Bankruptcy Changes Course

The State Duma on July 8, 2026 passed in its third reading a bill on comprehensive regulation of corporate bankruptcy that aims to change the very logic of the proceedings: instead of primarily liquidating companies, the focus will shift toward rehabilitating them if they have economic potential.

The legislation introduces a new debt restructuring procedure, a pre-trial rehabilitation mechanism, new rules for selling major assets, and reforms the system governing self-regulatory organizations of bankruptcy trustees. The law will take effect one year after official publication, except for certain provisions that have special implementation timelines.

From liquidation to rehabilitation

Bankruptcy in Russia remains one of the main tools for resolving problem debt, but in practice the procedure more often marks the end of a business rather than a path to recovery. After a company is declared insolvent, the process typically comes down to selling off assets and settling with creditors. Meanwhile, actual business operations often cease even before all procedures are completed.

Against a backdrop of high debt burdens and changing economic conditions, the number of corporate bankruptcies in Russia remains substantial, though the figure declined in 2025 after rising the previous period. In 2024, 8,570 legal entities were declared insolvent in Russia. In 2025, the number of corporate bankruptcies fell by roughly 24%—to 6,500 companies. Yet the decline in proceedings doesn't eliminate the key problem with the current system: in many cases, bankruptcy still leads not to business recovery but to operations shutting down, assets being sold off, and limited recovery for creditors. 

The problem lies not only in the volume of proceedings but in their effectiveness for creditors. Partner at law firm Taeda Legal Nikita Trifonov notes that the current system essentially operates primarily as a liquidation mechanism.

"The current bankruptcy law operates almost as a one-way street—toward liquidation. Formally it includes rehabilitation procedures: financial recovery and external management, but in practice they're applied extremely rarely and almost never lead to actual business recovery."

According to him, the problem also affects creditors' interests: most assets are sold only after the business value has significantly declined.

"Most bankruptcy cases end with assets being sold off at prices far below market value, with creditors receiving on average just 2-3% (of their claims against the debtor)."

It's precisely this gap between legal procedure and economic logic that became one of the main arguments for reform. If a company can be restored and returned to normal operations, it's potentially more beneficial for all parties involved—from banks to the state.

New debt restructuring: a second chance

One of the key changes will be the introduction of a separate debt restructuring procedure for legal entities. It will be used within the framework of bankruptcy proceedings, but its purpose won't be to liquidate the company—rather, to give it an opportunity to restore solvency.

The mechanism involves appointing a crisis manager who will analyze the debtor's financial condition, monitor implementation of the restructuring plan, and interact with creditors.

As Nikita Trifonov explains, the new procedure will become an alternative to the familiar scenario where, after proceedings are initiated, a company gradually moves toward asset sales.

According to Nikita Trifonov, the new procedure involves not just a payment deferral, but a full-fledged business recovery plan: it will be prepared by the debtor with participation from the crisis manager, and after approval by creditors and the court, the document will be implemented over four years with the possibility of extension.

Unlike existing mechanisms, the new model provides more options for business recovery.

"The plan may include options such as: debt-to-equity conversion, installment payments, reorganization, sale of part of the business—essentially, various combinations are available."

Why creditors gained the right to initiate restructuring

One of the most notable changes will be the ability to initiate restructuring not only by the debtor, but also by creditors.

Currently, a creditor who believes a company is insolvent can primarily file a petition to declare it bankrupt. The new approach gives them an alternative: attempt to preserve a functioning business if doing so would allow them to recover more funds.

According to the expert, this model shifts the balance of interests between parties. For banks and major creditors, it's sometimes more profitable to support a company in crisis than to receive minimal compensation after asset liquidation.

"Previously, creditors could only file a petition for bankruptcy recognition—meaning they immediately opened the path to liquidation. Now they have the right to choose a different track: file a petition specifically for debt restructuring if they see prospects for saving the business and want to receive more than they would from asset sales in bankruptcy proceedings," explains Nikita Trifonov.

According to him, the new mechanism could change creditors' entire strategic behavior.

"If a bank or other major creditor determines that a living debtor will ultimately pay more than a dead one, they now have the necessary tools to pursue that outcome," the expert says.

For the Russian market, this is a significant change: creditors are no longer merely participants in collection proceedings but gain the ability to influence the company's recovery scenario.

Rehabilitation before bankruptcy: attempting to solve the problem earlier

Another component of the reform concerns pre-trial rehabilitation. The state is proposing that companies and creditors reach agreements before launching full bankruptcy proceedings.

A similar approach has long been applied in the banking sector. When a credit institution faces problems, the regulator typically tries to avoid bringing the situation to bank bankruptcy, since liquidation means loss of assets and clients and can create risks for the entire financial system. Instead, the Central Bank uses financial recovery tools: transferring the bank to an investor, changing ownership structure, or participating in rehabilitation through special support mechanisms.

One of the largest examples is FC Otkritie Bank. In 2017, the Central Bank decided to rehabilitate the credit institution through the Banking Sector Consolidation Fund, after which the bank underwent financial recovery and was merged with VTB in 2022. This scenario avoided the classic liquidation of a major bank with asset sales and client transfers to other institutions. 

The logic for business is similar: preserving a functioning company is often more profitable than bringing it to asset sales through bankruptcy. The enterprise retains employees, production relationships, contracts, and tax revenues, whereas after liquidation proceedings a significant portion of value can be lost.

The bill provides for two pre-trial rehabilitation mechanisms. The first is an agreement between the debtor and individual creditors. The second is comprehensive rehabilitation, which can extend to a broader circle of participants. The comprehensive agreement will be available to large debtors with balance sheet assets exceeding 1 billion rubles. Its approval will require consent from creditors holding more than 50% of claims, excluding affiliated parties.

Experts note that the reform is essentially attempting to transfer to the corporate sector the same philosophy already used in bank regulation: it's more profitable to solve a problem before it becomes irreversible.

According to him, many companies today turn to bankruptcy proceedings only at a stage when few opportunities for recovery remain. The new mechanism should give market participants a chance to begin negotiations earlier and preserve more value.

"The state's motivation here is obvious: bankruptcy is long, expensive, and inefficient. If parties can reach an agreement earlier, it's better for all market participants," he says.

Dissenting creditors will have to accept restructuring terms

One of the most contentious elements of the reform has been the mechanism for extending restructuring terms to creditors who did not support the agreement.

If creditors holding more than half of the claims agree to a comprehensive restructuring, the court will be able to extend its terms to the remaining participants. A mandatory condition remains the principle that a dissenting creditor must not end up in a worse position than one who supported the agreement.

This approach is used in international debt restructuring practice and is known as the best interest of creditors principle.

"A dissenting minority should not have the right to block a potential opportunity to save a business if their interests are protected no worse than those of other creditors."

However, this particular part of the reform may become a source of new legal disputes. Creditors who do not wish to participate in the restructuring may challenge court decisions, arguing that their rights have been violated.

Swing auctions should stop asset sales below market value

A separate area of reform concerns the sale of bankrupt estates. Today, one persistent issue remains the sale price of assets: property is often sold at significantly below its initial value.

The new "swing auction" mechanism will apply to property valued at over 1 billion rubles. If no buyers appear in the first stage, the price will be reduced until a bid emerges. After that, the reverse movement begins—the price increases.

According to lawmakers' design, this mechanism should help find the true market value of an asset and attract more auction participants.

Nikita Trifonov explains that the current system doesn't always allow for fair price determination.

"The problem with current bankruptcy asset sales is well known to practitioners: assets often sell for prices significantly below market value because the existing system lacks a mechanism to discover the true market price."

According to him, the new mechanism should increase the bankruptcy estate and boost creditor recoveries.

"The main goal is to achieve real replenishment of debtors' bankruptcy estates and stop the practice of liquid assets selling at prices far below market."

New Requirements for Bankruptcy Trustees

Another set of changes concerns professional participants in the bankruptcy market—bankruptcy trustees and their self-regulatory organizations.

The bill introduces a division of self-regulatory organizations (SROs) into three categories depending on the complexity of cases they can handle. Higher requirements for compensation funds will apply to the largest proceedings.

Currently, the minimum size of such a fund for an SRO is 50 million rubles. After the reform, requirements for organizations working with large debtors will increase substantially—to 400 million rubles.

The legislators' rationale is that more complex proceedings should be handled by organizations with sufficient financial guarantees.

At the same time, the quality of trustees' work may become one of the key factors in the reform's success.

"The practical success of the reform largely depends on the quality of 'crisis managers.'"

Who Will Benefit from the New System

The primary beneficiaries of the reform should be companies that have encountered financial difficulties but retain economic potential.

For businesses, this is an opportunity to avoid liquidation; for creditors, a chance to recover more funds; and for the economy, a way to preserve jobs, production, and tax revenues.

"The potential beneficiaries of the reform are honest businesses that find themselves in difficult situations due to objective reasons."

However, the reform itself does not guarantee an automatic change in practice. The main risks are associated with potential abuse: unscrupulous debtors may use restructuring to delay payments, while new mechanisms for forcing creditor consent could lead to conflicts.

"Restructuring could become a tool for dragging out repayment to creditors by unscrupulous debtors," the expert warns.

Ultimately, the new model presents the market with a more complex challenge: learning not simply to shut down troubled companies, but to separate businesses that can genuinely be saved from companies with no prospects of recovery.

"The reform is ambitious and moving in the right direction. But only time and the practical application of these legislative innovations will show how much it changes actual practice," concludes Nikita Trifonov.

The bankruptcy reform is effectively changing the philosophy of the insolvency institution: from selling assets after a crisis to attempting to manage the crisis in advance. But the ultimate effect will depend not so much on the text of the law as on how effectively the new instruments work in courts and in practice.