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The move, which supported state aid during the pandemic, allowed healthy companies to be protected from creditors, but left zombies weaker, so to speak, limping. It expires in October.
“For companies, it is like a life support machine: if left untreated, they will simply die as soon as it shuts down,” said Yuri Chalimovsky, director of Deloitte’s legal support office in St. Petersburg. “When the moratorium is lifted, we will have a huge wave of bankruptcies.”
The wave of corporate bankruptcies could pose a new threat to the Russian economy, which is already struggling this year: They face the worst recession in more than a decade. President Vladimir Putin, urging citizens to vote next week on constitutional changes that would allow him to extend the country’s government, has already lifted quarantine measures to somehow ease financial pain.
About a third of companies said they were bankrupt in late April, according to a survey by the Moscow Strategic Research Center.
“As soon as the moratorium ends, the domino effect will begin,” said Alexander Sinicyn, who heads the research center. “The companies will collapse one after another.”
A businessman named Alexander, who runs a network of children’s play centers in supermarkets in Moscow and Yekaterinburg, says his bills and debts are growing while he himself waits for permission to file bankruptcy.
“The government says I can’t go bankrupt now that I don’t have to fire people and I have to pay them,” said the man, who is reluctant to announce his name because the bankruptcy is not yet public. “We have no money or where to get it.”
According to Deloitte’s J. Chalimovskis, large companies are already beginning to review contracts to protect themselves from bankrupt subcontractors. According to him, one of the largest Russian networks has even created a database to monitor the financial situation of its partners, while other firms do the same.
The economy ministry has not responded to an email request to comment on whether the government will take steps to prevent corporate bankruptcies.
When companies are finally allowed to file for bankruptcy, they will still have to go through cumbersome Russian bankruptcy procedures, which often lead to entrepreneurs getting a bad reputation and being unable to start a new business.
“Russia should develop effective debt restructuring measures before the cases go to court,” said Galina Ivanova, a partner at the Moscow-based law firm Sokolov, Taryusov and Partners. “Otherwise, bankruptcy simply becomes a way to get hold of the remaining assets.”
Companies in the consumer sector suffered the most during the two months of quarantine, and many of them continue to experience declining demand even after restrictions have been lifted.
Workers do not feel hanged or released due to rules that prevent companies from firing them, even if they do not have the money to pay wages, while small businesses complain that government benefits are not enough to cover even basic expenses.
Boris Kac, who owns a network of folk art stores across Russia and employs 4,000 people, manages to scold the road anyway. But the businessman says many of his subcontractors will soon run out of funds to pay employees’ wages.
“For me, this is the first time in 25 years in the retail sector that everyone I speak with seems to consult with bankruptcy attorneys,” Kac said. “I think the government is underestimating the magnitude of the problem.”
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