Succession if the reorganization of corporation is failed

Alekseev Arsenii Ivanovich ORCID: 0009-0000-6847-2061 Junior Researcher, Institute of State and Law of the Russian Academy of Sciences 119019, Russia, Moscow, Znamenka str., 10 senya_alekseev_2002@mail.ru

The institution of recognizing the reorganization of a corporation as failed is poorly regulated by domestic law. We have only a very superficially written Article 60.2 of the Civil Code of the Russian Federation (hereinafter — the Civil Code). Little attention has been paid to this article in the literature, it seems, due to the relative novelty of its provisions, their general nature and the insufficiency of law enforcement practice. Even less attention of researchers is focused on the category of succession when recognizing the reorganization as invalid, although in Article 60.2 of the Civil Code the issue of succession is resolved rather inaccurately. Succession has been widely considered separately in the works of B.B. Cherepakhin ^[1], A.A. Yagelnitsky ^[2], D.V. Nosov ^[3] and others. There are many modern works devoted to reorganization and, in particular, recognition of the reorganization as failed ^{[4, 5, 6]}. However, it has not yet been possible to bring together scientific research in these areas, taking into account the nature of universal succession and apply them to the particulars discussed below.

Succession is commonly referred to as the transfer of rights and obligations from one person to another. As a rule, transitive universal succession occurs during the reorganization of a legal entity. The exception in this case is succession in such forms of reorganization as separation and transformation (in which succession does not occur at all). Universal succession, as a rule, means the transfer of all rights and obligations belonging to a person to a legal successor or legal successors as a whole, regardless of whether they have been identified by this moment or not ^{[1, p. 210]}. Let's focus on the category of universal succession as the one that causes the greatest interest and helps to detect obvious inconsistencies in regulating the consequences of recognizing the reorganization of a legal entity as invalid.

The category of universal succession is often associated with the termination of the legal personality of the "transferors". B. B. Cherepakhin also wrote that with universal succession, including the reorganization of a legal entity, "there is, as it were, a succession of subjectivity as a whole" ^{[1, p. 251]}. Similar statements can be found in the works of many modern researchers, for example, A.V. Gabov ^{[5, p. 47]} and A. A. Yagelnitsky ^{[2, p. 107]}. It is worth noting, however, that legal personality cannot be called a simple set of all the rights and obligations of a person. The understanding of legal personality as a set of subjective rights goes back to the work of S. N. Bratusya "Subjects of civil law" ^{[7, p. 14]}. This position was criticized by E. A. Fleishits, pointing out that specific rights, having arisen on the basis of an abstract possibility (legal personality), cannot become part of this possibility ^{[8, pp. 167-168]}. Therefore, the words "as it were" from the above position of B. B. Cherepakhin should be given special attention. Legal personality as a civil legal form is a legal opportunity to have and exercise rights and obligations. This is nothing more than a kind of legal "glue" with which subjective rights and obligations can be secured to a certain person and be fulfilled by him. This reasoning is important for understanding the content of clauses 1 and 2 of clause 2 of Article 60.2 of the Civil Code, which are proposed to be analyzed in detail.

So, paragraph 1 of Article 60.2 of the Civil Code of the Russian Federation establishes the possibility of recognizing the reorganization as invalid if there are named grounds for that. Let us pay attention to the consequences of such recognition, named in the Code. In paragraph 3, paragraph 2 of Article 60.2 of the Civil Code, the insolvency of the transfer of rights and obligations in favor of a legal entity created as a result of reorganization is called as a consequence of recognition of reorganization as failed. In other words, the succession is recognized as invalid. However, the wording used by the legislator in the provisions of the same article indicates the opposite.

According to paragraph 1, paragraph 2 of Article 60.2 of the Civil Code, "legal entities that existed before the reorganization are restored, with the simultaneous termination of legal entities created as a result of the reorganization ...". That is, the legislator, speaking about the "restoration" of reorganized legal entities, recognizes the fact of the legal death of these persons preceding the restoration, the termination of their legal personality. The moment of this legal death coincides with the moment of entering the relevant information into the register of legal entities. Speaking about the "termination" of persons created as a result of reorganization, the legislator recognizes the fact of the birth and existence of such persons, which means that they have legal personality. It is noteworthy that in the draft Concept for the Development of Legislation on Legal Entities (Protocol No. 68 of March 16, 2009), in order to maintain the stability of civil turnover, it was proposed, in particular, to recognize legal entities that arose as a result of reorganization that existed before the reorganization was declared invalid.

When referring to the provisions of clause 2, Clause 2, Article 60.2 of the Civil Code, we also see the continued validity of transactions of legal entities created as a result of a failed reorganization for restored legal entities, if these transactions were made with persons who relied in good faith on succession. In this case, the transaction is made by a legal entity created as a result of reorganization due to the fact that the reorganized entity itself has undergone legal death. In this case, the transaction capacity of the legal entities created as a result of the failed reorganization is manifested. Note that the transactional capacity of a legal entity is considered a manifestation of its legal capacity ^{[9, p. 39]}. We also draw attention to the fact that these provisions of the Code speak about the preservation of transactions for restored legal entities. Taking into account the above, it may seem that in this case we are talking only about the realization of the legal capacity of the reorganized legal entity, and we cannot talk about the legal capacity and legal personality of the person created as a result of the reorganization. However, firstly, the possibility of the existence of legal capacity in isolation from legal capacity seems doubtful. To realize even someone else's legal capacity, legal capacity is necessary. Secondly, due to the fact that the transaction is made during the period of non-existence of the reorganized legal entity, there can be no question of realizing the legal capacity of this absent legal entity. The will of the legal entity created as a result of the reorganization is aimed at acquiring rights and obligations only for itself. And it is the person created as a result of the reorganization who becomes the bearer of these rights and obligations. In addition, a long period of time may pass between the facts of the transaction and the recognition of the reorganized legal entity as restored, during which the subjective rights and obligations must have their acquirer, bearer, and so—called realizer - the entity that the legal entity created as a result of the reorganization acts. There can be no subject-free subjective rights and obligations as the content of legal relations in which the parties are necessarily present.

In addition to the fact that transactions with bona fide persons remain valid, according to paragraph 3, paragraph 2 of Article 60.2 of the Civil Code, the provision (including in fulfillment of the above-mentioned transactions), "carried out in favor of a legal entity created as a result of reorganization by debtors who faithfully relied on succession on the side of the creditor, is recognized as committed in favor of the authorized person". When trying to interpret this rule systematically, it remains completely unclear who the legislator means when referring to the "authorized person". If we are talking about a restored legal entity, then the provision can easily coincide with the period of non-existence of the reorganized legal entity. In addition, as we found out, a legal entity created as a result of a defective reorganization, by virtue of maintaining the force of transactions made with it, may well have subjective rights and obligations. In this case, it is strange to exclude from the list of subjective rights that such a legal entity may have, for example, subjective property rights to property provided under transactions. However, the legislator, most likely, tried to develop the provisions of paragraph 2, paragraph 2, Article 60.2 of the Civil Code only to emphasize that after the recognition of the reorganization as invalid, the restored persons have the right to grant the concluded transactions. Then it is necessary to write this way to exclude other interpretations of the provisions of the law.

Reconciling the provisions of clauses 1 and 3 of Clause 2 of Article 60.2 of the Civil Code with each other and presenting them within a single system turns out to be an impossible task. Such reconciliation would mean recognition at the same time of the validity of the traditional universal succession and the existence of a reorganized legal entity in the period between its legal death and restoration. But these categories exclude each other.

Thus, it is obvious that reorganized legal entities have the opportunity to have subjective rights and obligations and implement them. This possibility, which we call legal personality, remains until the restoration of reorganized legal entities. In this regard, it should be considered justified to recognize legal entities created as a result of the failed reorganization as legal entities. They are legal successors in the order of transitive universal succession of reorganized legal entities. At the moment of restoration of the reorganized legal entities, reverse succession and termination of the legal personality of the legal entities created as a result of the failed reorganization take place. This mechanism fully explains the provisions of clause 2 of clause 2 of Article 60.2 of the Civil Code.

It is obvious that a reorganization carried out with such significant violations that it can be declared invalid, i.e. literally such that it did not exist from a legal point of view, is illegal. However, this illegality should not cause harm to bona fide creditors of corporations reorganized and created as a result of such reorganization. The absence of succession in the case under consideration would also entail the insignificance of transactions concluded with the persons who arose as a result of the reorganization, which seems unacceptable.

Before proceeding to compare the consequences of a failed reorganization and an invalid transaction, we note that paragraph 2 of Article 60.2 of the Civil Code refers to the legal consequences of the court's decision to declare the reorganization invalid, while paragraph 1 of Article 167 of the Civil Code refers to the legal consequences of the transaction itself. In this case, only categories similar to each other should be compared, but not directly mentioned in these provisions of the Civil Code. However, such a comparison nevertheless occurs ^{[10, p. 676]}.

The consequences of a failed reorganization turn out to be very specific when compared with the consequences of the invalidity of the transaction. If an invalid transaction in accordance with paragraph 1 of Article 167 of the Civil Code, as a general rule, does not entail legal consequences, except for those related to its invalidity, then the failed reorganization has a very specific legal effect in the form of legal succession and the appearance of legal entities. An insignificant transaction a priori does not give rise to legal consequences from the moment it is committed, regardless of whether it is recognized as such by the court. The consequences of the disputed transaction are much closer in content to the consequences of the failed reorganization, since the disputed transaction, as well as the recognized failed reorganization, generates the legal consequences that it is aimed at. After the court recognizes the disputed transaction as invalid, the material and legal consequences of such recognition arise, which indicates the transformative nature of the decision to recognize the disputed transaction as invalid ^{[11, p. 73]} and the corresponding claim. Similarly, the decision to declare the reorganization invalid has a transformative character. The decision to declare the disputed transaction invalid gives "retroactive effect" to the invalidity, as if the transaction had never been made ^{[11, p. 16]}. The recognition by the court of the reorganization as failed, perhaps, according to the idea of the authors of Article 60.2 of the Civil Code, and strives for the same, but, as we found out, is unable to invalidate all those consequences that occurred between the beginning of the reorganization and its recognition as invalid. In particular, this applies to the succession between corporations participating in the reorganization.

It is noteworthy that the concept of "failed reorganization" in this case is not the most appropriate, since the term "insolvency" in relation to reorganization implies the absence or "cancellation" of consequences, i.e. a return to such a position as if the reorganization did not take place at all. Due to the fact that reorganization is an unusually complex legal structure ^{[12, p. 26]}, it is impossible to reverse the consequences of reorganization when the interests of participants and creditors of both reorganized and corporations created as a result of reorganization clash. This fact does not allow us to compare the consequences of a failed reorganization and the invalidity of transactions.

Based on the above, the flaw in Article 60.2 of the Civil Code is obvious. There is no doubt that corporations created as a result of the failed reorganization have legal personality. These legal entities are created at the time of making an entry in the register during the reorganization. At the same time, the reorganized legal entities are terminated. After the recognition of the reorganization as invalid, the legal entities created as a result of such reorganization are terminated, and the reorganized legal entities arise anew. The consistency of succession between reorganized corporations and corporations created as a result of failed reorganization, as well as reverse succession between these entities, seems indisputable. Because of this, it is impossible to build an analogy between the consequences of recognizing a reorganization as invalid and the consequences of invalidating a transaction, as well as the consequences of conducting the most defective reorganization and making a disputed or void transaction. A disputed transaction generates legal consequences, but the decision to invalidate it is "retroactive". An insignificant transaction does not generate legal consequences at all. Carrying out a failed reorganization entails legal consequences, but the decision to declare the reorganization invalid does not have "retroactive effect".