Limitation of the Binding Force of Court Decisions Granting Creditors’ Claims in Bankruptcy Proceedings

The article examines the legal properties of res judicata and the permissibility of their restriction. Facts and circumstances established by a court judgment that has entered into legal force are not subject to re-litigation in subsequent proceedings, save for strictly prescribed exceptions. The author focuses on conflicting court acts, i.e., an ordinary judgment rendered in adversarial civil proceedings and a ruling of a bankruptcy court in insolvency proceedings, the latter being capable of revisiting the findings of fact established by the original judgment. Creditors in bankruptcy proceedings are usually bound by court acts against the debtor and may not disregard such acts merely by reason of the commencement of bankruptcy proceedings. However, creditors must be afforded an effective remedy to challenge findings that are prejudicial to their rights and legitimate interests. The permissibility of restricting the effect of res judicata is grounded in the necessity of striking an equitable balance among the competing private interests of creditors, having regard to the sui generis nature of bankruptcy proceedings. Relative avoidance (contestation) can resolve this issue: it is a procedure pursuant to which a court act is rendered ineffective exclusively for the benefit of bankruptcy creditors inter se. The prevailing approach to the legal consequences of bankruptcy termination upon the restoration of the debtor’s solvency should be reformed. Upon restoration of solvency, the original court judgment remains in full force and effect as between the debtor and the creditor, thereby precluding any abuse of rights on the part of the debtor. These propositions make it possible to dispense with appellate challenges to court acts brought by creditors, replacing them with localized contestation of specific findings of fact exclusively for the purposes of bankruptcy proceedings.