Recovery strategy from an international group of companies

Mainstream

Recovery of debt from an international group of companies is not a dispute with one legal entity. This is a war on structure.

Classic mistake: The lender sues the shell company while the assets and cash flows are in other group entities in other jurisdictions.

The main question is not whether a dispute can be won against the debtor of the contract. The main question is how to hold the entire group accountable and get to its assets.

Therefore, an effective group recovery strategy begins with three checks:

1. What is the real ownership structure and profit centers?
2. In which jurisdictions can be attacked not only the debtor, but also related companies, beneficiaries and management.
3. How, using the doctrine of corporate veil removal, bankruptcy, fraud and interim measures, to consolidate group liability.

If these three issues are not resolved in advance, the lender receives a ruling against an empty SPV while the group's operating business continues.

When a Recovery from a Group of Companies is Needed

A group recovery strategy is necessary if:

• debtor is a technical company without assets;
• Operational activities are conducted through other legal entities of the group;
• after the debt arises, the business is transferred to a new legal entity;
• assets (real estate, trademarks, equipment) are registered for related companies;
• The debtor does not systematically pay and uses the corporate structure to evade;
• Beneficiaries withdraw profits through dividends or loans;
• the group of companies is structured in different jurisdictions (offshore, EU, CIS, UAE);
• there are signs of unfair corporate behavior (fraud, illegal withdrawal of assets);
• The debtor or related persons are in the process of liquidation or bankruptcy;
• The assets of the entire group must be blocked to secure the claim.

The mistake most creditors make

Most companies start with the question:

“How to sue a debtor company?”

That's the wrong first question. He limits the battlefield to one legal entity.

The right question is:

How do you use the corporate structure of the group to maximize pressure and real recovery?

Sometimes the best result is the seizure of assets not from the debtor, but from his parent company. Sometimes, the initiation of the beneficiary’s personal bankruptcy. Sometimes, parallel fraud lawsuits in multiple jurisdictions. Sometimes, the initiation of a criminal case.

The recovery from the group requires not an isolated procedural attack, but a corporate war.

Step 1. Conduct a corporate analysis of the group

The first thing to do is to forget about the debtor and look at the whole structure.

Key aspects for analysis:

• complete corporate structure (including offshore chains);
• jurisdiction of incorporation of all legal entities of the group;
• Beneficial owners and their assets;
• financial flows (who pays whom, for what, through which accounts);
• profit consolidation centers;
• owners of key assets (real estate, IP, equipment, shares / shares);
• Employment (where the staff actually works)
• Affiliation with management;
• history of creation and change of structure (especially after debt originated);
• Audit reports and financial statements.

If the group is structured so that the debtor is just a pad, that's not a problem. It's an opportunity. Courts are increasingly penetrating the corporate veil if they see abuse.

Step 2. Identify asset and cash flow centers

The debtor may have nothing on the balance sheet, but the group is a single economic organism.

We need to find:

• Bank accounts of operating companies;
• real estate registered on holding companies;
• stock and warehouses;
• accounts receivable from other companies of the group;
• intra-group loans;
• IP-assets (trademarks, patents, software);
• shares and shares in other legal entities;
• yachts, planes, luxury items, decorated for special companies;
• Insurance and investment products.

Key question: Where does the money go from the operating business? The answer to it is the target of the attack.

Step 3. Identify jurisdictions for attack

The international group is always a multi-jurisdictional strategy.

It is necessary to analyze the law of countries where:

1. Debtor (jurisdiction of incorporation).
2. Parent company (control jurisdiction).
3. Assets (jurisdiction of the location of the property).
4. Beneficiaries (jurisdiction of citizenship or residence)
5. Operating companies (real business jurisdiction).
6. Bank accounts (jurisdiction of financial flows).

In each of these jurisdictions, the possibility of:

• recognition of a foreign judicial or arbitral award;
• The doctrine of “removing the corporate veil”;
• Recovery of debts of related persons (group liability);
• arrest of third party assets under interim measures;
• initiation of bankruptcy and contestation of transactions;
• Initiation of criminal proceedings on fraud.

Step 4. Select legal theory: How to consolidate responsibility

Suiting the debtor is commercially meaningless. We need to choose the legal mechanisms to attack the group.

1. Piercing the Corporate Veil is used when a corporate form is used to deceive creditors. Proved: mixing of assets, lack of real activity, unified control, withdrawal of funds.

2. In some jurisdictions, in the event of the bankruptcy of one member of a group, the assets and liabilities of the entire group can be combined for a fair settlement with creditors.

3. If the creation of an insolvent debtor company or the withdrawal of assets is part of a fraudulent scheme, a tort suit may be filed against the beneficiaries and management in the jurisdiction where the damage was caused.

4. Shadow Directorship: The prosecution of persons who were not formally directors but gave binding instructions and drove the company to bankruptcy or loss of the creditor.

5. Intra-group loans and guarantees: An analysis of whether intra-group loans are hidden capital that can be subordinated, or whether there are guarantees, explicit or implied.

Step 5. Interim measures of protection: freeze the assets of the entire group

Interim measures are the most formidable weapon against the group.

Consideration should be given to obtaining:

• Freezing Order (worldwide or in a particular jurisdiction) – a ban on the disposal of assets not only to the debtor, but also to related persons (Chabra jurisdiction in English law);
• arrest of bank accounts of the group’s operating companies;
• Prohibition of dividends or intra-group loans;
• prohibition of alienation of shares and shares;
• Disclosure of the Group’s assets (disclosure orders)
• Appointment of a manager or monitor over the business.

The key idea is: If a group behaves as a single business, it must also respond as a single business. Courts, especially in England, the BVI, Cyprus, and the UAE (DIFC), are increasingly willing to take such measures against debtor-related companies.

Step 6. Initiate parallel processes

The strategy of recovery from the group does not tolerate consistency. We need to work in parallel.

Possible directions of simultaneous attack:

• Arbitration/court against the contract debtor.
• A fraud lawsuit against the beneficiary and management in their personal jurisdiction.
• Declaration of bankruptcy of the debtor for the seizure of its assets and contesting transactions.
• Criminal application in the country of the debtor or beneficiary (in Russia and the CIS is an effective tool of pressure).
• Seizure of assets of the parent company for security purposes in a third country (e.g. England, Switzerland or the UAE).
• A claim for invalidation of transactions as committed with the purpose of deceiving creditors (fraudulent conveyance).

The goal is to create multiple points of legal pain for beneficiaries and the group, so that a voluntary settlement becomes the best commercial solution for them.

Step 7. Use bankruptcy as a strategic tool

The bankruptcy of the debtor is not always the end. It's often a start.

As part of bankruptcy, it is possible to:

• appoint a loyal manager or influence his choice;
• to challenge the transactions on the withdrawal of assets (suspicious transactions, transactions with preference);
• to bring to subsidiary liability controlling persons and directors;
• Access to the full financial records of the Group;
• Initiate consolidated bankruptcy of related persons;
• Use the threat of bankruptcy to negotiate with beneficiaries.

In the jurisdictions of Russia and the CIS, subsidiary liability is a powerful tool that allows you to break through the corporate shield and transfer debts personally to beneficiaries and management.

Step 8. Search for Beneficiary Assets and Management

If the group is structured to confuse the lender, look for the personal assets of the beneficiaries.

International asset tracing includes the search for:

• personal property (in London, Dubai, on the Cote d’Azur);
• Personal bank accounts (especially private banking)
• yachts and aircraft;
• art collections;
• trusts and funds, where the beneficiary is the founder or beneficiary;
• assets issued to spouses and children.

Often, the beneficiary is willing to pay not when his company has problems, but when legal problems come to his personal home.

Strategies table: Where to strike

Common mistakes in recovery from a group of companies

1. You are fighting with a structure, not with one legal entity. We need to attack the entire ecosystem.

2. Ignoring interim measures against third parties The court may seize the assets of the related company if it sees a risk of their withdrawal.

3. Wait for the court to start looking for assets. Asset tracing and freezing must be done before or immediately after filing a claim.

4. Not to use criminal legal levers In Russia and the CIS, a statement of fraud (Article. 159 of the Criminal Code and analogues are often the fastest way to force the beneficiary to sit down at the negotiating table.

5. Subsidiarity in Russian and Kazakh law makes bankruptcy one of the main ways of real recovery.

6. Parallel trials should be managed from one center, rather than turning into chaos.

Creditor checklist

Before you start collecting from the international group, answer 15 questions:

1. What is the complete corporate structure of the group?
2. Who is the ultimate beneficiary?
3. Where are the assets of the operating companies?
4. Who is the owner of real estate and transportation?
5. Where does the cash flow go?
6. Have there been any asset withdrawals after the debt arose?
7. Are there any signs of a single business (shared offices, website, brand, staff)?
8. In which jurisdiction can the “removal of the corporate veil” be applied?
9. Can I obtain interim measures against related companies?
10. Is there a legal entity in the group in England, BVI, Cyprus, UAE, where creditor rights are strong?
11. Where are the personal assets of the beneficiary?
12. What is the limitation period for tort claims (fraud) in prospective jurisdictions?
13. Can a criminal case be initiated at the location of the debtor or beneficiary?
14. Are there grounds for subsidiary liability?
15. What scenario would create maximum pressure on the beneficiary?

What a strong group recovery strategy looks like

A strong strategy is always multi-vectored and includes five levels:

1. Corporate Intelligence & Strategy: Understanding the structure, beneficiaries, assets and jurisdictions to attack.

2. Urgent Relief: Global and local seizures of debtor and related persons’ assets. Chabra orders. Disclosure orders.

3. Liability Merits Parallel Claims: arbitration against the debtor, tort against the beneficiary, criminal case, bankruptcy.

4. Enforcement and Insolvency Consolidation of Responsibility Subsidiary liability in bankruptcy. Enforcement of decisions.

5. Personal Pressure focuses on the personal assets of beneficiaries and management. Personal bankruptcy. Interpol.

Without a fifth level, the first four often fail to produce a commercial result. The beneficiary must understand that paying off the old debt is his best and cheapest way out.

FAQ

Yes, if you prove that the company was only an “alter ego” of the parent structure, was used for deception or the parent company gave direct guarantees. The outlook is higher if there is a common profit centre and mixing of assets.

What to do if the debtor brought the business to a new legal entity? It is necessary to attack the new legal entity with claims about the invalidity of transactions and transfer of business, to seek the seizure of its assets and to hold the beneficiaries accountable for fraud.

In the jurisdictions of Russia and the CIS - yes, through the mechanism of subsidiary liability in bankruptcy. In other jurisdictions, through fraud (fraud, tort of conspiracy) or breach of fiduciary duties.

Yes, in some jurisdictions (especially in England) this is possible through the Chabra jurisdiction mechanism, if there is strong evidence that the assets of the “sister” company are actually owned by the debtor or are under his control.

More importantly: To win arbitration or find the beneficiary’s assets?To recover money – find the beneficiary’s assets. The decision against an empty debtor company is only the first step. The real win is when the beneficiary pays out of pocket.

Related services

• International Arbitration, Commercial Disputes and Cross-Border Litigation
• Fraud, Asset Tracing and Recovery in Multiple Jurisdictions
• Corporate and Regulatory Investigations, Business Integrity
• Bankruptcy, Restructuring and Creditor Rights
• Sanctions, export controls and international compliance

Related material

• Removing the corporate veil: How to hold a parent company accountable
• Subsidiary liability of beneficiaries and directors in Russia and CISAsset tracing: strategy of searching for assets in offshores and in the West
• Worldwide freezing orders: How to Freeze Assets in London, Dubai and BVI
• Criminal prosecution as a debt recovery tool in the CIS
• How to challenge the withdrawal of assets in bankruptcy: international
• Chabra relief: seizure of third party assets in English law

Conclusion

Recovery of debt from an international group of companies requires not just a lawsuit, but a strategy of corporate warfare.

It is not enough to prove a breach of contract. It is necessary to disassemble the group structure, find the centers of assets and profits, choose the jurisdictions to attack, and create for beneficiaries and management a degree of personal and business risk, at which payment of debt becomes the only reasonable commercial choice for them.

In disputes with groups of companies, the winner is not the one with the stronger contractual position. The winner is the one who turns the debtor’s corporate complexity into its main vulnerability.