Rybalkin, Gortsunyan, Dyakin & Partners (RGD) has won a case before the Supreme Court of the Russian Federation and confirmed the right to qualified legal advice even if the client is in a difficult financial situation and has outstanding obligations to creditors.

As part of the bankruptcy case, the debtor's creditors brought an action seeking to declare null and void the debtor's payments made on account of attorney's fees for legal advice provided to the debtor’s employee, pursuant to Article 61.2(2) of Federal Law No. 127-FZ dated 26 October 2002 “On Insolvency (Bankruptcy)”, and to recover the sums from the debtor.

The court of first instance, court of appeal and court of cassation ruled to declare payments null and void transactions damaging creditors' property rights since, according to the courts, there were no reasonable economic motives for the debtor to instruct an attorney because the services were provided to its employee rather than to the debtor itself, and the debtor had the signs of inability to pay debts and insufficiency of assets. Further, the courts held that the attorney providing legal advice must be aware of the debtor's financial situation, and the payment of attorney's fees goes beyond debtor's ordinary business operations.

However, RGD team persuaded the Supreme Court Judicial Chamber for Economic Disputes to take sides with the attorney and reverse previous judgments by dismissing the claim in full.

In this dispute, the Supreme Court developed a legal position, which will be important for all attorneys providing legal advice to their clients, as set out below:

• the company may instruct an attorney both in its own interests and those of the designated person (including such company's employee in a criminal case);

• company's actions intended to instruct an attorney were of standard nature expected from any company in the circumstances and can be characterized as ordinary business operations. The true purpose of instructing an attorney is qualified legal advice;

• possible instruction of an attorney may not be subject to that attorney's duty to review the client's financial status since otherwise this blocks the very possibility of proper access to justice for clients who are in a difficult financial situation and have outstanding obligations.

The RGD team represented the client in the Supreme Court was headed by Yuri Makhonin, Counsel at Dispute Resolution Practice, and Associate Alen Martirosyan.

You can click here to find more details about the judgment (in Russian).