“Supreme Court to Rule on Balancing Creditor and Controlling Person Interests in Subsidiary Liability Case” — Vitaly Karpenko for PRObankrotstvo
Courts have effectively relieved defendants from proving that debt repayment impossibility resulted from objective market factors and other business risks, notes the appellant in its Supreme Court appeal.
Novorossiysk Rolling Mill LLC and Federal Logistics Company LLC entered into a freight transportation contract in 2021-2022. Federal Logistics Company LLC provided services worth 8.4 million rubles, while Novorossiysk Rolling Mill LLC transferred 9.4 million rubles and demanded a 1 million ruble overpayment refund. When the logistics company failed to return the funds, the court ordered repayment. Subsequently, Novorossiysk Rolling Mill LLC petitioned for bankruptcy proceedings against Federal Logistics Company LLC, which were dismissed due to lack of funding. The plaintiff then sued to hold Kirill Vasilkov (who managed the company until December 2022) and Ivan Sarvilin (current manager since December 23, 2022) jointly liable for the 1.05 million ruble debt. Three court instances denied the claim. The Supreme Court agreed to review the case (No. A53-48051/2023).
Why This Matters
Vitaly Karpenko, Attorney and Lead Counsel at Prime Advice Law Offices, emphasized the inherent difficulty in balancing creditor and controlling person interests in subsidiary liability disputes. Plaintiffs typically lack sufficient documentation to substantiate claims, yet liability cannot be imposed solely based on a defendant's control capacity, he explained.
In this case, lower courts formally reviewed the application without proper financial-operational analysis - particularly regarding pre-default circumstances and causes. The Supreme Court will likely overturn these rulings and reallocate the evidentiary burden to defendants. Such cases require comprehensive evaluation of corporate activities: account transactions, asset status, default reasons, etc. Equally crucial is examining decision-making processes and determining whether final managers/owners were merely nominal controllers of an effectively abandoned entity.
Karpenko noted the Supreme Court's February 21, 2025 ruling (No. A40-113828/2023) on evidentiary burden distribution in subsidiary liability cases. Given similarities in the referral determination, the Court will probably reiterate this stance in the current dispute, he concluded.