated as is that of politics (that has led to substantial changes in commerce and entrepreneurial activity) and doctrine. The authors argue the point that the characteristics of a security—both those seen on a paper document as well as those in an electronic form—can be united into a single, generic concept. The particularities of this concept are of an evidentiary nature.Each security is an evidentiary document that is distinguished (both in paper as well as electronic form) from other documents in the manner in which it can be contested and entered into evidence in judicial proceedings. The contestability of a security depends, in turn, upon the type of security involved and the rights that they confirm (a good, money, income).Arguments are given by the authors of this article in support of the thesis—not uniformly shared by all Russian scholars—that such means of legal defense as vindication is permissible vis-à-vis electronic securities. Yet the authors here also speak of a just (spravedlivyi) balance of the risks between the holder of a security that has lost the legal control (ownership) there over and a bona fide acquirer of such a security. Justice is reached through a determination in substantive law of procedural norms that apportion in a set fashion the burden of proof among interested persons.Lastly, this work also highlights the work of regulating the institute of securities in other CIS jurisdictions. In doing so, the authors point out a few areas in which Russia is lagging behind as concerns the organization of electronic trading in securities.