A Life Without Bankruptcy: Saving and Revitalizing Businesses Here and Now

KEY CONCLUSIONS

Long recovery from bankruptcy

“It takes us a long time to recover [from bankruptcy – Ed.], we need to act earlier,” Vadim Soldantenkov, Head of the Bankruptcy Proceedings Department of the Federal Tax Service of Russia.

“Despite how numerous they are, SME are vulnerable. They have fewer opportunities for getting legal assistance than big business. Often, in a borderline situation, where they have not formally entered bankruptcy, but the signs are already there, entrepreneurs make the worst decision – to do nothing,” Vadim Podbereznyak, Deputy General Director, Russian Small and Medium Business Corporation.

Customer-oriented FTS

“The most important thing for us is becoming as customer-oriented as possible. All we are interested in is how we meet the needs of the taxpayer. <…> We have become a different kind of service. <…> We have the Federal Tax Service Manifesto… The budget and taxes, as it says in the manifesto, are my and our investment in the future. <…> We are creating rules to encourage openness, integrity, and honesty. <…> Another principle from the manifesto is 100% mutual trust and 0% costs. These principles would be difficult to understand if we did not try to follow them in practice,” Konstantin Chekmyshev, Deputy Head, Federal Tax Service of the Russian Federation.

PROBLEMS

Ineffective bankruptcy rehabilitation methods

“Essentially, none of the bankruptcy rehabilitation methods are working today. This is because creditors and debtors do not work together enough and do not trust each other. <…> As for the supervisory procedure … in 2021, supervision was introduced in 8,987 cases. <…> Financial rehabilitation is introduced by the commercial court after the first creditors meeting, and is a rehabilitation measure like settlement agreements and external administration, but in practice we can see that this procedure does not work. Because trust is missing, as I already said, between debtors and creditors. Debtors, as a rule, try to conceal their financial position, they go past the point of no return, after which it is practically impossible to restore solvency. Creditors also lose faith in debtors, because they have been let down once, they want to get some cash, without knowing the real financial situation of the debtor. <…> Debtors enter the bankruptcy procedure when they have exhausted the other means of paying their debts. There is little effectiveness in carrying on the business once the main assets have already been removed. The debtor cannot be returned to solvency in that situation. So neither supervision nor financial rehabilitation is performing its function today,” Aleksandr Selivanov, Deputy Director of the Department of Legislative Activities, Chamber of Commerce and Industry of the Russian Federation.

“One of the key issues is freezing accounts and how quickly it is applied. The entrepreneur is often simply not prepared. <…> The entrepreneur is at a loss. <…> It is important to grasp the situation and act appropriately,” Vadim Podbereznyak, Deputy General Director, Russian Small and Medium Business Corporation.

SOLUTIONS

Debt restructuring instead of the usual bankruptcy methods

“We need to think of a new approach that would enable the debtor to remain afloat and creditors to receive their funds. One approach could be debt restructuring. <…> The Law comes first, but we also need different approaches there, to prepare the infrastructure to increase trust between debtors and creditors,” Aleksandr Selivanov, Deputy Director of the Department of Legislative Activities, Chamber of Commerce and Industry of the Russian Federation.

“The [SME – Ed.] Corporation has a feedback service – 360 degrees – operating on the SME Corporation digital platform. We often hear from entrepreneurs: “Please help us talk to the tax service”, – or, for instance, a situation where accounts have been frozen and the company is most likely sinking into bankruptcy, will be liquidated. <…> There are concrete case histories. We received a query through the digital platform from an entrepreneur in Moscow who was in a frozen accounts situation and was asking for assistance with restructuring debts and looking for potential solutions. That was done. A settlement was reached with the entrepreneur, we found a way to restructure the debt, and in the end, it was paid over three years,” Vadim Podbereznyak, Deputy General Director, Russian Small and Medium Business Corporation.

Creating a new portrait of the debtor

“We cannot let ourselves, considering all the challenges we are facing, continue to wait for something. <…> Taxpayers and business make the budget. Our task is not just to take the last penny, but to help every businessperson handle any difficult financial situation. Covid made that easier, there were obvious identifying numbers, industries, we made several markers for directing the support procedure. <…> In 2022, we began trying to replicate those actions, doing a lot of what had already been done, – if they rejected bankruptcy… let's see who can delay recovery. <…> We have situational centers that gather problems from businesses. When we started trying to understand how we can structure each “struggler”, we understood that it cannot be done systemically and quickly. Every unsuccessful story is different. <…> We began thinking about how to put together a new method, which could be used to put together a portrait of the debtor for which we are preparing an individual action plan, using the digital data we already have,” Konstantin Chekmyshev, Deputy Head, Federal Tax Service of the Russian Federation.

Read more in the Roscongress Information and Analytical System www.roscongress.orgч

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