Bankruptcy of a Public-Benefit Foundation in Russia

Which Foundation May Be Bankrupt?

Civil Code Article 123.17 defines a public-benefit foundation as a non-membership unitary non-profit organisation created from voluntary property contributions for charitable, cultural, educational or other socially useful purposes. This ordinary form is not among the entities excluded from bankruptcy by Article 65(1) of the Civil Code.

The corporate register, charter and any special statute must be checked. The word “fund” does not create a single regime: a non-state pension fund is a financial organisation, a personal foundation has separate rules, and statutory territorial-development or capital-repair funds may be governed by special legislation.

Ordinary Liquidation or Bankruptcy?

Under Civil Code Article 123.20, a public-benefit foundation may be liquidated only by a court, including where its property is insufficient to achieve its purposes and obtaining enough additional property is unrealistic. An inability to pursue the charitable purpose is not always the same as an inability to pay creditors.

Ordinary liquidation applies where liabilities can be paid. Federal Law No. 127-FZ applies when the foundation is objectively unable to satisfy monetary claims and mandatory payments. A creditor petition against a legal entity ordinarily requires an established claim of at least RUB 2 million overdue for more than three months, unless a special rule applies.

What Enters the Insolvency Estate?

Under Civil Code Article 123.18, property contributed by founders belongs to the foundation. Real estate, cash, equipment, receivables and other foundation assets therefore ordinarily form part of its estate. Founders’ own assets do not enter the estate merely because they created the foundation.

Donations and Restricted Assets

The stated purpose of a donation affects permitted use and possible donor claims, but does not automatically remove the asset from the foundation’s ownership. The insolvency practitioner and court examine the agreement, special statute, funding source and consequences of misuse. Public subsidies, grants and non-transferable assets cannot be treated as ordinary unrestricted cash without verification.

Creditors and Foundation Governance

A creditor must identify the debtor, prove the claim and lodge it in time. When liquidation proceedings open, management powers end to the statutory extent and documents and property pass to the insolvency practitioner. The supreme collegiate body and supervisory board may not dispose of assets outside the proceedings.

1. Obtain the register extract, charter and financial statements.
2. Identify the exact foundation type and special legislation.
3. Separate foundation assets, restricted funding and third-party property.
4. Compare ordinary liquidation with the insolvency tests.
5. Review transactions with founders, managers and related parties.
6. Lodge the claim and participate in creditor meetings on time.

Are Founders and Managers Liable?

Civil Code Article 123.18 states the general rule: founders are not liable for foundation obligations and the foundation is not liable for founder obligations. A claim therefore cannot be brought against a founder merely because that person established the entity or made its initial contribution.

A different result may follow from a personal guarantee, a separate obligation, damages, transaction avoidance or proven controlling-person liability under Chapter III.2 of Federal Law No. 127-FZ. Specific conduct, control, causation and the unpaid amount must be established; recovery from a founder cannot be promised in advance.

Frequently Asked Questions

Official Sources

• Civil Code Article 65;
• Civil Code Article 123.17;
• Civil Code Article 123.18;
• Civil Code Article 123.20;
• Federal Law No. 127-FZ Article 33.

Related Guides

• Non-profit organisation bankruptcy
• Personal foundation bankruptcy
• Corporate bankruptcy
• Creditor petition