At the end of April 2019, the President of Ukraine signed the Code of Ukraine on Bankruptcy Procedures (the "Code"). The Code sets out a new legislative framework for bankruptcy proceedings in Ukraine (except for Ukrainian banks, which have their own banking resolution regulation) and it becomes effective on October 21, 2019. The most important changes are explained below.
- Conditions for starting bankruptcy proceedings by the creditor changed
In order for the creditor to start bankruptcy proceedings, it should justify in court that (a) the debtor is unable to satisfy the due claim (of whatever amount; either monetary or property) in full, and (b) there is no dispute over the claim between the debtor and the creditor that should be resolved in court. Former formal requirements in this regards are cancelled.
Secured creditors are allowed to initiate bankruptcy proceedings. Also, creditors are allowed to submit a joint petition for a debtor's bankruptcy.
- Directors' joint and several liability
The debtor is obliged to apply to the court for bankruptcy within one month if the satisfaction of a monetary claim by at least one creditor will result in the inability of the debtor to satisfy the monetary claims of the other creditors in full. If the debtor fails to do so, its director may be subject to joint and several liability under creditors' claims in the course of the bankruptcy.
- Hardening period extended
The hardening period (i.e., the period before the start of the bankruptcy during which a debtor's transactions may be challenged by creditors or the insolvency manager appointed by the court) is increased from one to three years.
Certain debtor's transactions during the hardening period, specified in the Code, may be challenged if they caused damages to creditors or the bankrupt debtor.
- Related parties
Rights of creditors that are related parties to the debtor under bankruptcy are limited in certain respects. For example, related party creditors' claims may not take part in voting for pre-bankruptcy rehabilitation. Nevertheless, such creditors may participate in all-creditors' meetings (creditors' committee) with the same rights as non-related creditors. Related creditors' rights would likewise have the same priority ranking as non-related creditors' claims.
All debtor's transactions with related parties are subject to hardening period rules.
- Claims priority ranking
As previously, claims of scheduled creditors (i.e., unsecured creditors, claims of which became due prior to the bankruptcy proceedings starting) are ranked fourth in priority.
Scheduled creditors that failed to submit their claims within the 30-day period will also have fourth priority ranking (previously they had sixth priority ranking). Such claims, however, won't have any voting rights at all-creditors' meetings.
- Bankruptcy procedure for individuals
The Code introduces the long-awaited procedure for the bankruptcy of individuals. Its certain specific features:
- Bankruptcy proceedings against debtor-individuals can only be initiated by the debtor
- The procedures applicable to the
- Debt restructuring (entails debt rescheduling, debt write-off and other measures aimed at restoring the financial solvency of the debtor); and
- Debt repayment (the procedure entails the sale of the debtor's assets and satisfaction of creditors' claims).
The decision on which procedure to apply is decided by the creditors' committee.
- All claims not satisfied in the course of the debt repayment procedure are deemed terminated with some exceptions.
- An individual who was declared bankrupt may not initiate new bankruptcy proceedings within the next five years and may not be considered as a person with "perfect business reputation" for the next three years.
- Moratorium on enforcement of mortgage-backed FX loans to individuals is cancelled
The Code cancels the moratorium on enforcement of foreign currency mortgage loan agreements with individuals as of October 21, 2020. At the same time, the Code's interim provisions provide that debts under FX mortgage loans of individuals should be restructured under the Code's debt restructuring procedure.
Dentons' Kyiv office is considering arranging a round table to discuss the changes in the Code with market representatives and judges.
Source: The Code of Ukraine On Bankruptcy Procedures dated October 18, 2018.
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