Insolvency practitioner remuneration

Nature of reward

This article is a logical continuation of the article “On the issue of the legal status of the insolvency practitioner” posted on Zakon.ru (Material from Zakon.ru about the Industry Agreement).

The question of the legal nature of the insolvency practitioner’s remuneration has recently become relevant again in connection with new judicial practice on the application Industry agreement in the field of bankruptcy, which provides for indexation of the fixed part of the remuneration in accordance with the consumer price index (inflation).

This article attempts to compare two judicial acts: one on the satisfaction of the insolvency practitioner’s petition to increase the fixed part of the remuneration, the second on the refusal.

For example, the Moscow Arbitration Court, by ruling dated November 27, 2020 in case No. A-40-45490/18, granted the insolvency practitioner’s request to increase the fixed part of the manager’s remuneration, indicating the following:

«Clause 20 of Article 1 Federal Law No. 296-FZ of December 30, 2008 “On Amendments to the Federal Law “On Insolvency (Bankruptcy)” established the fixed amounts of remuneration for an insolvency practitioner in a bankruptcy case of a legal entity, corresponding to the volume and complexity of his work in the conditions of legislation as of December 31, 2008, multiples of 15,000 rubles in December 2008 prices (paragraph 3 of article 20.6 Bankruptcy Law).

At the same time, the arbitration court was given the right to increase the amount of the fixed amount of remuneration paid to the insolvency practitioner, depending on the volume and complexity of the work performed by him (paragraph 5 of article 20.6 Bankruptcy Law).

Thus, the authority to determine the amount of the fixed amount of remuneration paid to the insolvency practitioner upon receipt of a corresponding petition is assigned by the federal legislator to the arbitration court.

The minimum amounts of such remuneration are established by law about bankruptcy.

As follows from the legal position set forth in a number of decisions of the Constitutional Court of the Russian Federation, due to the principle of independence of the judiciary, the court has the discretionary powers necessary for the administration of justice, including those determined by the goals of ensuring unhindered access of interested persons to justice (resolution dated March 12, 2001 No. 4-P., determinations dated June 13, 2006 No. 272-O, dated 07/12/2006 No. 182-O), therefore, the insolvency practitioner justifiably sought judicial protection of his right to remuneration for work without any discrimination and not lower than the minimum wage established by federal law (part 3 of article 37 Constitution of the Russian Federation).

According to Article 6 The Arbitration Procedure Code of the Russian Federation, legality in the consideration of cases by an arbitration court is ensured by the correct application of laws and other normative legal acts, as well as compliance by all judges of arbitration courts with the rules established by the legislation on legal proceedings in arbitration courts.

The industry agreement was concluded on December 31, 2019 at the federal level of social partnership for the period from January 1, 2020 to December 31, 2022, and is publicly available on the website of the Russian Anti-Crisis Union http://rosanti.ru.

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 when regulating the activities of insolvency practitioners on a par with legal regulation.”

Thus, the Moscow Arbitration Court in this determination established the following:

• by law on bankruptcy, a minimum amount of the fixed part of the insolvency practitioner’s remuneration was established in 2008 prices;
• because Law bankruptcy does not establish indexation (increase) of the fixed part of the remuneration, then such a right is granted to the court, which has the necessary discretionary powers for this;
• the right of the insolvency practitioner to remuneration for work without any discrimination is guaranteed Art. 37 Constitution of the Russian Federation. The minimum wage, remuneration of lawyers by appointment, wages of civil servants, the cost of publications in Kommersant, messages on the EFRSB, etc. are indexed annually;
• the insolvency practitioner has the right to petition the court to index the fixed part of the remuneration in order to protect his constitutional right to decent remuneration without any discrimination;
• according to Art. 45 The Labor Code of the Russian Federation, the industry agreement in the field of insolvency (bankruptcy) and financial recovery for 2020-2012, is a regulatory legal act regulating the social and labor relations of insolvency practitioners, and is subject to application on an equal basis with by law about bankruptcy according to Art. 6 Agroindustrial complex of the Russian Federation;

Moscow judicial approach

At the same time, the Arbitration Court of St. Petersburg and the Leningrad Region, in its ruling dated October 29, 2020 in case No. A56-125191/2019, indicated the following:

"According to Article 15 Labor Code of the Russian Federation (hereinafter referred to as the Labor Code of the Russian Federation), labor relations are understood as relations based on an agreement between the employee and the employer on the personal performance by the employee for payment of a labor function (work according to the position in accordance with the staffing table, profession, specialty indicating qualifications; a specific type of work entrusted to the employee) in the interests, under the management and control of the employer, the employee’s subordination to internal labor regulations while the employer provides working conditions provided for by labor legislation and other regulatory legal acts containing labor law standards, collective agreements, agreements, local regulations, employment contracts.

The Resolution of the Presidium of the Supreme Arbitration Court of the Russian Federation (hereinafter referred to as the SAC RF) dated February 12, 2013 No. 7140/12 reflects the legal position according to which the relationship between the insolvency practitioner and the debtor is not labor. For this reason, the assignment of the manager’s right to receive remuneration is allowed, while Article 10 of the International Labor Organization Convention on the Protection of Wages of July 1, 1949 No. 95 limits such assignment.

An insolvency practitioner cannot be recognized as an employee, since the latter carries out his labor function while being in the economic sphere of the employer, subject to the work and rest regime, internal regulations, etc.

At the same time, the employee has the right to receive wages regardless of the current economic situation of the employer, and in this sense bears less risk of the latter’s insolvency (the principle of “less freedom - less risk”).

At the same time, the insolvency practitioner is a subject of professional activity and carries out it while engaging in private practice (paragraph 1 of article 20 Bankruptcy Law).

This means that the insolvency practitioner belongs to the so-called “persons of liberal professions” along with lawyers, notaries, appraisers, etc. Receiving income from their activities is certainly important for such persons, but it is assumed that they perceive their profession as an art or craft.

The insolvency practitioner organizes his work independently and is not subject to work and rest schedules, internal regulations of the organization, etc. At the same time, the insolvency practitioner bears the responsibilities and risks assigned to him beyond the working hours established in the organization, for example, if it is necessary to take urgent measures to ensure the safety of the debtor’s property (paragraph 2 of article 20.3 Bankruptcy Law).

At the same time, the insolvency practitioner, bearing great risks, also has the right to receive not only a fixed part of the remuneration, but also a remuneration in terms of interest, which depends directly on the results of his activities (points 12, 13 And 17 Article 20.6 Bankruptcy Law).

Thus, the principle: “more freedom - more risk” is applicable to the activities of insolvency practitioners.

The status of an insolvency practitioner also has some public legal elements (resolution Presidium of the Supreme Arbitration Court of the Russian Federation dated May 28, 2013 No. 12889/12).

Thus, it is not applicable to disputed legal relations article 134 The Labor Code of the Russian Federation, which establishes the right of workers to wage indexation in connection with rising consumer prices for goods and services.

Comparison of judicial approaches

Contrary to the applicant's erroneous opinion, article 11 The Labor Code of the Russian Federation does not apply the above code on the relationship between the insolvency practitioner and the debtor in respect of whom he exercises his powers.

Of course, from the moment of adoption Federal Law dated December 30, 2008 No. 296-FZ “On Amendments to the Federal Law “On Insolvency (Bankruptcy)”, more than 10 years have passed, and during this time the fixed part of the remuneration established by this law has been subject to inflation.

Position of the St. Petersburg court

At the same time, due to the same inflationary phenomena, the potential profit from the sale of the debtor’s property has increased, and this compensates the managers for the depreciation of the fixed part of the remuneration. Moreover, reducing the share of the fixed part in the overall structure of the manager’s remuneration encourages him to exercise his powers more effectively.

Increase the fixed part of the remuneration provided for in clause Article 20.6 The bankruptcy law can only be passed by the federal legislator, and it is unacceptable to interfere with his competence.

Regarding the constitutional rights of insolvency practitioners (the argument was made at the court hearing held on October 27, 2020), the court comes to the conclusion that they are provided for by Article 34 (in terms of other economic activities), rather than Article 37 The Constitution of the Russian Federation, proclaiming the right to work.

In addition, insolvency practitioners have the right to unite in accordance with article 30 Constitution of the Russian Federation as persons of liberal professions.

At the same time, internal regulations adopted by such associations cannot apply to third parties not participating in these associations.”

This judicial act has already caused some discussion in the professional community and among scientists⁠ .

Let's try to analyze the following important conclusions indicated in this ruling of the Arbitration Court of St. Petersburg and the Leningrad Region:

1. The activities of the insolvency practitioner are not labor and are not covered by the Labor Code of the Russian Federation. Does not apply to the activities of insolvency practitioners Art. 134 The Labor Code of the Russian Federation, which provides for wage indexation.

Here it is necessary to distinguish between two questions: is the activity labor and is it covered by the Labor Code of the Russian Federation?

It is well known that there are types of work activities that are not covered by the Labor Code of the Russian Federation. For example, the Labor Code of the Russian Federation does not apply to military personnel. There are workers to whom the Labor Code of the Russian Federation applies to a limited extent, for example, to civil servants.

However, in any case, the activities of insolvency practitioners are labor due to the following:

Labor activity means any activity carried out by persons of any sex and age for the purpose of producing goods or providing services for use by others or for their own use (Clause 1.1 of the Official Statistical Methodology for the Formation of a System of Indicators of Work Activity, Employment and Labor Underutilization Recommended by the 19th International Conference of Labor Statisticians, approved by order Federal State Statistics Service dated December 31, 2015 N 680).

In paragraph 1 of the appendix to the order of the Ministry of Labor of Russia dated December 12, 2016 No. 726n, it is explained that a type of professional is a certain type of labor activity that requires qualifications for workers or persons applying for its implementation.

According to paragraph 1 of article 20 And paragraph 5 of article 20.3 Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)”, the insolvency practitioner is the subject of professional activities related to his personal work, that is, such activity is a certain type of labor activity that requires qualifications for persons applying for its implementation.

Constitutional guarantees

Therefore, the court was clearly mistaken in indicating that the activities of insolvency practitioners are not labor.

Another question is whether insolvency practitioners are covered by the Labor Code of the Russian Federation or not. Current legislation does not provide a clear answer to this question.

2. An insolvency practitioner belongs to the so-called “persons of liberal professions” along with lawyers, notaries, appraisers, etc. Receiving income from their activities is certainly important for insolvency practitioners, but it is assumed that they perceive their profession as an art or craft.

Free professions usually include workers who work independently in the following areas:

• free medical professions (for example, doctors, dentists, representatives of alternative medicine, speech therapists);

• free legal, economic and consulting professions (for example, lawyers, tax consultants, notaries, patent attorneys, etc.);
• free technical and natural science professions (for example, architects, computer scientists, engineers, appraisers, etc.);
• free humanitarian professions (for example, artists, writers, journalists, teachers, translators).

Systemic consequences

Professionals are characterized by the fact that they provide important services to the population and the economy by offering advice, assistance, service and representation. At the same time, they act independently, with knowledge of the matter, without being bound by the instructions of third parties. Representatives of liberal professions establish special trusting relationships with their patients, clients or principals.

It is obvious that insolvency practitioners cannot in principle be classified as members of the liberal professions, since they are endowed with public powers that are incompatible with entrepreneurial activity; insolvency practitioners are prohibited from entering into a trust relationship with the debtor/creditors (see: Resolution of the Constitutional Court of December 19, 2005 No. 12-P; clause 13 of the Review of the practice of courts considering cases related to the use of chapter 23 Tax Code of the Russian Federation, approved by the Presidium of the Supreme Court of the Russian Federation on October 21, 2015; Ruling of the Supreme Court of the Russian Federation No. 307-ES20-11632 in case A05-11092/2019 dated November 16, 2020).

This conclusion of the court also seems erroneous.

3. insolvency practitioners work according to the principle “more freedom - more risk” and bearing greater risks, they have the right to count not only on a fixed part of the remuneration, but also on a percentage. Despite the absence of indexation of the fixed part of the remuneration, insolvency practitioners receive compensation in the form of a potential increase in the percentage of the remuneration due to inflationary phenomena.

This argument seems controversial due to the fact that, as stated above, insolvency practitioners are not persons of liberal professions, but, on the contrary, are persons vested primarily with public powers.

Minimizing the fixed part of remuneration and banning its indexation will inevitably lead to precarization of the work of insolvency practitioners, deprofessionalization, and a decrease in the quality of services provided by insolvency practitioners.

The indication that bankruptcy managers receive compensation in the form of an increase in the percentage of remuneration due to inflationary phenomena is also very controversial, since there are bankruptcy procedures without a bankruptcy estate, with illiquid property that does not increase in value, etc.

4. Only the federal legislator can increase the fixed part of the remuneration; it is unacceptable to interfere with his competence.

Implications for regulation

Law on bankruptcy establishes a fixed part of the minimum remuneration of the insolvency practitioner. However, the law does not contain any provisions regarding the possibility of its indexation.

At the same time, the law does not contain a ban on its increase by the court.

Thus, the Law directly provides for the right of the arbitration court to increase the fixed part of the remuneration at the request of persons participating in a bankruptcy case (clause 6 art. 20.6 Bankruptcy Law).

So, for example, the Moscow Arbitration Court correctly noted in the above definition: “... the authority to determine the amount of the fixed amount of remuneration paid to the insolvency practitioner, upon receipt of the corresponding petition, is assigned by the federal legislator to the arbitration court...”.

Thus, this argument directly contradicts Law about bankruptcy.

5. it should not be applied to insolvency practitioners happen 37 Constitution of the Russian Federation, which guarantees the right to decent wages, and article 34 Constitution of the Russian Federation: “Everyone has the right to freely use their abilities and property for entrepreneurial and other economic activities not prohibited by law.”

This court's conclusion directly contradicts:

• clause 13 of the Review of the practice of courts considering cases related to the use of chapter 23 The Tax Code of the Russian Federation, approved by the Presidium of the Supreme Court of the Russian Federation on October 21, 2015, which directly states that the activities of insolvency practitioners are not entrepreneurial: “... since 01.01.2011, the professional activities of insolvency practitioners and entrepreneurial activities have been differentiated, and it has been established that the activities of insolvency practitioners regulated by bankruptcy legislation are not entrepreneurial activities”;
• Resolution The Constitutional Court of the Russian Federation of December 19, 2005 No. 12-P, which states the following: “The Federal Law “On Insolvency (Bankruptcy)” as a mandatory requirement for an insolvency practitioner names the need for his registration as an individual entrepreneur (paragraph two of paragraph 1 of Article 20), which, taking into account Article 2 The Civil Code of the Russian Federation on entrepreneurial activity as an independent activity carried out at one’s own risk, aimed at systematically obtaining profit from the use of property, sale of goods, performance of work or provision of services, is not combined with the real nature of the activity of the insolvency practitioner as a person performing primarily public functions.”;
• Determination of the Supreme Court of the Russian Federation in case No. 307-ES20-11632 dated November 16, 2020 in case No. A05-11092/2019: “The Constitutional Court of the Russian Federation in its decisions (Resolutions dated July 22, 2002 No. 14-P and dated December 19, 2005 No. 12-P; Determinations dated 07.17.2014 No. 1675-O, dated 09.25.2014 No. 2123-O, etc.) repeatedly indicated that bankruptcy procedures are of a public law nature; due to the various, often diametrically opposed interests of persons participating in a bankruptcy case, the legislator must guarantee a balance of their rights and legitimate interests, which, in fact, is the public legal purpose of the institution of bankruptcy; the achievement of this public law goal is intended to be ensured by the insolvency practitioner, vested with powers that are largely of a public law nature.”

6. insolvency practitioners have the right to unite in a trade union, but the acts adopted by it cannot apply to third parties not participating in it.

This argument is not entirely clear, since it is not specified which third parties are meant. If we are talking about insolvency practitioners, then they participate in the industry agreement through a trade union. What other interests of other third parties may be affected by the judicial act on indexing the insolvency practitioner’s remuneration is, unfortunately, not specified in the judicial act.

Thus, to summarize, it seems that it is more reasonable and consistent with the practice of the Constitutional Court of the Russian Federation and the Supreme Court of the Russian Federation, as well as law bankruptcy is a judicial act of the Moscow Arbitration Court.

However, since the Industry Agreement in the field of insolvency (bankruptcy) and financial recovery for 2020-2022 is valid only from 01/01/2020, we hope that the issues of application of the Industry Agreement will become the subject of wide discussion among both scientists and practitioners.

FOOTNOTES

1. Oleg Zaitsev’s position in the Shokobear Telegram channel, continuation of Oleg Zaitsev’s publication, publication in ORPAU’s Telegram channel, ORPAU channel material, ORPAU channel material ↩