OJSC VTB Bank v Parline Ltd & Ors

A claim under Article 1064 of the Russian Civil Code by a creditor against company controllers for harm allegedly caused by insolvency cannot be brought before the company’s bankruptcy or liquidation process is complete, where the loss cannot yet be quantified. The claimant must prove causation, including that the defendants caused or procured the relevant acts. Loss must also be established with specificity, particularity and clarity. A claim fails where the evidence does not show that the alleged transactions caused balance-sheet insolvency or establish the value of the claimant’s loss with sufficient certainty.

VTB lent RUB 1 billion to Yurganz LLC, a Russian company within the DVTG Group. After Yurganz defaulted and entered bankruptcy proceedings, VTB brought claims against Parline Ltd, Raisa Parshina and Evgeny Bulgakov under Article 1064 of the Russian Civil Code. VTB alleged that the defendants caused or procured transactions which contributed to Yurganz’s insolvency and diminished VTB’s recoveries.

The principal issues were whether the claim could be brought before completion of the bankruptcy process, whether the alleged acts caused insolvency and were caused or procured by the defendants, and whether VTB proved its loss with the necessary certainty and specificity.

1. Availability of the claim. VTB had no present right to bring its Article 1064 claim. The court accepted that the loss could not be quantified until Yurganz’s bankruptcy and liquidation process was complete. Allowing an immediate tort claim would make the specific subsidiary-liability provisions redundant, undermine limited liability and disrupt the orderly distribution of assets under the bankruptcy process. The reasoning in Oktaedr provided support for that conclusion.
2. Causation. VTB failed to prove that the alleged acts caused Yurganz’s balance-sheet insolvency. The non-payment of interest, reduction of debt, disposal of rolling stock and purchase of bonds did not, on the evidence, worsen Yurganz’s balance sheet. The evidence did not adequately address the effects of the global financial crisis, cash-flow pressures, market conditions or the complete financial position.
3. VTB also failed to prove that any defendant caused or procured the alleged acts. Mrs Parshina may have been more involved in the business than she accepted, but the evidence did not establish that she directed or forced the decisions. There was no sufficient evidence of Mr Bulgakov’s or Parline’s involvement.
4. Loss. The requirement under Articles 1082 and 15 of the Civil Code for loss to be proved with specificity, particularity and clarity was not met. The valuation evidence was remote from the relevant dates, depended on assumptions and guesswork, failed to address relevant covenants and offers, and could at most have supported a range rather than the specific figure claimed.
5. The claim was therefore dismissed. It was unnecessary to determine the remaining issues, including lawfulness, abuse of rights, contributory loss and limitation.