EU Project Pravo-Justice held a Webinar on Introducing Preventive Restructuring Procedures in Ukraine

On 20 December, EU Project Pravo-Justice together with the Interregional Expert Centre Pro Justice held a webinar "Procedural Considerations in Preventive Restructuring: Stages, Requirements and Role of the Court". Representatives of the Ministry of Justice of Ukraine, the Ukrainian National Insolvency Trustees Association, judges, including the Supreme Court justices and commercial court judges, banking community, attorneys, experts of EU Pravo-Justice Project and others took part in the event.

"On 1 January, the law on introducing preventive restructuring procedures in Ukraine will come into force. Implementing Directive 2019/1023 of the European Parliament and of the Council of the European Union into national legislation was one of our country's commitments under the Ukraine Facility Plan and the European integration process. The Directive is one of the crucial documents in the field of insolvency for EU member states as it regulates not only pre-trial restructuring, but also bankruptcy procedures and resolution of bad debts," said Iryna Zharonkina, Enforcement and Property Rights Protection Component Lead of EU Project Pravo-Justice.

Olena Fonova, judge of the Commercial Court of Luhansk region, co-founder of the NGO Interregional Expert Centre Pro Justice, stressed that preventive restructuring should not be seen merely as an attempt to avoid bankruptcy.

"This new tool in bankruptcy proceedings creates mechanisms for timely response to a company's financial troubles before they become critical. In a world where market relations are changing at a tremendous pace, such mechanisms can be the key to preserving businesses, jobs and the overall stability of the economy," said Olena Fonova.

In turn, Vladyslav Filatov, Director of the Bankruptcy Department of the Ministry of Justice, spoke about the major mechanisms for implementing the law on preventive restructuring.

"Starting in January, the Ministry's website will have a separate section on preventing insolvency. It will feature guidelines and resources on preventive restructuring and preventing bankruptcy. It will also contain a list of insolvency early warning tools. One of them is to keep accounting records properly and without interruption. It will also include a list of conditions for drawing up preventive restructuring plans adapted to the needs of micro and small enterprises," said Vladyslav Filatov.

He also noted that the Ministry has already approved a standard form of contract with the preventive restructuring administrator and developed a standard form of preventive restructuring plan for micro and small enterprises.

Roman Militsianov, judge of the Commercial Court of Vinnytsia region, gave a detailed overview of the regulatory framework for participants and parties to preventive restructuring procedure, forms, basic and advanced mechanisms for protecting the debtor in this procedure.

Oleksandr Banasko, judge of the Grand Chamber of the Supreme Court, pointed out the legal differences between pre-trial rehabilitation and preventive restructuring and also spoke about the peculiarities of commencing these procedures.

"Unlike preventive measures, pre-trial rehabilitation is essentially a mechanism for forcing creditors to restructure. It by no means establishes a procedure for communication between creditors and the debtor regarding measures to restore solvency, and it is essentially impossible to amend the pre-trial rehabilitation plan after the procedure has been initiated. By contrast, preventive measures focus on communication between the debtor and creditors. They should result in designing and submitting a restructuring plan for creditors' approval," said Oleksandr Banasko.

Yulian Khorunzhyi, Senior Partner at Ario Law Firm, outlined several ways to protect the interests of the creditor in the preventive restructuring procedure.

""Securing creditors" interests is a key provision of this law. It has a decisive impact on the prospect of a preventive restructuring plan being approved," said Yulian Khorunzhyi. In his opinion, if the court approves the debtor's plan, it does not mean that a creditor not satisfied with the restructuring terms has to agree to them. Such a creditor may challenge the debtor's proposals in court. If no agreement is reached, such a creditor may be declared unaffected in relation to its claims and will have the right to sue the debtor for debt collection.

Oleksandr Bondarchuk, President of the Council of the Ukrainian National Insolvency Trustees Association, said introducing a preventive restructuring procedure means that insolvency trustees will have to master new professional skills.

"The insolvency trustee and preventive restructuring administrator will need to expand and deepen his/her expertise in financial analysis, business planning, and develop accounting and taxation skills," said Oleksandr Bondarchuk.

Marc André, Restructuring Manager, President of Insol Europe (2002-2003), spoke about the international experience of introducing preventive restructuring procedures, particularly in France. He specified that the French insolvency system was built on the principles of insolvency early warning signs long before the Directive was adopted.

"The French preventive restructuring procedure is one of the most effective in the world. The country's national legislation always comes to the rescue of companies facing financial troubles. There are many mechanisms and practitioners that can help businesses get a second chance to become solvent again. Quite often, debtors who have had recourse to preventive debt restructuring get a positive result," said Marc André.