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Personal Bankruptcy: The Pros and Cons of New Legislation

30.10.2018

Vadym Kizlenko, Attorney at Law, Insolvency Receiver

Source: UNIAN

The Verkhovna Rada of Ukraine has recently adopted the Code of Bankruptcy Procedures relating, in particular, to the private bankruptcy. Such changes in the Ukrainian legislation will provide an opportunity to resolve disputes between creditors and individual borrowers in a civilized and legal way, which will ensure satisfaction of claims (parts thereof) filed by the former and provide a possibility to start their lives from scratch for the latter. Yet there will be certain restrictions – the said individuals will be prohibited from engaging in entrepreneurial activities, taking loans and acting as guarantors within 5 years after the bankruptcy.

After the Code comes into force the Law of Ukraine On Moratorium on Seizure of Property of Ukrainian Citizens Provided as Security for Loans in Foreign Currency will become invalid. At the same time, the foreign currency mortgage borrowers will get preferences as related to repayment of their loans provided they are the owners of one dwelling only (apartments of no more than 60 m2 or houses of no more than 120 m2), in which case a preferential rate (deposit index 12 months (NBU index) plus 0.5% per annum) and significantly increased repayment period (up to 10 years) will apply.

It is quite important that the sale of property of a bankrupt will be carried out exclusively through the electronic auction. The terms of sale (property composition, starting price, price increment, text of publication) will be agreed between the creditors’ committee and collateral creditors. This, of course, will minimize possible abusive practices on the part of bidders. It will also reduce the number of complaints about the auction results and will provide the bankrupt with an opportunity to sell his/her property at the highest possible price.

The bankruptcy procedures will take place with the obligatory participation of the insolvency receiver as a qualified specialist in the field. I think this is a good step forward. I would like to remind here that earlier the court could appoint a head of the liquidation commission as a liquidator. And this could be, for example, a former director having no certificate of the insolvency receiver…

The transparency of bankruptcy procedures will be also facilitated by new provisions according to which the insolvency receiver is obliged to report to the creditors’ committee not only on remuneration and expenses, but also on his/her work, on the progress of the bankruptcy proceeding, as well as to provide creditors with information on the financial status of the debtor.

In turn, the creditors’ committee will be entitled to apply to the court at any time with a motion to replace the insolvency receiver, regardless of any violations on the part of the latter. Here is important how the courts will act. I would like to believe that the courts, when considering the relevant motions, will evaluate all circumstances of the case as a whole rather than take the lead from the creditors’ committee. However, the court has the right to refuse to initiate the bankruptcy case if no evidence of advance payment of remuneration to the estate administrator has been provided.

However, there is also a reverse side of the Code, namely, the reduced amount of debt in respect of which the creditor may initiate a bankruptcy case. This may lead to an increase in the number of bankruptcy cases, and may even block the activities of enterprises.

To my mind another negative moment are the provisions of the Code on the competency of the creditors’ committee meetings. If a creditor holding ¾ votes at the general meeting will not appear thereon, the general meeting will be impossible to hold and, accordingly, the committee of creditors will not be formed and it will not be possible to move forward.

Having restricted these procedures in time, the authors of the draft Law did not determine the consequences of failing to meet the deadlines. Moreover, starting from 2013 the practice has repeatedly shown that bankruptcy deadlines declared in the bankruptcy laws are often unfeasible for various reasons. For example, because of the bankruptcy of large enterprises possessing a lot of property, or the need to take measures to return the debtor’s property from third parties. Or contestation of procedural documents by participants in a bankruptcy case, etc.

However, in general, the Code of Bankruptcy Procedures contains sufficiently progressive and innovative provisions in line with the international standards.

 
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