The Law of Ukraine "On Financial Restructuring", adopted on 14 June 2016 (the "Financial Restructuring Law"), came into force on 19 October 2016. The market has long awaited introduction of legislation enabling the use of commonly known contractual restructuring instruments without commencing the debtor's rehabilitation proceedings in court.
Under the Financial Restructuring Law, the other provisions of Ukrainian legislation shall apply to the rights and liabilities of the creditors and debtors to the extent they are in line the Financial Restructuring Law.
The creditors involved (the "Involved Creditors") in the financial restructuring procedure (the "Procedure") shall be determined by the debtor. The Procedure is commenced upon petition of the debtor and Involved Creditors' consent if at least one financial institution unrelated to the debtor is involved in it.
Upon commencement of the Procedure, a moratorium on satisfaction of Involved Creditors' claims (the "Moratorium") for a period of 90 days shall be introduced. The Moratorium can be extended to 180 days or discontinued upon Involved Creditors' decision.
The Procedure is deemed completed upon the approval of the restructuring plan by the Involved Creditors' unanimous vote. The terms of the restructuring plan are binding on all the Involved Creditors and supersede any agreements between the Involved Creditors and the debtor, its sureties and security providers referred to in the restructuring plan.
In case the Moratorium is discontinued by the resolution of 2/3 of the Involved Creditors, the debtor and one or several Involved Creditors can enter into a standstill agreement. Under the Financial Restructuring Law, such standstill agreement must provide, inter alia, for terms and conditions of prohibition of enforcement of the creditors' claims both extra-judicially and in court.
Overall, implementation of the commonly known contractual (extra-judicial) restructuring instruments in the Ukrainian legislation can be deemed a significant regulatory breakthrough. However, certain provisions of the Financial Restructuring Law may still need attention. For example, the Involved Creditors' unanimous vote required for approving the restructuring plan may be difficult to achieve in practice, as well as the priority of a standstill agreement over any bilateral arrangements should be expressly envisaged by the Financial Restructuring Law. Notably, there are still no tax incentives for writing off indebtedness or sale of collateral within the frameworks of the financial restructuring.
For further information please contact Asters' partner Iryna Pokanay
and counsel Gabriel Aslanian.