Subsidiary Liability in Russian Insolvency: The Case for Early Action

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Practice Analysis

Byline:
By Stanislav Lastovsky

May 2026

INSIGHTS ARTICLES — subsidiary liability russia

Of all the mechanisms available to creditors in Russian insolvency proceedings, subsidiary liability under Article 61.11 of the Federal Insolvency Law is at once the most powerful and the most frequently misunderstood. It is powerful because it reaches the personal assets of individuals who directed the debtor's activity — individuals who may have significant personal wealth even when the corporate entity is empty. It is misunderstood because the evidentiary requirements are specific, the limitation period is real, and the time between the commencement of insolvency proceedings and the point at which a subsidiary liability claim becomes sustainable is often longer than creditors expect.

The Legal Basis

Article 61.11 of the Federal Insolvency Law provides that a controlling person — defined broadly to include directors, majority shareholders, and individuals who otherwise directed the debtor's activity — may be held liable for the debtor's obligations to its creditors where the controlling person's actions or inaction caused or materially contributed to the insolvency. The liability is subsidiary to the company's obligations: it applies where the company's assets are insufficient to satisfy creditor claims.

The definition of controlling person is broad and intentionally so. An individual who held no formal position in the company but who gave binding instructions to the director is a controlling person. A majority shareholder who directed the withdrawal of assets before the insolvency is a controlling person. A beneficial owner who acted through nominees is a controlling person. The question is one of fact, determined by the pattern of decision-making rather than the formal corporate structure.

What Must Be Proved

A subsidiary liability claim requires proof of three elements: that the respondent was a controlling person during the relevant period; that the debtor's insolvency resulted from the respondent's actions or inaction; and that the respondent's actions or inaction satisfy one of the specific statutory grounds for subsidiary liability.

The statutory grounds include: the debtor's failure to file for insolvency when required by law; transactions by the debtor that caused substantial harm to creditors; the destruction or concealment of the debtor's accounting records; and the provision of false information to the court or creditors. Each ground has its own evidentiary requirements, and the quantum of liability may differ between grounds.

The causation requirement — that the controlling person's conduct caused or contributed to the insolvency — is the most frequently contested element. Insolvency administrators and creditors often argue causation on the basis of specific transactions or decisions; directors and shareholders defend on the basis that the insolvency resulted from external factors — market conditions, the loss of a major customer, a regulatory change — rather than their own conduct.

The Timing Question

Subsidiary liability proceedings in Russia can be commenced by the insolvency administrator or by creditors at any stage during the liquidation and for three years after the insolvency is closed. In practice, they are most commonly commenced during the liquidation stage, after the extent of the asset deficit has become clear.

The three-year post-closure period is important for creditors whose insolvency proceedings have concluded without full recovery: the subsidiary liability route remains available after the company is formally dissolved, and the potential respondents — directors and shareholders — remain personally exposed.

However, the practical reality is that subsidiary liability proceedings are most effective when commenced early in the liquidation. A respondent who is aware of an impending subsidiary liability claim may take steps to move personal assets beyond reach. An interim freezing order over the respondent's personal assets — available under the same Article 90 APC mechanism as commercial interim relief — can be obtained simultaneously with the subsidiary liability application, providing protection against this risk.

What Recovery Looks Like

Subsidiary liability judgments in Russia are enforced against the personal assets of the respondent using the same enforcement mechanisms available in commercial proceedings: enforcement writs directed at bank accounts, enforcement against real property through the Federal Bailiff Service, and enforcement against the respondent's shareholdings in Russian companies.

The practical question is whether the respondent has significant personal assets in Russia that are identifiable and reachable. Where the respondent has already moved personal assets offshore before the claim is filed, the Russian enforcement is limited to Russian-situated assets. In some cases, coordination with overseas counsel to identify and freeze foreign-situated assets is the most effective approach.

Subsidiary liability recoveries vary significantly. In cases where the controlling person directed clear pre-bankruptcy asset stripping and retains personal wealth in Russia, recovery can be substantial. In cases where the controlling person's personal assets are modest or have been moved, the judgment may produce limited practical recovery.