"Report on the Financial and Property Status of the Debtor...": EU Project Pravo-Justice Co-Organised a Roundtable Discussion

On 15 March, a roundtable discussion “Report on the Financial and Property Status of the Debtor as a Component of the Fullness of the Actions taken by the Bankruptcy Trustee” took place. The Ukrainian National Insolvency Trustees Association organised it with the support of EU Project Pravo-Justice. Representatives of the Ministry of Justice of Ukraine, the Chamber of Auditors of Ukraine, the banking community, justices of the Supreme Court, bankruptcy trustees, national and international experts of EU Project Pravo-Justice participated in the event.

"Analysing the financial operations of a debtor is an essential part of bankruptcy or rehabilitation. The jurisprudence imposes an obligation on the bankruptcy trustee to analyse companies’ financial and commercial status. However, in our opinion, it is important to examine whether the analysis as it stands now meets the needs of the procedure and whether bankruptcy trustees are equipped with the tools that would allow them to provide the court with the necessary information," said Iryna Zharonkina, Enforcement and Protection of Property Rights Component Lead of EU Pravo-Justice Project.

She also noted that the current Guidelines for Early Warning Tools must be amended. According to her, in 2022, experts from the EU Project Pravo-Justice analysed the document. They concluded that the Guidelines do not reflect changes to a number of regulations and are not in line with the current Bankruptcy Code.

"We propose to use the modern risk-oriented approach as a basis for analysing financial and commercial operations. This approach will be aimed at establishing the circumstances leading to the deterioration of the status company, analysing the current state of assets, liabilities, equity, identifying key risks of the enterprise’s operations, and making a conclusion about the inevitability of bankruptcy or the possibility of rehabilitation," said Iryna Zharonkina.

Oleksandr Bondarchuk, President of the UNITA, emphasised that the topic of the event is relevant and should be discussed regularly.

"Taking into account the recent developments in the jurisprudence on the application of the Bankruptcy Code, the requirements for quality and responsibility regarding the functions of the bankruptcy trustee are increasing day by day, while the mechanisms and tools are largely the same. Therefore, such roundtables bringing together various experts are crucial in developing our field," said Oleksandr Bondarchuk.

Vladyslav Filatov, Director of the Bankruptcy Department of the Ministry of Justice of Ukraine, presented his vision of the principle of fullness of actions of the bankruptcy trustee. He also said that by the end of the year, the Ministry will revise the Guidelines for Early Warning Signs of Enterprise Insolvency.

"A compromise can be reached if the financial analysis is carried out by a trained analyst and approved by the property manager. Of course, the property manager should be able to take all the actions," said Vladyslav Filatov.

The jurisprudence on the fullness of the bankruptcy trustee’s actions, including the report of the bankruptcy trustee on the financial and property status of the debtor, was outlined in detail by Olena Yaniuk, Judge of the Commercial Court of Kyiv Region, Volodymyr Pohrebniak, Judge of the Cassation Commercial Court within the Supreme Court, and Oleh Vaskovskyi, Justice and Secretary of the Bankruptcy Chamber of the Cassation Commercial Court within the Supreme Court.

Vasyl Hei, an expert of the NABU Committee on Legal Support of Banks and Protection of Creditors’ Rights, spoke about the role of the report on the debtor’s financial and property status in protecting the creditors’ interests. Serhii Donkov, a bankruptcy trustee and member of the Council of Insolvency Trustees of Ukraine, spoke about the importance of the report on the debtor’s financial and property status for bringing to joint and several responsibility.

Olena Mykhailova and Olena Baryshnikova, members of the Board of the Chamber of Auditors of Ukraine, briefed the roundtable participants on theoretical and practical approaches to the auditor’s participation in and responsibility for the report on the debtor’s financial and property status in bankruptcy proceedings.

Denys Lykhopok, a bankruptcy trustee, focused on the importance of early warning signs of insolvency for preventing bankruptcy.

Arne Engels, an international expert of EU Project Pravo-Justice, bankruptcy trustee and attorney at law (Germany), described how a debtor’s financial condition is examined in the EU Member States. He specified that the procedure differs depending on the status of the debtor.

"In Germany, a bankruptcy trustee in insolvency proceedings is always responsible for financial analysis. Even if s/he engages third parties, such as appraisers, experts, auctioneers, tax advisors or auditors, to assist while analysing assets, the bankruptcy trustee always bears the ultimate responsibility," said Arne Engels.

The roundtable discussion resulted in a roadmap for the stakeholders in bankruptcy cases. The opinions, comments and suggestions voiced during the event are expected to further contribute to the legislative and practical efficiency and transparency of bankruptcy cases.

Videorecording of the Roundtable discussion.