Comment on Debt Restructuring

The recent instability in the world economy has left many Ukrainian businesses no alternative other than to explore restructuring opportunities for their outstanding indebtedness. However, involvement in debt restructuring procedures with some major Ukrainian compa­nies has revealed adverse domestic regulation of certain internationally recognized instruments for settling difficulties in relations between creditors and debtors.

In particular, the concept of standstill widely applied in debt restructuring and inter-creditor agreements may be unenforceable in Ukraine due to the illegality of the creditor's waiver of right to initiate court or bankruptcy proceedings. Multiple creditors of a Ukrainian borrower should also bear in mind possible complications with rec­ognition of contractual ranking of claims in security enforcement and bankruptcy proceedings. The priority of claims is established statutorily and equal (pari passu) ranking of claims normally envisaged by debt restructuring documents involv­ing multiple creditors is difficult to attain within the existing legal framework.

Practical difficulties related to debt restructuring are driven by the requirement to reflect the essential terms of the restructured obliga­tions in each security document governed by Ukrainian law. This normally results in the involvement of parties in the time-consuming and costly process of amending security documents and reflecting the restructured essential terms in appropriate public registries.