Russian private foundations: limits on asset protection

In what appears to be the first case of its kind, a creditor has brought a claim directly against a Russian private foundation over a debt owed by its founder.

Case No. А65-30020/2026 is pending before the Arbitrazh Court of the Republic of Tatarstan. The creditor filed the claim together with an application to have the founder declared bankrupt – just one week before the foundation’s third anniversary. The foundation was established on Aug. 25, 2023; the claim was filed on Aug. 18, 2026.

The timing matters. Under Russian law, a private foundation may be liable for its founder’s obligations during the first three years after it is established. But that is only one of several ways creditors may reach assets held by a foundation.

1. Liability for the founder’s debts

Russian private foundations are subject to a special rule that does not apply to most other legal structures. For three years after a foundation is established, its assets may be used to satisfy obligations of its founder. In exceptional circumstances, a court may extend this period to as long as five years.

Based on publicly available information, this appears to be the first case to test the rule in practice. The creditor brought its claim directly against the foundation before the three-year period expired.

2. Subsidiary liability in bankruptcy

A second route comes from general bankruptcy law rather than the special rules governing private foundations.

Transferring assets to a foundation does not eliminate the risk that the founder may be treated as a controlling person of a debtor if the founder continues, in practice, to direct the business.

Depending on the circumstances, liability may also extend to the foundation itself or to other persons that received a substantial benefit without consideration as a result of actions that left the business unable to pay its creditors. Courts assess the basis for liability separately for each person involved.

Governance therefore matters. It is not enough for a foundation simply to hold shares or interests in a business on paper. The key question is who actually makes the decisions.

If the founder continues to direct the operating companies while the foundation’s governing bodies merely carry out those decisions, it becomes easier for creditors to argue that the founder still controls both. Independent governance of the foundation, together with a clear separation between its decision-makers and the management of the operating companies, helps demonstrate genuine independence.

Courts may also consider powers retained by the founder, including rights to approve material transactions or otherwise influence the foundation’s governing bodies. The extent to which the foundation itself participates in managing the business may also matter.

3. Challenges to transactions involving foundation assets

Even if subsidiary liability does not apply, creditors may seek to challenge transactions that moved assets into or through the foundation.

That may include a direct transfer by the founder. It may also include dividends paid by a company to a foundation that owns its shares when the company is already under financial stress.

More difficult cases involve a series of connected transactions. A company may, for example, pay dividends to a foundation, which then transfers the money or assets further, including for the benefit of ultimate beneficiaries. If a creditor can prove a coordinated intent to prejudice creditors, it may seek to challenge the entire sequence as a single chain of transactions. Courts generally require stronger evidence in such cases.

The principal lookback period for challenging suspicious transactions under Russian bankruptcy law is three years. Risk factors include transactions made when a business was already under financial pressure or had overdue obligations, dividend payments that depart from established practice, and payments that disrupt the ordinary course of dealing with third-party creditors.

Transfers of substantial personal assets to a foundation – including family real estate – also deserve particular scrutiny if they take place after the business begins to show signs of insolvency.

This is also shaping another trend. Clients are increasingly considering not only transferring a business to a private foundation, but also establishing a separate, autonomous foundation to hold personal assets.

The rationale is straightforward: personal assets are separated from business risks before a crisis arises, reducing their exposure if disputes between business partners or other business problems emerge later.

The three-year period from registration is an important benchmark, but it is not the only one. Other bankruptcy-law mechanisms may continue to apply after that period expires. The protection provided by a private foundation therefore depends heavily on its governance and on how – and when – assets are transferred to it.

A private foundation is not a “safe harbor.” It is a sophisticated structuring tool, but it does not override the general rules of bankruptcy law. Transactions may still be challenged, and controlling persons may still face subsidiary liability.

Asset-protection measures should therefore be built into the structure from the outset:

• The foundation should have its own sources of income. Ideally, it should be self-sustaining rather than dependent on transfers from the business. This reduces the risk that a series of transfers will later be viewed as a suspicious transaction chain.
• Separating assets from the business early can strengthen the structure. If assets have been held outside the operating business for at least three years before they are transferred to the foundation, their position in a subsequent bankruptcy may be more robust.
• The foundation should have independent governance. As far as practicable, the management and governing bodies of the business and the foundation should be kept separate. This helps avoid evidence of common control.
• The commercial rationale for key decisions should be documented. Dividend payments and other distributions should be supported by contemporaneous evidence that the company showed no signs of insolvency, had stable revenue and maintained a positive net-asset position.

BIRCH has extensive experience in structuring and establishing private foundations under Russian law, including designing governance arrangements, preparing foundation documents and planning the composition and sequence of asset transfers. We would be pleased to discuss how these issues may apply to your situation.