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. Last Updated: 07/27/2016

Official Says 30% Of Firms 'Insolvent'

Russia will start wielding its new bankruptcy law on March 1, and up to one-third of the country's enterprises may face liquidation or reorganization, officials said Tuesday.


The law, adopted by parliament in November, provides for the first time for private as well as large state-owned enterprises to be declared insolvent and for their finances to be worked out in court.


A key provision of the law will empower the State Arbitration Court to review the performance of the directors of state enterprises and appoint a court-approved manager to take over if their performance is deemed unsatisfactory.


Money-losing businesses and factories could be liquidated outright under certain conditions, although Russia is moving only gradually away from the state protection it afforded to industry during the Communist era and the law will not result in massive closures.


"It is aimed at revitalizing a competitive market environment, at ensuring creditor's rights, and at protecting and guaranteeing their rights", Alexei Manannikov, chairman of the parliament's anti-monopoly committee, said at a press conference on the legislation.


Natalya Livshits, chief adviser of the Arbitration Court, cited economist's estimates that "30 percent of all enterprises are insolvent today".


"We already have information that a number of enterprises are poised to file" for bankruptcy, Livshits said.


Lack of a bankruptcy law has been a major stumbling block to the restructuring of Russian industry. The country has lacked a legal means to evaluate the accounts of state-owned enter-prises, liquidate them and remove their managers.


It has also been a major stumbling block for foreign investment Without legislation defining how investors or lenders would get their money out if an enterprise fails, many of have been reticent to put money in. "There can be no structural rebuilding of the economy if output is falling but not one enterprise has been closed down', ' Boris Fyodorov, deputy prime minister in charge of economic reform, told journalists last week.


But officials at the press conference acknowledged Tuesday that several key elements were still not in place that are needed to make the bankruptcy law work. Livshits said that the court needs an approved list of court-appointed managers to run enterprises that are declared insolvent.


A fund is also scheduled to be set up to support insolvent enterprises, but the commission to administer it has yet to be formed and money has yet to be allocated, said Galina Fedotova, a spokeswoman for the Economics Ministry.


But Livshits said the law should still take effect because it is so fundamental to a capitalist economy.


"Enactment of this law must not be postponed because it is the most substantive law of the marketplace", she said.


Enactment of the law will not solve one of the most pressing problems in Russia: the debts that have built up between enterprises. Officials at the press conference said that this issue would not be handled by the arbitration court but needed to be solved by other government agencies.