What is a settlement agreement?
A settlement agreement (hereinafter referred to as the MS) is a civil agreement that ends a dispute between the parties and establishes new rights or obligations. Its main difference from other civil legal acts is that it is approved by the court and has the force of a decision. In addition, its conclusion entails additional procedural consequences - upon approval of the settlement agreement, the parties lose the right to file a lawsuit against each other in a similar dispute.
When concluding this transaction, the parties have the right to provide for certain features in the order of distribution of legal costs, as well as the costs of paying a lawyer, paying state fees and other significant aspects.
An MC can be concluded not only during procedural proceedings, but also at other stages of the process - when considering a case by cassation instances, at the stage of execution of a decision. There are cases of erroneous identification of this compromise with a pre-trial settlement of the issue.
The MC is in fact a judicial decision, and it must be agreed upon by the court. The conclusion of this transaction is provided for by the Code of Civil Procedure of the Russian Federation at any stage of the process - from the first meeting to the execution of the decision.
When the parties decide to conclude this act confirming the will of the parties, the court issues a ruling to adjourn the hearing, giving the parties time to draw up the text of the document. The party who is interested in signing it as quickly as possible can draw up a draft in advance and bring it for review by the court and the opposing party.
To complete the process more quickly, it is necessary to first agree on the text of the agreement with the opposite party before the next meeting. At the court hearing, the court must be provided with a ready-made text of the MC, signed by the parties, after which it, after checking the text, approves the document and completes the judicial proceedings by issuing an appropriate ruling.
Specialists of Law Firm "Argument" draw attention to the fact that in case of evasion of the terms of the agreement by one of its parties, after its approval, you should apply to the court again, this time with an application for the issuance of a writ of execution. This will be followed by the stage of MC execution, similar to the procedure for executing a court decision.
Settlement agreement in a bankruptcy case
In the article, we examined the issues of the legal nature of the settlement agreement in a bankruptcy case of a legal entity, as well as issues of termination and challenging the settlement agreement.
When an arbitration court considers a bankruptcy case at any stage, the debtor, its bankruptcy creditors and authorized bodies have the right to conclude a settlement agreement. This possibility is established in Article 150 of the Federal Law of October 26, 2002 No. 127-FZ “On Insolvency (Bankruptcy)” (hereinafter referred to as the Bankruptcy Law). Every year the share of settlement agreements in the total mass of completed procedures is growing, and, as it seems, this trend will continue.
What are the legal nuances of the settlement agreement?
A settlement agreement is a bankruptcy rehabilitation procedure, which consists of creditors reaching an agreement on the procedure and timing of debt repayment. Making a decision to conclude a settlement agreement falls within the exclusive competence of the meeting of creditors (Clause 2 of Article 12 of the Bankruptcy Law).
A settlement agreement in a bankruptcy case represents a concession on the part of the bankruptcy creditors and is unenforceable without a court order. The form and content of the settlement agreement is determined by Art. 140 of the Bankruptcy Law, and it may contain any agreements that do not contradict the law. It is aimed at resolving the claims of the parties voluntarily and is a transaction, which means it is subject to the norms of civil law on contracts (Article 421 of the Civil Code of the Russian Federation). Therefore, it is not approved by the court if there are signs of a void transaction. Lenders should keep this in mind.
What are the benefits of the settlement procedure?
The positive side of signing a settlement agreement is the termination of bankruptcy proceedings, which means the company can continue to operate.
Most business owners are looking for just such a way out of bankruptcy proceedings to restore the solvency of their company, and not to liquidate it.
Another advantage of the procedure is the ability to complete a bankruptcy case at any stage. The only condition is the mandatory holding of the first meeting of creditors (Information letter of the Supreme Arbitration Court of the Russian Federation dated December 20, 2005 No. 97).
What is the procedure for concluding a settlement agreement?
The procedure for concluding a settlement agreement consists of four main stages:
- Compliance with mandatory conditions . Before concluding a settlement agreement, it is necessary to fully repay debts to creditors of the 1st and 2nd priority and obtain consent to its conclusion from all creditors whose obligations are secured by a pledge.
- Holding a meeting of creditors , at which a decision must be made to conclude a settlement agreement by a majority vote of the creditors included in the register of claims and, accordingly, this settlement agreement must be signed.
If the creditor's claims are not included in the register on the date of the meeting, then he is not a party to the settlement agreement. This is directly provided for in paragraph 21 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated April 8, 2003 N 4. In addition, this is mentioned in the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 20, 2005 N 97 and in judicial practice. The FAS Moscow District in Resolution dated May 18, 2004 N KG-A41/3567-04, the FAS West Siberian District in Resolution dated December 28, 2006 N F04-8740/2006 (29634-A81-36) proceeded from a similar point of view.
- Approval of a settlement agreement by the arbitration court - sending to the arbitration court an application for approval of the settlement agreement along with the minutes of the meeting of creditors, objections of creditors (if any), and the text of the agreement is attached.
The arbitration court reviews the application and decides whether its approval is possible. After all, they often try to use the conclusion of a settlement agreement to the detriment of creditors or the debtor.
- Entry into force of the settlement agreement. The consequences of the settlement agreement are the termination of the bankruptcy procedure and the termination of the powers of the arbitration manager (Article 57 of the Bankruptcy Law). At this stage, the founders are required to hold a meeting of participants (shareholders) and appoint a director.
How do the procedures for concluding a settlement agreement differ at the observation stage and at the bankruptcy stage?
Unlike bankruptcy proceedings, during the observation stage, the arbitration manager does not have the right to make a decision on concluding a settlement agreement. On behalf of the debtor, such a decision can be made by: either the head of the debtor - a legal entity, or the acting head of the debtor - a legal entity (clause 1 of Article 64, clause 1 of Article 151 of the Bankruptcy Law). On behalf of the bankruptcy creditors and authorized bodies, the settlement agreement is signed by a representative of the meeting of creditors or a person authorized by the meeting of creditors to carry out this action (Article 151, paragraph 2 of Article 155 of the Bankruptcy Law).
If the settlement agreement is a transaction for its participants that requires a so-called qualified decision (this applies to large transactions and transactions made by persons who have an interest in its completion), then in this case, when signing it, two conditions must be met:
1) the meeting of creditors is informed about the existence and nature of interest in completing this transaction;
2) the settlement agreement itself must contain information that it is a transaction in which there is an interest, and definitely indicate the nature of such interest.
The law includes such participants as: debtor, temporary manager, bankruptcy creditor (clause 4 of article 151 of the Bankruptcy Law). In case of non-compliance with these conditions, the transaction is considered void.
At the same time, these provisions are not an obstacle to making a decision on behalf of bankruptcy creditors and authorized bodies to conclude a settlement agreement bypassing the will of the debtor (clause 2 of Article 151 of the Bankruptcy Law).
The circle of persons covered by the settlement agreement concluded during monitoring includes: bankruptcy creditors and authorized bodies whose claims were included in the register of creditors' claims on the date of the meeting of creditors that decided to conclude the settlement agreement. Among other things, this rule means that a person who is not included in the register of claims does not have the right to appeal the judicial act that approved the settlement agreement (Information letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 20, 2005 No. 97).
In the bankruptcy procedure, the decision to sign a settlement agreement is made by the bankruptcy trustee, who has assumed the powers of the sole and collegial bodies (Article 129, paragraph 2 of Article 155 of Law No. 127-FZ).
When signing a settlement agreement at the stage of bankruptcy proceedings, the list of creditors may be wider, in contrast to the moment when the settlement agreement is concluded after the first meeting of creditors at the stage of observation, since it applies to all claims of bankruptcy creditors and authorized bodies included in the register of creditors' claims at date of the meeting of creditors (clause 4 of article 154 of Law No. 127-FZ).
Creditors whose claims were not included in the register of creditors' claims on the date of the meeting of creditors have the right to assert their rights by presenting claims in the usual manner of litigation.
The presence of outstanding current payments, as well as non-payment of remuneration to the bankruptcy trustee, are not an obstacle to concluding a settlement agreement and terminating bankruptcy proceedings. This conclusion is reflected in judicial practice.
What must a settlement agreement contain?
The settlement agreement must contain the following sections:
- Document name, header, case number.
- Preamble, which describes the parties and the main circumstances.
- Information on the amount of debt of creditors participating in the settlement agreement.
- Terms of the settlement agreement, debt repayment schedule (clause 1 of Article 156 of the Bankruptcy Law).
- Signatures of the parties.
By law, a settlement agreement must contain a provision on the procedure and timing for the fulfillment of the debtor’s obligations in monetary form.
With the consent of an individual bankruptcy creditor and (or) an authorized body, a settlement agreement may contain provisions for the termination of the debtor’s obligations by providing compensation, exchanging claims for shares in the debtor’s authorized capital, shares, bonds convertible into shares or other securities, novation of an obligation, debt forgiveness, if this method of terminating obligations does not violate the rights of other creditors whose claims are included in the register of creditors' claims.
The terms of the settlement agreement regarding the repayment of debt on mandatory payments collected in accordance with the legislation on taxes and fees must not contradict the requirements of the legislation on taxes and fees.
A settlement agreement that does not resolve the issue of paying creditors interest, penalties, and fines under the bankruptcy procedure cannot be approved by the arbitration court, since its content does not comply with the mandatory requirements of the Bankruptcy Law.
By virtue of clause 3 of Art. 156 of the Bankruptcy Law, the terms of the settlement agreement for bankruptcy creditors and authorized bodies who voted against concluding a settlement agreement or did not take part in the voting cannot be worse than for bankruptcy creditors and authorized bodies that voted for its conclusion. On this issue, one should take into account the position of the Presidium of the Supreme Arbitration Court of the Russian Federation, set out in paragraph 16 of Information Letter No. 97 dated December 20, 2005 “Review of the practice of consideration by arbitration courts of disputes related to the conclusion, approval and termination of settlement agreements in insolvency (bankruptcy) cases.”
As noted by the FAS of the Volga District in the Resolution dated 06/02/2010 in case No. A12-16090/2009 (Determination of the Supreme Arbitration Court of the Russian Federation dated 07/26/2010 N VAS-9959/10 refused to transfer the case to the Presidium of the Supreme Arbitration Court of the Russian Federation for review in the manner of supervision), for approval settlement agreement in a bankruptcy case, it is necessary that the settlement agreement ensures either equal conditions for bankruptcy creditors and authorized bodies, or the unanimity of all creditors without exception: collateral - by virtue of clause 2 of Art. 150 of the Bankruptcy Law, and the rest - by virtue of paragraph. 1 clause 3 art. 156 of the Bankruptcy Law.
If the terms of the settlement agreement are not the same for all creditors, approval of the settlement agreement will be refused (Resolution of the Federal Antimonopoly Service of the North-Western District dated November 18, 2013 in case No. A56-41551/2011).
For how long can a settlement agreement be concluded?
A settlement agreement must be concluded for a reasonable period: from one year, but not more than five years.
Within what period can a court decision approving a settlement agreement be appealed?
A court ruling approving a settlement agreement may be appealed within a month from the date of its issuance. To do this, you should contact the cassation court (not the appellate court). The appeal procedure is specified in clause 19 of the Information Letter of the Presidium of the Supreme Arbitration Court of the Russian Federation dated December 20, 2005 No. 97, clause 35.4 of the Resolution of the Plenum of the Supreme Arbitration Court of the Russian Federation dated June 22, 2012 No. 35.
What could cause a dispute?
In case of violation or failure by the debtor to fulfill the conditions reflected in the approved agreement, the agreement is terminated. Without waiting for the termination procedure, creditors can count on having their claims satisfied in accordance with the general procedural procedure.
Any rights and legitimate interests violated in the settlement agreement regarding the parties to the case or third parties may become the reason for an appeal (Article 164 of the Bankruptcy Law). The ruling on approval of the settlement agreement is subject to revision if new circumstances arise (clause 2 of Article 162 of the Bankruptcy Law, Article 311 of the Arbitration Procedure Code of the Russian Federation and Article 392 of the Code of Civil Procedure of the Russian Federation).
To appeal, the creditor or authorized body must submit an application for termination to the arbitration court.
If the determination is revoked, the insolvency case is resumed from the stage at which the settlement agreement was concluded. The court issues a ruling to resume proceedings in the case, which comes into force immediately.
The settlement agreement is terminated in the arbitration court in relation to all participants; this is a transaction that does not have enforcement force. If violations are detected, all funds received during the settlement agreement are returned to the debtor, therefore, the creditors' claims are again included in the register as unsatisfied. This does not apply to first and second priority creditors.
As you can see, the procedure for signing a settlement agreement at any stage of bankruptcy allows creditors to defend their interests and the debtor to preserve the business.
