Substance over form in debt recovery

The Supreme Arbitrazhniy Court yesterday held bailiffs responsible for the failure of a commercial entity to collect debt from another company and ordered the Federal Treasury to pay damages to the creditor.

The Presidium of the Supreme Arbitrazhniy Court referred to the European Convention for the Protection of Human Rights and Fundamental Freedoms, which is very unusual, and overruled the decisions of lower courts, technically correct but flawed in substance.

According to Kommersant, the court handed down the ruling that it was the court bailiff’s fault that the debtor managed to hide assets from collection and ordered the State to pay about $50 thousand in damages to the construction company Irbis.

In January 2005 the St.Petersburg court seized assets of the company "Vostok" and impounded 20 objects, including lifting equipment, heating boilers, and electrical equipment.

Later, bailiffs removed the attachment from these items and seized, what were in their view more liquid assets, promissory notes of $240 thousand at face value. The notes, with the help of an appraiser, were estimated at $43 thousand, which was approximately the amount of the debt, and put up for an auction.

When the notes failed to sell the bailiff suggested to Irbis that they should accept them as the repayment of the debt, warning that if they refuse to do so, the collection procedure would stop. The company later managed to resume the enforcement proceedings, but in the meantime the debtor had moved to another town and all its assets disappeared on the way.

In practice, bailiffs can play with the assets of a debtor and do not directly violate the law. The importance of the precedent is that the Presidium looked beyond the technicalities, exactly what the lower courts do not dare to do, and delved into what actually had happened.

 

 

November 10, 2009

 

 

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Comments

It is clear that there was foul play here. There are officers who intentionally violate existing law, or in other words, corruption. Seen also, there are laws that have a gap, which can be played by people who are not responsible, to make profits for themselves personally. It takes courage and honesty from all parties involved to investigate this issue, openly and detail. If necessary, make amendments to existing law, to close the defect in the law.