Defences Available to Persons Brought to Secondary Liability for Obligations of an Insolvent Debtor

Legislative regulation of the mechanism of secondary liability in bankruptcy and the approaches developed in court practice largely relieve the courts from conducting a detailed analysis of the factual circumstances of the case and from detailed reasons for their conclusions regarding the existence of grounds for bringing defendants to secondary liability in bankruptcy. In most cases, the applicant is exempted from proving facts related to the subject of proof in the case. Multiple presumptions of the existence of grounds for bringing persons controlling a debtor (“PCD”) to secondary liability and criteria of a PCD, redistribution of the burden of proving the existence of grounds for bringing a PCD to secondary liability, uncertainty in the standards of proof in bankruptcy, and the nature of the main mechanisms entail a significant unfair shift in the balance of interests to the benefit of the applicants of claims to bring a PCD to secondary liability. At the same time, the law does not provide defendants in such disputes with sufficient tools to protect their interests, including in the form of objections (exceptions) of the defendant. In the final paper, the author defines the most typical objections (exceptions) available and necessary for the PCD in the context of the material and procedural aspects of the provision of such objections. To achieve this purpose, the author analyzes the domestic and foreign doctrine and the approaches established in court practice in relation to key issues arising during the study. The author concludes that the effective objections (exceptions) of a PCD allows achieving a balance of interests in disputes on bringing such persons to secondary liability for the obligations of the debtor and, accordingly, eliminating the existing injustice or significantly weakening its manifestation. Meanwhile, the author is convinced that the objections (exceptions) defined in the final paper are entirely based on the provisions of the current legislation and are consistent with the principle of law.