Are Sanctions Showing Effect? Russian Businesses Declare Bankruptcy in Droves

Written by Henrik Rothen

Mar.07 - 2024 9:58 AM CET

Russian Businesses Declare Bankruptcy in Droves.

Trending Now

Russia is experiencing a surge in corporate bankruptcies, with the number of companies filing for bankruptcy in the first two months of 2024 increasing by almost 60% compared to the previous year.

In January, 571 companies were declared bankrupt compared to 364 a year ago, and in February, the number rose to 771 from 478, as calculated by "Kommersant" from court records in the Unified Federal Register of Bankruptcy Information. This marks an increase of about 57% for January 2024 and 61% for February.

Prior to this, the number of bankruptcies had been steadily declining: in 2021, there were 10,306 cases, and in 2023, the number dropped to 7,400. The decrease was facilitated by a moratorium on bankruptcies during the coronavirus pandemic and a sanctions moratorium in 2022.

"Despite discussions on the advisability of introducing a moratorium in 2022, it can be posthumously stated that a number of companies were able to adapt to the new economic realities and overcome difficulties," says Vadim Borodkin, advisor at Orchards.

According to him, in 2023, major creditors, "even having the legal possibilities to enforce collection and file for bankruptcy against major debtors, often chose another path, agreeing on restructurings."

However, the increase in the number of bankruptcies in 2024 may be sustainable, as indicated by statistics on monitoring procedures. Such procedures are introduced by the court after recognizing a claim of insolvency from the debtor or its creditor as justified. The observation lasts from five months and more, indicating the number of new bankruptcy processes launched in the corporate sphere.

According to the Federal Resource data, in 2023, monitoring was introduced in 7,532 companies, a 44.1% increase over the 2022 figure (5,225 legal entities) when the moratorium was in effect. In January of this year, the number of monitoring procedures increased by 3%, and in February, by 3.2% year on year. In most cases, after the completion of the observation procedure, the company is declared bankrupt and enters into bankruptcy proceedings.

The rise in the number of observation procedures in Russia is associated with the "low base effect due to the moratorium," explains Anton Krasnikov, partner at the law firm "Sotby." The number of corporate bankruptcies in the country may return to "pre-pandemic levels," as the moratorium is an effective measure but "not in the long term," the expert clarified.

According to him, the experience of foreign jurisdictions shows that after the "cooling-off period," the number of bankruptcies increases rapidly. "Thus, in 2023, the number of corporate bankruptcies in the US increased by 30%, in Germany by 25%, and in France, the Netherlands, and Japan by 30%," Krasnikov noted.

Most Read