Improvement of Insolvency Procedures Was Discussed Within the Framework of the Presentation of the Monitoring Report-2023

On March 5, within the framework of the presentation of the Monitoring Report-2023, a discussion of the section related to the field of insolvency took place. The document was prepared by the Directorate of Justice and Criminal Justice of the Ministry of Justice with the expert and technical assistance of EU Project Pravo-Justice. Representatives of the Ministry of Justice of Ukraine, MPs, judges, BTs, PEOs, attorneys, and experts of EU Project Pravo-Justice took part in the event.”

According to Iryna Zharonkina, Enforcement and Protection of Property Rights Component Lead, EU Project Pravo-Justice, it is important to improve insolvency procedures on Ukraine’s path to the EU.

“It is necessary to use tools that would ensure the preservation of the economic activity of enterprises within insolvency procedures. For its part, EU Project Pravo-Justice makes a lot of efforts to acquaint stakeholders with European practice and regulation in this area,” said Iryna Zharonkina.

Two most common problems that participants in bankruptcy cases face have been considered within the framework of the presented monitoring section: foreclosure on the debtor’s property, which is the subject of a pledge, and the procedure for the creditor’s refusal to provide security in bankruptcy/insolvency cases.

“Resolving these issues will contribute to bringing national legislation into line with generally recognized European and world standards,” said Oleksii Movchan, deputy Chairman of the Committee on Economic Development of the Verkhovna Rada of Ukraine.

When presenting the issue of foreclosure on the debtor’s property, which is the subject of a pledge, Yuliia Lymar, state expert of the Ministry of Justice, pointed out the inconsistency of certain norms of the Code of Ukraine on bankruptcy procedures.

“The provisions of the Code, which regulate the procedure for satisfying the secured claims of creditors after the expiration of 170 calendar days, are not consistent with each other. Articles 39 (14) and 41(6) of the Code of Civil Procedure stipulate that “satisfaction of the secured claims of creditors... shall be carried out only within the scope of the proceedings in the case”, while Article 4 (8)1 of the Code provides for “automatic termination of the moratorium after 170 days have elapsed from the date of the introduction of the property disposal procedure. In practice, this rule does not work, and in order to receive such property, the secured creditor must apply to the court to obtain the appropriate permission,” said Yuliia Lymar, state expert at the Ministry of Justice.

In order to solve this problem, the expert proposed to exclude from the Code the norm establishing the automatic termination of the moratorium, as well as to supplement Article 41 of the Labor Code with a provision according to which the moratorium can be canceled after the expiration of 170 days, upon the application of the secured creditor for granting permission to levy on property of the debtor, which is the collateral. In addition, she came up with the idea of having new provisions that would regulate the basic conditions for meeting secured creditors’ claims. For example, she suggested establishing that consideration of a secured creditor’s application should take place no longer than 30 days from the moment of its receipt. The collateral shall be sold within a bankruptcy case and under the supervision of a BT. When considering an application, the economic court shall take into account whether the property can be used within the rehabilitation plan, whether it is part of a single property complex, whether it constitutes the core of the liquidation mass, whether the enterprise will be able to continue its activities without it, or whether there is a threat of destruction of the property.

Speaking of the issue of the creditor’s refusal to provide security in cases of bankruptcy/insolvency, state expert Anna Filichova outlined its three aspects: failure to comply with the 30-day period during which the secured creditor shall independently choose the model of his procedural behavior which leads, as a result, to the loss of the right to a decisive vote; CUBP does not specify the value of the pledged property in detail to determine the size of the secured claims; lack of proper statutory regulation of partial refusal of security.

In particular, in her intervention, Anna Filichova proposed that the secured creditors could fully or partially waive the security at any stage of the bankruptcy proceedings.

“"In case of refusal of a part of the value of the collateral, the secured creditor provides the administrator of the property and the court with a statement indicating the main obligation, its amount, the obligation secured by the debtor’s property, and the amount of the refusal of security,” she said while making a proposal to supplement the Bankruptcy Code with relevant provisions.

Text of the Report.

Presentation of the Section of the Monitoring Report on insolvency.