EU Project Pravo-Justice held an online round table “Pre-trial Sanation: Relevant Case Law. First Successful Cases and European Experience”

Relevant jurisprudence and practical matters in applying pretrial sanation in Ukraine were in the spotlight of the discussions during the round table held by EU Project Pravo-Justice on January 31. The event was attended by representatives of the Ministry of Justice of Ukraine, the Ministry of Economy of Ukraine, the banking community, the public sector of the economy, bankruptcy trustees, advocates.

In her opening remarks, Iryna Zharonkina, Component Lead on Enforcement of Court Decisions, EU Project Pravo-Justice, covered how important it is to use to pre-trial sanation, especially nowadays.

“Pre-trial sanation is designed to provide companies facing the threat of insolvency and bankruptcy with an opportunity to prevent this in advance and to restore their business activities, to resolve debts. Given the economic consequences in the wake of Covid pandemic, full scale war, energy crisis, mounting inflation, this procedure is crucial. Therefore, in course of the round table, we would like to analyse in more detail how pre-trial sanation works in action and to find out about the first successful cases”, said Iryna Zharonkina.

In his opening remarks, Vladyslav Filatov, Director of the Bankruptcy Department of the Ministry of Justice of Ukraine, also emphasized that the topic of the round table is extremely relevant. At the same time, he clarified that sanation is used quite rarely since creditors and debtors cannot come to an agreement between themselves. Therefore, it is necessary to work on changing their perception.

“We expect that their relations will evolve and that creditors and debtors will understand that it is necessary to reach an agreement. And to achieve this, it is necessary to improve the level of drafting pre-trial and court sanation plan by including objective economic calculations,” said Filatov.

Yurii Moiseiev, Deputy Director of the Legal Support Department of the Ministry of Economy of Ukraine shared the statistics on how Article 5 of the Code of Ukraine on Bankruptcy Procedures is applied.

“Over the past three years, only 17 applications on approving the sanation plan have been submitted and accepted before the of bankruptcy proceedings were opened. Currently there are only 6 plans that are put in operation. During full-scale military invasion, 3 sanation applications were submitted. And as of today, there are still no final decisions on them,” Yurii Moiseiev said.

He also briefly outlined the challenges when it comes to using sanation, spoke about key court decisions regarding the most discussed cases. In particular, he covered pre-trial sanation of PJSC “Dnipro Metallurgy Plant” and the pre-trial sanation of PJSC “Kharkiv Tractor Plant”.

Kostiantyn Smolov, a bankruptcy trustee, spoke about successes and failures in applying pre-trial sanation and drew attention to the fact that for now there isn’t unified jurisprudence on the issue discussed.

According to Oleksandr Bondarchuk, Chair of the National Association of Bankruptcy Trustees, the current procedure for pre-trial sanation does not meet market participants’ fundamental needs.

“Current pre-trial sanation procedure significantly damages the creditor’s rights. It does not solve any the issues, in particular, restoring business activities and repaying the company’s debt,” said Bondarchuk.

In addition, the Chair of the National Association of Bankruptcy Trustees drew attention to the problem of managing companies that apply pre-trial sanation procedure. By leaving the same management in place and entrusting them with sanation, such companies only exacerbate their problems because often it is the actions taken by the management that put the company at risk of insolvency.

Arne Engels, EU Project Pravo-Justice International Expert (from Germany) familiarized the round table participants with the practical aspects of applying the pre-trial sanation procedure in Europe, in particular, in Germany. Drawing parallels with Ukraine, Arne Engels added that the pre-trial sanation procedure is not that popular in Germany either and that debtors usually prefer to go for standard bankruptcy procedure.

Iryna Boyko, First Deputy Chair of the Board of NJSC “Nadra of Ukraine” shared her experience of participating in pre-trial sanation and outlined the challenges she faced. Thus, she said that the pre-trial sanation of one of the subsidiary companies was cancelled by the decision of the Supreme Court because of a legal conflict: the sanation procedure was started according to the old legislation, and it turned out to be impossible to complete it according to the Code of Bankruptcy Procedures.

Considering that the issue raised is important for the economy, EU Project Pravo-Justice will monitor further changes and developments in jurisprudence on how pre-trial sanation is applied.

A video recording of the round table is available at the link