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Restructuring and Insolvency

15 November 2018

Ukrainian mechanisms of the individuals’ solvency restoration, introduced by the recently adopted Code on Bankruptcy Procedures, are the most loyal among other countries in the world where similar mechanisms are provided by legislation.

However, given the social sensitivity of the citizens’ bankruptcy topic, some journalists and bloggers rushed to tag new opportunities as “betrayal”, and some even began to intimidate people that they would be nearly deprived of a single housing already tomorrow. This was said by the senior partner of Ario Law Firm and one of the developers of the Code on Bankruptcy Procedures, Julian Khorunzhyi, during the round table “Bankruptcy of Individuals: Ukrainian Perspectives and International Experience”, which was held within the framework of the VII Judicial Forum organized by the Ukrainian Bar Association in conjunction with the Council of Europe projects.

On November 15, leading market experts – people’s deputies, lawyers, arbitration managers, representatives of the Ministry of Justice – during the round table at LigaBusinessInform- discussed and studied the main nuances of the bankruptcy procedure for individuals, introduced by the Code on Bankruptcy Procedures adopted in October 2018.

“The very philosophy of introducing the institution of the individuals’ bankruptcy is that if a person got into financial difficulties, he/she should have a chance to turn the page and live on. Insolvency should not be a sentence for such a person,” said Ruslan Sydorovych, people’s deputy, one of the authors of the Code on Bankruptcy Procedures.

He also noted that the banks wanted to write off the debt accumulated. Therefore, these changes are equally beneficial to both parties – the debtors and the creditors. With the entry into force of the Code, problem of currency mortgage should be forgotten in general in Ukraine within 5 years.

Ihor Nikolaev, the legal counsel of the Commercial Law Center, noted that introduction of the institution of the individuals’ bankruptcy is not intended to write off debts, but this is an opportunity for the debtor to restore solvency by soliciting the bank or the court. He also noted that adopted opportunities are a blessing that will be provided only to conscientious debtors.

Julian Khorunzhyi, the senior partner of Ario Law Firm, listed the main aspects of the Code concerning the restoration of solvency of the individuals- debtors.

“First of all, it should be emphasized that the only possible basis for the proceedings opening is an application from the debtor. The comments of some “experts” that almost tomorrow the individuals will be thrown out of their apartments demonstrate that they did not read carefully the final text,” Julian Khorunzhyi said.

He noted that at the same time the debtor must be objective and analyze his/her property situation qualitatively because the court has the right to terminate the proceedings if it becomes known that the debtor has submitted false information regarding his/her own property status. Moreover, it should be understood that the banks themselves will be very careful in analyzing the property status as well.

“The debtor should take into account financial costs, in particular, the remuneration for the arbitration manager. After opening of the individual insolvency proceedings, a 170-day moratorium on satisfaction of creditors’ claims is introduced. The debtor with the arbitration manager must develop a restructuring plan. After approval of the restructuring plan, the restructuring manager completes its activities. These three months will cost for the debtor (according to the rules) about UAH 26 thousand,” Julian Khorunzhyi said.

The lawyer also noted that the property sale will be based on the principle of the ProZorro. Sales system. At that, the only debtor’s housing cannot be recovered and sold – an apartment of up to 60 sq. m. area or a house of up to 120 sq.m. area.

Among the negative aspects for the debtor – impossibility to open an insolvency case again within the next 5 years.

“Having studied European legislation, we can say that the mechanisms adopted in Ukraine are the most loyal. Therefore, for those who have not seen the final text of the Code yet, but have already criticized its norms, I’d ask them to wait for the publication and to read the final text carefully,” Julian Khorunzhyi said.

Director of the Department of Judicial Work and Bankruptcy of the Ministry of Justice of Ukraine, Yuriy Moiseev, noted that the Cabinet will still need to develop about 30 bylaws for the functioning of this institution. He also noted that today the Ministry of Justice has not only a legal and regulatory framework, but also a technical one, the Cabinet of Ministers still needs to decide what kind of electronic auction system will be used.

The partner of Ario Law Firm, the Chairman of the APU Competition Law Committee, Iryna Serbin, assured that the Committee will carry out educational work and organize educational activities for arbitration managers.

“In matters of the individuals’ bankruptcy procedures, the arbitration manager must be of a different format, possess mediation skills, because these are not simple bankruptcy cases. These are also social and psychological cases that affect not only on the debtors, but also on their families. The Competition Law Committee should start the educational work and organize a number of events,” Iryna Serbin said.