The judge of the Commercial Court of Cassation as part of the Supreme Court Oleksandr Banasko cited the practice of the Supreme Court regarding the approval of the plan for the restructuring of the debts of an individual, and the judge of the Civil Court of Cassation as part of the Supreme Court Vasyl Krat – regarding the collection of inheritance property by the creditor of the testator. They talked about this during a practical round table for heads of problem debt departments and legal departments of Ukrainian banks.
In his speech devoted to the bankruptcy of natural persons, the judge of the Commercial Court of Cassation as part of the SC, Oleksandr Banasko, noted that in the last few years, commercial courts have been developing a new judicial practice. The reason was that from October 21, 2019, instead of the Law of Ukraine "On restoring the debtor's solvency or declaring him bankrupt", the Code of Ukraine on Bankruptcy Procedures (hereinafter – KUzPB) came into effect, which introduced a new institution in domestic legislation – bankruptcy of natural persons.
According to the temporal criterion, the legislator determined the direct effect of the norms of the Code of Criminal Procedure and their application in the consideration of bankruptcy cases, regardless of the date of opening of bankruptcy proceedings, with the exception of cases that are at the rehabilitation stage on the date of entry into force of this Code.
A certain problem was the insufficient quality of the legislative technique of the "Final and Transitional Provisions" section of the CUzPB regarding the transition to new procedures under the Code in cases of insolvency of individuals (debt restructuring procedure, debt repayment procedure), which are different from the procedures defined by the Law of Ukraine "On the Recovery solvency of the debtor or declaring him bankrupt".
However, the courts still managed to shift enforcement to the norms of the Code.
The judge of the KGS of the Supreme Court analyzed the main provisions of the explanatory note to the draft KUzPB, which relate to the bankruptcy of individuals. In particular, he emphasized the positive impact on the state's economy as a whole of restoring the solvency of individuals who find themselves in a difficult financial situation. One of the ways to achieve this goal is debt restructuring, but under certain circumstances it is also possible to write off a person's debts. It is noteworthy that credit institutions also benefit from this, although they lose some funds, but increase the number of active participants in consumer lending.
Oleksandr Banasko drew the audience's attention to the difference in court procedures that can be applied to debtors. For example, in cases involving a legal entity, we are talking about the disposal of the debtor's property, the rehabilitation of the debtor, or the liquidation of the bankrupt. Whereas in the case of an individual, restructuring or repayment of the debtor's debts is possible. The judge also paid attention to the protection of the violated rights of the collateral creditor in the insolvency procedure of individuals.
In addition, he spoke about the judicial practice developed by the Supreme Court regarding the approval of a plan for the restructuring of debts of an individual/consequences of non-implementation of the plan (grounds, evidence, and assessment by the court), the effect of the moratorium on the claims of secured creditors, its automatic termination, the closure of the proceedings in connection in connection with incomplete and/or unreliable information in the debtor's declarations, as well as about who can be considered a member of the debtor's family, etc.
Speaking about the application of insolvency procedures for natural persons, the judge cited the conclusions reached by the Supreme Court in case No. 909/1028/20 regarding Articles 115, 116 and 119 of the Code:
– in view of the legislator's use of the phrase "other circumstances", the list of grounds for opening proceedings in the case of insolvency of a natural person is not exhaustive;
– even one or more grounds in any combination specified in Part 2 of Art. 115 of the Code of Civil Procedure, since the legislator did not imperatively define the existence of a set of all four grounds as a condition for opening proceedings in the case of insolvency of a natural person;
– the debtor's possession of property does not exclude the possibility that he has overdue obligations to his creditors as one of the grounds for opening proceedings in the case of insolvency of a natural person.
According to the degree of certainty, Part 4 of Art. 119 of the Code of Civil Procedure is an absolutely defined norm, which indicates that the legislator established an exhaustive list of grounds for refusing to open insolvency proceedings, which is not subject to expansive interpretation.
The debtor's assets and enforcement proceedings opened against him do not belong to the exhaustive list of reasons for refusing to open proceedings in the case of insolvency of a natural person.
Oleksandr Banasko also talked about foreign experience with the bankruptcy procedure and compared it with the Ukrainian one.
The peculiarity of the institution of bankruptcy of natural persons, in contrast to legal entities, is that only the debtor has the right to initiate the relevant procedure – creditors currently do not have such a right. In other countries, upon the introduction of this institution, the possibility of initiating the corresponding procedure was also given only to the debtor, but later the legislator also granted such a right to creditors.
During the discussion of case No. 910/16593/19, the judge of the KGS of the Supreme Court noted that there is a certain inconsistency between Articles 45 and 90 of the Criminal Procedure Code. This is indicated in the ruling of the Supreme Court: the conclusion of the court of appeals that in case of unwillingness of creditors for one reason or another to participate in the case of bankruptcy of the debtor and to satisfy their demands in the bankruptcy procedure and, accordingly, the failure to submit creditor statements to the debtor, the legislator provided for appropriate the consequences defined in Part 4 of Art. 90 of the Labor Code, namely the recognition of such claims as repaid, and the executive documents for the corresponding claims as non-enforceable, contradicts the systematic interpretation of Part 4 of Art. 45 of the Code of Civil Procedure, which among the consequences of failure to submit an application by a bankruptcy creditor within 30 days provides only for the deprivation of his right to a decisive vote, and not for the recognition of his claims as repaid, and the executive documents for the corresponding requirements as unenforceable.
The speaker also familiarized the audience with other relevant judicial practice of the judicial chamber for consideration of bankruptcy cases of the Commercial Court of Cassation as part of the Supreme Court.
Vasyl Krat gave a speech "Protection of creditor's rights
during inheritance: problematic issues and judicial practice".
He noted that the creditor is not a participant in inheritance relations, however, in certain situations, such relations affect the ability of the creditor to satisfy his interests by either receiving funds or levying a foreclosure on inherited property.
Vasyl Krat cited the actual practice of the Supreme Court on this issue.
The opening of inheritance is understood as the occurrence of certain legal facts that lead to the emergence of inheritance legal relations (decision of the Joint Chamber of the Supreme Court of Ukraine dated May 24, 2021 in case No. 671/22/19). At the same time, as a legal fact, the discovery of inheritance is characterized by two parameters: the time of discovery and the place of discovery. The speaker emphasized that the first parameter plays an important role, because at the time of the opening of the heritage, the following are determined, in particular: the composition of the heritage; circle of heirs; substantive law that will apply to inheritance relations. "Please note that it is the opening of the inheritance that determines everything related to the inheritance from the point of view of substantive law," said the judge.
He also said that in the legal systems of some countries there is such a structure: when the heirs did not accept the inheritance, but there is an inheritance, the inheritance will be responsible. There is no such norm in the Ukrainian substantive law. However, part 3 of Art. 30 of the Code of Criminal Procedure of Ukraine stipulates that the claims of creditors of the testator, which are submitted before the acceptance of the inheritance by the heirs, are presented according to the location of the inherited property. The existence of this case of determining exclusive jurisdiction is hardly justified, since Ukrainian legislation does not provide for such a legal structure as the filing of a claim against the inheritance. Therefore, Vasyl Krat believes that this issue should be resolved during the recodification of civil legislation. He added that the creditor is interested in the inheritance and, by and large, the person of the heir is not important to him.
In the resolution of the Supreme Court of Ukraine dated October 23, 2019, in case No. 676/1868/19, the question of exclusive jurisdiction of the dispute regarding debt recovery from the heir was raised. The Court of Cassation noted that Part 3 of Art. 30 of the Code of Criminal Procedure of Ukraine in such a case is not applicable, since this rule applies only when the heirs have not yet accepted the inheritance, instead, the case materials testify to the acceptance of the inheritance by the defendants.
The judge of the CCS of the Supreme Court emphasized that the specificity is characterized by the replacement of the debtor during inheritance, since in this case there is a transfer of rights and obligations from the testator to the heir(s), which, obviously, does not depend on the will of the creditor. Therefore, during inheritance, the debtor is replaced not as a result of the transfer of the debt (Part 1 of Article 520 of the Civil Code of Ukraine), but as a result of universal legal succession (Article 1216 of the Civil Code of Ukraine). Of course, at the stage of succession, even a priori, the question of obtaining the consent of the creditor cannot arise, both when transferring the debt and when obtaining the prior consent of the mortgagor (mortgagor) to secure obligations for the new debtor. On the other hand, when reorganizing a legal entity, since this process is long in time, it is obvious that there is an opportunity to obtain from the mortgagor (mortgagor) prior approval to secure obligations for the new debtor. It is hardly reasonable to interpret according to which the rules of Part 1 of Art. 523 of the Civil Code of Ukraine on the presence / absence of consent from the mortgagor (mortgagor) to ensure the obligations of the new debtor during debt transfer, reorganization and inheritance.
The speaker drew attention to the decision of the OP of the Central Committee of the Supreme Court dated May 23, 2022 in case No. 570/3891/14, by which the case was referred to the Supreme Court of Appeal.
The decision is motivated by the fact that courts of cassation instance apply Part 1 of Art. 523 of the Civil Code of Ukraine. OP KCS VS believes that the most reasonable interpretation of this rule is that it regulates cases of replacement of the debtor during the transfer of debt, reorganization, since these cases of legal succession allow for the possibility of obtaining prior consent from the mortgagor (mortgagor) to secure obligations for the new debtor. As a result, Part 1 of Art. 523 of the Civil Code of Ukraine does not apply to cases of replacement of the debtor during inheritance. Under such circumstances, this norm does not apply to relationships that arise upon the death of the debtor and succession.
Vasyl Krat cited the resolution of the Supreme Administrative Court of Ukraine dated June 13, 2018 in case No. 758/8549/15-ts, which states that the previous version of Art. 1281 of the Civil Code of Ukraine did not establish the procedure for the creditor to submit claims to the debtor's heirs. Claims can be made both directly to the heir and through a notary public (especially when the heirs are unknown and have not accepted the inheritance).
The speaker also raised the issue of foreclosure on the collateral from the heirs as a means of protection. In the resolution of the Supreme Court of Ukraine dated November 13, 2022, in case No. 645/6151/15-ts, it is stated that Art. 1281 of the Civil Code of Ukraine stipulates the duty of the heirs to notify the creditor of the testator about the opening of the inheritance, this article establishes the terms for the creditor to present a claim to the heir, etc. And in para. 2 Art. 1282 of the Civil Code of Ukraine stipulates that in the event of the heir's refusal to satisfy the claim, the court, at the creditor's claim, will levy a levy on the property that was transferred to the heirs in kind.
The provisions of the specified articles contain only a special, additional by its legal nature way of protecting the civil rights and interests of the creditor of the testator in case the heirs do not fulfill his requirements. At the same time, the methods of foreclosure on property have not been specified, and the possibility of foreclosure on property received by heirs by recognition of the creditor's ownership is not provided for. Instead, the duty of the court, in the event of a corresponding lawsuit, is established to foreclose on the property that was transferred to the heirs in kind.
In addition, the speaker said that the CSC of the Supreme Court sent the case regarding the application of Articles 1281, 1282 of the Civil Code of Ukraine at the stage of enforcement of the court decision (resolution of the CSC of the Supreme Court of January 19, 2022 in case No. 523/2357/20) to the Supreme Court of the Supreme Court.
The panel of judges of the Supreme Court of the Supreme Court asked the following questions:
Is procedural succession possible in enforcement proceedings in the event of the debtor's death?
Do the provisions of Articles 1281 and 1282 of the Civil Code of Ukraine apply at the stage of enforcement of a court decision?
What is the procedure for applying Art. 1282 of the Civil Code of Ukraine regarding the determination of the limits of the heirs' liability and the procedure for meeting the debt collector's requirements at the stage of enforcement of the court's decision?
Oleksandr Banaska's presentation – https://cutt.ly/AVQzITF .
Vasyl Krat's presentation – https://cutt.ly/FVQfWWd .