In today’s realities, when Ukraine has been suffering from full-scale military aggression by the Russian Federation for the fourth year now, business is facing unprecedented challenges. Loss of assets, destruction of infrastructure, instability of the financial system, and general economic exhaustion require effective mechanisms to support companies.

At one time, one of the ways to save companies was supposed to be pre-court recovery (sanation). However, analysing judicial practice proves that it failed to become an effective means for companies to get out of the financial crisis. Its main shortcomings were the complexity of the procedure, the lack of effective incentives for creditors and debtors, as well as insufficient legal certainty and the lack of well-established practices. As a result, Ukrainian business was left without any real tools to restore solvency. In wartime conditions, this was something which made the struggle for subsistence even more complicated.

As part of the implementation of the Ukraine Facility Plan, last September, the Verkhovna Rada adopted the Law of Ukraine No. 3985-IX "On Amendments to the Code of Ukraine on Bankruptcy Procedures and Certain Other Legislative Acts of Ukraine on the Implementation of Directive 2019/1023 of the European Parliament and of the Council of the European Union and the Introduction of Preventive Restructuring Procedures". The document implemented Directive (EU) 2019/1023 on preventive frameworks, on discharge of debt and disqualifications, and on measures to increase the efficiency of procedures concerning restructuring, insolvency and discharge of debt into national legislation. Over the past six years, this Directive has become the basis for insolvency reforms in many EU countries, shifting the focus to early warning and overcoming business insolvency.

In Ukraine, the preventive restructuring mechanism has been in effect since January 1, 2025, with the entry into force of the aforementioned law. What does it offer to save businesses?

What is preventive restructuring and what are its peculiarities?

Let’s imagine there is an entrepreneur who has a fairly successful business, and he is even starting to cautiously consider the idea of expanding his activities. However, at a certain point, due to a number of unforeseen circumstances, he faces financial difficulties. In such a case, preventive restructuring becomes not just another mechanism, but a real salvation.

Preventive restructuring is a procedure that allows a debtor to take steps to restore financial stability before the undertaking becomes insolvent. The main goal is to prevent bankruptcy, preserve businesses and jobs, and ensure that creditors’ claims are met.

One of the key advantages of the preventive restructuring mechanism is flexibility in negotiations. Debtors and creditors can jointly agree on options for exiting the crisis. This may include revising the debt repayment schedule, writing off part of the debt, or making changes to the company’s operations.

Another important feature is the possibility of temporary suspension of the forced collection of debts. The court can stop enforcement actions to give the parties space for constructive negotiations.

In the course of the restructuring process, a company usually retains control over its operations. This is the so-called DIP – Debtor-in-Possession – model, which allows the debtor to keep managing their business during the period of changes.

At the same time, the Law provides for the possibility of compulsory approval of a restructuring plan for certain classes of creditors (Cross-Class Cram-Down). Even if some creditors oppose the plan, it can be applied on a mandatory basis – provided that it meets the criteria of fairness and economic viability.

In addition, the procedure allows for additional financing to support business operations during the transition phase.

Advantages of the new procedure

European experience shows that preventive restructuring can indeed be a kind of lifeline for a business that could potentially find itself in the middle of a financial storm.

First, it helps protect the business. The company gets a chance not only to survive, but also to maintain the continuity of work processes, like a ship that was able to avoid a collision with an iceberg by changing course.

Secondly, it should be interesting for business, given the speed of its implementation. While the traditional bankruptcy procedure can drag on for years, exhausting the company, preventive restructuring applies quickly, allowing the company to quickly return to financial stability.

Cost reduction is yet another significant factor. Liquidating a business is not only a financial loss, but also a complex, often painful, process. Restructuring, on the other hand, allows avoiding unnecessary expenditures and preserve valuable resources.

Another advantage of preventive restructuring is being a voluntary procedure. Unlike forced intervention by the court or creditors, this process is initiated by a company itself, which gives it more control over the situation and the opportunity to independently shape its future.

Preserving jobs is also an important aspect. When a company avoids bankruptcy, it means that hundreds, and sometimes thousands, of employees are not left behind, but continue working and giving stability to their families.

Finally, we cannot but mention the confidence of investors. Financial transparency and predictability make the company more attractive to potential investors, which opens up new horizons for development.

Six stages of preventive restructuring

In practice, the process of preventive restructuring resembles a complex operation where every step matters. At the same time, a well-honed strategy determines the future of the company.

It all starts with initiating the procedure. The business owner applies to an economic court, without asking permission from creditors, but making the decision on their own. Along with the application, some key documents shall be submitted: financial statements, a restructuring plan, a confirmation of payment of the court fee, and other necessary papers. This is the first step towards salvation.

The second step is the actual opening of the procedure. The court assesses the situation within five days. If all requirements are met, the restructuring process officially starts – the company gets six months to implement changes with the possibility of an extension of up to a year. During this period, protective measures are introduced: the creditors temporarily cannot collect their debts; the accrual of fines is suspended, and the court may extend these measures for a new period. Such a decision gives the business the necessary space for action.

The next stage is drawing up a restructuring plan. The debtor shall analyse the financial situation, assess the capacity and, together with the creditors, look for the best ways to overcome the difficulties. This may include reorganising the business, changing the terms of debt repayment, attracting investments or even partially selling assets. The plan should be clear and realistic, including information about assets, liabilities, class of creditors, and the amount of their claims.

However, it is not enough to just develop a restructuring plan. It shall be approved by a majority of unsecured creditors or two-thirds of secured creditors. If one class of creditors does not agree, the debtor has the right to apply to the court for compulsory approval (cross-class cram down). This solution makes it possible to prevent the process from being disrupted due to the opposition of individual groups of creditors.

Once the plan is approved, its implementation begins. The debtor, together with the restructuring administrator, reports to the court monthly on the fulfilment of obligations and progress in restoring financial viability.

When the plan is implemented and the company emerges from the crisis, the economic court shall terminate the restructuring process. If the implementation fails, other scenarios apply: opening a bankruptcy case or terminating the legal entity.

Don’t be afraid and don’t delay

Ukrainian business has always operated in difficult conditions – from economic crises to war-related challenges. Today, companies need not only to survive, but also to have effective recovery mechanisms in place. Preventive restructuring is the tool. It helps to preserve business, jobs and ensure economic stability.

One should not be afraid of this mechanism. It needs to be implemented, tested and adapted. No reform is perfect from day one. The identified shortcomings can be corrected by amending the legislation. The most important thing is not to delay. A business that responds quickly to challenges gains a competitive advantage, and preventive restructuring provides for such an opportunity.

This is not about retreat or defeat – this is about strategic flexibility. The sooner companies start using this mechanism, the sooner Ukraine’s economy can move from a struggle for survival to sustainable development.

The text was first published in the permanent blog of the EU Project Pravo-Justice at LB.ua.