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01.07.2022

The conditions for opening bankruptcy proceedings for the period of martial law will be simplified

In Ukraine, bankruptcy procedures can be applied to insolvent debtors not only in relation to business entities, but also in relation to natural persons – ordinary citizens. The range of such procedures for restoring solvency or liquidation (for business entities) or debt relief (for individuals) is quite wide. Thus, the provisions of the Code of Ukraine on Bankruptcy Procedures (hereinafter – the Code) provide for the application of the following bankruptcy procedures to debtors:

  • disposal of the debtor's property,
  • rehabilitation of the debtor,
  • bankruptcy liquidation,
  • restructuring of the debtor's debts,
  • repayment of the debtor's debts.

Unfortunately, due to the full-scale armed aggression of the Russian Federation, all citizens and business entities in Ukraine are experiencing negative consequences, which lead to the presence of some signs of insolvency or become a consequence of their insolvency. For business entities, the war made it difficult or impossible to carry out economic activities, make settlements with counterparties, and fulfill obligations. However, bankruptcy procedures are a tool not only for liquidation and exit from the market (for business entities) or sale of all property and relief from debts (for an individual), but also an effective mechanism for improving the financial and economic situation and restoring solvency, – this was noted by the Deputy Minister of Justice of Ukraine, Valeriya Kolomiets, during the round table "Bankruptcy on Military Rails".

Thus, the Code provides for a significant list of measures that can be provided in the rehabilitation plan. For example: postponement, installments or forgiveness of debt, restructuring of the enterprise, repurposing of production and/or changes in the production structure of the debtor, etc.

According to Valeriya Kolomiets, it is precisely for this reason that, in order to ensure the possibility of using the mentioned measures, the opening of a bankruptcy case should take place as early as possible, after signs of insolvency or its onset have been detected.

In order to open bankruptcy proceedings, a creditor or a debtor must submit an appropriate application to the commercial court in writing, which must contain a statement of the circumstances that are the basis for applying to the court. At the same time, it is worth reminding that the debtor is exempted from paying the court fee for such an appeal in order to simplify the bankruptcy procedures for him. The statement shall include, in particular, evidence of the threat of insolvency, the debtor's balance sheet as of the last reporting date, a list of the debtor's creditors whose claims are recognized by the debtor, and other documents confirming the debtor's insolvency.

"The current list of requirements for the application of a debtor who wishes to open bankruptcy proceedings is flexible enough to take into account any circumstances that may result in insolvency. It is quite clear that if the debtor lost property, business, or otherwise suffered from the full-scale armed aggression of the Russian Federation, then these are the circumstances that are a consequence of the debtor's insolvency. However, the final decision regarding the recognition of such circumstances as sufficient grounds for the opening of bankruptcy proceedings belongs to the relevant commercial court," said Vladyslav Filatov, Director of the Bankruptcy Department of the Ministry of Justice of Ukraine.

At the same time, the officials of the Ministry of Justice say, to date, the legislation does not provide a direct norm for entering the bankruptcy procedure for those who lost their business or housing in connection with the war. However, work on improving bankruptcy legislation in this direction is currently ongoing.

Thus, in order to preserve the stability of economic relations in Ukraine and to fully use the possibilities of the Code in conditions of martial law and within 6 months from the date of its termination or cancellation, the Ministry joined the development of the draft Law of Ukraine " On Amendments to the Code of Ukraine on Bankruptcy Procedures on the Application of Bankruptcy Procedures in period of martial law ", which was registered on 07.06.2022 under (reg. No. 7442). The purpose and task of this draft law is to simplify the access of business entities that became insolvent due to the full-scale armed aggression of the Russian Federation to court bankruptcy procedures and to increase the effectiveness of their application in the conditions of war and post-war conditions.

"The draft law provides that a bankruptcy case can be opened at the request of the debtor, if the conduct of hostilities has led to his insolvency, without making an advance payment to the arbitration manager to the court's deposit account. At the same time, the debtor must conclude an agreement with the arbitration administrator on the latter's performance of powers in the case of bankruptcy (insolvency) until its closure with the payment of the arbitration administrator's fee under the conditions specified by such an agreement," Vladyslav Filatov explained.

"Also, the draft law provides for compensatory and additional mechanisms that will allow more effective application of bankruptcy court procedures. In particular, regarding the time of consideration of the case and the amount of funds received by creditors. For example, a tool for obtaining the necessary information by the arbitration manager is being introduced – a request from the arbitration manager, the imposition of a seizure is ensured to ensure the demands of creditors," Valeriya Kolomiets said.

Additionally, it is worth noting that the state is still working on compensation mechanisms for damaged or destroyed objects. So, for example, on April 1, 2022, the Verkhovna Rada of Ukraine adopted as a basis the draft Law "On compensation for damage and destruction of certain categories of immovable property as a result of hostilities, acts of terrorism, sabotage caused by the military aggression of the Russian Federation " (Register No. 7198) . It is currently being prepared for a second reading.

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