Ensuring Predictability and Transparency in Bankruptcy-related Court Procedures: Discussion Was Held within the Framework of Legal Monitoring

On November 18, the Ministry of Justice of Ukraine, with the support of EU Project Pravo-Justice, held an online consultation on the topic: “Ensuring Predictability and Transparency in Bankruptcy-related Court Procedures”. The discussion was attended by representatives of the Ministry of Justice, the Unified National Insolvency Trustees Association Ukraine, the banking community, the judiciary, in particular, justices of the Supreme Court, and the experts of EU Project Pravo-Justice.

“The Ministry of Justice, following a meeting with representatives of the Independent Association of Banks of Ukraine, has included the topic of ensuring transparency and predictability in bankruptcy procedures in its annual legal monitoring. Two issues are being discussed – the need to introduce a norm on the plan-schedule for conducting the liquidation procedure in the Code of Ukraine on Bankruptcy Procedures and the expediency of enshrining the principle of judicial control over compliance with deadlines in bankruptcy and insolvency procedures in the Code,” said Oleksandr Oliinyk, Director of the Directorate of Justice and Criminal Justice of the Ministry of Justice of Ukraine.

According to Denys Hryshchenko, Head of the IABU Committee’s subcommittee on legal support for banks’ activities and protection of creditors’ rights, the implementation of a plan-schedule is expected to contribute to a more complete understanding of the actions of a bankruptcy trustee by creditors and of approximate deadlines for their implementation.

Arguments against such an idea have been voiced by Nataliia Tyshchenko, Deputy Head of the Kyiv BTs’ Council. She stated that the BTs community could see certain risks in the proposals under discussion, as they contradicted the principle of the rule of law, which provided for clarity and predictability of legislation.

According to Viacheslav Pieskov, justice of the Cassation Economic Court of the Supreme Court, it should be understood that the process of drawing up such a schedule will depend on a number of variable indicators – either creditors or liquidator or judge may change; besides, depending on the circumstances of a case, the content of the document may change.

Judge of the Economic Court of the Transcarpathian Region Pavlo Pryhuza noted that the legislation of the EU countries contains similar norms, according to which the liquidator shall draw up a plan for both settlement of insolvency and liquidation of the bankrupt’s property. Such a plan is a logical finalisation of the work of a bankruptcy trustee on the inventory of assets, analysis of the financial and economic situation of a debtor/bankrupt; and therefore, enshrining it in the Bankruptcy Code will have a positive effect on the terms of the procedure: on the liquidator’s self-control; control by the creditors and the court.

Vasyl Hei, expert of the IABU Committee on legal support for banks’ activities and protection of creditors’ rights, presented the vision of the banking community regarding the need to consolidate, at the level of the Code of Bankruptcy, the principle of judicial control over compliance with deadlines in bankruptcy procedures, in particular, the implementation of legal positions of the Supreme Court in the Code.

“It is impossible to establish general forms or regularity of such judicial control through legal positions alone. The Supreme Court’s developments on this issue should be consolidated at the legislative level,” suggested Vasyl Hei.

According to Pavlo Pryhuza, in order to comply with the deadlines in insolvency procedures, it is important for the legislator to decide on the doctrine: the purpose of liquidation should be the bankrupt’s property rather than the liquidation of the bankrupt as a legal entity. This is how European law is structured: if the bankrupt has no property and if the creditors refuse to bear the costs of financing the liquidator’s work, the proceedings in the case should be closed.

“Practice shows that the deadlines in bankruptcy procedures, in particular the liquidation procedure, are not observed. There are sometimes many objective obstacles that make it unrealistic to meet the allotted 12 months. Therefore, the issue of compliance and extension of deadlines should be regulated through the norms of the Code,” said Pavlo Pryhuza. He also noted that the legislative norms in European countries provide for the possibility to courts to extend the terms within bankruptcy procedures.

Oleh Vaskovskyi, secretary of the judicial chamber for bankruptcy cases of the SC CEC, emphasised the necessity to approach with caution the issue of regulation of judicial control over compliance with deadlines in bankruptcy procedures.

“If the principle of judicial control in insolvency procedures is enshrined in law, then it should be formulated in such a way that it does not replace the initiative of creditors,” noted Oleh Vaskovskyi.

It has also been discussed in the framework of online consultations, whether the Code should impose additional reporting obligations on the liquidator. Namely, whether a liquidator should indicate in the report all the actions taken by them throughout the liquidation procedure and submit, together with the liquidation balance sheet, which certifies the absence of any property with the debtor, a report on the actions taken by him aimed at identifying and recovering the debtor’s assets. Representatives of the BTs community spoke out against such an idea, substantiating their position by the fact that they currently produce monthly reports containing relevant information.