The Legal Status of Creditors whose Claims are Subordinated in Bankruptcy Proceedings

The paper examines the legal status of creditors whose claims may be subordinated by the arbitrazh court hearing the debtor's bankruptcy case. It identifies the grounds for subordinating creditors' claims: pursuant to the provisions of the Federal Law on Insolvency (Bankruptcy); on the basis of agreements with creditors; and on grounds developed in judicial practice through the interpretation of rules governing the status of unsecured bankruptcy creditors. The study identifies the defining characteristics of an unsecured bankruptcy creditor whose claims are generally subordinated in judicial practice. Particular attention is paid to determining the status of an unsecured bankruptcy creditor that has provided rescue financing to a debtor experiencing a financial crisis. Such a creditor may risk losing its status as an unsecured bankruptcy creditor where it is a person controlling the debtor or a person is affiliated with the debtor. The author analyzes the grounds for subordination set out in Resolution No. 41 of the Plenum of the Supreme Court of the Russian Federation dated 23 December 2025. It concludes that the Plenum has articulated a legal position under which claims are subordinated where rescue financing is provided to a debtor in financial distress. The study compares German law, under which subordination is regulated by statute. The author concludes that a subordinated creditor should be regarded as a post-priority creditor and should not retain the rights of an unsecured bankruptcy creditor after its claim has been allowed by the court, because subordination should be treated as a sanction for the creditor's bad-faith conduct.