What should equity holders do if the developer is declared bankrupt?

faster.
It's free! Free legal consultation Moscow and Moscow region: +7 499 938-93-12 St. Petersburg and region: +7 812 467-39-73 Fed.
number: 8 800 350-73-54 CONSULTATIONS CONDUCTED: today - 21, per month - 687, per year - 11,345

In recent years, it has become popular among Russians to purchase apartments from developers under DDU (share participation agreements). Housing in houses under construction is attractive due to its low price, and many companies allow you to purchase it in installments. But this type of transaction has a significant disadvantage - the risk of bankruptcy of the developer. For the buyer, information about the bankruptcy of a construction company comes as a real blow. Since such situations, unfortunately, often arise, it is worth finding out how equity holders should act.

Money or meters?

There are several options for requirements for a developer in case of bankruptcy. Since August 15, 2011, in accordance with the amendments to the federal law “On Insolvency (Bankruptcy)”, not only monetary claims can be made against the developer, that is, the amount paid under the DDU can be returned, but also the transfer of housing can be demanded if the house is completed, but not yet commissioned. If the house is not completed, then the shareholder also has the right to receive the unfinished object. In all three cases, you must file a claim with the arbitration court, and the lawyer will add you to the register of creditors. However, it is impossible to make both demands. That is, you must clearly understand what goal you are pursuing: getting an apartment or money.

Compensation for losses

If the developer goes bankrupt, it is necessary to demand compensation for losses. They are calculated as the difference between the average market value of real estate at the time of its purchase and at the time of the bankruptcy procedure. A professional appraiser will correctly calculate its amount; the cost of services increases the amount of compensation. Its amount is indicated in the document on inclusion in the register.

Developers' liability is subject to compulsory insurance. A citizen can demand compensation from the insurer for losses, since bankruptcy is an insured event. A court decision declaring a company bankrupt is necessary if you turn to insurers for a refund. Starting from 2020, construction companies are required to make contributions to a special fund. The funds accumulated in it are intended to pay compensation to clients of insolvent contractors.

Shareholders can contact the guarantor who has entered into a surety agreement with the construction organization, demanding payment of funds. If the requirements are fully or partially satisfied, the amount included in the register is subject to a proportionate reduction.

Citizens have the right to contact the executive authorities that issued construction documents. Federal Law, adopted on December 30, 2004 No. 214, provides them with the opportunity to protect violated rights and appeal to the relevant authorities of the constituent entity of the Russian Federation. In the statement, they ask that the requirements specified in the DDU be met, since it is the local authorities that issue permits to developers. Citizens must be included in the federal register.

After declaring a construction organization bankrupt, the sequence of actions is:

1. preparing an application for inclusion in the register of creditors;
2. filing a claim with arbitration, the manager and the developer;
3. consideration of the case and making a decision.

In order for the court to recognize the creditor’s right to make demands on the debtor, the following documents are required:

• contract for the purchase and sale of real estate in a house under construction;
• DDU;
• providing a loan on the terms of transfer of an apartment;
• an agreement to become a member of a simple partnership created for the purpose of building a house and transferring residential premises in it.

If a construction company is declared insolvent, then all methods of protecting rights provided for by law must be used. It will be easier to solve the problem if the affected citizens can unite their efforts and involve an experienced lawyer in the case. There are associations and unions of affected shareholders where you can turn for help.

All the subtleties of obtaining an archival extract from the house registerWhere to get an extract from the house register, the procedure for obtainingHow to register a foreign citizen at the place of residenceHow to draw up a will for an apartmentHow to draw up a deed of gift for a share in an apartment, legal subtletiesThe most effective ways to find out the owner of a land plot

Everyone's in line

If you want to return the money, you must understand that this requirement will be satisfied only in the third place. First, money is paid to citizens to whom the debtor is responsible for causing harm to life or health (if any). Then - the salary and severance payments to the developer’s employees who worked under an employment contract, and to the authors of the results of intellectual activity. So it is almost impossible to return the entire amount of investment while in the third stage. Therefore, if the house is ready, I would recommend demanding not a refund, but the transfer of the living space. This is the best way out of their situation. You will definitely get an apartment, there is simply nothing to worry about.

our team

Dubrovina Svetlana BorisovnaAdvocate. Work experience over 25 years

Bogdanova Irina MikhailovnaAdvocate. Work experience more than 15 years

Kokhanov Nikolay Igorevich Advocate. More than 10 years of experience

Construction companies are sinking in the crisis primary housing market, like ships in the Bermuda Triangle. The bankruptcy of the developer, in most cases, stops shared construction. What about shareholders? Is there really no chance of ever getting back the deposited funds or a new apartment?

In fact, the state protects shareholders quite well from such situations. They only need to strictly follow the sequence of actions regulated by law and know their rights; this will allow them to receive compensation from the construction company.

Your own builder

In the case of unfinished construction, unfortunately, you will have to finish building the house using money from your wallet. Weigh the pros and cons: consider what is more profitable - to add funds to complete construction or to try to return the money. In this case, everything is purely individual and depends on the stage of readiness of the house, the number of shareholders and other things. If you decide to demand the transfer of an unfinished construction project, then together with the other shareholders you need to create a housing construction cooperative, raise money and find a contractor. This is the most difficult path, since the likelihood that all buyers will agree to complete the building at their own expense is extremely low.

What should a shareholder do in case of bankruptcy of a development company?

So what should a shareholder do if he finds out that the developer is bankrupt and his apartment will never be built?

First, you need to present your requirements to become a member of the register of creditors. The required register begins to be maintained from the moment the bankruptcy case is initiated against the company that previously rebuilt your potential home. If you ignore this advice, you may end up with nothing, since no one will run after you.

And not because we have an “unsettled” state, but because the law clearly stipulates this point. According to it, all those who want to return part of the due funds must immediately declare their right to receive compensation from the bankrupt, and no one will force him to return the funds without your application.

An application for inclusion in the designated list must be submitted to the arbitration court, which deals with bankruptcy cases. When the court examines the documents you submitted, an appropriate decision will be made to include the claims of a particular shareholder in the general register.

To receive compensation, the shareholder must actively address this issue himself.

Deadlines for filing an application for inclusion in the register of creditors

According to the letter of the law, as part of declaring a developer bankrupt, the law is concerned with establishing certain deadlines that are given for including the creditor's claims in the register. During the observation stage, the shareholder is given only one month to submit claims. In this case, you will have the opportunity to become a participant in the first meeting of creditors, at which the fate of the unfinished property will be decided.

If the shareholder has not yet managed to do this, then later, at the stage of bankruptcy proceedings, the shareholder will have another two months to submit his claims.

The countdown of the designated periods begins immediately from the moment when the citizen managing the organization sends notices to creditors about:

• the beginning of the procedure for assigning bankrupt status to the developer;
• opening the appropriate register of creditors' claims.

Shareholders will receive a notification that the developer has declared bankruptcy directly from the insolvency administrator

The order of filing claims against a bankrupt Developer

Payment of monetary compensation to all persons to whom the organization owes money will depend on the order of priority established by law. If we talk about the priority that is relevant in the case of construction companies, it will be as follows.

Table 1. Priority for receiving compensation from a bankrupt developer

Excerpt from Federal Law No. 127 Article 201.9. The order of satisfaction of creditors' claims in a bankruptcy case of a developer

It turns out that even though shareholders are not in the first place, their chances of getting back part of the money spent are high, since the law nevertheless identified them as priority recipients over the remaining creditors of the institution.

Purchasing an apartment under a preliminary sales contract

It happens that citizens who have previously given the developer funds for the construction of their future housing have formalized official relations with the company not on the basis of an equity participation agreement, but on the basis of a preliminary agreement on the purchase of a property.

Such buyers cannot claim compensation, but only until they obtain through the court the reclassification of their contracts into a share participation transaction. In the vast majority of cases, courts agree with this requirement.

If the apartment was not purchased under an equity participation agreement, you will have to go to court to re-qualify the document you have

Transfer of the construction project

• recognition of their ownership of the apartment;
• transfer of residential premises;
• the unfinished house is given to lenders to complete the construction themselves;
• the project is completed by a new contractor, who assumes responsibility for all existing obligations of the company.

The third option is the most expensive; citizens must invest funds to complete construction. If it is at an early stage, the likelihood of completing the project is doubtful. This opportunity appeared in 2020; there is not yet enough judicial practice on it to assess its impact on bankruptcy cases.

The legislation provides for 2 conditions that are mandatory for recognizing the rights of owners to a shared construction project and satisfying their requirements. The organization must have documents permitting the commissioning of the house. The acceptance certificate was signed before receiving the application requesting that the construction organization be declared insolvent. If it is signed later, the positive outcome of the case is largely determined by the presence of experienced lawyers.

If the commission has accepted the house, but the acceptance certificate has not been signed, then shareholders can receive apartments subject to the following conditions:

1. most of the creditors belonging to the fourth stage agree;
2. the property remaining after the transfer of residential premises to shareholders is sufficient to pay obligatory expenses;
3. the house is not mortgaged to other persons;
4. There are enough apartments to meet the requirements of all citizens participating in the project.

1. Recognize the shareholder's ownership of the housing.

Please note that in order for shareholders to receive property rights, two mandatory conditions must be met:

• the developer managed to obtain permission to put the house into operation;
• the acceptance certificate was signed before the developer’s application for bankruptcy status was received.

If the transfer and acceptance deed was signed later, then the chances of satisfying the shareholders’ demands largely depend on the talent, experience and skill of the lawyers.

1. Transfer the residential premises to the buyer.

When one of the conditions is met - permission to put the house into operation has been received, but the acceptance certificate has not been signed - the residential premises can still be transferred to the buyers. However, for this you need to meet some conditions:

• most of the fourth priority creditors agree;
• the cost of the property remaining after the transfer of apartments to shareholders covers the amount of mandatory expenses;
• the construction project has not been laid down;
• There are enough apartments available to satisfy the requirements of all shareholders participating in the project.

1. Give the unfinished house to the lenders so they can complete the construction themselves.

This option is considered the most expensive. Shareholders will have to invest more of their own funds to complete the construction. If we are talking about a facility at the initial stage of construction, there is practically no chance of successful completion of the project.

This option for resolving the problem in the law appeared only a few years ago, so there is not yet enough judicial practice by which to judge its effectiveness in resolving bankruptcy cases.

1. Transfer the facility to a new contractor.

A change of developer implies that the new construction company assumes its own responsibility for fulfilling all obligations of the old developer in full.

Developer bankruptcy procedure

When a company that promised to build, for example, a large apartment building and entered into an agreement with everyone who wants to have an apartment in this building, finds itself in a situation where it cannot fulfill its promises, all participants in the construction find themselves in a very difficult situation. The development company can no longer pay all the contractors, pay its creditors, and ultimately finish building the house. And all the construction participants who invested their funds cannot get their apartment. In this case, the requirement for bankruptcy proceedings for the developer is established by law.

This procedure can only be carried out in court, since it is a very complex process from a legal point of view. When construction participants who have invested their funds begin to file claims against the developer for failure to comply with their obligations, or the developer himself declares this situation, bankruptcy proceedings begin in court.

Typically, which process includes two basic functions:

• Observation: the court nominates its own expert, who monitors all the activities of the company for a certain amount of time and, based on the collected data, makes its verdict.
• Bankruptcy proceedings: after the expert has conducted observation and collected data sufficient to declare the developer bankrupt, the court officially declares the company bankrupt and appoints its manager, who from that moment on will manage all the company’s affairs and complete the procedure.

After this, the developer is officially declared bankrupt. This can be checked for each company in a special file.

As judicial practice shows, declaring a developer bankrupt is a beneficial situation for all participants in construction. Since all of them have not observed the fulfillment of obligations to build their real estate for quite a long time, they have the opportunity to recover their invested funds through the courts or eventually receive ownership of their real estate.

Should I try to get a refund?

Many people do not know what to do in this case, what to do to shareholders if the developer is declared bankrupt. There is a choice: housing or monetary compensation. The decision depends on the stage of construction work. If the house is at the initial stage of construction, it has just begun to be built, then bringing the project to completion will require attracting large investments.

Under other conditions, returning money is an undesirable method, accompanied by great risk. There is a possibility that the building will be completed and you will receive an apartment. If the shareholder goes to court to demand the return of the money, he waives the rights of the owner. It is impossible to know in advance what the court's decision will be.

Experts believe that demanding money is the riskiest scheme. It is not a fact that they will be returned, but the contract will be terminated. Ownership rights to a shared construction project, although available only in paper form, are still preferable to being left without everything.

When a construction company receives bankruptcy status, equity holders are faced with a rather difficult choice: to receive housing or monetary compensation. When making a decision, you should focus on what stage the construction is at.

If a lot of investment is required to complete the project, then the chances of successful completion of construction are minimal - it makes sense to terminate the contract and try to receive compensation for moral and material damage.

In any other situation, attempts to return funds can be considered the most undesirable scenario for the shareholder, since the risk of spending a lot of time and effort, but being left with nothing, is quite high.

When you go to court with a request for a refund, you give up your ownership rights to the apartment, and you do not have a 100% guarantee that the court will rule in your favor. This is why experts most often advise against terminating the DDU agreement. Ownership of real estate, even if unfinished, is better than being left without everything.

Mortgage payment in case of bankruptcy of the developer

The process of housing construction connects only the equity holder and the developer, and the bank is a third party. If the buyer paid the full cost of the apartment from credit funds, and the construction company squandered the money for other purposes, then the bank is not to blame for this.

At the same time, there is a valid agreement between the credited shareholder and the credit institution on the return of funds. If construction stops, your debt to the bank will continue to exist, which means that you will have to make mortgage payments on schedule.

How to find out about the bankruptcy of a developer?

You can find out whether a developer is bankrupt in a simple and easy way, for example on the website https://www.vestnik-gosreg.ru/. Or from the file of the arbitration court, the email address of which is https://kad.arbitr.ru/. In order to check this information, you will only need to enter the details of the developer’s organization, and the site will immediately display a whole list of results for all court cases of this organization. You need a bankruptcy section.

For your information

If there is no proceedings of the developer or firm or company in this section, then bankruptcy proceedings have not been introduced. However, if the developer suddenly disappears and does not respond to your applications, messages and claims, then most likely the bankruptcy procedure has already been launched by the developer himself, for whom this can sometimes be extremely beneficial in order to avoid debt traps.