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Bankruptcy Code: What Needs to Be Understood

Date of publication: 17 April 2019

Vadym Kizlenko, Counsel, Attorney at Law, Insolvency Receiver

Source: UNIAN

The Bankruptcy Code, which was adopted by the Verkhovna Rada last year and recently signed by the president, contains many groundbreaking and innovative provisions that are in line with international bankruptcy standards. This gives all grounds to believe that in the nearest future Ukraine will significantly improve its position in the Doing Business Index, which in turn will have a positive impact onto the investment climate in the country and will give a boost to the economy. As a practicing insolvency receiver, I would like to note the introduction by the Code the of a single self-regulatory organization of insolvency receivers (SRO).

Since 2013, 7 or 8 SROs have been registered in Ukraine, but none of them has been able to truly unite insolvency receivers around it. The talks about that the need of the professional community to unite, defend and fight for their rights in the profession, are being conducted for years. But it was impossible to end this mission. Now, in arbitration managers there are no options, the legislator said that we need to create an SRO as a matter of necessity. I very much hope that the professional community in the near future (before the Code enters into force) will begin active work on the creation of a single SRO, which in the future will exist not only on paper but will become a real vehicle for the protection of the rights of insolvency receivers. I cannot stay away from the novelties that will contribute to the transparency of the bankruptcy procedure. I would refer to them the abolition of Article 95 of the Law of Ukraine On Renewal the Debtor’s Solvency or Declaring it Bankrupt, which allowed the court to appoint the head of the liquidation commitee as the insolvency receiver of the bankruptcy (as a rule, it was a director who has no certificate of the insolvency receiver and who was actually guilty of bringing the company to bankruptcy). Pursuant to the provisions of the Code, any bankruptcy procedure will take place under the obligatory participation of an insolvency receiver. At the same time, the insolvency receiver is obliged to disclose the information on the financial condition of the debtor and the course of the bankruptcy procedure on the official website of the state body for bankruptcy. Such information includes in particular: significant debtor’s agreements, the amount of the receiver’s remuneration, property inventory, debtor’s borrowers, secured by the creditors of the debtor, debtor’s obligations and reasons for their occurrence, investors, texts of decisions of the creditors’ meeting and creditors’ committee, and the text of the rehabilitation plan.

New provisions, according to which the insolvency receiver is required to report to the creditors’ committee not only about his remuneration and expenses, but also about his work during the bankruptcy procedure will contribute to the transparency of bankruptcy proceedings. In this case, the creditors’ committee will receive the right to apply to the court at any time with a request for the replacement of the receiver, regardless of the presence of violations in the actions of the latter. And here the main role will be played by the court which will have to take a weighted and substantiated decision not only in the interests of the creditors’ committee, but also in the interests of all the parties to the bankruptcy case.

As for the sale of the debtor’s property, the Code stipulates that it will only be carried out through an e-auction. Moreover, the Code provides for the coordination with the committee creditors’ and mortgage lenders on the terms of sale of property (composition of property, starting price, auction step, text of the publication), which should minimize the potential abuse by the bidders and reduce the number of complaints about the auction results. When the Code comes into force, the court will have the right to refuse to initiate a bankruptcy case if the complaining party failed to provide evidence of making an advance payment of the remuneration to the property manager. I think this will increase the efficiency of the work of the insolvency receiver, because he will not be looking for money to pay for his work, and, first of all, will concentrate on fulfillment of his direct duties.

Probably the main benefit of the Code is the legislative regulation of the bankruptcy procedure of individual persons. This is a generally accepted world practice and something that Ukraine really needed in debt relations. The procedure of bankruptcy of individual persons will enable to resolve disputes between creditors and borrowers-individual persons in a civilized way and within the legal field, as a result of which the former will receive the guarantees of the satisfaction of their claims (parts thereof), and debtors will be able to start their lives “from scratch” (but with some limitations, as within five years after the bankruptcy such individuals will be prohibited from engaging into entrepreneurial activities, taking loans and acting as guarantors).