The Code of Ukraine on Bankruptcy Procedures came into force on 21 October 2019 (further referred to as the Code), it introduces material changes and improves bankruptcy procedure in Ukraine.
First of all let’s have a closer look at the changes in the bankruptcy sphere, which will be used after entry into force of the Code, in comparison with the Law of Ukraine “On Restoring Debtor Solvency or Declaring a Debtor Bankrupt” , in particular:
- The law, which regulated bankruptcy, became the Code;
- The creditors do not need the evidence of incontestability of their requirements any more, and their amount for commencement of bankruptcy proceedings is not regulated, earlier there was a minimum requirement — not less than 300 minimum salaries);
- Now there is an obligation to submit evidence of debtor’s insolvency and prepay remuneration to the bankruptcy commissioner in the amount of three minimum salaries for three month of fulfillment of his/her obligations (earlier the bankruptcy commissioner had right to demand payment of remuneration on the last day of each calendar month when he/she acted as a debtor’s asset manager);
- Failure to submit claims within 30 days does not deprive the creditor of the bankruptcy creditor status, as it was in the past, but deprives them of the right to vote at the meeting and committee of the creditors, meaning that such creditors have only an advisory vote.
- The creditors, who failed to submit claims, get into the forth category of the creditors, and not into the sixth one;
- The Code has canceled an opportunity to transfer to the bankruptcy procedure from the voluntary liquidation procedure;
- Earlier the contract was considered material, if the book value exceeded 1 per cent of the cost of debtor’s assets as of the day when the contract is executed. The new Code stipulates that the market value shall be 10 or more per cent of the value of debtor’s assets according to the results of the last annual financial reports;
- The new period is set, within which the creditor can declare the debtor’s contracts invalid — three years instead of one year, as it was provided for in the Law of Ukraine “On Restoring Debtor Solvency or Declaring a Debtor Bankrupt “;
- The time of financial recovery has also changed. The new Code does not provide for the time of the financial recovery, it is set by the plan of the recovery. Currently the time of the financial recovery cannot exceed 12 months;
- Taking into account previous practice of sale of the debtor’s property via offline auctions, organized with limited access, where the assets were purchased very cheap, the Code stipulates that the property shall be sold in the electronic trading system, working procedure of which is approved by the Cabinet of Ministers of Ukraine.
But the most significant change, made by the new Code, is introduction of bankruptcy procedure for natural persons and individual entrepreneurs. In particular it is stipulated that the proceedings relating to insolvency of the debtor, being an individual entrepreneur or natural person, can be opened only at the debtor’s request, provided that:
- The amount of overdue liabilities to creditor(-s) is at least 30 minimum salaries;
- The debtor has stopped repayment of credits or performance of all planned payments in the amount exceeding 50% of monthly payments for each credit or other liability for two months;
- There is a court regulation that the natural person does not have the property which can be confiscated;
- There are circumstances, which confirm that in the nearest future the debtor will not be able to fulfill financial obligations or perform ordinary payments (and threat of insolvency),
Bankruptcy procedure for natural persons finishes with the approval by the Economic Court of the resolution about release of the debtor – natural person from the liabilities, but as a result the natural person cannot be considered a person with impeccable business reputation during three years after being declared a bankrupt.
Also it shall be mentioned that after entry into force of the Code, the bankruptcy cases shall be considered according to the norms of the Code, irrespective of the date when they were opened. Meanwhile the bankruptcy proceedings, which are at the financial recovery stage, shall continue according to the Law of Ukraine “On Restoring Debtor Solvency or Declaring a Debtor Bankrupt “.
Taking into account the above mentioned information, we shall state that approval of the Code on Bankruptcy Procedures shall ensure significant increase in efficiency of bankruptcy procedures in Ukraine and promote attraction of additional foreign investment into the Ukrainian economy.
Maksym Leschynskyi, Senior Lawyer
Yaroslav Tymoschuk, Lawyer