EU Project Pravo-Justice Held a Round Table on Cross-Border Bankruptcy
On March 31, EU Project Pravo-Justice held an online round table “Enforcement of Foreign Judgments and Cross-Border Bankruptcy: Relevant Jurisprudence and Further Development.” The speakers at the event included representatives of the Ministry of Justice of Ukraine, justices of the Cassation Commercial and Cassation Civil Courts within the Supreme Court, academia of Institute of International Relations of Kyiv Taras Shevchenko National University, Baker McKenzie law firm lawyers, international experts and representatives of the Association of Private Enforcement Officers of Ukraine.
“A full-scale war, a tough economic situation, and an energy crisis led to deterioration in fulfilment of obligations, an increase in the number of bankruptcies and bankruptcy proceedings initiated not only in Ukraine, but also in other European countries. Such a situation can lead to an increase in the number of motions to recognize and enforce foreign judgments and recognize foreign bankruptcy proceedings in Ukraine,” said Iryna Zharonkina, Property Rights and Enforcement Component Lead, EU Project Pravo-Justice when giving welcoming remarks.
She also added that in course of this round table, the Project aims to find out why there is a rather small demand for the recognition of foreign bankruptcy procedures currently in Ukraine and what trends have shaped in the field of cross-border bankruptcy in Ukraine.
Arne Engels, EU Project Pravo-Justice international expert briefed the round table participants on practicalities of applying cross-border bankruptcy in EU countries, in particular in Germany. He presented two cross-border bankruptcy cases and summarized that European legislation in this field sometimes does not provide answers to practical questions.
“We can say that European cross-border bankruptcy legislation remains quite imperfect. However, the legislation is being improved. Recently, the European Commission presented a new EU regulatory act specifically related to insolvency and bankruptcy procedures. It sets out in more detail European requirements for insolvency procedures and contains certain recommendations for national legislation. Time will tell how effective this document will be,” said Arne Engels.
Vladyslav Filatov, Director of the Bankruptcy Department of the Ministry of Justice of Ukraine, said that the President has signed draft law No. 4409 “On Amending the Code of Ukraine on Bankruptcy Procedures”, which makes it possible to apply the reciprocity principle which unblocks consideration of cross-border bankruptcy cases in Ukraine and cases with a foreign element. At the same time, he added that jurisprudence plays an important role in drafting qualitative legislative amendments.
“There are a lot of challenges and discrepancies. Until they are revealed during the court proceedings, it is difficult to fully evaluate them and find a solution,” said Vladyslav Filatov. He noted that the number of cases with a foreign element in Ukraine is increasing. According to him, there has been an increase in applying subsidiary and joint liability in bankruptcy cases. Bankruptcy trustees now much more often find the debtor’s property in foreign jurisdictions and enforce the creditor’s claims.
Oleksandr Biriukov, Doctor habilitatus in law, professor of the Department of International Private Law at the Institute of International Relations of Kyiv Taras Shevchenko National University, outlined three challenges in his intervention. The first is a poor-quality official translation of foreign legislation and international instruments which then has a negative impact on law enforcement. The second is the shortcomings in the national cross-border bankruptcy legislation, which is actually “dead in Ukraine”. The third is the fact that national courts are reluctant to consider cross-border bankruptcy cases.
“Ukrainian courts refuse to apply Ukrainian and international legislation in this area. A landmark case in this regards is case No. 914/207/2015 which was considered in all instances and was rejected by the court on all counts. Therefore, in my opinion, we should not expect a demand for cross-border bankruptcy cases in Ukraine when the courts do their best to prevent considering such cases,” Oleksandr Biriukov said.
Kseniia Prokhur, litigation counsel with the Kyiv office of Baker McKenzie, an international law firm, drew attention to the challenge of enforcing judgments denominated in foreign currency. She informed the attendants that it has been made impossible to enforce such judgments for more than a year.
The fact is that because of Russian full-scale invasion into Ukraine, the NBU adopted Resolution No. 18 of February 24, 2022 “On Banking System Operations during Martial Law”, which essentially limited the sale of foreign currency to individuals and prohibited cross-border transactions.
“There are no exceptions in the Regulation in this regard to make it possible to enforce a judgment. Therefore, we are seeing a situation when the State Enforcement Service bodies and private enforcement officers cannot buy foreign currency and transfer it to a debt collector’s accounts,” said Kseniia Prokhur.
Vitalii Chepurnyi, President of the Association of Private Enforcement Officers of Ukraine, dedicated his report to the negative consequences NBU Resolution No. 18 of February 24, 2022 has on the enforcement of judgments.
“Collecting funds in favour of non-residents in the currency in which the debt is determined in the judgment (i.e., foreign currency) is one of the mechanisms to protect foreign investors in Ukraine. At the moment, enforcement officers cannot buy currency to transfer it to the creditor because of NBU resolution No. 18 of 24.02.2022, which violates the rights of the creditor (collector), and Ukraine’s obligations remain unfulfilled,” said Vitalii Chepurnyi.
He added that the Association of Private Enforcement Officers of Ukraine sent proposals to the NBU on amending paragraph 15 of the Resolution of the NBU Board dated 24.02.2022 No. 18 “On Banking System Operations during Martial Law”.
“It is absolutely unacceptable for a by-law, in this case the Resolution of the National Bank of Ukraine, to stop the legislative rule which provides for the enforcement of judgments,” added Andrii Avtorhov, a private enforcement officer.
Olha Stupak, a justice of the Civil Cassation Court within the Supreme Court, drew attention to the procedural aspects of recognizing and enforcing foreign court judgments and international arbitration awards which can lead to misunderstandings and obstacles for foreign entities.
"The case on recognition and enforcement of foreign court judgments can be considered in three judicial instances in national jurisdiction whereas, for awards of international arbitrations, it is only two instances. We believe it is necessary to make sure these issues are considered via a single instance procedure,” said Olha Stupak.
She also covered the challenges faced by national courts when it comes to granting permission to enforce foreign court judgements and international arbitration awards. So, for now, the question of what the national court is to do remains open when, at the stage of accepting a motion to permit the enforcement of foreign court judgments, the debtor denies that it has movable property on the territory of Ukraine, and accordingly, objects to the jurisdiction of Ukrainian courts to resolve this procedural issue.
Another important question is whether the party against whom the decision was made was duly notified of the proceedings in a foreign court and had the opportunity to participate in the proceedings. According to Olha Stupak, there is no unequivocal answer to the question of the limits of judicial control over the enforcement of foreign court judgments and international arbitration awards, in particular, whether a national court can postpone, rule on instalments or change the method of enforcing a foreign court judgment.
Oleksandr Banasko, a justice of the Commercial Cassation Court within the Supreme Court, presented jurisprudence in cross-border bankruptcy cases and noted that the Supreme Court itself facilitates recognition of cross-border bankruptcy proceedings.
Video recording of the online roundtable is available here