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The legal system of bankruptcy proceedings in Ukraine.

When a legal person can go bankrupt in Ukraine (srl, spa, snc, etc. in Ukraine).

On April 21, 2019, the Bankruptcy Procedure Code of Ukraine came into force. Starting October 21, 2019, individuals and individual entrepreneurs can restore their creditworthiness.

The legislation regarding the bankruptcy of a Ukrainian company, even if relocated from abroad, does not differ in essential features from EU and Italian legislation. In fact, in its journey towards the European Union, Ukraine has adapted to the community legal context also in terms of bankruptcy law. 

Bankruptcy in Ukraine of a legal entity at the initiative of the owners (self-bankruptcy) can be initiated at any time before the Commercial Court of Ukraine. There is no minimum amount of debt for legal entities, for example a Ukrainian LLC. The main reasons that impose self-bankruptcy in Ukraine can be summarized:

the company can no longer pay the utilities and the founders do not want to further develop their business in risky conditions;

there is a protracted debt to the founders of the company;

the company has accumulated significant debt on credit obligations and salary arrears;

the company has large arrears of contributions to regulators, including taxes;

the company has debts to suppliers of raw materials or products that have been shipped but not paid according to the supply documents;

there are unpaid loans to financial institutions and institutions.

It should be noted that in Ukraine the company is obliged to initiate bankruptcy proceedings if it has risks of insolvency with at least one of the existing creditors in the event that such default leads to the insolvency of the company towards other parties.

Directors of LLC in Ukraine must keep in mind that, if the company in Ukraine has not declared bankruptcy under the above circumstances, the director (administrator) is jointly and severally liable for the failure to satisfy debts to creditors. Conversely, if the declaration of bankruptcy is proposed promptly, the director is exempt from debt liability.

The bankruptcy of a company in Ukraine puts the company back in bonis and erga omnes (for everyone) also at an international level. 

 

Difference between bankruptcy and liquidation in Ukraine.

The reasons why initiating bankruptcy of the debtor of a legal entity in Ukraine is certainly more advantageous than simply closing the company with liquidation.

The company that declares itself bankrupt in Ukraine sees its debts cancelled, in the case of liquidation, the debts remain with the participants, the shareholder structure, if a partnership, or the administrator if a legal person. 

The entire procedure is conducted by a professional arbitrator appointed by the Ukrainian court competent for the territory. Often this is the only or at least the best way to resolve problems with unfair competitors, unreliable creditors and potential speculators.

With self bankruptcy in Ukraine, it is possible to reorganize the company and get rid of existing debts.

The deadlines for fulfilling all monetary obligations of the bankrupt person are considered prescribed;

the debtor has no additional obligations, including the payment of taxes and fees, except for costs directly related to the liquidation procedure;

the accrual and implementation of administrative sanctions (fines, penalties and the like), interest and other economic sanctions on all types of debt of the bankrupt is extinguished.

Seizure or attachment and other restrictions on the disposal of the assets of a debtor declared bankrupt are lifted. No new seizures or foreclosures or other restrictions are imposed on the possible disposal of assets

The advantages of bankruptcy proceedings.

The issue of debts is resolved legally with the participation of a qualified arbitral trustee and under the control of the Ukrainian court, without communication with debt collectors and actions on the part of creditors. 

 A moratorium is introduced which suspends all enforcement actions against the bankrupt applicant and his assets. The accrual of interest and penalties is permanently suspended. The debt is frozen.

The debtor/bankrupt legal person is liable exclusively with its own assets.

The debtor, if a natural person in Ukraine, releases the heirs of the debts referred to in the procedure and has the possibility of becoming a solvent person again after 5 years; all restrictions are removed towards the bankrupt as if there had never been bankruptcy.

Procedures such as seizures and foreclosures in progress are revoked.

The procedure is complex and technical, therefore it requires the involvement of specialists and arbitration managers.  Their performance and the related legal costs must be financially recognized.

Before entering into credit agreements, loans, guarantees or pledges, the bankrupt must notify the other party in writing of his state of insolvency.

During bankruptcy proceedings in Ukraine, there is a ban on the alienation of the debtor's assets.

 

Stages of bankruptcy in Ukraine:

preparatory phase, consultations, data collection and preparation of the procedure;

payment of a fee of the court of Ukraine and upon payment of an advance to the arbitrator of the arbitration into the court's deposit account for three months of activity.

In the absence of grounds for rejecting the self-bankruptcy application, the Commercial Court of Ukraine issues a ruling setting a date for the preparatory hearing and appointing an arbitral trustee.

During the preparatory stage, the Commercial Court of Ukraine checks the validity of the applicant's claims, finds the existence of grounds for initiating bankruptcy proceedings. Accordingly, it issues an order to initiate proceedings in the case.

A moratorium on creditor satisfaction is introduced. The debtor's performance of monetary obligations and obligations to pay taxes and fees is suspended;

the property disposal procedure is introduced (up to 170 calendar days). In the property disposal procedure, the property administrator with the participation of the debtor draws up a rehabilitation plan for the debtor in accordance with the requirements of this Code and submits it to the creditors' meetings for consideration. Creditors who wish to participate in the debtor's rehabilitation will be identified.

It is decided by the Ukrainian court and a preliminary hearing is held. Based on its results, the amount and list of all claims of creditors recognized by the court that are entered in the register of their claims, as well as the date of the meeting of creditors and the creditors' committee are determined.

A meeting of creditors is held and a creditors' committee is created. Based on their findings, a resolution on the reorganization of the debtor or a resolution on the declaration of bankruptcy of the debtor and the start of the liquidation procedure is issued.

The Commercial Court of Ukraine makes one of the following four determinations:

a decision to extend the duration of the property disposal procedure;

a decision on the introduction of the reorganization procedure and approval of the reorganization plan (in case of approval of the debtor's reorganization plan by the meeting of creditors and its approval by the secured creditors);

decides on the declaration of bankruptcy of the debtor and on the opening of the liquidation procedure;

decision to close the bankruptcy proceedings.

Subsequently, the debtor reorganization procedure is introduced, the reorganization plan is reviewed and approved, and a reorganization manager is appointed.

According to the decision, the Commercial Court of Ukraine declares the debtor bankrupt and opens liquidation proceedings and appoints a bankruptcy trustee (up to 12 months). As a result, the company gets out of a difficult situation, its debts are written off.

For the period of the bankruptcy procedure, a moratorium is imposed which suspends all enforcement actions against the debtor and his assets.

During the disposal and rehabilitation procedure of the property it is possible to continue economic activity. Information on the financial situation of the bankrupt becomes known to third parties, no longer confidential by commercial secrecy

The powers of the governing bodies of the bankrupt company and of disposing of its assets cease. Members of the executive body (manager) of the bankrupt are dismissed in connection with the bankruptcy of the enterprise. The powers of the owner of the bankrupt's assets also expire.

The firm is able to follow bankruptcy procedures both in Ukraine and in Italy.