Can two similar disputes be decided differently?

In bankruptcy practice, lawyers constantly face the problem of legal uncertainty. One of the most acute issues is the risk of challenging transactions concluded within the framework of ordinary business operations. As demonstrated by the practice of the Supreme Court of the Russian Federation, even seemingly identical circumstances can lead to diametrically opposed conclusions in different instances.

Let us examine the recent Ruling of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation dated February 12, 2025, case No. А40-242109/2022 (No. 305-ES25-12707), which clearly illustrates how courts interpret the concept of a ‘preferential transaction’ (Clause 2, Article 61.3 of the Bankruptcy Law).

Within the framework of the Company’s bankruptcy case, the bankruptcy trustee challenged a payment of 1,500,000 rubles transferred to an Individual Entrepreneur for construction materials.

Key facts:

The Company received the goods via delivery notes on the same day it made the payment.

The bankruptcy case was initiated less than a month after the disputed transaction (November 11, 2022).

Position of the courts of three instances: the lower courts unanimously deemed the payment invalid. They qualified the transaction as a preferential transaction (Clause 2, Article 61.3 of the Bankruptcy Law) because it was made shortly before bankruptcy and resulted in the preferential satisfaction of this specific creditor’s claims over others.

The courts considered the arguments regarding the transaction being part of ordinary business activities to be unsubstantiated. The argument used was that the bulk of the materials were purchased from legal entities, and procurement from this specific Entrepreneur (an individual/IE) was sporadic and generally did not exceed 150–200 thousand rubles.

The Entrepreneur (the challenged creditor) insisted that her relationship with the debtor, arising from the activities of a wholesale and retail construction materials store, should not differ from relationships with legal entity suppliers.

The key argument concerned principles of interpretation: the courts should have considered not the subject composition of the parties to the disputed transaction, but the essence of the transaction itself — the principle of ‘delivery against payment’ (equivalent counter-performance).

Most importantly for the Entrepreneur was the reference to contradictory judicial practice. In an analogous dispute involving payments made to the husband of this same Entrepreneur, the court of appeal reached directly opposite conclusions:

It established that the transaction was made in the course of ordinary business activities.

It applied the provisions of Clause 3, Article 61.4 of the Bankruptcy Law (a transaction made in the course of ordinary activities cannot be challenged if the debtor received equivalent counter-performance).

Thus, the same creditor (or a closely related entity) in similar transactions (purchase of construction materials on the day of payment) received two opposite rulings depending on which instance heard the case. The courts needed to provide a clear legal assessment of why in one instance the court deemed the transaction preferential (focusing on the IE status and sporadic nature of purchases), while in the other, it considered it an ordinary business operation.

This Ruling of the Supreme Court of the Russian Federation addresses a fundamental problem of law: the inconsistency in applying norms regarding transactions carried out within the framework of ordinary business operations. This underscores that when challenging payments, courts may focus on formal signs (subject composition, periodicity), ignoring the economic content of the transaction (‘equivalent counter-performance’).

For businesses, this means that even an ideal ‘goods for immediate payment’ transaction does not guarantee protection against challenge on the eve of bankruptcy. Excluding a transaction from the scope of preferential ones requires not only compliance with the criteria for counter-performance (Art. 61.4) but also proof that such a form of settlement was customary for the debtor.

Resolving such disputes related to challenging transactions within bankruptcy proceedings requires a deep understanding of both substantive and procedural law. Expertise in this area is key.

Learn more about how to protect your payments from being challenged in bankruptcy cases by consulting expertise in Isolated Disputes in bankruptcy cases.