Over the past few days several of our partners have sent us publications from legal Telegram channels about supposedly emerging problems with personal foundations. We had seen those reports ourselves, but, judging by the volume of discussion, the story has begun to cause quite real concern, and we have decided to state our position.
Let us start with the main point: there is as yet no decision on the merits of the dispute.
No one has recognised the property of a personal foundation as the property of its founder, no one has set aside the principle that the foundation's property is separate, and no one has formed a new line of court practice.
The whole commotion arose around a ruling on interim measures in which the court prohibited the disposal of civil-law rights that simply do not exist.
A personal foundation is a unitary non-profit organisation. It has no charter capital, no participatory interests, and no participants in the usual corporate sense. That follows directly from the Civil Code of the Russian Federation.
Nevertheless the tax authority asked the court to freeze "100% of the participatory interests" in the foundation, and the court, without looking closely into the legal nature of the new structure, reproduced that wording in its ruling.
Here, in our view, there really is a problem. It is a different problem from the one now being written about.
When a new instrument appears in legislation, two situations inevitably arise. Some try to use it for a purpose other than the one for which it was designed, including to shield assets from creditors. Others, including public bodies and the courts, do not always have time to work out how the instrument is constructed in law.
The result is a judicial act with obvious errors, and a whole wave of anxiety about how reliable personal foundations are.
At the same time, nothing in the published judicial acts shows that the defendant transferred real estate to the foundation in an attempt to avoid enforcement. There is no finding that assets were withdrawn, and no decision holding her subsidiarily liable. There is a claim by the Federal Tax Service for 634.9 million roubles, and there are interim measures.
Let us even suppose, though, that property really was being hidden in a personal foundation, in the knowledge that enforcement was in prospect.
It is obvious to any professional that a personal foundation is not an instrument for hiding from the Federal Tax Service.
The tax authority has the means to establish the connection between the founder, the foundation and the assets transferred. If property was transferred in order to cause harm to creditors, there are quite specific legal mechanisms for challenging such transactions. Moreover, the Civil Code of the Russian Federation expressly provides for the subsidiary liability of a personal foundation for the founder's obligations for three years, and in exceptional cases for up to five years from the creation of the foundation.
There is no need, for that purpose, to invent participatory interests in a charter capital that does not exist.
And here a different question arises.
If the Federal Tax Service itself proposed to the court the wording about "100% of the participatory interests in a personal foundation", and the court reproduced it, the problem is much wider than one unfortunate ruling.
It means that the lawyers of a local tax authority, when they applied for interim measures, had not understood the legal form of the legal entity. And the court, whose task is to check that the claims put forward are lawful and well founded, did not notice an obvious contradiction of the Civil Code.
That is a question of the quality of legal work and of how the law is applied. It says nothing about the reliability of personal foundations.
Our conclusion is a simple one.
What we see so far is a poorly prepared application and a judicial act that is no less open to dispute. It is premature to conclude from this that personal foundations have ceased to protect property, or that the courts have begun to treat their assets as the assets of the founders.
A personal foundation creates no immunity from the lawful claims of creditors. It also remains an independent legal entity even where someone has drafted a ruling incorrectly.
Perhaps the most unpleasant thing in this story is how quickly a judicial error became a news hook for doubts about an entire legal institution.
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