Bankruptcy Processes Accompanied by Criminal Mechanisms: Prosecutor General's Office

The investigation materials of a criminal case underway at the National Security Service's Investigative Department have revealed that the criminal and unscrupulous behavior of bankruptcy administrators, including collusion with judges, grossly violates the rights and legal interests of citizens and organizations, as reported by the Public Relations Department of the Prosecutor General's Office.

In particular, it has been determined in the mentioned criminal case that bankruptcy administrator A.K. abused his powers during the bankruptcy proceedings of an individual entrepreneur, obstructing the normal process of real estate sales through public auctions, a situation known to the relevant judge of the case. Specifically, the starting price of the property was unlawfully and artificially reduced, and the administrator failed to submit the legally required reports regarding the bankruptcy process for an extended period of time. In these circumstances, no measures were taken to prevent his criminal actions or to rectify their consequences.

Exploiting these conditions, bankruptcy administrator A.K. evidently hindered the normal sales process of the specified apartment through public auctions to ensure a purchase of real estate at the lowest possible price by another judge handling the bankruptcy case. Between 2018 and 2019, he misled individuals interested in acquiring real estate by stating that the property would be purchased by co-owners, thus preventing potential buyers from participating in the auctions legally, resulting in the auctions not taking place and leading to a double artificial decrease in the starting bidding price of the apartment.

Continuing his criminal activity, bankruptcy administrator A.K. reportedly received a retrodated application from the registered owner of the mentioned real estate, on the instructions of the bankruptcy court judge, to create a certain basis for attaching to the bankruptcy proceedings. He submitted this application to the bankruptcy judge, who then attached it to the bankruptcy case. Consequently, the bankruptcy judge issued a court order based on this, obliging the removal of household items from the area of the sold property.

According to Articles 81 and 87 of the Law on Bankruptcy of the Republic of Armenia, the bankruptcy administrator is obliged to submit to the court a report regarding the sale of the debtor's property, the distribution of funds arising from it, the satisfaction of creditors' claims, and the measures implemented for collecting the debtor's property and assets (including receivables) from the moment the decision on the debtor's liquidation is made until the 10th of the following month inclusive. Furthermore, no later than 15 days after completing settlements with creditors, the administrator must submit a final report to the court, after which the judge must convene a session within no later than 15 and no sooner than 10 days, notifying the administrator and creditors at least three days in advance.

According to the data obtained during the investigation, the current and final reports during the bankruptcy proceedings were either not submitted at all by the bankruptcy administrator or were submitted with significant violations of the legally stipulated deadlines. Moreover, the administrator has failed to submit the legally required mandatory reports even in other proceedings under his jurisdiction. Meanwhile, the submission of these reports as required by law is one of the key guarantees of ensuring the legality of the bankruptcy process.

Considering that the oversight of compliance with legal and statutory requirements by bankruptcy administrators and the self-regulating organization of administrators is carried out by the Ministry of Justice of the Republic of Armenia, Prosecutor General Arthur Davtyan has sent a proposal to the Minister of Justice Rustam Badasyan. The proposal raises the necessity of strengthening the oversight over the strict adherence to legally prescribed procedures in bankruptcy processes, as well as improving the regulatory measures serving this purpose, including monitoring procedures.

At the same time, the Prosecutor General's Office of Armenia urges citizens who have encountered or will encounter such or similar violations of legal requirements, criminal mechanisms, or possess or will possess information about possible arbitrary and unlawful actions of bankruptcy administrators, driven by personal interests, to take the initiative and immediately contact the Prosecutor's Office of Armenia or other law enforcement bodies.

Notice: A person suspected or accused of an alleged crime is presumed innocent until proven guilty in accordance with the procedures established by the Armenian Criminal Procedure Code by a court decision that has entered into legal force.