Dmitry Tugushi and Eduard Sinelnikov: Winning a Lawsuit Is Not Enough to Save a Business

The operating environment for Russian businesses has changed significantly in recent years. According to industry experts, the cost of financing and tax burden have increased, sanctions-related restrictions have emerged, competition has intensified, and the number of corporate disputes and risks of subsidiary liability has grown. A corporate crisis is now rarely confined to a single area: it simultaneously affects management, finances, corporate relations, creditor engagement, and the company’s development strategy.

As experts point out, a strong legal position alone is therefore often insufficient to resolve a crisis. A successful dispute, protected assets, or a halted bankruptcy proceeding may provide the necessary foundation for moving forward. However, these measures do not, by themselves, restore the business’s financial model, operational control, or investment attractiveness.

Against this backdrop, a new model for addressing distressed assets is becoming increasingly common in the market: integrated project teams that combine legal protection, crisis management, and preparation of the business for its next stage of development. This approach not only helps protect the owner and their assets, but also creates the foundation for business recovery and growth.

Among the law firms operating under this model is Kovalev, Tugushi & Partners, in partnership with Treksis. As the companies explain, they combine legal protection, crisis management, and preparation for the next stage of the business – whether that means recovery, a relaunch, bringing in a strategic partner, or selling the asset.

Representatives of the companies note that achieving a legal victory and restoring a business are two different tasks that are rarely solved with the same tool. Even when a dispute has been resolved in the company’s favor, an agreement with creditors has been reached, or bankruptcy proceedings have been halted, this does not necessarily mean that the crisis is over. The owner and key assets may have been protected, while the company itself continues to lose stability.

The reason is that most crises are rooted in issues that go deeper than an individual legal dispute. A legal problem is often merely the outward manifestation of accumulated management and financial dysfunction. Once the legal process is concluded, it is not uncommon to find that cash-flow gaps persist, business processes have broken down, the team is demotivated, and the owner is still required to make most operational decisions personally.

In essence, crisis management begins where legal protection ends. The outcome ultimately depends on whether the business can be restored not merely by addressing the consequences of the crisis, but as a functioning and growing asset, experts emphasize.

According to him, one of the most common mistakes owners make is treating a crisis as a one-off event. In practice, it is almost always a gradual process: the company continues to operate, fulfill contracts, generate revenue, and even maintain an outward appearance of stability, while changes are already taking place internally that can eventually lead to a systemic breakdown.

Experience working with distressed assets shows that several warning signs almost always emerge well before the most severe consequences, Tugushi believes. The first and most important signal is a loss of control: familiar decisions stop producing the expected results, deadlines are pushed back, management attributes what is happening to external circumstances, and resolving day-to-day issues increasingly requires the owner’s personal involvement.

The second sign is mounting pressure on several fronts at the same time: relations with creditors become more difficult, cash-flow gaps widen, corporate conflicts intensify, and regulatory scrutiny increases. Each of these issues may be manageable on its own, but their combination creates a fundamentally different level of risk.

The third signal is a sharp reduction in the time available for decision-making: the owner and management begin operating in a constant state of reaction, one crisis follows another, and there are no longer enough resources or attention left for business development.

The fourth and most concerning sign is the absence of a clear path forward. If the owner has no clear answer to what will happen to the asset in one or two years and what realistic options are available, the asset is already at risk, the expert believes.

The Managing Director of Treksis noted that most distressed assets lose value not because the crisis has become too deep, but because the owner has waited too long, hoping that it will resolve itself.

High-profile legal disputes rarely emerge out of nowhere, Eduard Sinelnikov explained. More often, they are the final stage of processes that have been building within the company for months, and sometimes years. Corporate disputes between shareholders are almost always preceded by a loss of trust and an unclear allocation of authority; the conflict simply brings these underlying problems into the public domain.

Bankruptcy, too, does not always begin with a lack of cash. It is often rooted in flaws in the financial model and a lack of control over cash flows. Numerous legal disputes can likewise be symptoms of deeper issues: misalignment within management, the absence of a unified strategy, and operating in a reactive mode, where the company addresses consequences rather than causes, experts believe.

Modern crisis management therefore begins not with individual legal proceedings or financial negotiations, but with identifying the root causes. As long as the owner focuses solely on external symptoms, new conflicts will continue to emerge. Only restoring operational control and a clear strategic direction can enable the business not merely to exit the crisis, but also to significantly reduce the likelihood of it recurring.

It is also becoming increasingly clear that the most effective crisis management projects need to begin well before legal proceedings. Whereas owners previously sought assistance when the crisis had already become apparent to the entire market, timing has now become a critical factor in achieving a successful outcome. As long as the company retains its operations, team, and partners’ trust, the owner still has the ability to choose a scenario rather than simply react to events that are already beyond their control.

A modern crisis management project therefore begins with a comprehensive business diagnostic. Its purpose is to identify the actual causes of the crisis, assess the company’s viability, and develop an effective strategy for the next steps. From there, the scenarios can diverge significantly: for some companies, the appropriate solution may be operational optimization and financial stabilization; for others, debt restructuring, finding an investor, or preparing for a sale; and in certain cases, a change in the management structure or a complete transformation of the business model.

Crucially, the scenario must be chosen while the owner still has room to maneuver. It is this ability to choose, rather than act under pressure from circumstances, that largely determines the ultimate value of the business and its prospects for successful recovery.

In practice, this means following a specific sequence of steps: first, stabilize cash flows and improve operating performance; then make the necessary personnel decisions and establish effective management controls; and only on this foundation develop a realistic path forward, whether that means a relaunch, sale, or merger.

The level of personal responsibility faced by business owners has also changed over the years. Whereas many entrepreneurs previously considered the corporate structure sufficient to protect their interests, risks today increasingly extend beyond the company itself. The expansion of the subsidiary liability regime has increased the scope for holding not only the legal entity, but also owners, executives, and other individuals who effectively made key management decisions, accountable.

For an owner, protecting the business is therefore no longer the only priority. Protecting personal interests, business reputation, and assets has also become critical. This makes timely legal work particularly important: it allows a course of action to be developed before the situation progresses to litigation or bankruptcy.

Legal protection, however, remains only one component of the overall strategy. Its role is to establish the legal foundation for protecting the business and its owner, while restoring the company’s financial model and value requires comprehensive crisis management. This approach makes it possible to protect the owner from legal risks while simultaneously creating the conditions for the company itself to recover – a task that is now no less important than successfully resolving the underlying dispute.

The changing nature of business crises has inevitably affected the way they are addressed. Just a few years ago, an owner might turn first to lawyers, then to financial consultants and auditors, and later to management specialists or investment advisors. Today, this sequential model is increasingly too slow. While the legal team protects the owner’s interests and handles litigation, the business must simultaneously restore operational control, stabilize its financial model, and negotiate with investors or partners – all at the same time, rather than one step at a time.

This is the approach taken by Kovalev, Tugushi & Partners and Treksis. Legal, financial, and management challenges are treated not as separate processes, but as elements of a single strategy.

He noted that this is no longer a matter of cooperation between two separate companies, but rather the development of a unified strategy for managing a distressed asset, in which every decision is evaluated not only from a legal perspective, but also from management, financial, and investment perspectives. According to the experts, this approach is gradually becoming the new market standard.

Legal protection remains an essential element of this work, but on its own it can no longer guarantee either the preservation of the company’s value or its future development. As a result, work with distressed assets is gradually moving beyond traditional legal services: a modern crisis requires the owner to be protected, the business’s operational control to be restored, and the conditions for attracting investors or partners to be created simultaneously.

The logic of crisis management is changing as well. The primary objective is no longer to react to each new problem, but to build a consistent strategy for exiting the crisis that enables the owner to make decisions based on the business’s long-term interests rather than under pressure from circumstances. This does not make legal protection any less important. On the contrary, it makes it part of a broader system for managing the value of the asset.

Ultimately, experts conclude, a project should be considered successful not simply when a dispute has been won, but when the owner has retained control of the business, restored its stability, and been able to pursue the most advantageous path forward. This, experts note, may be the defining shift in modern crisis management: the focus is no longer solely on protecting a business from a crisis, but on managing its future.