RJRCs discussed some topical issues of individual insolvency in Ukraine

On March 22, 2021, the representatives of the Regional Justice Reform Councils (RJRCs), the Verkhovna Rada, and the Ministry of Justice of Ukraine took part in the discussion on ‘Individual insolvency: Current Problems of Application and Possible Solutions’. The purpose of the event was to outline the existing problems and exchange best practices in the field of individual insolvency among judges, bankruptcy trustees (BTs), and lawyers from various regions.

More than a year has passed since the entry into force of the Bankruptcy Procedure Code of Ukraine, however, individual bankruptcy is not even close as demanded as expected. Accordingly, there is not much practice in application.

‘There are several reasons explaining why individual insolvencies are far from being popular; they include: high cost of the procedure, lack of people’s awareness of its advantages and disadvantages, as well as complexity of legal regulation. Therefore, RJRCs have initiated such a discussion to exchange views and practices with colleagues from other regions and together come to common ground in resolving collisions,’ said Iryna Butyrska, coordinator of Chernivtsi Regional Justice Reform Council, Ph.D. , Assoc. Prof., Managing Partner of Lex Advance Law Firm.

Improvement of the individual insolvency procedure is especially important now, when not so much time is left until April 21, 2021, the date where the moratorium on the recovery of Ukrainian citizens’ property serving as collateral for loans in foreign currency will be lifted.

‘After the adoption of the Bankruptcy Procedure Code in Ukraine, individuals became entitled to use the procedure of solvency restoration or go bankrupt. This procedure has already been in place for more than a year, but we have not noticed debtors widely using it. Our common task is to seek improving legislation so that everyone in a difficult financial situation could enjoy the right of taking a fresh financial start,’ said Roman Chumak, Kharkiv Regional Reform Council Coordinator, lawyer, managing partner of Ares Law Firm.

The drafts submitted to the Verkhovna Rada by Ukraine’s MP Taras Tarasenko are aimed at simplifying the bankruptcy procedure for foreign currency borrowers. In particular, they provide for bankruptcy proceedings without the involvement of a BT, the possibility of setting a minimum court-ordered amount of debt to be repaid, exemption from personal income tax on the forgiven part of the loan, as well as other changes to the Bankruptcy Code of Ukraine.

‘The state must offer a simplified and clear procedure to foreign currency borrowers so that they could restore solvency or go bankrupt. To this end, the Verkhovna Rada is considering now a number of drafts aimed at providing assistance to foreign currency borrowers. The state should provide assistance to people in a difficult financial situation,’ said Taras Tarasenko, MP, Chairman of the Working Group on Improving Bankruptcy Legislation.

Based on the results of the discussion, the participants submitted proposals for improving the individual insolvency procedure, including:

• Simplify the list and relating requirements to the documents that are submitted by a person who applies to the court with an application to initiate insolvency proceedings in their respect.
• Provide in Book 4 of the Code for the right of the court, after receiving an application to initiate insolvency proceedings, to issue a decision to leave such an application without motion and allow time to eliminate deficiencies in the application, if any.
• Address the issue of ambiguous interpretation of the existing legislation by various participants in the procedure through the practice of the Supreme Court in relevant cases. For example: the interest rate of 12% on debt restructuring shall apply per annum or in general?
• Improve the legal mechanisms for excluding the bankrupt’s property from the liquidation estate.
• Settle conflicts in the legal regulation of the consequences of the creditors' non-approval of a restructuring plan, etc.

RJRCs deal with individual insolvency since the adoption of the Bankruptcy Code of Ukraine. In the summer of 2019, as a result of two-day work, the RJRCs Interregional Working Group, composed of judges, BTs, and lawyers, developed proposals to improve the Code, as well as to improve the practice relating to bankruptcy proceedings.

Background information:

According to the World Bank, Ukraine ranks 146th in the rating of bankruptcy regulation. Among the main reasons are:

• Significant length of proceedings – 2.9 years (0.4 in Ireland).
• High cost of bankruptcy proceedings – 40.5% of the value of the debtor’s assets (1% in Norway).
• Low efficiency of bankruptcy proceedings – 9 cents per dollar (92.9 in Norway).

Regional Justice Reform Councils (RJRCs have been created with the support of the EU Project ‘Pravo-Justice’ and function in Chernivtsi, Dnipro, Kharkiv, Lviv, Odesa regions, and in Donbas. To date, the Councils’ members have been actively participating in drafting a bill on mediation, amendments to the Bankruptcy Code, proposals to improve legislation on enforcement proceedings, introducing e-court, and discussing the concept of transitional justice.

RJRCs act as permanent working groups to promote bottom-up reforms: bringing region-specific challenges and potential solutions thereof to the level of central government.