NEW RUSSIAN BANKRUPTCY LAW COMES INTO EFFECT.

On March 1, a new law came into effect in Russia that could make bankruptcy a more realistic threat to delinquent companies. (Radio Rossii, March 1)

The former law defined a company’s financial status in terms of an excess of claims over assets. This allowed many indebted companies to claim they were solvent on the basis of paper assets (such as property or debts owed by other deadbeat firms). The new law, in contrast, allows an arbitration court to declare a firm insolvent if it is unable to pay creditors’ bills within ninety days. One should not expect a rash of company closures, however. The law continues the old practice under which the emphasis is on court-ordered rehabilitation — that is, installing new management in order to keep the debtor company functioning. (A process akin to Chapter 11 bankruptcy in the US.) However, even under the old law, some companies have been put up for sale due to bankruptcy proceedings. Just last week, the huge Chelyabinsk Tractor Factory was declared bankrupt by a regional court. Its assets will be put up for sale. (Izvestiya, February 28)

A novel method of dealing with company debts was implemented in February, which some commentators are suggesting may be the harbinger of a new "debt-for-cash" scheme on a par with the controversial "loans-for-shares" scheme of 1995. (Moscow Times, March 3) In September 1997, two subsidiaries of the Yukos oil company, Yuganskneftegaz and Samaraneftegaz, issued bonds against their tax debts to the tune of $270 million and $60 million respectively. Prime Minister Viktor Chernomyrdin signed Order 1651 allowing these bonds to be sold in auction, which duly took place on February 6. MFK-Renaissance Capital dropped out at the last minute, leaving Menatep — the bank group owning Yukos — as the sole bidder. Menatep paid only $215 million for the $330 million of bonds. Would that we could all buy back our tax debts at 65 cents on the dollar.

Speaking of federal tax arrears, Gazprom and — surprisingly — the railways, are in the government’s good books, having paid all the taxes due from them in January-February. The electricity giant Unified Energy Systems (UES) is now the leading delinquent, with 1.4 billion rubles ($230 million) owed by their subsidiaries for the January-February period. (Nezavisimaya gazeta, February 26)

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