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THE CODE OF UKRAINE ON BANKRUPTCY PROCEDURES: WHICH INNOVATIONS ARE EXPECTED IN CONNECTION WITH INTRODUCTION

On October 18, 2018 the President of Ukraine has signed the Code of Ukraine on Bankruptcy Procedures No. 2597-VIII (hereinafter - the “Code”), which came into effect on April 21, 2019 and shall be introduced on October 21, 2019.

The Code provides for significant changes in the conditions and the procedure of bankruptcy of a legal entity, as well as introduces a new institution, in particular restoration of an individual solvency, to which the fourth book of the Code is devoted.

According to the Code, two legal procedures will be applied to a debtor - individual, namely: the restructuring of the debtor’s debts and the repayment of the debtor’s debts.

According to the Code the restructuring of the debtor’s debts is a court procedure in the case of insolvency of an individual, which is used to restore the debtor's solvency by changing the way and the procedure for fulfilment of its obligations in accordance with the plan of restructuring of the debtor’s debts.

According to Article 115 of the Code, proceedings on insolvency of a debtor - individual or an individual - entrepreneur may be opened by the debtor’s application only, that is the creditor can not initiate the bankruptcy of an individual.

The Code provides for the grounds for opening of a case on insolvency of a debtor - individual or an individual - entrepreneur:

- overdue obligations in the amount of 30 minimum wages (UAH 125 190 in 2019);

- the debtor does not repay more than 50 percent of the scheduled payments under each obligation within two months;

- the existence of a resolution in the enforcement proceedings on the absence of a property owned by individual, which may be subject to enforcement;

- other circumstances confirming that the debtor will not be able to fulfill his/her monetary obligations in the near future.

According to the provisions of the Code the liquidation estate shall include all the property owned by the debtor, as well as property that will be owned by the debtor after being declared a bankrupt and until the completion of the procedure for repayment of the debtor’s debts, except for the property specified in Parts 6 and 7 of Article 131 and Article 132 of the Code.

In particular, the liquidation estate shall not include housing being the only place of residence of the debtor's family (an apartment with a total area of no more than 60 square meters or a living space of no more than 13.65 square meters for each member of the debtor's family or a residential building with a total area of no more than 120 square meters) and is not subject to security, as well as other property of the debtor, which can not be recovered according to the law (Articles 131, 132 of the Code).

The debt restructuring and the sale of an individual’s property shall be carried out by the insolvency officer appointed by the relevant economic court in the case of insolvency of an individual for the purpose of restructuring of the debtor’s debts (restructuring officer) or for sale of the property of the bankrupt and satisfaction of claims of the creditors accordingly (sales officer).

The Code introduces the sale of debtor’s property at the auction in the electronic trading system.

Article 135 of the Code determines certain restrictions to individuals recognized as bankrupt, among which, in particular, is that within five years after an individual recognized as bankrupt, such person shall, prior to conclude loan agreements, credit contracts, surety contracts or pledge agreements, notify other parties to such agreements in writing about the fact of his/her insolvency.

An interesting moment is that after one year from the date of entry into force of the Code, the Law of Ukraine “On Moratorium on Recovery of Property of Ukrainian Citizens Provided as Collateral for Foreign Currency Loans” expires.

Despite the fact that representatives of the specialized committees of the Verkhovna Rada of Ukraine state that the Code will help reduce corruption, as well as attract foreign investments into the Ukrainian economy, prior the Code comes into force it is impossible to state with certainty that it will fully protect the creditors’ rights and improve the institution of bankruptcy since all the gaps in legislation usually can be seen after its practical use.

Igor Kalitventsev,

Managing Partner,

KPD Consulting

 

 

Should you have any questions with respect to above or require any additional information, please do not hesitate to contact Mr. Igor Kalitventsev (i.kalitventsev@kpdconsulting.com.ua). We will be pleased to assist You. The information contained in this overview is not intended to provide legal advice and should not be relied on or treated as a substitute for specific advice concerning individual situations.

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