Trade union liquidation and bankruptcy

Facts of the case

The Trade Union of Lawyers of Russia (hereinafter also referred to as the Trade Union) was registered by the Ministry of Justice of Russia on April 23, 1999 under number 3691. During the registration, no violations were identified during the creation of the Trade Union. Information about the Russian Bar Trade Union as a public organization was registered in the Unified State Register of Legal Entities on September 19, 2002 (OGRN 1027739221916).

The Russian Bar Trade Union actively participated in the protection of the social and labor rights of lawyers, criticized the amendments to Law about the legal profession⁠ , actively participated in the work of the Russian Tripartite Commission (RTC), which, according to media publications, led to regular conflicts with the FPA⁠ .

In 2022, the Russian Ministry of Justice, together with the Gagarin Prosecutor’s Office of Moscow, conducted an inspection of the activities of the Russian Bar Union, during which the following gross violations of the Trade Union’s activities were established:

• in violation Art. 54 The Civil Code of the Russian Federation, the name of the Trade Union indicated in the Unified State Register of Legal Entities, illegally contains an indication of the organizational and legal form of “public organization”;
• the legal address of the Trade Union in the Unified State Register of Legal Entities does not correspond to the address indicated on the website of the Trade Union;
• the goals of the Trade Union indicated on its website (increasing the income of lawyers, constantly increasing the base rate of remuneration for lawyers) do not correspond to the goals specified in the Charter (representation and protection of professional, social and labor rights and interests of members of the Trade Union);
• the all-Russian status of the Trade Union has not been confirmed: documents confirming the activities of the Trade Union on the territory of more than half of the subjects of the Federation have not been submitted for verification;
• Violations were found in the Trade Union Charter: clause 4.7. The Charter illegally speaks of the implementation of “professional activities” by members of the Trade Union;
• provisions of clause 7.4. The Charter on determining the amount of entrance and membership fees by the Executive Committee of the Trade Union contradicts Art. 123.7 Civil Code of the Russian Federation, since these issues fall within the exclusive competence of the highest governing body of the Trade Union;
• in violation of the Civil Code of the Russian Federation, the Charter does not provide for a sole executive body of the Trade Union, controlled by a collegial management body (Executive Committee of the Trade Union).

Also during the inspection, it was stated that, according to the Labor Code of the Russian Federation, only employees have the right to associate in trade unions, and since lawyers are not such, they do not have the right to associate in trade unions.

No other violations during the creation of the Trade Union, in the activities of the Trade Union or in its charter were found during the inspection.

Grounds for liquidation

On April 22, 2022, the Prosecutor General’s Office, based on the results of the audit, appealed to the Supreme Court with an application to liquidate the Trade Union. The FPA, engaged by a third party, submitted a review supporting the requirements of the Prosecutor General's Office.

By the decision of the Supreme Court of the Russian Federation dated June 8, 2022, in the case AKPI22-400, the application of the Prosecutor General's Office of the Russian Federation to liquidate the Professional Union of Lawyers of Russia was granted⁠ .

This decision was covered in detail in the media and commented on by experts⁠ , we note only the main points of the decision:

• The trade union, claiming the status of an all-Russian one, in violation of the requirements of Article 3 of Federal Law No. 10-FZ, did not provide activity in the territory of more than half of the constituent entities of the Russian Federation or an association of more than half of the country’s lawyers;
• the implementation by the Trade Union of activities aimed at increasing the income of lawyers, the constant increase in the base rate of remuneration for a lawyer, contradicts not only the Charter of the Trade Union, Federal Law No. 10-FZ, but also Federal Law No. 63-FZ;
• in violation Article 54 Civil Code of the Russian Federation, the name of the Trade Union contained in the Unified State Register of Legal Entities includes an indication of the organizational and legal form (public organization);
• the provisions of the Charter regarding the name of the Trade Union contradict the name indicated on the title page of the Charter;
• the provisions of the Charter on determining the size of entrance and membership fees by the Executive Committee of the Trade Union contradict paragraph 1 of article 123.7 Civil Code of the Russian Federation, since decision-making on the amount and procedure for payment of membership and other property fees falls within the exclusive competence of the highest governing body.

It is noteworthy that the Supreme Court actually rejected the plaintiff’s position regarding the lack of lawyers’ right to associate in trade unions, without indicating anything in the reasoning part of the decision for such a basis for satisfying the claim.

On September 6, 2022, the Appeals Board of the Supreme Court left without satisfaction the appeal of the Trade Union of Lawyers of Russia against the decision to liquidate it⁠ .

Procedure collision

On 31 October 2022, the Moscow Arbitration Court received an application to declare the Professional Union of Lawyers of Russia insolvent (bankrupt).

Initiation of bankruptcy proceedings

By the ruling of the Moscow Arbitration Court dated April 6, 2023, in case No. A40-238240/22-123-460B, the application of the Professional Union of Lawyers of Russia (TIN 502918308484, OGRN 1027739221916) to recognize it as insolvent (bankrupt) was recognized as justified, introduced observation procedure⁠ .

In the said ruling, the Moscow Arbitration Court stated the following:

"According to clause 2 And clause 3 art. 61 Under the Civil Code of the Russian Federation, a legal entity is liquidated by decision of its founders (participants), a body of the legal entity authorized to do so by the constituent document, as well as a court decision.

By the decision of the Supreme Court of the Russian Federation dated 06/08/2022 in case No. AKPI22-400, upheld by the appeal ruling of the Appeal Board of the Supreme Court of the Russian Federation dated 09/06/2002 in case No. APL22-346, the state registration of the public organization Professional Union of Lawyers of Russia was declared invalid and a decision was made to liquidate the debtor.

According to clause 4 art. 63 Civil Code of the Russian Federation and clause 1 art. 224 Law on Bankruptcy, if the value of the property of the debtor - a legal entity in respect of which a decision on liquidation was made, is insufficient to satisfy the claims of creditors, such a legal entity is liquidated in the manner prescribed by law about bankruptcy.

Competition of legal procedures

Clause 2 of Article 224 The Bankruptcy Law establishes that if the circumstances provided for in paragraph 1 of this article are discovered, the liquidation commission (liquidator) is obliged to apply to the arbitration court to declare the debtor bankrupt. <… >

Clause 3 of Article 63 The Civil Code of the Russian Federation determines that in the event of initiation of a case of insolvency (bankruptcy) of a legal entity, its liquidation, carried out according to the rules of the said Code, is terminated and the liquidation commission notifies all creditors known to it. Claims of creditors in the event of termination of liquidation of a legal entity upon initiation of proceedings on its insolvency (bankruptcy) are considered in the manner established by the legislation on insolvency (bankruptcy).

Thus, by this norm the legislator introduced a ban - from the moment the case of insolvency (bankruptcy) is initiated, the liquidation process according to the rules articles 61 - 63 The Civil Code of the Russian Federation cannot be carried out; the liquidation procedure of a legal entity in this case must be carried out only within the framework of an insolvency (bankruptcy) case.

Legal consequences

A similar rule is contained in paragraph two paragraph 3 of article 64 Bankruptcy Law paragraph 29 Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated December 15, 2004 No. 29 “On some issues of the practice of applying the Federal Law “On Insolvency (Bankruptcy)”.

Thus, at present, the forced liquidation of the Trade Union on the basis of a decision of the Supreme Court has been terminated due to the direct instructions clause 3 art. 63 Civil Code of the Russian Federation.

In connection with the above, the further development of events is of interest:

• How long will the observation procedure last?
• Will bankruptcy proceedings be introduced?
• Is it possible to conclude a settlement agreement in this case?
• Is it possible to use rehabilitation procedures (external management, financial recovery)?

FOOTNOTES

1. Position of the Bar on the Ministry of Justice bill; Consideration of the bill by the Russian tripartite commission; ↩
2. Material from “Lawyer Street”; Position of the Federal Chamber of Lawyers; Commentary from the Federal Chamber of Lawyers ↩
3. Publication of the Advokatskaya Gazeta ↩
4. Expert commentary from Advokatskaya Gazeta; Legal review of the Advokatskaya Gazeta; ↩
5. Material from the Advokatskaya Gazeta about the liquidation of the trade union ↩
6. Determination of the Moscow Arbitration Court ↩