The buyer did not have time to register the rights to the purchased property. What will happen if the seller goes bankrupt?

Let us consider the following situation. The seller and the buyer entered into a sale contract of immovable property. The seller is declared bankrupt, his bankruptcy trustee refuses to apply to Rosreestr with a joint application to register ownership transfer to the buyer. He refers to the fact that the object of immovable property is included in the bankruptcy estate and will be sold at auction, and the proceeds will be used to repay creditors claims. What should the buyer do

If the buyer wants to return the money paid, he shall apply to a commercial court that considers this bankruptcy case with an application to be include in the register of creditors.

If the buyer wants to obtain ownership on the object, he shall apply to a court at the object s location with claims on the state registration of ownership transfer on the object (part 7, art. 15 of the Federal Law "On state registration of immovable property" and part 3, art. 551 of the Russia s Civil Code). If the seller is declared bankrupt by the court, such a claim will be satisfied if the object at the time of the claim has been transferred to the buyer. Otherwise, the object will be included into the bankruptcy estate by a bankruptcy trustee. In this case the buyer can claim only a refund.

The buyer may face the following difficulties. The Chamber for Commercial Disputes of the Supreme Court of Russian Federation recently released two decisions (dd.17.10.2017 № 305-ЭС17-12927 and dd.17.11.2017 № 305-ЭС17-12136), which deny the possibility to satisfy claims urging the bankrupt to register of the right s transfer if the object is included in the bankruptcy estate. Here the buyer bears possible risk as the Supreme Court does not explain the meaning of "included in the bankruptcy estate"; is the object still considered to be included in the bankruptcy estate, if the seller has transferred ownership to the buyer? The Supreme court makes arguments in both decisions that may suggest that the issue of the object s owner has no legal significance anymore, and that the courts shall refuse to file a claim against the bankrupt to register the right s transfer anyway. The Supreme Court refers in both decisions to cl. 1, art. 131 of the Bankruptcy Law. According to it, all property of the debtor, available on the day of bankruptcy proceedings and identified in its the course, shall be included in the bankruptcy estate, that will be used to satisfy claims of the debtor s bankruptcy creditors. The Supreme court also refers to cl. 2, art. 551 of the Russia s Civil Code. According to it, even though the parties have executed the sale contract before registering the ownership transfer, it cannot serve as grounds for changing their relations with third parties. The seller remains the owner of the property for third parties until the ownership transfer to the buyer is registered.

Meanwhile, it is impossible to refuse such claim if the object is in the buyer s ownership. Can a bankruptcy trustee by its own decision include the object into the bankruptcy estate, if the object is not owned by the seller (in case № 305-ЭС17-12927 the bankruptcy trustee made it by drawing up an inventory list, although the ownership was transferred to the buyer)? In my opinion, he cannot do it. Indirectly, we can concluded it from §61 of the Resolution of the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22. According to it, if one of the parties under the sale contract of immovable property avoids taking actions on the state registration of the ownership transfer of the property, the other party shall have the right to appeal to this side with the claim to register the transfer of the property s ownership (cl. 3, art. 551 of the Russia s Civil Code). The buyer s claim for the state registration of the ownership transfer shall be satisfied provided that the seller fulfills the obligation on the property s transfer. According to §2, cl. 1, art. 556 the Russia s Civil Code, unless otherwise provided by law or contract, the seller fulfills his obligation on the property transfer upon transferring the said property to the buyer and upon signing the relevant transfer document by the parties. Courts of general jurisdiction adhere this approach, satisfying claims against bankrupts on the state registration of the ownership transfer if the object has been transferred to the buyer (see the appellate decision of the Moscow State Court dd.26.01.2017 №.33-0095, and the appellate decision of the Volgograd Regional Court dd.16.03.2016 №33-3102/2016).

If the object is transferred to the buyer, the bankruptcy trustee cannot include it into the bankruptcy estate, since the buyer is its legal owner (§3, cl. 60 of the Resolution of the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22). In order to return ownership to the bankruptcy trustee, the buyer s ownership grounds must be annulled, i.e. the sale contract must be terminated (for example, due to the seller breaching payment obligations) or become invalid (for example, on the grounds specified in Chapter III.1 of the Federal Law "On bankruptcy"). After that the object s ownership returns to the debtor and can be included into the bankruptcy estate. It is impossible to include the object owned by the buyer into the bankruptcy estate by mean of including it into the inventory list, as the bankruptcy trustee did in case № 305-ЭС17-12927. The buyer still remains as the owner, but since he cannot register the ownership transfer, the object stay permanently out of touch. It is impossible to acquire it due to acquisitive prescription, since the buyer is the rightful owner. The Supreme Court of the Russian Federation unlikely wanted to achieve such result while denying claims on the state registration.

However, what to do if the court denied the claim to register the transaction? In our opinion, there is only one way out: to wait for the completion of bankruptcy process, liquidation of the seller and its exclusion from the register, then apply to Rosreestr. This option is specified in cl.62 of the resolution the Plenum of the Supreme Court and the Supreme Commercial Court of the Russian Federation dd.29.04.2010 № 10/22. According to it, if the seller has no heirs or in case of the seller s liquidation as a legal entity, the buyer with transferred ownership to the property under the sale contract is entitled to apply for registration of the ownership transfer. If the state registrar refuses to register the ownership transfer without the seller s application, it can be appealed to the court under the rules of ch. 25 of Civil Procedural Code of The Russian Federation or ch. 24 of the Commercial Procedure Code of the Russian Federation. While considering the buyer s claim, the court shall verify that the seller has fulfilled the obligations on the ownership transfer and that the buyer has fulfilled payment obligations. The court shall satisfy the buyer s claim, if the seller s absence is the only obstacle to the state registration of the ownership transfer. The court obliges the state Registrar to perform actions for the state registration of the ownership transfer in the operative part of the decision.

The claim against the bankrupt on registration of the ownership transfer of the immovable must be distinguished from the claim against the bankrupt on registration of the transaction. The latter can be filed if the bankrupt avoids applying to Rosreestr for the contract registration, for example, the mortgage contract, equity participation in construction, the agreement on assignment of the rights from the registered lease contract, etc. The basic difference between these two claims is as follows.

According to §7, cl. 1, art. 126 of the Federal law "On insolvency (bankruptcy)", upon declaring the debtor as a bankrupt by the court decision, all claim of creditors on monetary obligations, mandatory payments, other property claims (except for current payments specified in cl.1, art. 134 of the Law, and the claims to recognize the property ownership, to recover moral damage, to recover property from illegal ownership, to verify invalidation of void transactions and to apply consequences of their invalidation) can be presented only during the bankruptcy proceedings. The explanations, fixed cl. 34 of the Resolution of the Plenum of the Supreme Commercial Court of the Russian Federation № 35 dd. 22.06.2012 "On certain procedural issues related to consideration of bankruptcy cases", state as follows: during the bankruptcy proceedings the claims of creditors on non-monetary property obligations (on the ownership transfer, performance of works and rendering services) ) that have arisen before the commencement of the bankruptcy proceedings and are treated according to the rules of art. 100 of the Bankruptcy Law, can be filed. Therefore, such claims are subject to a monetary assessment, specified in the register, in order to determine the number of votes at the meeting of creditors and satisfaction terms.

Thus, the Federal Law "On insolvency (bankruptcy)" allows creditors with non-monetary claims transform it into monetary claims if the debtor fails to fulfill or fulfills improperly any civil obligation. Given that the claim on the state registration of the agreement is a non-monetary claim and cannot be considered as a property claim, since it does not involve any actions with the property, the state registration itself does not create rights to immovable property. It only officially recognizes them. The said claim is a non-monetary claim on official recognition of the legal consequences caused by the parties having committed legally significant actions with the property.