Industry Agreement: Supreme Court review
Position of the Supreme Court
In the last paragraph of the Review of judicial practice of the Supreme Court of the Russian Federation No. 3 (2021), the Presidium of the Supreme Court of the Russian Federation gave an answer about the legal nature and limits of regulation of the Industry Agreement in the field of insolvency (bankruptcy) and financial recovery when applied by the courts on issues of increasing the amount of fixed remuneration of insolvency practitioners (hereinafter referred to as the Industry Agreement):
“CLARIFICATIONS ON ISSUES ARISING IN JUDICIAL PRACTICE
QUESTION. Can an industry agreement concluded by the All-Russian industry association of employers in the field of law and self-regulatory organizations of insolvency practitioners “Russian Anti-Crisis Union” and the All-Russian Trade Union of insolvency practitioners be recognized as an industry agreement within the meaning of Art. 45 Labor Code of the Russian Federation, which is the basis for the arbitration court to increase the amount of the fixed remuneration of the insolvency practitioner in accordance with Art. 20.6 Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”?
ANSWER.
According to Art. 45 Labor Code of the Russian Federation (hereinafter referred to as the Labor Code of the Russian Federation) agreement is a legal act regulating social and labor relations and establishing general principles for regulating related economic relations, concluded between authorized representatives of workers and employers at the federal, interregional, regional, sectoral (intersectoral) and territorial levels of social partnership within their competence.
An industry (inter-industry) agreement establishes general terms of remuneration, guarantees, compensation and benefits for employees of the industry (industries).
According to clause 1 art. 20 Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)” (hereinafter referred to as the Bankruptcy Law), an insolvency practitioner is recognized as a citizen of the Russian Federation who is a member of one of the self-regulatory organizations of insolvency practitioners. The insolvency practitioner is a subject of professional activity and carries out professional activities regulated by this law, engaging in private practice.
Remuneration in a bankruptcy case is paid to the insolvency practitioner in accordance with the provisions Art. 20.6 Bankruptcy Law at the expense of the debtor, unless otherwise provided by this law.
The procedure for approving an insolvency practitioner in a bankruptcy case, established Art. 45 The bankruptcy law does not provide for the conclusion of an employment contract with him.
In force clause 5 art. 20.6 According to the Bankruptcy Law, an increase in the fixed amount of remuneration is allowed only if the totality of the evidence presented in the case materials confirms the originality of a particular bankruptcy case, suggesting a significant increase in the volume and complexity of the activities carried out by the insolvency practitioner as part of the bankruptcy procedure.
Law on bankruptcy does not provide for such a possibility in the event of reaching certain agreements between insolvency practitioners and their self-regulatory organizations.
Thus, the activities of insolvency practitioners are not regulated by labor legislation. Therefore, the provisions of the industry agreement concluded by the All-Russian Industry Association of Employers in the Field of Law and self-regulatory organizations of insolvency practitioners “Russian Anti-Crisis Union” and the All-Russian Trade Union of insolvency practitioners, including the coefficients for calculating remuneration, cannot in themselves be used as the basis for increasing the amount of the fixed remuneration of the insolvency practitioner participating in the bankruptcy case and, therefore, are not the basis for the arbitration court to increase the amount of the fixed remuneration of the insolvency practitioner in accordance with Art. 206 Federal Law dated October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”.
This clarification caused a strong reaction from the legal community and insolvency practitioners on social networks, instant messengers, etc.
Contents of the Supreme Court's position
In order to better understand the meaning of this clarification and interpret it correctly, it is necessary to analyze the historical context of the application by arbitration courts of legislation relating to the representation of insolvency practitioners by the All-Russian Trade Union of insolvency practitioners (hereinafter referred to as ORPAU or the Trade Union), social partnership in the field of insolvency (bankruptcy), as well as the Industry Agreement.
At present, extensive judicial practice has already been formed on the issue of representation of insolvency practitioners by the Trade Union, and the SRO by Rosanti.
Thus, the Decree of the Supreme Court of the Russian Federation (hereinafter referred to as the Supreme Court) dated June 19, 2020 No. 302-ES20-8871 in case No. A33-10989/2019 established that the courts, when approving an insolvency practitioner, were reasonably guided not only by bankruptcy legislation, but also Articles 2, 5, 15 Federal Law of January 12, 1996 No. 10-FZ “On trade unions, their rights and guarantees of activity” (hereinafter referred to as the Law on Trade Unions).
With this ruling, the Supreme Court recognized as justified the following conclusions of the Arbitration Court of the East Siberian District, made in the decision dated 03/05/2020 in case No. A33-10989/2019:
"According to paragraph 1 of article 2 Federal Law of January 12, 1996 No. 10-FZ “On trade unions, their rights and guarantees of activity” (hereinafter referred to as the Law on Trade Unions) ORPAU was created by insolvency practitioners for the purpose of representing and protecting their social and labor rights and interests.
Clause 1 of Article 15 of the Law on Trade Unions stipulates that the relations of ORPAU with government bodies are built on the basis of social partnership, that is, by virtue of Article 24 Labor Code of the Russian Federation are equal in rights and imply taking into account and respecting the interests of the parties.
In accordance with paragraph 2 of Article 5 of the Law on Trade Unions, interference by state authorities in the activities of the ORPAU is prohibited, which may entail restriction of the rights of the ORPAU or impede the legitimate implementation of its statutory activities.
Thus, the appellate court correctly pointed out that it is precisely from this special nature of relations between the ORPAU, as an all-Russian trade union, and state authorities that the ORPAU has the right to apply to the arbitration court on issues related to the representation and protection of the social and labor rights and interests of insolvency practitioners, both on its own behalf and on behalf of the insolvency practitioners.”
Arbitration Court of the North Caucasus District resolution dated 06/11/2020 in case No. A53-8303/2019 recognized the following conclusions of the Fifteenth Arbitration Court of Appeal, made in the decision dated 02/21/2020 in case No. A53-8303/2019, as based on a correct systematic assessment of the applicable rules of substantive law:
“In accordance with paragraph 5 of Article 1 of the Charter of the Union, the Union has the right to operate throughout the Russian Federation and has the status of an all-Russian industry association of employers and the status of an association of self-regulatory organizations of insolvency practitioners in the form of an association (union). Thus, the Union operates in accordance with Federal law dated November 27, 2002 No. 156-FZ “On Employers’ Associations” (hereinafter referred to as the Law on Employers’ Associations).”
In accordance with paragraph 3 of Article 5 of the Law on Associations of Employers, the Union’s relations with the Trade Union and government bodies are carried out on the principles of social partnership, which gives the Trade Union and the Union additional powers that self-regulatory organizations do not have. This position is also accepted by arbitration courts.
Terms of application of the agreement
In relations with government bodies, including arbitration courts, ORPAU acts on behalf of insolvency practitioners, and ROSANTI acts on behalf of self-regulatory organizations of insolvency practitioners, regardless of membership in ROSANTI, which means that ROSANTI has the right to provide information on the compliance of the candidate for insolvency practitioner with the established requirements, just as ORPAU has the right to present to the arbitration court the candidacy of insolvency practitioner for approval in the position in a bankruptcy case.”
Criteria for an unusual case
The Supreme Court, in its ruling dated August 14, 2020 No. 308-ES20-10785 in case No. A53-8303/2019, also found that there are no grounds for disagreement with such conclusions of the courts.
Arbitration Court of the Moscow District in resolution dated 03.12.2020 in case No. A41-86346/2019, established that, within the meaning of the position set forth in the ruling of the Judicial Collegium for commercial disputes of the Supreme Court of the Russian Federation dated 28.01.2019 No. 301-ES18-13818 in case No. A28-3350/2017, the court received information on the candidacy of an insolvency practitioner from ORPAU is not a violation Law about bankruptcy.
Arbitration Court of the Volga-Vyatka District in resolution dated November 28, 2019 in case No. A79-2763/2019, it was established that the reference of the applicant of the cassation appeal to the groundless sending by the court of first instance of a request for the candidacy of an insolvency practitioner to the ORPAU cannot be taken into account, since the court sent the relevant judicial act to the ORPAU as an organization that represents and protects the social and labor rights and interests of insolvency practitioners.
Arbitration Court of the North-Western District in resolution dated 06/19/2020 in case No. A66-18311/2018 also established that the presentation of the candidacy of the insolvency practitioner by the Trade Union corresponds law about bankruptcy.
Similar conclusions were made in regulations Arbitration Court of the West Siberian District dated March 23, 2020 in case No. A45-10751/2017, Arbitration Court of the Ural District dated March 19, 2020 in case No. A60-24074/2019.
Currently, arbitration courts involve the Trade Union not only by requesting candidates for insolvency practitioners, but also as a defender when considering issues of bringing to administrative liability, for example, the ruling of the Arbitration Court of the Krasnoyarsk Territory dated 06/02/2020 in case No. A33-40462/2019, as well as as an interested party when considering cases to increase the amount of a fixed amount of remuneration, for example, the ruling of the Arbitration Court Tyumen region dated December 3, 2019 in case No. A70-21165/2018.
Thus, it should be noted that even before the Presidium of the Supreme Court adopted the said Review, cassation arbitration courts of all districts expressed legal positions regarding social partnership in the field of insolvency (bankruptcy):
- by virtue of the Law on Trade Unions, ORPAU represents all insolvency practitioners at the federal level of social partnership both in relations with government authorities and with its social partners (in particular, Rosanti);
- Rosanti has the right to operate throughout the Russian Federation, has the status of an all-Russian industry association of employers and the status of an association of self-regulatory organizations of insolvency practitioners in the form of an association (union), operates in accordance with Federal law dated November 27, 2002 No. 156-FZ “On Employers' Associations”.
Thus, in development of the already established arbitration practice, the Presidium of the Supreme Court makes the following conclusions:
1. Assessment of the legal nature of the Industry Agreement.
Excerpt from the Review: “According to Art. 45 Labor Code of the Russian Federation (hereinafter referred to as the Labor Code of the Russian Federation) agreement is a legal act regulating social and labor relations and establishing general principles for regulating related economic relations, concluded between authorized representatives of workers and employers at the federal, interregional, regional, sectoral (intersectoral) and territorial levels of social partnership within their competence.”
Thus, the Presidium of the Supreme Court, following the established arbitration practice, evaluates the Industry Agreement in accordance with Art. 45 The Labor Code of the Russian Federation as a normative legal act regulating the social and labor relations of insolvency practitioners.
2. Assessment of the application of labor legislation to ORPAU.
Excerpt from the Review: “According to Art. 45 Labor Code of the Russian Federation (hereinafter referred to as the Labor Code of the Russian Federation) agreement is a legal act regulating social and labor relations and establishing general principles for regulating related economic relations, concluded between authorized representatives of workers and employers at the federal, interregional, regional, sectoral (intersectoral) and territorial levels of social partnership within their competence. An industry (inter-industry) agreement establishes general terms of remuneration, guarantees, compensation and benefits for employees of the industry (industries) <...>Law the bankruptcy law does not provide for such a possibility in the event of reaching certain agreements between insolvency practitioners and their self-regulatory organizations.”
Evidence and case law
Thus, the Presidium of the Supreme Court, following the above-mentioned practice of cassation arbitration courts, indicates that the Industry Agreement on the basis Art. 45 The Labor Code of the Russian Federation fixes agreements between insolvency practitioners and SROs represented by their representatives: ORPAU and the Union. Consequently, labor legislation applies to ORPAU and its social partners in the relevant part (Section 2 of the Labor Code of the Russian Federation “Social partnership in the sphere of labor”).
3. Legal force and regulatory limits of the Industry Agreement.
Excerpt from the Review: “Therefore, the provisions of the industry agreement concluded by the All-Russian industry association of employers in the field of law and self-regulatory organizations of insolvency practitioners “Russian Anti-Crisis Union” and the All-Russian Trade Union of insolvency practitioners, including coefficients for calculating remuneration, on their own cannot be used as the basis for increasing the amount of the fixed remuneration of the insolvency practitioner participating in the bankruptcy case and, therefore, do not form the basis for the arbitration court to increase the amount of the fixed remuneration of the insolvency practitioner in accordance with Art. 20.6 Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”.
The provisions of the Industry Agreement can be applied by the courts only if there are grounds provided for clause 5 art. 20.6 Bankruptcy Law:
“An arbitration court considering a bankruptcy case, on the basis of a decision of a meeting of creditors or a reasoned petition of persons participating in a bankruptcy case, has the right to increase the amount of the fixed amount of remuneration paid to the bankruptcy manager, depending on the volume and complexity of the work performed by him.”
For example, the Arbitration Court of the Moscow Region, having established in case No. A41-41959/17 the increased volume and complexity of the work performed by the insolvency practitioner, applied the coefficients stipulated by the Industry Agreement that increase the manager’s remuneration (determination dated November 1, 2021):
"According to Part 5 Art. 20.6 Bankruptcy Law and the clarifications contained in paragraph 17 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated July 23, 2009 No. 60 “On some issues related to the adoption Federal Law dated December 30, 2008 No. 296-FZ “On Amendments to the Federal Law “On Insolvency (Bankruptcy)”, an increase in the fixed amount of the insolvency practitioner’s remuneration is possible based on a decision of a meeting of creditors or a reasoned petition of persons participating in the bankruptcy case, depending on the volume and complexity of the work performed by him.
Conclusions for practice
As explained by the Plenum of the Supreme Arbitration Court of the Russian Federation in paragraph 17 of Resolution No. 60 dated July 23, 2009 “On some issues related to the adoption Federal Law dated December 30, 2008 No. 296-FZ “On Amendments to the Federal Law “On Insolvency (Bankruptcy)”, applying paragraph 5 of Article 20.6 of the Law on the right of the court to increase the amount of a fixed amount of remuneration, it should be borne in mind that since such remuneration is paid to the insolvency practitioner at the expense of the debtor (paragraph 2 of Article 20.6 of the Law), this increase is possible only if it is proven that the debtor has funds sufficient to pay the increased amount of remuneration.
Thus, within the meaning of the above rules of law, the court has the right to increase the fixed amount of remuneration to the financial manager if the following circumstances exist in the aggregate: a corresponding decision of the meeting of creditors or a reasoned petition of the persons participating in the case; proof that the debtor has funds sufficient to pay the increased amount of remuneration; volume and complexity of the work performed by the bankruptcy manager.
When deciding on an increase in the amount of remuneration of the insolvency practitioner, it is necessary to check the presence of circumstances indicating the need to pay the manager remuneration in an increased amount, based on the criteria expressly defined in clause 5 art. 20.6 Bankruptcy Law, as well as establish the fact that the debtor’s funds are sufficient to pay the increased remuneration.
According to Article 45 of the Labor Code of the Russian Federation, an industry agreement is a legal act regulating the social and labor relations of insolvency practitioners, therefore it is subject to application in regulating the activities of insolvency practitioners on a par with legal regulation.
Regulations Law on bankruptcy, there are no increasing coefficients established that the arbitration court should follow when increasing the amount of the fixed amount of remuneration of the insolvency practitioner when he himself applies for a petition, therefore the corresponding coefficients are established by the Industry Agreement in the field of insolvency (bankruptcy) and financial recovery ... ".
The Arbitration Court of the Volga-Vyatka District also came to similar conclusions. resolution dated October 26, 2021 in case No. A79-8908/2018:
Practical significance of the review
“It is for this reason that an increase in the fixed amount of remuneration is allowed only if the totality of the evidence presented in the case materials confirms the originality of a particular bankruptcy case, suggesting a significant increase in the volume and complexity of the activities carried out by the insolvency practitioner within the framework of the bankruptcy procedure.”
Despite the fact that these judicial acts were adopted shortly before the Review of the Presidium of the Supreme Court dated November 10, 2021, the courts correctly applied the rules of law in accordance with established judicial practice, anticipating the explanations of the said Review.
4. Assessment of the application of labor legislation to insolvency practitioners
Excerpt from the Review: “The insolvency practitioner is a subject of professional activity and carries out professional activities regulated by this law, engaging in private practice <...> The procedure for approving an insolvency practitioner in a bankruptcy case, established Art. 45 The Bankruptcy Law does not provide for the conclusion of an employment contract with him <...> Thus, the activities of insolvency practitioners are not regulated by labor legislation.”
The Presidium of the Supreme Court indicates that an insolvency practitioner carries out professional activities; the court, when appointing the practitioner under Art. 45 of the Bankruptcy Law, does not enter into an employment contract with the practitioner; therefore, insolvency practitioners’ activities are not regulated by labor legislation.
This conclusion of the Presidium is fully consistent with the explanations of the Constitutional Court and the Supreme Arbitration Court.
Thus, the Constitutional Court in paragraph 2.1 of the ruling dated May 19, 2009 No. 597-O-O indicated the following:
"According to Constitution of the Russian Federation labor is free; Everyone has the right to freely use their ability to work, choose their type of activity and profession (Article 37, part 1). Freedom of labor is manifested, in particular, in the citizen’s ability to freely dispose of his or her ability to work...”
The insolvency practitioner, implementing the guaranteed Art. 37 of the Constitution, the right to freely dispose of one’s ability to work, he chose the type of activity and profession “insolvency practitioner”.
Later the Plenum of the Supreme Arbitration Court in paragraph 5 Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 25, 2013 No. 97 indicated that “... the legal nature of the insolvency practitioner’s remuneration is of a private law counter nature (paragraph 1 of article 328 Civil Code of the Russian Federation; hereinafter - the Civil Code of the Russian Federation), in relation to paragraph three paragraph 1 of article 723 And Article 783 Civil Code of the Russian Federation..."
Thus, the insolvency practitioner carries out professional activities to which the provisions of civil law, and not labor law, apply.
Subsidiary application of labor legislation to insolvency practitioners is possible only if this is directly indicated in the Law on bankruptcy by analogy with judges, civil servants, employees of internal affairs bodies (Article 22 of the Law “On the Status of Judges in the Russian Federation”, para. 7 tbsp. 11 Labor Code of the Russian Federation, part 2 of article 34 of the Federal Law "On the Police").
Thus, it is necessary to welcome this clarification of the Presidium of the Supreme Court, which, on the one hand, consolidates and develops the already established practice of applying the Industry Agreement by arbitration courts, and on the other, will serve as a guide for the courts for the correct application of the legislation on social partnership in the field of insolvency (bankruptcy).
FOOTNOTES
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