УДК 34

Subordination and requalification of insider loans in bankruptcy proceedings

Байбутлов Александр Эдуардович – студент магистратуры Юридического факультета Финансового университета при Правительстве Российской Федерации.

Мирошина Елена Александровна – кандидат экономических наук, доцент Департамента мировой экономики и мировых финансов Финансового университета при Правительстве Российской Федерации.

Аннотация: Как правило, субординированный (корпоративный) долг находится ниже в очередности удовлетворения требований других кредиторов. В случае банкротства должника кредиторы по субординированным долгам не получат удовлетворение своих требований пока не будут удовлетворены требования иных кредиторов. Субординация может быть установлена соглашением о субординации между кредиторами. Для старших кредиторов это эффективный способ хеджировать риски. Субординированные долги являются более рискованными и требуют более высоких процентных платежей.

Понижение очередности корпоративных долгов может предусматриваться законом. Это один из самых спорных вопросов в законодательстве о банкротстве. Например, английские законодатели и суды не понижаю очередность удовлетворения таких требований. Согласно немецкому законодательству и законодательству США корпоративные долги понижаются в очередности, но по-разному и при разных обстоятельствах. Федеральный закон о несостоятельности (банкротстве) в России не предусматривает субординацию корпоративных требований. Однако Верховный суд Российской Федерации постановил, что в некоторых случаях корпоративный долг должен быть переквалифицирован в качестве вклада в капитал.

Abstract: Generally subordinated debt ranks below claims of other creditors. In case of a debtor’s default creditors who own subordinated debt will not be repaid until senior debts are enforced. Subordination can be established by subordination agreement among the creditors. It is an effective way for senior creditors to make their funds provision safer than those of junior creditors. Subordinated debts are riskier and require higher interest payments.

Subordination of insider loans can take place by operation of law. It is one of the most debitive issues in bankruptcy law. For example english legislators and courts deny the authority to subordinate such claims. According to the German law and the law of the US insider’s debts are subordinated in bankruptcy proceedings but in different ways and under different circumstances. The Federal Law of Insolvency (Bankruptcy) in Russia does not include the rule of subordination as it is. However the Supreme Court of Russian Federation has held that debts of affiliates must be requalified as a contribution to equity in some instances.

Ключевые слова: Банкротство, субординация, переквалификация, внутри корпоративные займы.

Keywords: Bankruptcy, subordination, requalification, insider loans.

Subordination under the German law

Traditionally under the German law a shareholder loan was requalified if a firm was accommodated with it in the course of a crisis – for example when a company was insolvent or at least lacked creditworthiness. Lacking creditworthiness means that no third party creditor is willing to extend a credit at market conditions. The same was obtained if a loan had been granted before the crisis but not withdrawn when it became clear that a company had financial difficulties.

However a reform called MoMiG (Modernisierung des GmbH-Rechts und zur Bekämpfung von Missbräuchen) was put in place in 2008 and legal approach to shareholder loans was changed. The criterion of a «crisis», «lacking creditworthiness» was abandoned. Nowadays statutory subordination is automatically extended to all shareholders irrespective of when and under which circumstances loans are granted. This idea is connected with the doctrine of separate legal entity – the company’s actions and assets are separated from those of the individuals. Once shareholders are not liable for company’s debts their loans should be subordinated. In other words you cannot use the privilege of limited lability of shareholders and at the same time ranks equally with third party creditors. There are two exemptions. Firstly, it is made for minority shareholder with capital share less than 10%. Secondly, it is for creditor firstly not connected with a debtor who later acquires a share in capital and after it grants a loan [2].

Subordination and requalification under the law of the US

Under the law of the US two major concepts can be identified – the doctrine of equitable subordination and debt recharacterization. The doctrine of equitable subordination is established by the Bankruptcy Code [4]. According to it shareholder loans are subordinated in insolvency proceedings but not excluded from it. Factual requirements for equitable subordination developed by case law are:

  • inequitable conduct on the part of the creditors;
  • an injury caused to creditors or unfair advantage for insider;
  • consistency of subordination with the provisions of the Bankruptcy Code [1].

Granting a loan in case of undercapitalization of a company is one of the examples of inequitable conduct. In its entirety undercapitalization of a company is a significant mismatch between equity and debt.

Therefore the main goal of equitable subordination is to determine insider's fault. The statute law rejects any per se subordination – the general principle is that absent inequitable conduct insider loans ranks pari passu with claims of non-insider lenders. Such a claim can be subordinated only to extent deemed necessary by the court to offset injury or damage caused to creditors by inequitable conduct.

The doctrine of debt recharacterization on the contrary was developed by courts. It is easier to prove because debt recharacterization does not require inequitable conduct. That is why in recent years this doctrine has displaced equitable subordination as a favoured cause of action. Under recharacterization a contribution is identified as equity instead of debt and it is subordinated in full as a proprietary interest.

In such a way the main goal of debt recharacterization is to divine insider’s intent to provide funds in form of equity rather than to determine insiders’ fault. The problem is that sometimes it is really difficult to distinguish debt and equity. When insiders attempts to rescue the distressed company they commonly use instruments with discretionary deferral of interest or those not provided current periodic payments. In such a case a risk profile of that instruments is closer to an equity investment although it is called a loan [3].

At least three separate lines of cases address the doctrine of debt recharacterization. Some federal courts has held that bankruptcy courts lack the authority to recharacterize debt as equity because there is no specific provisions in Bankruptcy Code [2]. Others have adopted two-pronged test. On the one hand insider loans may be deemed capital contributions if there is initial undercapitalization of a company. The implication is that shareholder loan will be recharacterized if at the moment of foundation of a company the amount of authorized capital was insufficient to meet future obligations. On the other hand the same result will be reached if the loans were made when no other disinterested lender would have extended credit (lacking creditworthiness).

Several courts have adopted multi-factor tests derived from US tax decisions. The most commonly cited is eleven-factor test first articulated in Roth Steel Tube Co. v. Commissioner of Internal Revenue. Consideration is given to such factors as adequacy of capitalization, corporations’ ability to obtain financing from outside lenders, the source of repayment and presence of a sinking fund, schedule of payments, interest payments and so forth. Multi-factor analysis involves an open-ended inquiry – the number of factors and the weight given to the factors varies from case to case. However a creditor’s status as an insider and the undercapitalization of a debtor are, standing alone, insufficient to support debt recharacterization.

Some authors states that it seems misguided for bankruptcy courts to look to tax cases as precedent to recharacterize loans in bankruptcy. The focus of tax court’s inquiry is economic basis of a loan – is it valid or the loan is granted to solvent company only to generate a tax benefit. Therefore the choice between the form of investment – debt or equity – is a matter of tax planning. By contrast, a loan to insolvent company is advanced as debt to achieve economic parity with third party creditors [3].

The economic perspective of subordination and requalification

The policy rationale behind subordination of shareholders loans has been disputed for several years. The economic intuition in favour of subordination is that shareholders often gamble for financial rehabilitation resulting in a high risk of dissipation of the remaining funds. In other words subordination is an effective remedy to address abuse by insiders. However subordination creates a disincentive against legitimate rescue attempts as shareholders will not obtain an insolvency quota if rescue attempts fails. There can be some situations when effects of subordination are counterproductive: subordination deters efficient rescue attempt or the deterrent power of subordination is too small to prevent an inefficient rescue attempts.

Eleven-point recharacterization test under US law seems to be more subjective and flexible approach. However this doctrine – alike equitable subordination – permits requalification of a loan even in situations where the insider lender does not engage in an inequitable conduct. These threatens the balance of interests of a debtor and creditors and preclude shareholders from providing debt financing except through bankruptcy court approved plan. Another problem is the lack of predictability concerning the enforcement of the insider debt.

Requalification under the Russian law

In Russia under the Federal Law of Insolvency (Bankruptcy) a court will not put an insider's claim into the list of creditor’s claims if it is derived from corporate relationships between a shareholder and a company. For example a demand to pay dividends, value of capital share, liquidation quota will be meet after claims of third party creditors are paid. However in the majority of cases after such payments have arranged there is no assets to be distributed among insiders. This idea is different from subordination because insider claims are not ranked lower than the claims of others but are entirely excluded from the line. That is why 1) under the Russian law there is no legal concept of subordination in its pure form 2) de jure insider loan or surety for debt must be put into the list of creditor's claims.

However a lot of shareholders or other affiliates abuse their powers in case of company’s default. As insiders they can falsify documents to create a visibility that transaction is made even if funds have not been actually provided. The purpose is to fraudulently obtain proceeds of sale of debtor’s assets and cause damage to non-insider creditors. A trustee and creditors can object such claims. Russian courts have worked out a standard of proof which means that a creditor who wants to be put into the list of creditor’s claims must present clear and convincing evidences that a deal was effected – for example a creditor had financial ability to extend a credit. In other words the burden of proof lies with the creditor of questionable transaction. As a party to an agreement his opportunities to furnish a court with proofs of its validity are higher than chances of third party creditors to confirm the converse. Along with that there is a higher standard of proof for insider claims – beyond reasonable doubt – as a result of inquiry the court must not have any reasonable doubt that transaction made by an insider is valid.

Until very recently courts in Russia denies the authority not to put insider claims of non-corporate nature into the list of creditor’s claims. Nowadays this result can be reached. However courts still have not formulated universal criterions of when and under witch circumstances it can be made. The consideration is usually given to such factors as the value of insider’s share capital, absence or presence of undercapitalization and inequitable conduct in part of creditors [6-10]. Herewith a loan is considered to be a fraudulent transaction and qualifies as capitalization [5]. Some legal scholarships think that it is important to establish does a company become insolvent because of bad corporate governance of such shareholder or regardless of its actions. in case of the former insider loan should be requalified.

Under the Russian law a person who controls a debtor in some cases is liable for company’s debts to extent deemed necessary to meet obligations not repaid after all company’s assets is sailed. The disproportion of interests or double punishment may be caused by admitting its liability for company’s debts and requalification of a loan at the same time.

Another problem is that bankruptcy proceedings after which a debtor can be rehabilitated are not effective and predominantly are not used. That is why rescue attempts made before filing for bankruptcy are the last chances of a debtor to stay afloat. However a concept of subordination precludes shareholders from such attempts and triggers flurry of companies defaults in Russia.


The comparative overview shows that there are basically two concepts of how shareholder loans can be treated – subordination of a claim and requalification of debt to equity.

For example in German law used a rule of subordination corporate debts. German legislation prohibits the use of privilege of limited lability of shareholders and at the same time ranks equally with third party creditors.

Another way of regulation used in US - the doctrine of equitable subordination which established by the Bankruptcy Code of US. According to it shareholder loans are subordinated in insolvency proceedings but not excluded from it.

As well US bankruptcy courts developed one more method of regulation considered issue - the doctrine of debt recharacterization. It is easier to use because debt recharacterization does not related to misconduct.

However the economic benefit is doubtful in both cases.

The Russian law does not include the rule of subordination as it is. Russian courts should formulate universal criterions of when and under which circumstances insider loans can be requalified.

Список литературы

  1. Ин ре Мобайл Стил Ко., 563 Ф.2д 692, 699-700 (5й Сир. 1977).
  2. Мартин Гелтер и Юрг Рот. Субординация корпоративных займов с законной и экономической точки зрения // Гарвардская юридическая школа. Дискуссионный документ о программе Центра корпоративного управления № 13 им. Джона М. Олина.
  3. М. Уилтон и Стивен Мёллер-Салли. Переквалификация долгов по государственному праву // Бизнес-юрист. 62, № 4 (август 2007 г.).
  4. Кодекс США. Раздел 11 Банкротство // URL:https://www.law.cornell.edu/uscode/text/11 (дата обращения 20.11.2019).
  5. Алоян A.Э. Проблемы имплементации доктрины recharacterization в российскую правовую систему // «Вестник гражданского права». 2017. № 6.
  6. Определение ВСРФ от 06.08.2015 № 302-ЭС15-3973 по делу № А33-16866/2013 (документ не был опубликован).
  7. Определение ВСРФ от 06.07.2017 № 308-ЭС17-1556(2) по делу № А32-19056/2014 (документ не был опубликован).
  8. Определение ВСРФ от 04.06.2018 № 305-ЭС18-413 по делу № А40-163846/2016 (документ не был опубликован).
  9. Определение ВС РФ от 23.07.2018 №310-ЭС17-20671 по делу № А68-2070/2016 (документ не был опубликован).
  10. Определение ВСРФ от 20.09.2018 № 305-ЭС18-6622 по делу № А40-177314/2016 (документ не был опубликован).

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