Guaranteeing supplier is bankrupt. Can be use a special procedure of bankruptcy for him?

In the new issue of the magazine “Arbitration Practice for Lawyers” (№ 3, March 2016), there was published an article of the head of administrative, antimonopoly and corporate practice of the National Law Company “Mitra”, Soslan Kairov.

Guaranteeing supplier is bankrupt. Can be use a special procedure of bankruptcy for him?

-          When does the guaranteeing supplier set equal to a subject of natural monopoly?

-          How will public interests impact on discharge of creditors ‘claims of the guaranteeing supplier?

-          Who will get the status of guaranteeing supplier in case of bankruptcy?

The Russian electricity market is going through hard times. The debts on the retail electricity market are growing, the delay in payments to wholesale electricity suppliers and territorial network organizations on the part of guaranteeing suppliers is increasing. Such a situation inevitably entails an increase in the number of claims by creditors with claims for bankruptcy against guaranteeing suppliers. In this case, there are cases when courts apply to such suppliers the norms of p. 6 Ch. IX Federal Law on October 26, 2002 No. 127-FL "On Insolvency (Bankruptcy)" (hereinafter - No. 127-FL) on the bankruptcy of subjects of natural monopolies. Meanwhile, guaranteeing suppliers de facto don`t operate in a natural monopoly environment. In this connection, a legitimate question arises about the validity of applying special conditions for bankruptcy procedures to guaranteeing electricity suppliers, provided for subjects of natural monopolies.

In case of bankruptcy of subjects of natural monopolies, the criteria of insolvency and non-payment are applied.

As A. Trainin pointed out, "in the doctrine of insolvency, one issue is of particular importance - the question of justification of insolvency, or the question of those conditions under which the debtor should be recognized as insolvent."

A normatively fixed definition of the term of insolvency (bankruptcy) is characterized as an inability of the debtor to fully satisfy the claims of creditors for monetary obligations, the payment of retirement pays and (or) payment of labor of persons working or working under an employment contract, and obligation to pay mandatory payments (Article 2 of Law No. 127 FL).

At the same time, when assessing the insolvency of the debtor, it is necessary to distinguish between the terms (criteria, principles) of insolvency and non-payment. This is evidenced by the opinion of the overwhelming majority of authors of scientific works.

G. Shershenevich noted that for the availability of insolvency, either a recognized insufficiency of the property, that is, an excess of the passive over the asset, or the debtor's inability to pay, that is, to the exact satisfaction of the claims, is required.

In V. Vitryansky's opinion, an alternative to the criterion of insolvency is the criterion of non-payment, when the debtor can be declared bankrupt only if the total amount of his-creditor debts exceeds the value of his property.

In the first case, the conclusion about the insolvency of the debtor is based on the assumption that the debtor, not settling with creditors, doesn`t have sufficient liquid assets.

In the second case, the basis for the debtor's recognition as a bankrupt is a certain actual state of his property, the value of which is less than the amount of accounts payable.

It should be clarified: insolvency is a real failure to meet the mature requirements, and the lack of payment is the potential impossibility to satisfy all the monetary claims on the motive that their total volume exceeds the value of the property belonging to the debtor.

Let`s consider the criteria for the bankruptcy of a natural monopoly subject.

The former Federal Law No. 122-FL, dated 24.06.1999 "On the Specifics of Insolvency (Bankruptcy) of the Natural Monopolies of the Fuel and Energy Complex" (hereinafter - Law No. 122 FL) referred to the number of necessary signs of bankruptcy of such debtor that the amount of accounts payable exceeded the book value his property, including the right of claim.

After the adoption of this law, V. Vitryansky wrote that "with regard to this category of debtors, the principle of "non-payment" was restored, when the basis for insolvency lies in the excess of accounts payable over the debtor's property".

Today the subject of natural monopoly, for the purposes of Law No. 127 FZ, is an organization that produces and (or) sells goods (works, services) under natural monopoly conditions.

The natural monopoly subject is considered incapable of meeting the claims of creditors for monetary obligations, payment of severance pay and (or) payment of labor for persons who work or worked under an employment contract, and (or) fulfill the obligation to pay mandatory payments if the relevant obligations and (or) the obligation was not fulfilled by him within 6 months from the date on which they were to be executed.

Electric power is the basic branch of the economy of the Russian Federation. Reliable and efficient functioning of the electric power industry, uninterrupted supply of consumers is the basis for the progressive development of the country's economy and an integral factor in ensuring civilized living conditions for all its citizens. The problems of the industry that arose in the 1980s and the industrial problems that had worsened in the 1990s required an early resolution. With the decline in investments in the electric power industry and the increase in the energy intensity of the economy as a whole, as well as the growing inefficiency of certain sectors of the industry, further delay was like death, which led to its reform.

In the course of the reform, the structure of the industry has changed: there has been a separation of natural monopolies (electricity transmission, operational dispatch management) and potentially competitive (production and sale of electricity, repair and service) functions.

Instead of the former vertically integrated companies that performed all these functions, special subjects appeared - legal entities with a certain legal status (network organizations that guarantee suppliers, etc.) (Basic provisions of structural reform in the spheres of natural monopolies, approved by Presidential Decree of 28.04. 1997 No. 426).

At the same time, a legislative ban was introduced for combining legal entities and individual entrepreneurs, as well as affiliated persons within the same price zone of the wholesale market, with electricity transmission activities and (or) operational dispatch management in the electric power industry with activities for the production and (or) sale of electric energy.

The results of the reform immediately identified "weak links" in the efficiency of the commercial activities of newly emerged business entities: high excess losses of grid organizations, growing indebtedness of retail energy market buyers (especially utility companies), debts of electricity resellers in the wholesale electricity market to generating companies. In the regiment of insolvent debtors happens every day.

The arbitration court shall initiate a bankruptcy case if the claims of creditors to the debtor - natural monopoly subject in total amount to not less than 1 million rubles, which are confirmed by the executive document and are not satisfied in full by foreclosure on the debtor's property specified in par. 1-3 art. 94 of Federal Law No. 229 FL of October 2, 2007, "On Enforcement Proceedings" (paragraph 3 of Article 197 of Law No. 127-FL).

In this case, in the absence of the debtor - subject of a natural monopoly of sufficient funds to satisfy the requirements, contained in the enforcement document, the recovery is applied to other property, in the following order:

1) movable property that doesn`t directly participate in the production of goods, works or services in a natural monopoly;

2) on property rights not directly used in the production of goods, the performance of work or the provision of services in a natural monopoly;

3) for immovable property that doesn`t directly participate in the production of goods, the performance of work or the provision of services under conditions of natural monopoly.

In other words, it is possible to initiate a procedure for bankruptcy of a natural monopoly subject if there is an indebtedness, confirmed by the executive document, in the amount of not less than 1 million rubles, which was not repaid within 6 months from the moment when the obligations for its repayment were to be fulfilled by the debtor. In addition, there is no other property that does not participate directly in the natural monopoly activities of the debtor, which can be levied in enforcement proceedings.

In M. Telyukina's opinion, since the introduction of Section 6 of Ch. IX Law No. 127-FL on all-natural monopolies applies the criterion of insolvency. The criterion of non-payment is not preserved.

At the same time, it seems that the current legal regulation still preserved the principle of non-payment with respect to natural monopolies. The condition on the ratio of assets and accounts payable remains, but in calculations it is necessary to "take out of the brackets" the property of the debtor directly involved in natural monopoly activity (FAS resolution of the North Caucasus District of July 21, 2014 in case No. A15-3513 / 2013, Arbitration Court North Caucasus District of 09.07.2015 in case No. A63- 10859/2014).

In 1999 V. Vitryansky drew attention on the need to compare the amount of accounts payable not with all the property of a natural monopoly subject, but with that part of it that is not part of a single production and technological complex.

It should be noted that the bankruptcy legislation of Germany, France, Belgium, the Netherlands, the United Kingdom, Italy and the USA (excluding railway companies) don`t provide for special bankruptcy proceedings against natural monopoly subjects.

In this regard, the inclusion of another criterion of bankruptcy by the legislator in respect of this category of debtors was unlikely to be spontaneous.

Obviously, the adoption of Law No. 122-FL and the subsequent introduction of an independent paragraph into Act No. 127-FL pursued specific goals, which will be discussed in more detail below.

The network organization can`t disconnect electricity if other consumers take a beating

The legislator, characterizing the natural monopoly, determines the state of the commodity market, on the one hand, the features of technology, on the other - socio-economic significance.

QUOTE: "Natural monopoly - the state of the commodity market, in which the satisfaction of demand in this market is more effective in the absence of competition due to technological features of production (in connection with a significant decrease in production costs per unit of product as production increases), and goods produced by natural subjects monopolies, can`t be replaced in consumption by other goods, in connection with which the demand in this commodity market for goods, produced by subjects of natural monopolies, in a smaller degree depends on changes in prices for these goods than the demand for other goods "(Art. 3 of the Federal Law dated 17.08.1995 number 147-FL" On Natural Monopolies ").

Let us consider it in the case of power supply relations.

Federal Law No. 147 FZ "On Natural Monopolies" dated 17.08.1995 defined specific areas for regulating the activities of the relevant subjects, including services for the transmission of electric power, provided by grid organizations, services for operational dispatch management in the electric power industry, services for the transfer of thermal energy and other

The use of electric grid facilities to provide services for the transmission of electricity to consumers and the inability to provide appropriate services without electric grids is an integral technological aspect of natural monopoly activity.

The socio-economic aspect of the state of the commodity market under conditions of natural monopoly is determined by the position of one of the market subjects that is recognized as dominant (clause 5 of Article 5 of Federal Law No. 135-FL of July 26, 2006 "On Protection of Competition").

Providing uninterrupted power supply, quality of electricity, the obligation of the network organization to conclude a service agreement with any person applying to it (if technically possible), the liability of the network organization in case of illegal power outages are manifestations of the social and economic aspect of natural monopoly activity.

At first sight, the compulsory accounting of the technological aspect inherent in natural monopoly activity for the purposes of applying special provisions of Law No. 127-FZ follows from a literal interpretation of the relevant legal norms.

However, whether this is so important for competitive creditors, there is no need to secure the rights of creditors to the extent that the general provisions of the competition law governing the status of ordinary participants in economic relations should not be applied to monopolists.

In the opinion of scientists, the establishment at the legislative level of special rules regulating the peculiarities of bankruptcy of subjects of natural monopolies is dictated by their special position among participants in property turnover: subjects of natural monopolies operate in those areas of the commodity market where there is no competition among commodity producers, and in this sense, they are irreplaceable. Applying to them a "common measure" of bankruptcy along with other participants in property turnover, including in terms of criteria and signs of insolvency, can lead to disastrous consequences for the Russian economy as a whole.

V. Tkachev emphasizes that the subject of natural monopoly has many customers who are interested in the goods, works, services. The counterparties of a natural monopolist depend economically on it, because they don`t have the opportunity to receive the appropriate goods (works, services) from other subjects without disproportionate expenses.

The fundamental principle here is the principle of the priority of public interests over private interests.

This principle found its clear reflection in numerous judicial practices in cases of imposing restrictions on the regime of electricity consumption against non-payers, when the supply of electricity to consumers that faithfully fulfilled their payment obligations simultaneously ceased.

Courts take into account the functional and technological coherence of the processes of generation, transmission, sale and consumption of electricity, a high degree of monopolization of the electricity market in the Russian Federation. In such circumstances, in the absence of real possibilities for individual participants in limiting the consumption of non-payers, the sale and network organizations of the art. 328 of the Civil Code of the Russian Federation the right to terminate (restrict) the supply of electricity to a defaulter should not lead to infringement of the rights and legitimate interests of other persons and lead to socially dangerous consequences (decisions of the Federal Antimonopoly Service of the Urals region dated 02.11.2010 in case No. А60-9416 / 2010-С9, Povolzhsky District from 25.12.2012 in case No. A57-4031 / 2012, of the East Siberian District of 05.03.2013 in the case No. АЗЗ-9544/2012).

Otherwise, the application of this method of protection of property interests may lead to harm, incommensurable with the losses of the sales organization in the framework of obligations with a particular defaulter.

With the bankruptcy of such organizations, public interests by analogy should have priority over the interests of competitive creditors, without exception.

Guarantee of uninterrupted power supply is a necessary condition for the bankruptcy of the respective debtor. This, in particular, also follows from the normatively fixed special conditions for the sale of the property of the debtor-monopolist.

Thus, providing the socio-economic aspect of the activity of a natural monopoly subject in the context of its insolvency is the main motive for the legislator to apply special bankruptcy procedures against such a debtor.

The guaranteeing supplier actually possesses the characteristics of the natural monopoly subject

Federal Law of March 26, 2003 No. 35 FL "On Electric Power" fixes a legal interpretation of the concept of "guaranteeing supplier of electric power". Such a supplier is considered to be a commercial organization obliged in accordance with the law or voluntarily accepted obligations to conclude a contract for the purchase and sale of electric power with any consumer of electric power addressed to it or with a person acting on behalf of and in the interests of the consumer and wishing to purchase electric energy.

The dominant position of the guaranteeing supplier in the energy sales market and the dominant position of the network organization in the market for electric power transmission services due to the peculiarities of pricing, tariff regulation, the continuity of the power supply process (technological connection, transmission of electricity through networks and its implementation) are identical from the point of view of the need to secure rights consumers.

For example, a guaranteeing supplier is prohibited from limiting the regime of electricity consumption to a defaulter (unilateral refusal to perform the contract), if as a result, the supply of electricity to consumers who conscientiously fulfill their duties for paying for electricity may be terminated.

For example, in one of the cases the court pointed out that as a professional participant of the retail electricity market, the talant supplier should be aware that the management company purchases electricity for residents of apartment buildings and to foresee the unconditional occurrence of adverse consequences for bona fide electricity consumers when introducing a consumption restriction in relation to the whole apartment building.

The supplier doesn`t have the right to formally use the right given to him to limit the regime of electricity consumption with reference to his lack of information about the existence of bona fide 114 consumers, taking into account that bona fide consumers have no other opportunity for receiving electricity (FAS resolution of the North Caucasus District of 04.10.2013 in case No. A32- 47764/2011).

As a rule, in case of violation the subject of responsibility is the initiator of the restriction (the guaranteeing supplier) and the executor (network organization) (the FAS decision of the North Caucasus district of 27.12.2011 in case No. A15-553 / 2011).

Legislator doesn`t include the activity on buying and selling electricity to the natural monopoly. However, the right of electricity consumers is guaranteed by a public contract.

As a default, the obligation to regulate the relationship with the network organization on the question of transporting electricity to the consumer is also placed on the guaranteeing supplier.

"Sellers" are regularly brought to administrative responsibility for the supply of electricity of incorrect quality or "fan" trips.

Consequently, the energy supply activity of the guaranteeing supplier is devoid of a technological component, but has a pronounced socio-economic aspect

Recognition of the social and economic importance of electricity transmission services, provided by grid organizations, and energy supply activities, carried out by the guaranteeing supplier, actually equates these subjects of the electric power industry in case of the appearance of insolvency signs in the need to ensure the rights of end users.

For power supplying organizations that simultaneously transport and sell electricity, due to the availability of technological and socio-economic aspects, the requirements to the procedure for bankruptcy of subjects of natural monopolies are applied categorically. Meanwhile, the approaches of arbitration courts are not so unambiguous for guaranteeing suppliers.

So, the Arbitration Court of the Republic of Tyva, referring to the dominant position of the guaranteeing supplier in the energy sales market, as well as the inseparability of technological connection, transmission and sale of electric power, concluded that the guaranteeing supplier actually possesses the characteristics of a natural monopoly subject. In this regard, the procedure for monitoring against such a debtor can be introduced only if there are conditions stipulated in Art. 197 of Law No. 127 FL (decisions of 06.12.2013 in the case No. A69- 2973/2013, of 17.10.2014 in the case No. A69- 11946/2014).

An interesting conclusion was made by the Arbitration Court of the Stavropol region, pointing out that the guaranteeing supplier is not a representative of the competitive environment, he has no right to choose customers and has no right to set prices for electricity. The guaranteeing supplier is a de facto monopolist in the retail electricity market (the decision from 24.06.2015 in case No. A63-3911 / 2015, revoked by the courts of higher authorities).

The need to investigate the question that the debtor has the status of a guaranteeing supplier is indicated in the decision of the Arbitration Court of the North Caucasus District from 16.12.2014 in case No. A18-232/2014.

In another case, the court, considering the question of imposing an observation procedure in point of the supplier company, indicated that the debtor is a natural monopoly subject in the fuel and energy sector, since by order of the Federal Tariff Service dated February 9, 2007 No. 16-e it was included in the Federal Information Registry guaranteeing suppliers. In addition, it is the only guaranteeing electricity supplier in the Chechen Republic and is included in the register of economic subjects with a market share exceeding 35%, indicating a share of over 50% (Decision of the Arbitration Court of the North Caucasus District from 29.01.2015 in case No. A77-1351 / 2009).

In case of the bankruptcy of guaranteeing supplier, regional grid organization will take its status.

The absence of activities for the sale and purchase of electricity by a guaranteeing supplier is not an unconditional basis for not applying special bankruptcy procedures against such debtors.

Otherwise, the formal approach ignores the state of competitive relations in the commodity market, excludes the need to investigate the availability of an alternative to the supplier or the corresponding product (work, service), without significantly increasing costs, contrary to the principle of priority of public interests over private ones.

So, in one of the cases the court came to the conclusion that there were no grounds for applying the provisions of § 6 of the chapter in the bankruptcy case of the company. IX of Law No. 127 FL, regulating the issues of bankruptcy of natural monopolies subjects. The court took into account the availability of documents on assigning the company the status of a guaranteeing supplier and the implementation of its activities for the supply of electricity. This activity is not attributed to the sphere of activity of subjects of natural monopolies (Resolution of the North Caucasus Circuit of 13.11.2015 in case No. A63-3911 / 2015).

The foregoing allows us to conclude that the dominant position in the market and the presence of a social and economic aspect in the activities carried out by the debtor are necessary factors for applying special bankruptcy procedures to it.

Despite the unconditional availability of these factors in the activities of guaranteeing suppliers, the question of how correctly the application of special bankruptcy procedures in this case, whether the relevant necessary conditions are sufficient, remain open.

The answer to this question is contained in the Basic Provisions for the Operation of the Retail Electricity Markets (approved by Resolution of the Government of the Russian Federation No. 442 of 04.05.2012).

According to paragraph 202 of this document, if the arbitral tribunal recognizes the guarantor of the supplier as a bankrupt and introduces observation concerning it, the authorized federal body assigns the status of the guaranteeing supplier of the territorial grid organization and makes a decision to hold a tender in respect of the corresponding zone of activity of the guaranteeing supplier.

Electric grid facilities of this network organization should be located on the territory of the subject of the Russian Federation, within the boundaries of which the zone of activity of the replacement guaranteeing supplier is located. In order to perform the functions of the guaranteeing supplier of a network organization, the status of a wholesale market entity is assigned.

Thus, if the guarantee of ensuring the socio-economic aspect of the activity of a natural monopoly entity when insolvency signs appear is implemented in a separate paragraph of Law No. 127-FZ, then in respect of guaranteeing suppliers, in another normative document.

In case of loss of solvency by the guaranteeing supplier, the relevant status passes to a territorial network organization that will carry out energy sales activities until the election of a new guaranteeing supplier. Thus, with the introduction of the bankruptcy procedure with respect to the guaranteeing supplier, the reliability of energy supply to consumers is guaranteed. In these circumstances, the application of the criteria of non-payment with respect to such debtors when considering the issue of the justification of the claims of creditors, provided for in § 6, Ch. 9 of Law No. 127-FZ, will not have a socio-economic justification.

The foregoing means that the provision by the legislator of guarantees of the counterparty's rights of the guaranteeing supplier, in the event of the insolvency of the latter, excludes the application of special bankruptcy procedures

In conclusion, I would like to note that such an approach should not be universal without exception. This is due to the peculiarities of the functioning of the retail electricity market in Russia: high losses in electrical networks, receivables of territorial network organizations both to adjacent * grid organizations and to the guaranteeing supplier.

For example, the issue of transferring the status of a guaranteeing supplier to a territorial network organization, in respect of which a bankruptcy procedure had already been introduced, is not settled at all. How will the socio-economic aspect of energy sales activity be ensured in this situation?

In our opinion, this issue requires permission at the legislative level. At the same time, from the point of view of procedural guarantees, it seems that it is impossible to consider a bankruptcy case of a guaranteeing supplier without involving a territorial grid organization as an interested person.

Materials were taken from “Arbitration practice for lawyers”