Bankruptcy Institute in Ukraine: judges of the Supreme Court outlined the challenges of wartime and aspects of bankruptcy of individuals


Bankruptcy Institute in Ukraine: judges of the Supreme Court outlined the challenges of wartime and aspects of bankruptcy of individuals

During 2022, local commercial courts of Ukraine opened 9,725 bankruptcy proceedings, which is 42% less than in 2021. In particular, 583 applications for bankruptcy of a legal entity were considered (this is 28% less than in 2021); 419 applications for insolvency of an individual (18.5% less than in 2021); 2,367 statements about the creditor's monetary claims against the debtor (50% less than in 2021). Also, 6,356 applications were received regarding other issues (approval of rehabilitation plans, various property disputes involving the debtor), which make up approximately 65% of the total number of proceedings opened in 2022.

Such statistical data was provided by the secretary of the judicial chamber for consideration of bankruptcy cases of the Cassation Economic Court as part of the Supreme Court Oleg Vaskovsky during his speech at the VIII Forum on Restructuring and Bankruptcy.

Speaking about the challenges of wartime for the bankruptcy institute in Ukraine, the speaker emphasized that despite the difficult conditions, the bankruptcy process is taking place, and moreover, it is dynamic – as evidenced by the numbers. He added that bankruptcy cases are considered by 9 judges of the KGS of the Supreme Court, 65 courts of appellate commercial courts and 142 judges of local commercial courts.

The speaker noted that in order to ensure access to justice in bankruptcy cases under martial law in Ukraine, draft law No. 7442 of June 7, 2022, which was adopted as a basis, is being considered by the Verkhovna Rada of Ukraine. According to the judge, the norms of this project are determined by trends in digitalization and moratorization. The latter, in particular, in view of the requirements of wartime. Among other things, this initiative proposes to provide for the possibility of holding meetings and the creditors' committee remotely via video conference; not to apply the responsibility provided for in Part 6 of Art. 34 of the Code of Civil Procedure, for the untimely appeal of management bodies to the commercial court with a statement on the opening of bankruptcy proceedings.

Outlining the range of the most problematic issues related to the start of hostilities on the territory of Ukraine, Oleg Vaskovskyi focused on such issues as eliminating shortcomings and meeting deadlines in the context of the Russian Federation's military aggression against Ukraine; extension of the term of pretrial rehabilitation in connection with the presence of hostilities and the introduction of martial law; payment for the services of the liquidator if the property is available and the debtor is in the occupied territory; inclusion in the liquidation mass of certain types of property; inventory of property located on the territory of the anti-terrorist operation; forced seizure in Ukraine of objects of property rights of the Russian Federation and its residents; responsibility of individual legal entities (Ukrzaliznytsia JSC, Ukroboronprom enterprises, etc.).

In addition, Oleg Vaskovsky cited the practice of the Supreme Court regarding how to respond to applications and petitions for renewal of procedural terms through the lens of martial law. This practice shows that the mere reference to martial law is not enough to consider the omission of procedural terms for appealing to the court as a valid reason. In each case, it is necessary to cite specific factual circumstances that prevented the appeal to the court. The speaker also spoke about judicial practice regarding changes in the terms of execution of the pre-trial rehabilitation plan in connection with military aggression, regarding renewal of the term for consideration of monetary claims against the debtor, etc.

In the end, Oleg Vaskovsky settled on the issue of a moratorium within the framework of the bankruptcy case. He emphasized the importance of implementing and applying the mechanism provided for by the CMU Resolution No. 187 of March 3, 2022 "On ensuring the protection of national interests in future lawsuits by the state of Ukraine in connection with the military aggression of the Russian Federation." This resolution establishes a moratorium (ban) on the fulfillment, including by force, of monetary and other obligations by creditors (collectors) for whom the Russian Federation or, in particular, legal entities created and registered in accordance with the legislation of the Russian Federation. The speaker added that the courts of Ukraine already use this mechanism in their practice, considering the applications of creditors with monetary claims against debtors.

You can learn more about Oleh Vaskovsky's presentation at the link: .

Despite the pandemic and the full-scale aggression of Russia, the number of cases related to the restoration of the solvency of individuals is increasing. This was emphasized by the judge of the Supreme Court in the Commercial Court of Cassation Oleksandr Banasko. Introducing the institution of bankruptcy of individuals in 2019, as the speaker noted, the legislator was guided by the goal of restoring the solvency of an individual, the basis for adopting such legislation was the social effect.

"Practically all Supreme Court rulings on this issue follow the approach according to which only a conscientious, conscientious, and honest debtor has the right to a debt restructuring or repayment procedure. If there is abuse in one form or another on the part of the debtor, debt relief or restructuring is not allowed," the Supreme Court judge stated.

Oleksandr Banasko noted that the judicial practice testified to the insufficient quality of regulatory regulation of the procedures for restoring the solvency of an individual, in particular, the transition from one procedure to another. For example, before going to the debt repayment procedure, the debtor needs to develop and submit a restructuring plan for approval within three months. This stage is mandatory. During consideration of cases with similar issues of law enforcement, the Supreme Court applied a teleological interpretation of the relevant norms, while referring to the Explanatory Note to the draft KUzPB.

The speaker noted that in other countries, where the institution of bankruptcy of individuals has been operating for a longer time than in our country, the legislator gave the debtor the opportunity to independently choose one of the options: to immediately go to the restructuring procedure (if the financial solvency is at a sufficient level) or to resort to the repayment procedure debts otherwise. "Certain law enforcement problems arose in practice when it became clear that the debtor's goal is the debt repayment procedure, not the restructuring procedure," the speaker said.

Analyzing the practice of the Supreme Court, Oleksandr Banasko focused on cases concerning the advance payment of remuneration to the arbitration manager. The legislation in this regard is clear: neither the Code of Civil Procedure nor other norms of the current legislation provide for the right of the debtor to be exempted from the advance payment of the award to the arbitration administrator upon submission of such an application. At the same time, the resolution of the Supreme Administrative Court of the Supreme Court of November 19, 2020 in case No. 910/726/20 states that this does not deprive the debtor of a natural person of the opportunity to conclude an agreement with the arbitration manager, who will agree, on the conditions of delaying payment until the realization of the debtor's property, to exercise the authority of the manager restructuring.

Speaking about the effect of the moratorium on the claims of secured creditors, the speaker cited the resolution of the Supreme Court of Ukraine dated September 10, 2020 in case No. 902/227/20, which states that upon the introduction of such a moratorium, all enforcement actions and enforcement actions against the debtor are stopped. There are two exceptions to this rule provided for by the KUzPB. In the resolution of the court chamber for consideration of bankruptcy cases of the Supreme Court of Ukraine dated September 22, 2021, in case No. 905/1923/15, it is stated that the moratorium is automatically terminated after 170 calendar days from the date of the introduction of the property disposal procedure. After the expiration of this period, the secured creditor has the right to take active actions regarding the sale of the property, but this is allowed only with the permission of the court and under judicial control within the framework of bankruptcy proceedings.

The judge of the Supreme Court also focused on the grounds for the transition to the debt repayment procedure. As an example, he cited the resolution of the court chamber for consideration of bankruptcy cases of the Supreme Court of Ukraine dated May 26, 2022 in case No. 903/806/20.

Analyzing the grounds for closing insolvency proceedings, Oleksandr Banasko advised the participants in such cases to be procedurally active, thorough, to pay attention to the content, completeness and reliability of the declaration on the debtor's property status. He also recommended that you familiarize yourself with the thorough resolution of the court chamber for consideration of bankruptcy cases of the Supreme Court of Ukraine from September 22, 2021 in case No. 910/6639/20 regarding the concept of "member of the debtor's family" in cases of insolvency of individuals.

The speaker also drew the attention of those present to a number of resolutions, which set out the conclusions regarding the application of clause 5 of ch. "Final and transitional provisions" KUzPB.

"There are a number of positions not only of the judicial chamber for consideration of bankruptcy cases of the Supreme Administrative Court of Ukraine, but also of judges' colleagues regarding the enforcement of certain norms, which were subsequently reflected in the relevant draft laws regarding changes to the Criminal Procedure Code. These legislative initiatives are currently under consideration by the Verkhovna Rada of Ukraine," the speaker summarized.

Oleksandr Banaska's presentation: .

The 8th Forum on Restructuring and Bankruptcy was organized by the newspaper "Yuridichna praktika".

Photos provided by the event organizer.

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