Topical issues of application of bankruptcy laws and ways of their solution

Mar 14, 2019 | Judiciary, Justice


The EU "Pravo-Justice" organised the second Donbas Regional Justice Reforms Council meeting in Kharkiv on March 13.

Currently, the problem of bankruptcy of businesses and individuals - entrepreneurs in the Donetsk and Lugansk oblasts is relevant both for the enterprise itself - the debtor (the individual - the entrepreneur), and for creditors. In some cases, bankruptcy is the only way to repay the debt at least partially.

  1. Initially, the problematic issue is that a legal entity is registered in a temporarily uncontrolled territories in the Donetsk and Luhansk oblasts. The first necessary step is to change the legal address, and after that you can already file a bankruptcy petition with the economic court of the relevant region. In this case, there is no problem with filing an application if the legal entity independently changes its address. However, in a situation where a legal entity, for various reasons, does not change its legal address, there are certain difficulties. This raises the question and proper notification of the parties to the trial, and in general, makes the bankruptcy procedure difficult. Of course, in this situation there are a number of different reasons given for the impossibility of changing the legal address, however, there are deliberate motives that make it impossible for creditors to receive and / or write off debts. Problem situation No. 1: a legal entity has debts (which are recognized by the court in accordance with the law), but for a number of reasons it does not change the legal address. Creditors are deprived of the opportunity to either repay the debt on the part of the debtor or to write it off.

  2. The next problematic issue is that the immovable / movable property of enterprises and individuals - entrepreneurs remained in the so-called "Luhansk People's Republic" and "Donetsk People's Republic". This situation in itself is very difficult for all persons who turned out to be residents of Donetsk and Lugansk oblasts, both for individuals who were forced to leave their property, and for legal entities (individuals - entrepreneurs). But since this topic concerns business, we will consider this question from this aspect. If a bankruptcy case has been initiated against the debtor, and the debtor’s property is located on the so-called "Luhansk People's Republic" and "Donetsk People's Republic", it becomes impossible to carry out a number of actions stipulated by law. These include: property valuation, property sales, not to mention that this property could have been completely or partially destroyed during the hostilities. Accordingly, the arbitration manager is deprived of the opportunity to fully assess the assets of the debtor and form a liquidation mass. The debtor in this case is actually deprived of the opportunity to restore its solvency. This situation prevents a number of actions stipulated by the legislation on bankruptcy, and in some cases makes them completely impossible. Problem situation № 2: The property of the debtor is located in the so-called "Luhansk People's Republic" and "Donetsk People's Republic". Creditors are deprived of the opportunity to receive their funds, the debtor is deprived of the possibility of repaying the debt, both fully and partially, as well as the possibility of restoring his solvency, including through the conclusion of a settlement agreement. The court and arbitration manager, as integral participants in the bankruptcy procedure, are deprived of the opportunity to carry out a number of actions stipulated by the Law of Ukraine “On Restoring Debtor’s Solvency or Declaring It Bankrupt”, and the Economic Procedural Code of Ukraine.

  3. It is also a big question and problem to fulfill procedural requirements. According to the Law of Ukraine "On restoring the debtor’s solvency or declaring it bankrupt", a settlement agreement, disposition of the debtor’s property, debtor’s debitability or liquidation can be applied to the debtor. Accordingly, the arbitration manager at different stages of the bankruptcy procedure may act as: a property manager, a reorganization manager, a liquidator. According to the current legislation of Ukraine, the liquidation procedure is a judicial procedure in a bankruptcy case, the purpose of which is to pay off a bankrupt’s debt by selling property and settling debts. The liquidation procedure may not exceed 12 months. The liquidation procedure is assigned to the liquidator. Accordingly, if the property of the debtor is located on uncontrolled territory, it is impossible to carry out the liquidation procedure within 12 months. The extension of the liquidation procedure over a specified period is not provided for a friend, including for enterprises registered in the so-called "Luhansk People's Republic" and "Donetsk People's Republic" and / or whose property is located in such territory. Problem situation No. 3: Forced violation by the liquidator (arbitration manager) of the terms of the bankruptcy procedure and, as a result, the court's hopeless situation in the terms of the case.

  4. A serious problem is also the situation with lost court cases. To date, there are a number of court cases, including bankruptcy cases, which remain in the so-called "Luhansk People's Republic" and "Donetsk People's Republic". Accordingly, the original documents regarding receivables and payables, financial - economic activities of the debtor, and its assets cannot be recovered. Problem situation No. 4: Due to the lack of original documents, it is impossible to restore court cases and, as a consequence, the inability of the economic court to continue to consider the case within the framework of the current legislation.

Of course, there are quite a lot of problematic situations in which Donetsk and Luhansk oblasts find themselves. And of course, in this case there are more questions than answers. It is impossible to solve these or other issues in the legal field, since the laws of Ukraine and international conventions do not apply in the so-called "Luhansk People's Republic" and "Donetsk People's Republic" .

At the round table, the Novels of the Code of Ukraine on Bankruptcy Procedures were discussed, but the main problem is that the project did not take into account the problems faced by the Donetsk and Luhansk oblasts.

Also at this event were international experts from France and Germany, who shared their experience in handling bankruptcy cases in their countries. It would be interesting to know how each participant of the round table sees the application of various aspects from these presentations regarding the consideration of cases of this category in Ukraine, and specifically in our region.