On 21 April 2019, a new document – the Ukrainian Code of Bankruptcy Procedure (the 'Code') – came into force. The enactment of the Code will take place six months after the effective date.
The Code contains novel provisions that have never existed before in Ukrainian law and in relation to which there is no caselaw. Such novelties include, among other things, the concept of 'individual bankruptcy,' which is designed to allow an individual to restore their solvency. The Code has a separate Book addressing the issues of individual bankruptcy.
Now, as the Code became effective, each individual, to whom the provisions of the Code apply, may file an application to have insolvency proceedings instituted against them or to attempt to have their debts restructured on the grounds provided in the Code. Should such restructuring fail, they may file an application to have themselves declared bankrupt and to have their own debt paid in part with their existing property.
Aspects of the Ukrainian approach to restoring individual solvency rely in the fact that relevant proceedings may only be instituted on application of an individual and subject to a number of requirements set out in the Code.
The accrual of fines, other financial penalties and interest charged on a debtor's obligation must be terminated, and a moratorium on creditor claims must be introduced if the court opens insolvency proceedings.
On the other hand, the debtor should be aware of quite serious restrictions that would apply to them in such a situation, particularly:
- Asset disposition restrictions. Any disposition or disposal of the debtor's property (including dealing with equity interests and exercising property rights) must be in line with the procedures outlined in the Code (be consented to by the asset administrator);
- The debtor's agreements will face the risk of invalidation. This equally applies to transactions made by the debtor after the bankruptcy proceedings have been instituted, and to previously concluded transactions, which were entered into within three years before the opening of the bankruptcy proceedings. At risk, also, will be deeds of gifts and related-party transactions (transactions made with legal entities founded or controlled by the debtor or of which the debtor is a member, or individuals having a family relationship with the debtor, or other persons who can be reasonably regarded as related parties), for instance;
- Other restrictions of rights. The Code imposes certain new obligations and restrictions on the debtor, including, but not limited to, an obligation to notify the other party in writing that the debtor is insolvent and declared person without good business standing, when entering into certain agreements. However, please note that the Code does not define the concepts of 'business standing' or 'good business standing,' nor does it contain any reference to other regulations that would provide for their definitions.
We therefore recommend that the provisions of the Code should only be used after careful analysis of all the positive and adverse aspects of the individual bankruptcy concept for a given private investor.