Restructuring and Insolvency in Ukraine 2020

GENERAL

Legislation

1. What main legislation is applicable to insolvencies and reorganisations?

The principal act governing bankruptcies in Ukraine is the Law of Ukraine on Restoration of Debtor’s Solvency or Declaration of Bankruptcy, dated 22 December 2011 (the Bankruptcy Law), as amended, which contains provisions with respect to insolvency proceedings. Starting from 21 October 2019, the newly adopted Code of Ukraine on Bankruptcy Procedures will replace the Bankruptcy law currently in force. Another important act, which regulates different court procedures, including general procedural issues regarding insolvency, is the Commercial Procedural Code of Ukraine, dated 3 October 2017, as amended. The subsidiary pieces of legislation relating to insolvency in Ukraine are contained in the following acts:

• the Commercial Code of Ukraine dated 16 January 2003;
• the Civil Code of Ukraine dated 16 January 2003;
• the Law of Ukraine on Introduction of Moratorium on the Forcible Sale of Property dated 29 November 2001;
• the Law of Ukraine on Banks and Banking dated 7 December 2000;
• the Law of Ukraine on Financial Rehabilitation dated 14 June 2016;
• the Law of Ukraine on Holding Companies in Ukraine dated 15 March 2006;
• the Law of Ukraine on Insurance dated 7 March 1996; and
• the Law of Ukraine on the System of Guaranteeing Natural Person Deposits dated 23 February 2012.

Excluded entities and excluded assets

2. What entities are excluded from customary insolvency or reorganisation proceedings and what legislation applies to them? What assets are excluded or exempt from claims of creditors?

Basically, bankruptcy proceedings in Ukraine apply to all legal entities carrying out entrepreneurial activities as well as individual entrepreneurs. Meanwhile, the Bankruptcy Law prescribes that bankruptcy proceedings cannot be initiated against individual entrepreneurs whose monetary obligations are of a personal nature and have no connection with the business activities of the person, or against autonomous structural divisions of a legal entity (branches, representative offices, subdivisions, etc). Bankruptcy legislation does not contain provisions with respect to the bankruptcy of individuals that are not entrepreneurs. Moreover, the Commercial Code of Ukraine provides that bankruptcy procedures do not apply to the following entities:

• state enterprises (operating state-owned assets);
• legal entities owned by the local community and registered as unitary enterprises in accordance with the decision adopted by the plenary session of the relevant local government; or
• non-profit organisations - political parties, trade unions, and social and religious organisations.

It is worth mentioning that the new Code of Ukraine on Bankruptcy Procedures will come into force on 21 October 2019 and will introduce the bankruptcy procedure for individuals that are not entrepreneurs (see question 59).

The Bankruptcy Law provides special treatment for legal entities that are owned by the state. Thus, there is a prohibition on initiating bankruptcy proceedings against state-owned companies in any particular industry that are set up by the laws. For example, the amendment to the Bankruptcy Law dated 13 January 2016 prohibits the commencement of bankruptcy proceedings against state enterprises that undergo the privatisation procedure until one year passed after the end of the privatisation procedure.

According to Ukrainian law, assets that are covered by the moratorium envisaged by the Law of Ukraine on the Introduction of a Moratorium on the Forcible Sale of Property are excluded from bankruptcy proceedings:

• assets owned by the state enterprises; and
• assets owned by the business entities in whose authorised capital the state holds a stake of no less than 25 per cent.

It is even prohibited for a legal entity from the aggressor state, the occupying state or a legal entity with foreign investments or a foreign entity from the aggressor state or the occupying state (currently it applies only to the Russian Federation) to initiate bankruptcy proceedings against enterprises of the defence industrial complex, which are included in the list of state-owned objects of strategic importance to the economy and security of the state.

If the debtor is recognised as a bankrupt person whose assets are covered by the above-mentioned moratorium, its assets cannot be included in the bankruptcy estate and forcibly sold. However, the moratorium does not apply in the following situations:

• the alienation of assets through selling the debtor's assets as an integral property complex in the course of a financial rehabilitation procedure;
• the sale of part of the debtor's assets in the course of a financial rehabilitation procedure;
• the exchange of the creditors' claims for the debtor's assets or corporate rights under the terms of an amicable agreement; or
• the debt needs to be seized in favour of national joint-stock company Naftogaz Ukraine, the company supplying natural gas.

The Bankruptcy Law states specific rules on the insolvency of insurance companies, agricultural enterprises, fundamental and especially dangerous enterprises, participants of stocks and bonds market. The Law of Ukraine on the Household Deposit Guarantee System dated 23 February 2012 also provides special regulations regarding the insolvency of banks (see question 4).

Public enterprises

3. What procedures are followed in the insolvency of a government-owned enterprise? What remedies do creditors of insolvent public enterprises have?

The Bankruptcy law provides the special procedure regarding the insolvency of government-owned enterprises or enterprises with more than 50 per cent of their assets owned by the state. These enterprises may be subject to financial rehabilitation, amicable agreement or liquidation. The financial rehabilitation or liquidation of enterprises that are not subject to privatisation is possible only after the exclusion of the enterprise from this list. On the exclusion of assets from claims of creditors, see also question 2.

The government may decide to avoid bankruptcy by means of state aid, or adopt other measures aiming to protect state interests. The body authorised to manage state property controls the bankruptcy procedure from the start of proceedings, has a right of advisory vote at the meeting of creditors, approves the financial rehabilitation plan, amicable agreement and lists of liquidation masses. The commencement of the bankruptcy procedure does not prevent the body authorised to manage state property from executing its competence towards the enterprise. The property left after the satisfaction of creditors' claims transfers to the body responsible for privatisation.

Protection for large financial institutions

4. Has your country enacted legislation to deal with the financial difficulties of institutions that are considered ‘too big to fail'?

While the Bankruptcy Law does not provide any special treatment for the institutions that are considered ‘too big to fail', Ukrainian banking legislation contains provisions aimed at preventing the bankruptcy of banks. In particular, the Law of Ukraine on the Household Deposit Guarantee System dated 23 February 2012 envisages that the Deposit Guarantee Fund (the DGF) introduces a temporary administration in an insolvent bank upon this decision of the National Bank of Ukraine (the NBU) on the classification of a bank as insolvent. The main goals of the introduction of temporary administration are to protect the interests of creditors and depositors, the preservation of capital and assets, stabilisation of the bank's operations and financial restoration of the bank. Temporary administration can be implemented for up to one month and extended for another month. The temporary administrator of an insolvent bank and its liquidator (except for cases when the bank is being liquidated under its founder's decision) will be the DGF, with the temporary administration being exercised by an authorised DGF officer.

For the duration of the temporary administration:

• the claims of depositors and other creditors of the bank will not be satisfied;
• no enforcement against the bank's assets may occur;
• no default interest or any other penalties or sanction for non-performance or improper performance of the bank's obligations may be charged;
• set-off may not be performed; and
• interest on the bank's obligations to depositors and creditors does not accrue.

If the implementation of the temporary administration does not lead to stabilisation of the bank's operations and restoration of the bank's solvency, the DGF, upon a decision of the NBU to withdraw a banking licence and liquidate a bank, may commence the liquidation procedure.

Courts and appeals

5. What courts are involved? What are the rights of appeal from court orders? Does an appellant have an automatic right of appeal or must it obtain permission? Is there a requirement to post security to proceed with an appeal?

According to Ukrainian law, insolvency cases are considered by the commercial court whose jurisdiction covers the location in which the debtor has its registered office.

Ukrainian legislation does not contain any restrictions on the commercial courts regarding matters arising from bankruptcy cases, so they will have jurisdiction to deal with all bankruptcy-related matters. Moreover, all monetary claims against the debtor are also currently dealt with by the commercial courts.

At the same time, the courts of general jurisdiction consider criminal cases with respect to bankruptcy; for instance, criminal cases against individual CEOs, members of management boards or founders (participants, shareholders) of the legal entity under charges of deliberate insolvency. Cases relating to administrative liability for fraudulent bankruptcy, illegal actions during bankruptcy and concealing permanent insolvency are also considered by courts of general jurisdiction.

Almost all court orders and decisions are amenable to appellate and cassation review, except the order on taking into consideration the application to confirm the financial rehabilitation plan before the beginning of the bankruptcy procedure. An appellant does not need to obtain permission to ask for a reviewal. Ukrainian law does not require the posting of security to proceed with an appeal.

From 21 October 2019 judicial review at the cassation stage will be limited in the bankruptcy proceedings (see question 59).

TYPES OF LIQUIDATION AND REORGANISATION PROCESSES

Voluntary liquidations

6. What are the requirements for a debtor commencing a voluntary liquidation case and what are the effects?

Voluntary liquidation is not a matter for the legislation dealing with bankruptcy. According to the general principle of civil legislation and special laws regulating activities or particular types of commercial entities (for instance, the Law of Ukraine on Joint-Stock Companies dated 17 September 2008) a legal entity may be liquidated under a decision of its principal body (for instance, a general meeting of shareholders or participants where such a body exists) at any time (see also question 30).

At the same time, the Bankruptcy Law envisages that if the debtor (its liquidation committee) finds in the course of voluntary liquidation of the debtor that the assets of the debtor are not sufficient to satisfy the claims of all creditors, the debtor is obliged to file an application for the commencement of a bankruptcy proceeding to the relevant commercial court. In this case, the bankruptcy proceeding starts from liquidation stage (the administration of assets and financial rehabilitation are not applicable in such cases).

Voluntary reorganisations

7. What are the requirements for a debtor commencing a voluntary reorganisation and what are the effects?

Under the corporate legislation of Ukraine, the term ‘reorganisation' means a process of merger, consolidation, split-up and transformation of a company for the purpose of making it more profitable, better organised, or changing the ownership structure of the company. Sometimes the owners (members or founders) of the company decide to reorganise the company to deal with financial troubles and avoid insolvency. According to the general rule envisaged by corporate legislation, reorganisation of a company is provided by a decision by its members or founders, and in cases stipulated by law, by court order. In addition, the Antimonopoly Committee of Ukraine may take a decision on the involuntary reorganisation of the company by means of split-up. It is applicable in the event of abuse of a dominant market position by the company. Thus, creditors cannot initiate the involuntary reorganisation of the company in the course of the corporate reorganisation of the company.

During insolvency proceedings under Ukrainian law, the term ‘reorganisation' is similar to the procedure that is called ‘financial rehabilitation' of the debtor (insolvent company). The main goal of financial rehabilitation of the debtor is the restoration of the debtor's solvency and its avoidance of bankruptcy.

The Bankruptcy Law provides that the debtor (as well as creditors) may initiate a pre-trial financial rehabilitation (ie, rehabilitation of the debtor prior to the commencement of bankruptcy proceedings). The agreement between the debtor and creditors in terms of a pre-trial rehabilitation can be achieved before the debtor becomes insolvent and entails certain financial obligations for the debtor.

The criteria for commencement of the pre-trial rehabilitation procedure are as follows:

• written consent of the debtor's owner or agency authorised to administer the debtor's assets;
• written consent of the creditors whose total claims exceed 50 per cent of the debtor's accounts payable according to the debtor's accounts and records; and
• a rehabilitation plan agreed upon by all of the secured creditors and approved by the general meeting of the debtor's creditors.

Upon approval of the rehabilitation plan, the debtor or the creditors' representatives will, within five days of the date of approval of the rehabilitation plan, file an application for its approval, together with all the necessary documents, to the commercial court at the debtor's location. The application must be considered by the court within one month, at which time it will pass a ruling either approving or rejecting the rehabilitation plan. If a ruling rejecting the debtor's rehabilitation plan is passed by the court, this neither prevents the reapproval of this plan by the general meeting of creditors nor prevents the debtor from filing another application for approval of the rehabilitation plan to the court.

The period provided for the pre-trial rehabilitation procedure is up to 12 months. This procedure precludes initiation of any bankruptcy case regarding the debtor upon this debtor's application or upon application of any of its creditors. A moratorium preventing satisfaction of creditors' claims also applies in this period (this moratorium covering creditors' claims raised before the approval of the rehabilitation plan).

Successful reorganisations

8. How are creditors classified for purposes of a reorganisation plan and how is the plan approved? Can a reorganisation plan release non-debtor parties from liability, and, if so, in what circumstances?

The preparation of a rehabilitation plan is aimed at the restoration of the debtor's solvency within the period specified in the rehabilitation plan. In order for the rehabilitation plan to become effective, it must first be approved by the creditors' committee, and after that by the court. If the rehabilitation plan is not submitted to the court within six months of the date of the court ruling on commencement of the financial rehabilitation procedure, the court is entitled to declare the debtor bankrupt and commence liquidation proceedings in respect of the debtor.

The Bankruptcy Law classifies creditors into categories depending on the type of claims and the existence of collateral. Moreover, the rank (priority) of the creditors' claims may be determined in the rehabilitation plan depending on different categories of the creditors.

The Bankruptcy Law does not provide for release of the non-debtor parties from liability.

Involuntary liquidations

9. What are the requirements for creditors placing a debtor into involuntary liquidation and what are the effects? Once the proceeding is opened, are there material differences to proceedings opened voluntarily?

Under the Bankruptcy Law, three options are available to creditors for placing a debtor into involuntary liquidation:

• the initiation of the general bankruptcy procedure;
• the initiation of the special bankruptcy procedure; or
• the initiation of the simplified bankruptcy procedure.

The ‘individual approach' is aimed at the optimisation of the efficiency of the bankruptcy proceedings in accordance with their expense and duration. The Bankruptcy Law prescribes that in determining the appropriate bankruptcy procedure, the category of debtor, type of business activities and any possession of property should be taken into account. It is worth noting that the Bankruptcy Law does not provide the categories of debtor or indicate the type of business activities and the amount of assets to which special or simplified procedure may be applied, so the Ukrainian commercial courts will have to decide the type of procedure to apply to each debtor on a case-by-case basis.

General bankruptcy procedure

A creditor may commence bankruptcy or insolvency proceedings against a debtor if:

• its claim is not fully secured by a pledge or mortgage;
• its claim is monetary (deals with the recovery of money from the debtor, but not the vindication of property from the debtor) and indisputable (claims are admitted by the debtor, or supported by a court decision and an enforcement order or notary writ);
• its claim has not been repaid by the debtor within three months of the date of initiation of the enforcement procedure; and
• the total amount of the claim is not less than 300 times the statutory minimum wage.

In light of the adoption of the Code of Ukraine on Bankruptcy Procedures, from 21 October 2019 the requirements for the commencement of insolvency proceedings will be softened (ie, indisputability and minimal amount of the claim requirements will be abandoned) (see question 59).

If a creditor's claim meets the above-mentioned requirements, the commercial court, based on the creditor's application, shall commence bankruptcy proceedings. In the course of the general bankruptcy proceedings, the court is entitled to apply the following procedures to the debtor:

• administration of assets;
• financial rehabilitation;
• liquidation; and
• amicable agreement.

Administration of assets

Administration of assets is the first stage of bankruptcy proceedings, the main goal of which is protection of the debtor's assets from unreasonable disposal and the formation of the creditors' committee that is authorised to decide on further insolvency steps (see question 34). At this stage of the bankruptcy proceedings, an asset manager is appointed by a court ruling. The main functions of the asset manager are to maintain the debtor's assets, to identify the debtor's creditors and to convene the creditors' meetings and creditors' committee meetings.

During the assets administration procedure, the moratorium on the satisfaction of the creditors' claims continues to operate (see question 22).

Administration of assets may be applied for up to 115 days; this term may be extended for no more than two months by the court at the request of the creditors' committee, debtor or the asset manager.

Financial rehabilitation

During the assets administration procedure, if the creditors' committee considers that the debtor's solvency can be restored, it may take the decision to file a motion to the court for the commencement of a financial rehabilitation procedure (see question 10).

Liquidation

If the financial rehabilitation procedure does not lead to the restoration of the debtor's solvency, the court, upon the application of the creditors' committee, may commence the liquidation procedure. The main goal of the liquidation procedure is to sell the debtor's assets, to distribute collected funds to creditors and to wind up the legal entity. The liquidation procedure may last for no more than 12 months and this term cannot be extended.

At the stage of the liquidation procedure, the court appoints a liquidator, who must accumulate the debtor's assets into the liquidation estate and make orderly satisfaction of the creditors' claims in accordance with rankings envisaged by the Bankruptcy Law (see question 39). After all distributions of proceeds from the disposal of the debtor's assets have been made, the liquidator must submit its report and liquidation balance sheet to the court, whereupon the court shall pass a resolution on approval of the liquidator's report and the liquidation balance sheet. If, according to the liquidation balance sheet, no property remains after the satisfaction of the creditors' claims, the court shall pass the resolution on the liquidation of the bankrupt legal entity. The liquidation proceedings end with the removal of the bankrupt from the Unified State Register.

Amicable agreements

Under the Bankruptcy Law, an amicable agreement may be concluded at any stage of the bankruptcy proceedings.

An amicable agreement is entered into upon the decision of the creditors' committee on behalf of the creditors. The creditors' committee decision approving an amicable agreement is passed by the majority of creditors' committee members' votes provided that all the secured creditors have consented in writing. On the part of the debtor, the decision on the amicable agreement is passed by the debtor's management or the insolvency administrator. Amicable agreements entered by the creditors and the debtor should first be approved by the secured creditors, after which it must be approved by the commercial court. By the ruling approving the amicable agreement, the commercial court simultaneously terminates the bankruptcy proceedings.

From 21 October 2019, as a result of the adoption of the Code of Ukraine on Bankruptcy Procedures, conclusion of amicable agreements will become impossible (see question 59).

Special bankruptcy proceeding

Special bankruptcy proceedings involve additional participants in a case, prolonging terms of the debtors' rehabilitation, and coordinating the administration of assets and financial rehabilitation procedures. They are mainly used for city-forming enterprises, extremely dangerous enterprises (eg, enterprises dealing with coal, mineral resources, nuclear power, chemicals and metallurgy, oil refining and other industries, determined by corresponding decisions of the Cabinet of Ministers of Ukraine), agricultural and farm enterprises, insurance companies, professional participants of the securities market and collective investment institutions, and trustees of mortgage certificates, of construction financing funds or real estate activities funds. Specific features of the bankruptcy procedure for such enterprises include special terms and conditions of the bankruptcy proceedings, a special list of priorities for the satisfaction of creditors' claims, extension of the term of the bankruptcy proceedings, special sale procedures, and restrictions on attachment of the debtor's assets.

Simplified bankruptcy proceeding

The simplified bankruptcy proceeding is applied to debtors liquidated by their owners. A simplified bankruptcy proceeding is commenced with the liquidation procedure but does not include administration of assets and financial rehabilitation procedures. The effects of the commencement of the liquidation procedure during simplified bankruptcy proceedings are similar to those in the commencement of normal liquidation proceedings in the general bankruptcy procedure.

From 21 October 2019, simplified bankruptcy proceedings will no longer be an option (see question 59).

Involuntary reorganisations

10. What are the requirements for creditors commencing an involuntary reorganisation and what are the effects? Once the proceeding is opened, are there any material differences to proceedings opened voluntarily?

During the assets administration procedure, the creditors' committee may take a decision to submit to the court a motion for commencement of financial rehabilitation procedure. In addition, the creditors' committee selects a candidate to undertake the role of rehabilitation manager and files the relevant application to the court for its approval. Upon consideration of the creditors' committee's motions, the court passes a ruling on commencement of financial rehabilitation proceedings and appointment of the rehabilitation manager.

This will cause the following to happen:

• the appointment of a rehabilitation manager who undertakes the authority of debtor's director and other management bodies;
• the termination of debtor's directors' authority;
• the seizure of the debtor's assets and imposition of other restrictions on the administration of the debtor's assets; and
• the development of a rehabilitation plan and its submission to the creditors' committee for approval (after the plan has been approved by the creditors' committee, it must be approved by the court).

In the course of the financial rehabilitation proceedings, the rehabilitation manager:

• develops the rehabilitation plan, obtains consent for it from the creditors' committee and submits it to the court for approval;
• acts on behalf of the debtor;
• prepares an inventory of the debtor's assets and collects receivables; and
• may unilaterally terminate transactions of the debtor or claims for the invalidation of transactions by the debtor.

Financial rehabilitation of the debtor can last for six months and may be further extended for no more than 12 months by the court. If the financial rehabilitation is successful, the debtor is deemed reinstated and may conduct its business activities as usual.

The adoption of the Code of Ukraine on Bankruptcy Procedures will result in some changes in the rehabilitation procedure. For instance, 
the list of possible measures for the rehabilitation will be widened, the rules on approval of a rehabilitation plan will be changed, the duration of a rehabilitation will no longer be prescribed by law (see question 59).

Expedited reorganisations

11. Do procedures exist for expedited reorganisations (eg, ‘prepackaged' reorganisations)?

The Bankruptcy Law establishes the procedure for expedited reorganisation, particularly, pre-trial rehabilitation of the debtor (see question 7).

Unsuccessful reorganisations

12. How is a proposed reorganisation defeated and what is the effect of a reorganisation plan not being approved? What if the debtor fails to perform a plan?

The financial rehabilitation procedure will be defeated on the following grounds:

• if the creditors' committee fails to approve the rehabilitation plan and requests that the court declare the debtor bankrupt and commences the liquidation procedure;
• if the rehabilitation plan is not submitted to the court within six months of the date of the court ruling on commencement of the financial rehabilitation procedure;
• a decision is taken by the creditors' committee to request that the court terminate the financial rehabilitation proceedings, to declare the debtor bankrupt and to commence the liquidation proceedings, or to enter into an amicable settlement agreement;
• if the creditors' committee fails to take any decision upon consideration of the report of the rehabilitation manager or fails to submit the report to the court within 15 days of the date of termination of the financial rehabilitation proceedings; or
• if the debtor fails to satisfy the creditors' claims within the period stipulated in the rehabilitation plan and there is no creditors' committee petition to extend the financial rehabilitation proceedings or modification of the rehabilitation plan.

If the creditors' committee refuses to approve the rehabilitation plan, the consequences are as follows:

• the creditors' committee can request that the court terminate the authority of a rehabilitation manager who fails to carry out the rehabilitation plan, and appoint a new manager; and
• the creditors' committee can request that the court declare the debtor bankrupt and commence the liquidation procedure.

If the debtor fails to perform the rehabilitation plan and there is no creditors' committee petition to extend the financial rehabilitation proceedings or amend the rehabilitation plan, the court may terminate the financial rehabilitation procedure, declare the debtor bankrupt and start the liquidation procedure.

In addition, if the creditors' committee finds that the report of the rehabilitation manager on the results of the financial rehabilitation of the debtor is not satisfactory, it may also ask the court to terminate the financial rehabilitation procedure, to declare the debtor bankrupt and to commence the liquidation procedure.

Corporate procedures

13. Are there corporate procedures for the dissolution of a corporation? How do such processes contrast with bankruptcy proceedings?

A business entity may be dissolved through its reorganisation (merger, consolidation, split-up or transformation) or liquidation by a resolution of the business entity's owners or authorised bodies or by a resolution by other persons - the business entity's founders or legal successors - or, in cases stipulated by law, by a court decision. The legal entity shall be deemed terminated after the entry to this effect is made in the Unified State Register.

Reorganisation is a manner of dissolution when all property of the company together with its rights and obligations is transferred to other persons - legal successors (see question 7).

The liquidation means dissolving a company whereby, as a result of such dissolution, its rights and obligations terminate (there is no legal successor). Following the cancellation of its state registration, the company loses its legal entity status and must be struck off the state register. The business entity is deemed liquidated from the day when a respective entry is made to the state register about its dissolution. A company may be liquidated:

• by resolution of its members or its body properly authorised under its statutory documents (voluntary liquidation);
• by court decision regarding invalidation of its state registration or cancellation of its state registration in the events prescribed by law (involuntary liquidation); and
• upon its declaration as bankrupt.

If a solvent company is liquidated, the creditors' claims are satisfied in the following order:

• rank 1: claims of damage caused by injury, other health impairment or death and those creditors' claims that are secured by pledge or mortgage;
• rank 2: employment-related claims of employees and authors' claims of payments for use of intellectual property objects;
• rank 3: claims related to payment of taxes, duties (mandatory payments); and
• rank 4: all other claims.

The main distinctions between corporate liquidation and liquidation under the bankruptcy proceedings are as follows:

• bankruptcy proceedings may be initiated by creditors;
• the key role in the dissolution process in the course of the corporate liquidation is played by the bodies and officers of the company; and
• different priority orders for the satisfaction of creditors' claims.

Conclusion of case

14. How are liquidation and reorganisation cases formally concluded?

Generally, the financial rehabilitation and liquidation proceedings are concluded by the relevant court resolution after satisfaction of the creditors' claims or on the basis of the amicable agreement.

Usually, conclusion of the financial rehabilitation proceedings depends on the restoration of the debtor's solvency. If the financial rehabilitation of the debtor is successful, the debtor's solvency is deemed reinstated and it may continue its business. If the financial rehabilitation has not actually restored the debtor's solvency, the court, upon the application of the creditor's committee, may commence the liquidation proceedings. As to the extra grounds for termination of financial rehabilitation proceedings, see question 12.

Concerning the conclusion of the liquidation procedure, the following should be noted. After the commencement of the liquidation procedure, the liquidator must consolidate the debtor's assets into the liquidation estate and make orderly satisfaction of the creditors' claims in accordance with the rankings envisaged by the Bankruptcy Law. Once all distribution of proceeds from the realisation of the debtor's assets is made, the liquidator must submit to the court its report and liquidation balance, then the court passes a resolution on approval of the liquidator's report and liquidation balance sheet. If, pursuant to the liquidation balance sheet, no property remains after satisfaction of the creditors' claims, the court will pass the resolution on the liquidation of the bankrupt legal entity. Formally, the liquidation proceedings end with the removal of the bankrupt debtor from the Unified State Register.

If the debtor's assets are sufficient to satisfy all claims of the creditors, it shall be deemed free of debts and continue its business activities, and thus the bankruptcy proceedings will be terminated.

INSOLVENCY TESTS AND FILING REQUIREMENTS

Conditions for insolvency

15. I What is the test to determine if a debtor is insolvent?

Pursuant to Ukrainian law, the debtor is deemed insolvent if its debts (including wages, taxes and other compulsory payments) are permanent (the debtor has failed to fulfil obligations within three months of the date set for debt redemption) and significant (the total debt is at least 300 times the minimum wage).

The newly adopted Code of Ukraine on Bankruptcy Procedures will amend these criteria (see question 59).

Mandatory filing

16. Must companies commence insolvency proceedings in particular circumstances?

Under the Bankruptcy Law, the debtor (insolvent company) must file a bankruptcy application to the commercial court in the following circumstances:

• if the debtor finds that paying a debt will prevent it from fully meeting monetary obligations towards other creditors;
• if the debtor's body, which is authorised by law or statutory documents of the debtor to take a decision on liquidation of the debtor, decides to file the application for commencement of bankruptcy proceedings against the debtor to the court; or
• it has been established during liquidation of the debtor beyond a bankruptcy proceeding that the debtor is unable to fully satisfy creditors' claims.

DIRECTORS AND OFFICERS

Directors' liability - failure to commence proceedings and trading while insolvent

17. If proceedings are not commenced, what liability can result for directors and officers? What are the consequences for directors and officers if a company carries on business while insolvent?

The Bankruptcy Law provides that if the debtor fails in its obligation to file a bankruptcy application to the commercial court in the abovementioned circumstances, the state registration authority will refuse to make an entry in the Unified State Register that the company is in liquidation. In other words, this company cannot be liquidated except within bankruptcy proceedings. Moreover, the debtor's owner as well as the debtor's director (liquidator of the debtor) bears civil liability (solidary liability) for the unsatisfied creditors' claims. When an insolvency of an entity occurs as a result of its founders' or participants' or other persons' actions, who are capable of influencing the actions of a debtor, these persons may bear subsidiary liability.

The Code of Ukraine on administrative offences provides administrative liability for the concealing permanent insolvency; ie, when the founder (participant, shareholder) or an official of the company intentionally conceals, by means of false information, the company's financial insolvency and this causes gross material damages to the creditors.

From 21 October 2019 the debtor's owner (shareholder) will bear solidary liability with the debtor (see question 59).

Directors' liability - other sources of liability

18. Apart from failure to file for proceedings, are corporate officers and directors personally liable for their corporation's obligations? Are they liable for corporate pre-insolvency or pre-reorganisation actions? Can they be subject to sanctions for other reasons?

Ukrainian criminal and administrative legislation provides that the officials of an insolvent company bear liability for the crime and administrative offences described below. For the information regarding civil liability of corporate officers, see question 17.

Criminal liability

The Criminal Code of Ukraine provides that the founder (participant, shareholder) or the official of the company bears criminal liability (a fine equivalent to up to 51,000 hryvnas with the prohibition to occupy certain positions or engage in certain activities up to three years) for deliberate bankruptcy. Within the meaning of the criminal law, ‘deliberate bankruptcy' means determined actions of the founder (participant, shareholder) or the official of the company that have resulted in the financial insolvency of the company and caused material damage to the creditors or the state (more than 480,250 hryvnas).

The Criminal Code of Ukraine also provides with a fine up to 17,000 hryvnas or conditional imprisonment up to four years for inserting false information into accounting documents with the purpose of concealing the facts of bankruptcy of a financial institution.

Administrative liability

The Code of Ukraine on administrative offences provides administrative liability for the following offences (except those mentioned in question 17):

• fraudulent bankruptcy (ie, when the founder (participant, shareholder) or the officials of the company as well as the individual entrepreneur intentionally make an official statement of financial insolvency and this statement causes gross material damages to the creditors or the state) (a fine between 12,750 hryvnas and 34,000 hryvnas); and
• illegal actions during bankruptcy (ie, when the founder (participant, shareholder) or the official of the company against which the insolvency proceedings are commenced by the court intentionally conceals the assets, information on assets, illegally transfers the assets or disposes of them as well as forging, concealing or destroying the documents of company's business activity and such illegal actions cause gross material damage (a fine between 8,500 hryvnas and 17,000 hryvnas)).

Directors' liability - defences

19. What defences are available to directors and officers in the context of an insolvency or reorganisation?

Directors and officers enjoy the general scope of defence. In case an issue of subsidiary or solidary responsibility of directors and officers arises, they may defend themselves by claiming that their conduct has not led to the insolvency of a company.

Shift in directors' duties

20. Do the duties that directors owe to the corporation shift to the creditors when an insolvency or reorganisation proceeding is likely? When?

According to the Bankruptcy Law, before the commencement of the rehabilitation or liquidation procedure, duties of directors do not shift to the creditors. The limitation of directors' duties is enforced only after the commencement of the bankruptcy proceeding (see question 21).

Directors' powers after proceedings commence

21. What powers can directors and officers exercise after liquidation or reorganisation proceedings are commenced by, or against, their corporation?

According to the Bankruptcy Law, appointment of the asset manager is not the ground for termination of authority of debtors' administration (directors and officers). However, agreements with respect to the property of the debtor must be concluded by the administration of the debtor only upon consent of the asset manager.

Also, following the appointment of the asset manager, the debtor administration has no right without the consent of the asset manager to make decisions about:

• reorganisation and liquidation of the debtor;
• establishment of legal entities or participation in other legal entities;
• establishment of branches and representative offices;
• payment of dividends;
• issue of securities by the debtor; or
• withdrawal from the participants of debtor by legal entity, acquiring from the shareholders of the debtor's shares.

The decision to participate in the unions, associations, holding companies, financial-industrial groups or other associations of the legal entities must be adopted by the administration of the debtor only upon consent of the asset manager.

From the date of passing the ruling of court on commencement of the liquidation procedure, the authority of debtors' administration in respect to management of the bankrupt and disposal of its property are terminated, the debtors' director shall be dismissed.

MATTERS ARISING IN A LIQUIDATION OR REORGANISATION

Stays of proceedings and moratoria

22. What prohibitions against the continuation of legal proceedings or the enforcement of claims by creditors apply in liquidations and reorganisations? In what circumstances may creditors obtain relief from such prohibitions?

The Bankruptcy Law provides that immediately after commencement of bankruptcy proceedings, the court imposes a moratorium on satisfaction of the creditors' claims that had become due and payable before the bankruptcy proceeding was started.

For the period of moratorium:

• no enforcement against the debtors' assets may occur upon the enforcement documents as well as upon other documents granting creditors the right to recover debts (except for enforcement proceedings with regard to foreclosure on the pledge or mortgage collateral);
• no default interest or any other penalties or sanction for breaching any monetary obligations may be charged; and
• limitation periods stop running.

The moratorium does not apply to:

• claims against current creditors (ie, creditors whose claims become due and payable after commencement of the insolvency proceedings);
• claims against creditors approved under the financial rehabilitation plan on the restoration of the debtor's solvency;
• claims made as part of any liquidation proceedings in relation to the debtor;
• claims of salary, alimony, author's royalties and compensation for damages to the life or health of individuals; or
• set-off by creditors.

A moratorium ceases on the date of termination of the bankruptcy procedure.

The rules on the application of a moratorium regarding secured creditors will be changed because of the adoption of the Code of Ukraine on Bankruptcy Procedures (see question 59).

Doing business

23. When can the debtor carry on business during a liquidation or reorganisation? Is any special treatment given to creditors who supply goods or services after the filing? What are the roles of the creditors and the court in supervising the debtor's business activities?

According to the Bankruptcy Law, the commencement of the rehabilitation procedure in respect of the debtor does not affect the debtor's right to continue its business operations, as the law does not impose any ban on the conduct of business operations. Meanwhile, the rehabilitation plan may provide for the restructuring of the company, the reorientation of its manufacturing business or the shutdown of its unprofitable production segments, which may result in complete or partial suspension of business operations for the achievement of rehabilitation plan goals.

Creditors who deliver goods or services to the debtor after the commencement of bankruptcy proceedings have the status of current creditors. These creditors do not have special status as their claims, together with other unsecured claims of competitive creditors, are considered fourth-priority creditor claims.

Control over the debtor's business activities and over the activities of an asset or rehabilitation manager is exercised by the creditors' committee. The creditors' committee has the following powers:

• filing motions to the court for rehabilitation, recognition of the debtor's bankruptcy and commencement of liquidation proceedings;
• filing motions to the court for dismissal of the insolvency administrator (asset manager, rehabilitation manager, liquidator) and appointment of a new insolvency administrator;
• filing letters demanding that the court recognise the debtor's transactions as void;
• approving the execution of the debtor's material contracts or contracts with affiliated persons; and
• determination of the property assets in the event of the sale of the property during the course of the financial rehabilitation or liquidation procedures.

Furthermore, measures to secure creditors' claims may be taken upon request of the creditors' committee. The court may, upon request of the asset manager, creditors or on its own initiative, prohibit the execution of any transactions without the insolvency administrator's prior consent and compel the debtor to transfer securities, currency values and other property to third parties for safe custody or shall take other actions to safeguard the property, to which effect a ruling shall be passed.

To exercise control over the debtor's business activities, the court may exercise the following powers: 

• appointing and dismissing the insolvency administrator upon request of the creditors' committee;
• passing a ruling, upon request of the creditors' committee, regarding the commencement of rehabilitation proceedings, recognition of the debtor's bankruptcy and commencement of the liquidation proceedings;
• taking measures to secure creditors' claims (on its own initiative or upon request of the parties);
• removing the debtor's directors from office (under the assets administration procedure);
• considering the rehabilitation manager's report and dealing with creditors' complaints against the report;
• approving or rejecting the rehabilitation manager's report if the creditors' committee decides to terminate the rehabilitation proceedings in connection with the fulfilment of the rehabilitation plan and restoration of the debtor's solvency; and
• dealing with the complaints against any actions of participants in the proceedings.

Post-filing credit

24. May a debtor in a liquidation or reorganisation obtain secured or unsecured loans or credit? What priority is or can be given to such loans or credit?

The Bankruptcy Law provides that the debtor has the opportunity to obtain secured or unsecured loans or credit after the commencement of bankruptcy proceedings. The debtor may obtain loans or credit at any stage of the bankruptcy proceedings with some restrictions applicable at the liquidation stage that are listed below.

Meanwhile, the debtor must obtain the insolvency administrator's prior consent for lending costs.

At liquidation stage, the chances of the debtor obtaining new obligations, including borrowing money, is limited to cases expressly provided in law. Thus, according to the Bankruptcy Law, the liquidator may borrow money to satisfy employees' claims (dismissal payments) only. In the course of the liquidation procedure, the obtaining of the secured loans or credits is impossible, because after commencement of the liquidation proceedings all restrictions on the disposal of the debtor's assets are lifted to enable their further sale.

Loans received during the course of the liquidation procedure are paid out of the order of priority of the creditors' claims from the proceeds of the bankrupt's property sale. Claims that arise from the secured loans or credits are considered first-ranked creditors' claims. In contrast, claims that arise from unsecured loans or credits are considered fourth-ranked creditors' claims, as are claims that arise during assets administration proceedings or financial rehabilitation proceedings.

Sale of assets

25. In reorganisations and liquidations, what provisions apply to the sale of specific assets out of the ordinary course of business and to the sale of the entire business of the debtor? Does the purchaser acquire the assets ‘free and clear’ of claims or do some liabilities pass with the assets?

The rehabilitation plan may provide, inter alia, the sale of part of the debtor’s property or the sale of the debtor’s property as an integral property complex. For the purposes of selling the debtor’s property in accordance with the rehabilitation plan, the court issues a ruling to cancel the measures that have been applied to secure creditors’ claims. The procedure for selling the debtor’s property depends on the type of property and can be conducted by: a closed auction (in the event that the debtor’s property is subject to restrictions on its circulation); or a public auction (in other cases).

As to the sale under the liquidation procedure, the following should be noted. Prior to the sale of property under the liquidation procedure, all the debtor’s property assets are included in the liquidation estate. The liquidation estate includes:

• all types of the bankrupt person’s property assets (property and property rights) to which the bankrupt has title or over which the bankrupt person exercises full economic management as of the date of commencement of the liquidation proceedings and that have been revealed in the course of the liquidation proceedings; and
• things defined by generic features to which the bankrupt person has title or the right of use.

The liquidation estate does not include:

• housing facilities, including dormitories, pre-school facilities and utilities infrastructure facilities, which in the event of the company’s bankruptcy are transferred in the manner prescribed by law to the municipal property of respective territorial communities without any additional terms and conditions and are financed in the prescribed manner;
• individually defined objects owned by the bankrupt person on the basis of property rights, other than title of ownership and full economic management; or
• the bankrupt’s pledged property (used only to satisfy the pledgees’ claims).

In addition, if the bankrupt person’s property includes property withdrawn from circulation, the liquidator must transfer it to other persons in the prescribed manner.

The property to be foreclosed upon under the liquidation procedure is subject to assessment by the insolvency administrator in the manner prescribed by law. For this property assessment, the insolvency administrator may engage evaluators on a contractual basis. After the inventory and assessment, the liquidator starts selling the bankrupt’s property by auction or directly to legal entities or individuals.

After the court adopts the decision to declare the debtor bankrupt and commences the liquidation proceedings, the attachment imposed on the debtor’s property and any other restrictions on the disposal of such property are lifted. No new attachments or restrictions may be imposed. Thus, the buyer of the property of the debtor who has been declared bankrupt receives the property free of any restrictions or liabilities associated with the bankruptcy proceedings and with the bankrupt person’s liabilities to its creditors, except for those encumbrances that are imposed by law and remain attached to the object and that are not associated with the bankrupt person’s liabilities to the creditors (eg, servitude).

Negotiating sale of assets 

26. Does your system allow for ‘stalking horse' bids in sale procedures and does your system permit credit bidding in sales?

The applicable bankruptcy laws of Ukraine do not provide for any ‘stalking horse' bids in sale procedures, because property is sold on the basis of the results of an open auction (tender) where the sale and purchase agreement is signed with the public auction (tender) winner.

Generally, the Bankruptcy Law does not allow a creditor to acquire the debtor's property by way of setting off part of the creditor's claims against the debtor. These actions may be regarded as violating the general principles envisaged by the Bankruptcy Law relating to the impossibility of any individual satisfaction of creditors' claims and to the sequence of satisfaction of creditors' claims (see question 37).

At the same time, the terms and conditions of an amicable agreement that may be concluded at any stage of the bankruptcy procedure may provide for an exchange of the creditors' claims for the debtor's assets or corporate rights.

Rejection and disclaimer of contracts

27. Can a debtor undergoing a liquidation or reorganisation reject or disclaim an unfavourable contract? Are there contracts that may not be rejected? What procedure is followed to reject a contract and what is the effect of rejection on the other party? What happens if a debtor breaches the contract after the insolvency case is opened?

The Bankruptcy Law provides exceptions to the general rule contained in the Civil Code of Ukraine regarding the impossibility of unilateral refusal by a party to perform obligations under contracts. A rehabilitation manager, may, on behalf of the debtor, refuse to perform a contract, but only on the basis of the special grounds that are set out below.

The rehabilitation manager may, within three months of the date of commencement of the financial rehabilitation procedure, refuse to fully or partially perform the debtor's contracts if these contracts were concluded before the commencement of the financial rehabilitation procedure and they are not performed by the parties in full or in part.

Refusal to perform contracts by the debtor may be expressed with respect to the contracts that cause damage to the debtor or prevent the restoration of the debtor's solvency. The debtor may also refuse to perform long-term contracts (over one year) or contracts that aim to obtain positive long-term results for the debtor, except production with a technological cycle longer than the terms of the financial rehabilitation procedure (which may last up to six months with the possibility of being extended for a further 12 months).

The Bankruptcy Law does not regulate the procedure dealing with refusal to perform contracts by the debtor. From our point of view, in the event of a refusal to perform contracts by the debtor, the rehabilitation manager must notify the other party to the contract in writing of this refusal, indicating the reasons and grounds of refusal with reference to the relevant legislation.

The party to the contract in relation to which the decision of refusal to perform the contract by the debtor has been taken has the right, within 30 days of the date of implementation of this decision, to demand compensation for losses incurred as a result of the refusal to perform the contract by the debtor in the course of the bankruptcy proceedings.

In case of the breaching of the contract by the debtor after the insolvency case is opened, the obligations under a contract are to arise. Pursuant to the Bankruptcy Law, if such obligations are of monetary nature, the party to the breached contract is considered to be the current creditor. The current creditors with claims that accrued after commencement of the insolvency proceedings can present these claims after declaration of the debtor as a bankrupt and commencement of the liquidation procedure. Before declaration of the debtor as a bankrupt, the disputes between the debtor and current creditors shall be settled in adversary proceedings by the commercial court that consider the insolvency case.

If mentioned obligations are non-monetary, they can be transformed into monetary obligations at the discretion of the creditors (provided that the non-monetary obligations cannot be satisfied and discharged in kind by the debtor). Considering that in the beginning of the insolvency proceedings its result cannot be known, creditors enjoy the right to enforce their non-monetary claims by recognition of the monetary equivalent of their real requirements. Until the moment of the proper fulfilment of the real requirements, their monetary equivalent shall not be satisfied. In case the debtor fails to satisfy such obligations in due time, they shall be deemed as current obligations and enforced pursuant to the Bankruptcy Law.

Intellectual property assets

28. May an IP licensor or owner terminate the debtor’s right to use the IP when a liquidation or reorganisation is opened? To what extent may IP rights granted under an agreement with the debtor continue to be used?

The commencement of bankruptcy proceedings does not lead to the termination of the IP agreement. Furthermore, the civil law does not contain provisions under which the commencement of bankruptcy proceedings can be regarded as grounds for termination or suspension of IP agreements. At the same time, in accordance with the Civil Code of Ukraine, the bankruptcy of a copyrighter or franchisee is grounds for termination of the commercial concession agreement (franchising agreement).

Under the Bankruptcy Law, an IP agreement (as with any other agreement) may be terminated if fulfilment of this agreement causes damage to the debtor or would prevent restoration of the debtor's solvency; or the term of this agreement is longer than one year. Moreover, the rights holder is allowed to ask for a termination of the IP agreement because of the ‘significant change in circumstances' by filing respective claim to the court.

The insolvency administrator, in particular the rehabilitation manager, may refuse to perform the debtor's agreement only on the basis stipulated by the law (see question 27).

Ukrainian legislation does not provide restrictions on the insolvency administrator using intellectual property objects, but the use of intellectual property objects after termination of the IP agreement is not allowed.

Personal data

29. Where personal information or customer data collected by a company in liquidation or reorganisation is valuable, are there any restrictions in your country on the use of that information or its transfer to a purchaser?

Personal information or customer data is regulated under general grounds provided in the Law on Information and Law on Protection of Personal Data dated 1 June 2010.

Bankruptcy law provides special regulations regarding state secrets. In particular, the financial rehabilitation plan shall also include measures aiming at safeguarding state secrets. Moreover, the insolvency administrator has to obtain a permit to have access to state secrets. The asset manager shall conduct the seizure, proper registration, arrangement and storage of material carriers of classified information.

Arbitration processes

30. How frequently is arbitration used in liquidation or reorganisation proceedings? Are there certain types of disputes that may not be arbitrated? Can disputes that arise after the liquidation or reorganisation case is opened be arbitrated with the consent of the parties?

The parties may agree to opt for arbitration in the rehabilitation proceedings, which is separated from the ordinary bankruptcy proceedings under the Bankruptcy Law. However, arbitral tribunals have no competence in liquidation proceedings.

According to the Financial Rehabilitation Law, the application for rehabilitation shall include the debtor's consent to solve possible disputes in an arbitral tribunal. Thus, the disputes that arose after the rehabilitation case was opened cannot be arbitrated without the prior consent of the parties before the commencement of the rehabilitation proceedings.

CREDITOR REMEDIES

Creditors' enforcement

31. Are there processes by which some or all of the assets of a business may be seized outside of court proceedings? How are these processes carried out?

Under the Law of Ukraine on Enforcement Proceedings, the commencement of insolvency proceedings with regard to the debtor will result in termination of all enforcement proceedings except for proceedings with regard to foreclosure on the pledged or mortgaged collateral. Thus, the initiation of the insolvency proceeding does not preclude the enforcement proceedings with regard to foreclosure on the pledged or mortgaged collateral that commenced prior to the start of the insolvency proceeding (see also question 21). The foreclosure on the pledged or mortgaged collateral is conducted according to the general enforcement proceeding.

Moreover, from the moment of the commencement of insolvency proceedings, the arrest of the assets or other restrictions regarding debtor's rights to dispose the assets may be enforced only by a commercial court within the insolvency proceedings.

Unsecured credit

32. What remedies are available to unsecured creditors? Are the processes difficult or time-consuming? Are pre-judgment attachments available?

​The Bankruptcy Law provides the following remedies to unsecured creditors (ie, creditors whose claims are not secured by a pledge or mortgage):

• prohibition on entering into the agreements (contracts) without prior consent of an insolvency administrator;
• transfer of all the debtor’s securities, currency values and other property to a third party for safe custody;
• introduction of the moratorium on satisfaction of creditors’ claims; and
• termination of the debtor’s directors’ authority and transfer of their powers to the insolvency administrator (asset manager).

The moratorium on the satisfaction of the creditors’ claims is imposed immediately after commencement of the bankruptcy proceedings. It covers claims that had become due and payable before the bankruptcy proceeding was started. The moratorium is terminated at the moment of the commencement of liquidation procedure (see question 22).

The term of the other remedies mentioned above depends on the term of the bankruptcy proceedings, in particular on the term (duration) of the assets administration procedure.

The Bankruptcy Law provides the possibility of the application of a preliminary injunction in the course of the bankruptcy proceedings, meaning that the courts may apply these preliminary injunctions as establishing a prohibition on the owner of the property or the debtor taking a decision on liquidation or reorganisation of the debtor and alienation of capital assets.

CREDITOR INVOLVEMENT AND PROVING CLAIMS

Creditor participation

33. During the liquidation or reorganisation, what notices are given to creditors? What meetings are held and how are they called? What information regarding the administration of the estate, its assets and the claims against it is available to creditors or creditors' committees? What are the liquidator's reporting obligations?

During liquidation or rehabilitation proceedings, the following notices are given to creditors:

• notice of the time, place and terms of sale of the collateral;
• notice of the court decision refusing to accept the application for commencement of bankruptcy proceedings;
• notice of the court decision to return without consideration the bankruptcy applications and the documents attached thereto;
• notice of the court decision to commence bankruptcy proceedings (officially published on the official website of the SCCU);
• notice of the results of consideration of creditors' claims;
• notice of the holding of the meeting of creditors;
• notice of other creditors' claims that are recognised by the debtor;
• notice of the preparatory court hearing;
• notice of the results of the preparatory court hearing;
• notice of the time and place of the creditors' meeting;
• notice of the reports of the rehabilitation manager;
• notice of the time and place of the meeting of the creditors' committee to review the rehabilitation plan; and
• notice of the time and place of the meeting of the creditors' committee to review the rehabilitation manager's report. 

In addition, the decisions or resolutions adopted by the court in the course of the bankruptcy proceedings should be sent to the parties who were not present at the court hearings.

During bankruptcy proceedings, creditors are represented by the creditors' meeting and the creditors' committee (see question 34).

At least once in a month, a liquidator is obliged to report to the creditors' committee regarding his or her activities, information on financial situation and assets of a debtor, the usage of debtor's money and other information upon the creditors' request. Upon completion of all settlements with creditors, the liquidator submits to the commercial court the report and the liquidation balance sheet.

Creditor representation

34. What committees can be formed (or representative counsel appointed) and what powers or responsibilities do they have? How are they selected and appointed? May they retain advisers and how are their expenses funded?

Pursuant to the Bankruptcy Law, there are two bodies that represent creditors during insolvency proceedings: the creditors' meeting and the creditors' committee. Creditors' meetings are meetings of all creditors, and as such, all creditors whose claims are included on the creditors' register may participate in the sessions of the creditors' meeting. Creditors' meetings are convened by the insolvency administrator on his or her initiative or on the initiative of the creditors' committee or other creditors whose total claims are no less than one-third of all the claims included in the creditors' register, or on the initiative of one-third of the creditors' votes. The creditors' meeting is held at the location of the debtor. The number of votes creditors have at the creditors' meeting is proportional to the amount of their respective claims included in the creditors' register and is equal to 1,000 hryvnas.

The exclusive competence of the creditors' meeting includes the following issues:

• taking a decision regarding the election of the members of the creditors' committee;
• determination of the number of members of the creditors' committee, its powers, dissolution of the creditors' committee or replacement of individual members;
• approval of the financial rehabilitation plan during the course of asset administration procedure.

The creditors' committee is elected at the creditors' meeting. After its election, the creditors' committee represents all the creditors participating in insolvency proceedings. The Bankruptcy Law does not contain specific rules as to the procedure of convening and holding meetings of the creditors' committee. According to the general rule, the issues of convening and holding the meeting of the creditors' committee are within the competence of the insolvency administrator. The insolvency administrator notifies the members of the creditors' committee of the subject matter, time, place and other organisational matters connected to the upcoming meeting.

The main powers of the creditors' committee, which are subject to subsequent approval by the court, include the following:

• choosing between financial rehabilitation, liquidation or an amicable settlement agreement;
• filing a request to the commercial court for recognition of invalid transactions;
• recommending to the court a new insolvency administrator (rehabilitation manager, asset manager or liquidator);
• entering into an amicable settlement agreement on behalf of the creditors; and
• approval of the financial rehabilitation plan and any amendments thereof.

The creditors' committee may, without the approval of the court, give its consent to the rehabilitation manager entering into material agreements and agreements with persons affiliated with the debtor.

Enforcement of estate's rights

35. If the liquidator has no assets to pursue a claim, may the creditors pursue the estate's remedies? If so, to whom do the fruits of the remedies belong? Can they be assigned to a third party?

Ukrainian law does not provide any procedure under which the creditors may pursue the estate's remedies.

Claims

36. How is a creditor's claim submitted and what are the time limits? How are claims disallowed and how does a creditor appeal? Can claims for contingent or unliquidated amounts be recognised? Are there provisions on the transfer of claims and must transfers be disclosed? How are the amounts of such claims determined?

Under the Bankruptcy Law, creditors' claims are divided into pre-bankruptcy creditors' claims and current creditors' claims. The Bankruptcy Law prescribes that, for the purposes of detecting all creditors and persons intending to participate in the debtor's rehabilitation, an official announcement on the opening of bankruptcy proceedings is to be published on the official website of the SCCU. The announcement must be published to notify all the pre-bankruptcy creditors of the debtor and to enable them to inform the court of their claims. After the announcement is published, the creditors with pre-bankruptcy claims (competitive creditors) must submit their claims to the court within 30 days of the announcement. The copies of the application for recognition of creditor's claims must be sent to the debtor and the asset manager. Pre-bankruptcy claims filed upon expiry of the 30-day term are accepted by the commercial court, but these claims may be satisfied after those that were filed in a timely manner by unsecured creditors (rank 6).

The debtor, together with the asset manager, upon consideration of the creditors' claims, takes a decision to recognise or to reject claims in full or in part. The asset manager must notify the creditors in writing and the court of the decision taken after the consideration of creditors' claims. The debtor's decision of non-acceptance of the creditor's claims may be appealed to the court that commenced the bankruptcy proceedings.

The creditor's claims recognised by the debtor and by the court must be included in the register of creditors' claims. The register of creditors' claims includes:

• pre-bankruptcy creditors' claims (claims of competitive creditors who submitted their claims to the court within the 30-day term after publication of the announcement on commencement of insolvency proceedings); and
• claims of preferential creditors (claims of unsecured creditors who have salary claims, alimony claims, claims to reimburse damages to life and health and claims to repay authorial remuneration).

Current creditors' claims - claims that become due and payable after commencement of insolvency proceedings - are not included in the register of creditors' claims. After the commercial court decides on the opening of a liquidation procedure, current creditors may submit their claims.

In addition, according to the Bankruptcy Law, claims that are not monetary and claims for contingent or unliquidated amounts may not be included in the register of creditors' claims.

The court passes a resolution on approval of the register of creditors' claims, which may be appealed to the commercial court of appeals.

The Bankruptcy Law provides that it is allowed to engage the successor in the insolvency proceedings in connection with the replacement of the creditor or debtor in the obligation. Thus, the assignment of rights (eg, because of a contract on assignment of rights) is the ground for the replacement of a creditor in the bankruptcy proceeding with its successor. To replace the creditor with its successor, the respective resolution of the court must be passed and the register of creditors must be amended accordingly.

Under the general provisions of civil legislation, replacement of the creditor is not allowed in obligations that are inseparably linked with the person of the creditor and cannot be performed by any other person. For instance, obligations for compensation for damage caused by mutilation or other damage to health, or obligations for pensions, alimony, social aid or other legal payments.

A claim to the debtor acquired at a discount (for example under the assignment agreement or factoring agreement) can be enforced for its full face value in bankruptcy proceedings. In case of assignment of the claims to the debtor, the relevant amendments shall be made in the register of the creditors' claims.

Interest that accrued after the opening of an insolvency case can be enforced as current obligations. The creditor is not deprived of the right to submit additional cash requirements for the collection of interest on loans and credits in accordance with the procedure established by law.

Set-off and netting

37. To what extent may creditors exercise rights of set-off or netting in a liquidation or in a reorganisation? Can creditors be deprived of the right of set-off either temporarily or permanently?

Under the provisions of the Civil Code of Ukraine, set-off is one of the grounds for the termination of obligations under the respective transaction. Set-off requires the parties to the transaction to have single-currency mutual and matured contractual obligations.

During a liquidation, it is possible for a creditor to exercise the right of set-off if the claims are of similar nature and if such set-off does not violate other creditors' property rights. Set-off is not prohibited during other proceedings. However, it may be treated as satisfaction of specific creditor's claims, which is contrary to the general principles of the insolvency proceedings.

Modifying creditors' rights

38. May the court change the rank (priority) of a creditor's claim? If so, what are the grounds for doing so and how frequently does this occur?

Under Ukrainian insolvency legislation, the court cannot change the rank of the creditor's claim. The creditors' claims are satisfied in the strict order of priority envisaged by the Bankruptcy Law (see question 39).

Priority claims

39. Apart from employee-related claims, what are the major privileged and priority claims in liquidations and reorganisations? Which have priority over secured creditors?

In the framework of insolvency proceedings, court fees, insolvency administrators' fees, operating costs and expenses incurred in connection with insolvency proceedings have priority above all other claims.

Generally, the claims of creditors are satisfied in the strict order of priority envisaged by the Bankruptcy Law, with secured creditors and employees in the queue before unsecured corporate creditors. Thus, the claims secured by a pledge or mortgage are considered privileged claims, which should be satisfied in the first rank of priority. However, if the proceeds from the disposal of the assets secured to a particular creditor are not sufficient to cover that creditors' claim, then the balance of that secured creditors' claim is transferred to the fourth rank as an unsecured claim. In addition, pursuant to the Bankruptcy Law, the claims against a debtor as a result of the invalidation of its transaction would be satisfied in the first rank of priority irrespective of whether they were secured.

In the event that the commercial court declares the debtor bankrupt, the liquidator starts selling the debtor's assets in the course of the liquidation proceedings. The funds obtained from the sale of the debtor's assets shall be used for the purposes of satisfaction of creditors' claims.

Under the Bankruptcy Law, the creditors' claims will be satisfied in the following order of priority:

• rank 1: employees' claims (claims for paying employees' salaries for the three-month period before insolvency proceedings were commenced by the court, compensation for unused vacations, dismissal payments); payments to the fund securing bank deposits of individuals within the established amount of compensation; creditors' claims under insurance contracts; court fees, insolvency administrators' fees and expenses incurred in connection with insolvency proceedings;
• rank 2: other employees' claims (personal injury);
• rank 3: claims for taxes and other mandatory duties;
• rank 4: unsecured creditors' claims and creditors' claims that arose in the administration of assets or financial rehabilitation proceedings;
• rank 5: claims of the employees to receive contributions from the share capital of the debtor; and
• rank 6: all other claims.

Claims of secured creditors are listed separately in a registry of creditors' claims.

The satisfaction of one rank of priority is possible only after full satisfaction of the claims of the creditors of the previous rank. Claims not satisfied because of the insufficiency of the debtor's assets are deemed terminated. The assets remaining after satisfaction of all creditors' claims are transferred to the owner or the authorised body of the debtor. As to the remaining assets of state enterprises, they should be transferred to the proper privatisation authority for further distribution. Funds received from the sale of the state enterprises' assets are transferred to the state budget of Ukraine. 

Employment-related liabilities

40. What employee claims arise where employees' contracts are terminated during a restructuring or liquidation? What are the procedures for termination? (Are employee claims as a whole increased where large numbers of employees' contracts are terminated or where the business ceases operations?) 

According to the Bankruptcy Law, employees may be dismissed after commencement of insolvency or bankruptcy proceedings and appointment of the asset manager under general conditions set out in the Labour Code of Ukraine. Employees may be dismissed at any stage of the bankruptcy proceedings.

Generally, the dismissal procedure is the same at each stage of the insolvency proceedings and must be performed as follows.

First, in the event of dismissal of employees in the course of liquidation or reorganisation of an insolvent debtor, notification of the employees regarding further dismissal is required. The time frame for notifying employees of further dismissal is as follows:

• administration of assets: the owner of the debtor or empowered representative or the asset manager must notify all employees (or the respective part thereof) to be dismissed after adopting the resolution of commencement of the bankruptcy proceedings by the commercial court and appointment of the asset manager in writing personally two months prior to such dismissal;
• financial rehabilitation: the rehabilitation manager must notify all employees (or the respective part thereof) to be dismissed after the approval of the rehabilitation plan by the commercial court personally in writing two months prior to such dismissal; and
• liquidation: the liquidator must notify all employees of the further dismissal starting from the day of recognition of the debtor as bankrupt and commencement of liquidation proceedings and must dismiss them no earlier than two months after notifying them personally in writing.

Second, the insolvency administrator (asset manager, rehabilitation manager or liquidator) must notify the primary trade union (if any) no later than three months before the actual dismissal of the employees. Furthermore, the insolvency administrator must provide the trade union with the following information:

• reasons for the dismissal;
• the number and categories of employees to be dismissed; and
• terms of the dismissal.

In addition, the insolvency administrator must conduct consultations with the relevant trade union regarding measures to be taken for the purposes of minimising the negative consequences of such dismissal. The above-mentioned consultations may be held no later than three months after the decision to dismiss is taken.

Third, the insolvency administrator must notify the relevant local agency of the government employment service in writing of the further dismissal no later than two months prior to the dismissal of the employees and provide it with the following information:

• reasons for and terms of the dismissal; and
• names of the professional occupations, specialisations, qualifications and incomes of the employees to be dismissed.

The employees may only be dismissed after receipt of the prior consent of the trade union of which the employees to be dismissed are members. Under the Labour Code, prior consent of the trade union may not be required on the following occasions:

• liquidation of relevant enterprises, institutions or organisations;
• dismissal of employees who are not members of the primary trade union;
• dismissal of the employees in the event there is no primary trade union at the enterprises; and
• others.

Finally, on the dismissal day the insolvency administrator must provide the employees with the labour books and copies of the orders on their dismissal.

In the course of the insolvency proceedings, the employees of the insolvent debtor have the right to claim payment of their salaries for the three-month period before insolvency proceedings were commenced by the court, compensation for unused vacations and dismissal payments (eg, severance payment to employees in connection with the termination of their employment). Such employees' claims will be ranked first. Also, employees have the right to claim reimbursement for damages caused to their health and claim against the dismissal order and some related claims.

Pension claims

41. What remedies exist for pension-related claims against employers in insolvency or reorganisation proceedings and what priorities attach to such claims?

The Bankruptcy Law provides that pension-related claims against employers in insolvency proceedings can be satisfied with funds received from the sale of the property of the bankrupt. Retirement pay owed to employees in connection with the termination of employment and accrued on contributions for compulsory pension insurance must be satisfied in the first rank of priority. Claims that occurred because of the debtor's obligations to pay insurance contributions for compulsory pension insurance will fall within the second rank of priority.

Furthermore, article 92 of the Bankruptcy Law sets out special features for the satisfaction of creditors' claims when the party declared bankrupt is an individual entrepreneur; in this case, pension-related claims are satisfied in the first rank of priority.

Environmental problems and liabilities

42. Where there are environmental problems, who is responsible for controlling the environmental problem and for remediating the damage caused? Are any of these liabilities imposed on the insolvency administrator personally, secured or unsecured creditors, the debtor's officers and directors, or on third parties?

Pursuant to the Bankruptcy Law, the ‘especially dangerous' business entities (the business entities of coal, mining, nuclear, chemical and metallurgy, oil refining and other industries termination of which requires the implementation of specific measures to prevent damage to life and human health, property, buildings, environment) are subjects with specific status. The local authority, a central executive body, competent to the scope of the debtor, and, if necessary, the Ministry of Energy and Protection of the Environment, the State Emergency Service of Ukraine, the State Nuclear Regulatory Inspectorate of Ukraine, the State Service of Geology and Mineral Resources of Ukraine, their territorial authorities may participate in an insolvency case of aforementioned business entities.

Ukrainian legislation also provides that the creditors of the debtor - 'especially dangerous' business entity - have the right to claim reimbursements for the costs of measures to prevent possible loss or damage to life and health of citizens, property, buildings and environment. These creditors are considered to be the relevant local authority, a central executive body, competent to the scope of the debtor, and, if necessary, the Ministry of Energy and Protection of the Environment, the State Emergency Service of Ukraine, the State Nuclear Regulatory Inspectorate of Ukraine, the State Service of Geology and Mineral Resources of Ukraine, their territorial authorities.

However, the current Ukrainian legislation does not provide for any liability imposed on the insolvency administrator, secured or unsecured creditors, the debtor's officers and directors, or on third parties.

Liabilities that survive insolvency or reorganisation proceedings

43. Do any liabilities of a debtor survive an insolvency or a reorganisation?

Under Ukrainian law, after the debtor is recognised as bankrupt, it is subject to involuntary liquidation. The involuntary liquidation procedure aims to sell debtor's assets, to distribute collected funds to creditors, and to wind up the legal entity. Once all creditors' claims are satisfied and no property remains after satisfaction of the creditors' claims, the court will pass a ruling on the liquidation of the bankrupt legal entity. The legal entity is deemed liquidated from the date of its removal from the Unified State Register. After that, no liabilities of the debtor survive.

In contrast, in the event of the debtor's reorganisation during financial rehabilitation procedure, its liabilities are transferred to its legal successors. The latter, however, is used quite rarely in practice.

Distributions

44. How and when are distributions made to creditors in liquidations and reorganisations? 

See question 39. 

SECURITY

Secured lending and credit (immovables)

45. What principal types of security are taken on immovable (real) property?

The principal type of security taken on immovable property is a mortgage. The mortgage is governed by the Civil Code of Ukraine and Law of Ukraine on Mortgage dated 5 June 2003. A mortgage is the encumbrance of a specified real estate property that secures the creditor (the mortgagee) from non-payment and default by the debtor (the mortgagor). A mortgage does not cause an automatic transfer of ownership of the property from the mortgagor to the mortgagee. In the event of the mortgagor’s failure to comply with its obligations under a secured agreement, the mortgagee may proceed with out-of-court or in-court enforcement of the immovable property.

An out-of-court enforcement procedure may be applied on the basis of the terms of the mortgage agreement or a separate agreement between the mortgagor and the mortgagee regarding satisfaction of the mortgagee’s claims. Out-of-court methods of enforcement of the mortgaged property are as follows:

• the acquisition of legal title to the mortgaged property by the mortgagee;
• the sale of the mortgaged property to a predetermined third party; and
• the public sale of the mortgaged property.

In the course of the insolvency proceedings the mortgagee has the priority right to be paid debts owing to the mortgagee from the proceeds of the sale of the mortgaged property. The priority right of the mortgagee ranks first.

Secured lending and credit (movables)

46. What principal types of security are taken on movable (personal) property?

The principal type of security taken on movable property is a pledge. Pledges are governed by the Civil Code of Ukraine, the Law of Ukraine on Pledges dated 2 October 1992 and the Law of Ukraine on Securing Creditors’ Claims and Registration of Encumbrances dated 18 November 2003. A pledge is the encumbrance of the movable property that secures the creditor (the pledgee) from non-payment and default by the debtor (the pledgor).

Under Ukrainian law there are two types of pledges: a public pledge (imposed by tax authorities in the event of default of payment of taxes); and a private pledge (imposed by the creditor according to contract).

A pledge does not entail automatic transfer of ownership of the property from the pledgor to the pledgee. In the event of the pledgor’s failure to comply with his or her obligations under a secured agreement, the pledgee is eligible to enforce the pledged property through:

• a sale of the pledged property to a predetermined third party;
• a public sale of the pledged property; or
• an acquisition of legal title to the pledged property by the pledgee.

The aforementioned methods are out-of-court options for movables pledge enforcement.

The in-court enforcement of movables pledge is the same as enforcement of immovable property (see question 45).

In the course of the insolvency proceedings, the pledgee has the priority right to be paid debts owing to it from the proceeds of the sale of the pledged property. The priority right of the pledgee ranks first.

CLAWBACK AND RELATED-PARTY TRANSACTIONS 

Transactions that may be annulled 

47. What transactions can be annulled or set aside in liquidations and reorganisations and what are the grounds? Who can attack such transactions?

Under Ukrainian law, transactions entered into by a debtor prior to the commencement of insolvency proceedings can be invalidated (annulled) on a number of grounds, which are set out below.

According to the Civil Code of Ukraine, a transaction can be classified as invalid either if it is a void or a voidable transaction. An invalid transaction does not create legal rights or obligations for the parties of the transaction and results in a reciprocal restitution (ie, each party of the invalid transaction must return everything received under the transaction to other party).

A void transaction is invalid by law and does not require any court decision on its invalidation. However, if a party to the contract disputes the fact that the contract was void then a court will need to make the determination as to whether this is the case. As to voidable transactions, these can only be declared invalid by a court. Therefore, if someone argues that the transaction is voidable, he or she should file a claim to the court seeking a declaration of an invalid transaction. The limitation period with respect to a void transaction is three years from the date on which the affected person discovered or had to discover that the void transaction was commenced. The Civil Code of Ukraine provides that voidable transactions include transactions of legal entities made beyond their powers, fraudulent transactions and transactions entered into under duress.

In the framework of insolvency proceedings, the insolvency administrator is entitled to challenge transactions and decisions of the debtor at any stage on the general grounds for invalidation set out in the Ukrainian civil legislation.

In addition, special provisions of the Bankruptcy Law entitle the insolvency administrator as well as competitive creditors to challenge the transactions entered into by the debtor after and within the year prior to the commencement of insolvency proceedings on the specific grounds described below.

In particular, the insolvency administrator or competitive creditors may request the court to challenge a transaction on the following grounds:

• the debtor has carried out the expropriation without compensation, or assumed the obligations without the appropriate pecuniary reward from the other party, releasing its own property claims;
• the debtor has executed its obligations before they became due;
• the debtor has assumed obligations before the commencement of the bankruptcy proceedings, becoming insolvent as a result, or the fulfilment of its financial obligations to other creditors in whole or in part has become impossible;
• the debtor has carried out disposal of or acquired property at a price higher or lower, respectively, than the market price, and as a result, at the time of assumption or as a result of fulfilling the obligation the debtor's property was (or has become) insufficient to satisfy the claims of creditors;
• the debtor has paid the creditor or accepted assets in fulfilment of monetary claims on the date on which the amount of the creditors' claims against the debtor exceeded the value of the property; or
• the debtor has assumed an encumbrance to ensure that the monetary claims are fulfilled.

The Bankruptcy Law defines the specific consequences of invalidating the debtor's transactions. In particular, it has been clarified that as a result of challenge to the transactions, any assets received from the debtor must be returned to the liquidation estate. At the same time, the creditor has the option either to request that the debtor repay the debt under the transaction that was challenged together with other first-ranking claims in the course of the bankruptcy proceedings or request the debtor's specific performance of its obligations after the termination of the bankruptcy proceedings.

Under the Bankruptcy Law, the claims against a debtor as a result of the invalidation of their transactions are included in the first-ranked creditors' claims.

The Code of Ukraine on Bankruptcy Procedures changes grounds to annul debtor's transactions that were concluded no later than three years before the commencement of insolvency proceedings (see question 59).

Equitable subordination

48. Are there any restrictions on claims by related parties or non-arm's length creditors (including shareholders) against corporations in insolvency or reorganisation proceedings?

There are no restrictions for related parties or shareholders to be competitive or current creditors envisaged by bankruptcy Law. Still, the Bankruptcy Law provides that agreements on the transfer of property to related parties within a year before the commencement of the insolvency proceedings may be declared invalid by the court.

GROUPS OF COMPANIES

Groups of companies

49. In which circumstances can a parent or affiliated corporation be responsible for the liabilities of subsidiaries or affiliates?

Under Ukrainian law, a holding company may be liable for its subsidiaries' insolvencies. A Ukrainian holding company is a joint-stock company that owns, uses and administers shares in other companies - its subsidiaries. The Law of Ukraine on Holding Companies dated 15 March 2006 provides that the holding company bears liability for the obligations of its subsidiaries if the actions or omissions by the holding company cause any subsidiary's insolvency and bankruptcy. A similar provision is contained in article 126 of the Commercial Code. The liability of holding company is linked to the fact that it or its representatives commit certain errors in managing the other company, which leads to its insolvency.

Combining parent and subsidiary proceedings

50. In proceedings involving a corporate group, are the proceedings by the parent and its subsidiaries combined for administrative purposes? May the assets and liabilities of the companies be pooled for distribution purposes?

The Bankruptcy Law does not provide any special insolvency proceedings involving a corporate group. Moreover, according to the general principle of civil law, the legal entity bears independent liability on its obligations. Therefore, insolvency proceedings of a parent company and its subsidiaries cannot be combined for administrative purposes.

INTERNATIONAL CASES

Recognition of foreign judgments

51. Are foreign judgments or orders recognised and in what circumstances? Is your country a signatory to a treaty on international insolvency or on the recognition of foreign judgments?

Foreign court judgments in bankruptcy cases may be recognised and enforced in Ukraine in accordance with the procedures specified in international treaties between Ukraine and the other jurisdiction. At the moment, however, Ukraine is not a party to any specific international bankruptcy treaty. In such a case, the Bankruptcy Law provides that the foreign court judgments in bankruptcy cases are recognised based on the principle of reciprocity. The Civil Procedural Code of Ukraine contains a presumption that the reciprocity principle exists unless provided otherwise. This principle is recognised and enforced by Ukrainian courts during insolvency proceedings.

UNCITRAL Model Law

52. Has the UNCITRAL Model Law on Cross-Border Insolvency been adopted or is it under consideration in your country?

The UNCITRAL Model Law on Cross-Border Insolvency is not part of Ukrainian domestic legislation as it is not adopted by Ukraine.

Foreign creditors 

53. How are foreign creditors dealt with in liquidations and reorganisations?

According to the general principle envisaged by commercial procedural law, foreign creditors have equal rights with national creditors in the course of the insolvency proceedings, unless the relationships between creditor and the debtor are governed by the relevant international agreements ratified by the Ukrainian parliament. In contrast, foreign debtors are not considered subjects of bankruptcy proceedings. Ukrainian law also envisages restrictions on creditors from the Russian Federation (see question 2).

Cross-border transfers of assets under administration

54. May assets be transferred from an administration in your country to an administration of the same company or another group company in another country? 

Under Ukrainian bankruptcy law, it is not possible to transfer assets from a Ukrainian administration to an administration in another country as there is no cross-border cooperation in place between domestic and foreign administrations (see question 51). 

COMI

55. What test is used in your jurisdiction to determine the COMI (centre of main interests) of a debtor company or group of companies? Is there a test for, or any experience with, determining the COMI of a corporate group of companies in your jurisdiction?

According to the Bankruptcy Law, during the insolvency proceedings commercial court assumes that:

• insolvency proceedings of the debtor, which is established and operates in accordance with the laws of Ukraine located on its territory, is main in respect of any other foreign proceedings;
• insolvency proceedings of the debtor: the permanent representation of a business entity of Ukraine in a foreign country is derived in respect of the main proceedings in Ukraine;
• insolvency proceedings of the debtor, which is established and operates under the laws of another state with headquarters outside Ukraine, initiated in a foreign country is a foreign main proceeding; and
• insolvency proceedings of the debtor, which is a permanent representation in a foreign country of the business entity which is established and operates in accordance with the laws of another state with headquarters outside Ukraine is derived foreign proceedings.

Pursuant to the Law of Ukraine on International Private Law, jurisdiction of the courts of Ukraine is exceptional if in insolvency proceedings the debtor was established in accordance with the laws of Ukraine.

Thus, pursuant to legislation of Ukraine, that main insolvency proceedings are determined through the criteria of the place of registration of the debtor, whereas the concept of COMI is not applicable.
 
Cross-border cooperation 

56. Does your country's system provide for recognition of foreign insolvency proceedings and for cooperation between domestic and foreign courts and domestic and foreign insolvency administrators in cross-border insolvencies and restructurings? Have courts in your country refused to recognise foreign proceedings or to cooperate with foreign courts and, if so, on what grounds?

The Bankruptcy Law provides for the possibility of administering bankruptcy cases in foreign countries under their respective laws. Foreign bankruptcy procedures may be applied:

• upon application of a foreign insolvency administrator (assets manager or rehabilitation manager) seeking recognition of foreign proceedings and court assistance, or when the commercial court has received a motion from a foreign court regarding cooperation in foreign bankruptcy proceedings;
• upon application of an insolvency administrator in a foreign bankruptcy proceeding seeking recognition of that bankruptcy proceeding and court assistance and cooperation regarding foreign bankruptcy proceedings in the bankruptcy case; and
• upon the filing of an application of the commercial court with a foreign court.

Furthermore, the judgments of foreign courts in bankruptcy cases taken in other jurisdictions may be recognised and executed in Ukraine according to the rules provided by the relevant international treaties. If there are no international treaties, the judgments of foreign courts in bankruptcy cases are recognised on the basis of the reciprocity principle (see question 51), but currently there are no international treaties between Ukraine and other countries concerning the recognition and enforcement of the court rulings or judgments in bankruptcy cases.

Cross-border insolvency protocols and joint court hearings

57. In cross-border cases, have the courts in your country entered into cross-border insolvency protocols or other arrangements to coordinate proceedings with courts in other countries? Have courts in your country communicated or held joint hearings with courts in other countries in cross-border cases? If so, with which other countries?

At the moment, in Ukraine there are no cross-border insolvency protocols that Ukrainian courts have entered into, and there are no other arrangements of the Ukrainian courts with courts in other countries with respect to the coordination of insolvency proceedings.

Winding-up of foreign companies

58. What is the extent of your courts' powers to order the winding-up of foreign companies doing business in your jurisdiction?

Bankruptcy Law defines a debtor as a legal or natural person that conducts entrepreneurial activities. Thus, Ukrainian courts may rule on insolvency of only those foreign companies that have created a separate legal entity in Ukraine. In turn, foreign companies' branches or other organisations without legal entity status are not subjects of insolvency procedure in Ukraine.

UPDATE AND TRENDS

Trends and reforms

59. Are there any emerging trends or hot topics in the law of insolvency and restructuring? Is there any new or pending legislation affecting domestic bankruptcy procedures, international bankruptcy cooperation or recognition of foreign judgments and orders?

On 21 October 2019, the Code of Ukraine on Bankruptcy Procedures will come into force and replace the Bankruptcy Law. In general, novels of the Code of Ukraine on Bankruptcy Procedures are aimed at simplification and fastening of insolvency proceedings and, inter alia, the Code prescribes the following:

• introduces the bankruptcy proceedings for individuals that are not entrepreneurs;
• simplifies the requirements for the commencement of insolvency proceedings (eliminates requirements regarding indisputable claims, a minimal sum for a claim, a need to obtain a court's decision and to be at the stage of unfinished enforcement proceedings);
• limits the rights to appeal to the cassation court and prohibits suspension of insolvency proceedings;
• specifies the rules on the confirmation of a rehabilitation plan by a state institution;
• introduces the creditors' classes for the approval of a rehabilitation plan; 
• introduces electronic bidding as the sole way of disposal of a debtor's property;
• envisages a possibility to enforce a mortgage before the termination of insolvency proceedings;
• prescribes new grounds to annul debtor transactions that were concluded no later than three years before the commencement of insolvency proceedings; and
• eliminates the simplified bankruptcy proceedings because of the owner's decision and other changes etc. 

Published: Lexology / Getting The Deal Through, November 2019