Dispute Resolution | Bankruptcy

Limiting Opportunities

The application of rules of the bankruptcy law in question is currently more often associated with the winding up of a company rather than aimed at restoring its solvency. The imperfect wording of this piece of legislation raises many points of dispute in case law


Even before the Law of Ukraine “On Restoring Debtor’s Solvency or Declaring a Debtor Bankrupt”, No. 4212-VI, came into effect, legal practitioners were suggesting that it was imperfect. And two years of legislative practice have only confirmed this through specific examples. Sergiy Boyarchukov, Managing Partner at Alekseev, Boyarchukov & Partners Law Offices, notes that Law No. 4212-VI is so imperfect and inconvenient that it is virtually impossible to resolve any issues through its application. It can only generate new challenging issues. “The law is unsatisfactory in several respects. Firstly, a number of its provisions are essentially ineffective and, secondly, the inaccuracy of its wording leads to a variety of interpretations”, says Sergiy Boyarchukov.

“The law stipulates that all disputes connected with the bankrupt’s estate are considered as part of the bankruptcy procedure. Therefore, the bankruptcy procedure is deliberately carried out in a ‘convenient’ court, after changing the legal address of the enterprise, to as to drag into this ‘convenient’ court absolutely all property disputes surrounding this particular enterprise”, the expert explains.

Mr. Boyarchukov calls “dead” the rule envisaging thatproperty, which is not sold at a public auction, must be transferred to the management company after completion ofthe liquidation procedure. Thecompany is obliged to sell it, though the bankruptcy case has already beendismissed. “It is unclear who shall be repaidand how. Some judgesbelieve that an amicable agreement is concluded in such a case, but there is no mention at all of this in the actual law. Moreover,at presentthere is not a single court ruling, according to whichsuch acompanywould accept the property for its subsequent sale”, SergiyBoyarchukov said.

A number of new important issues in the field of bankruptcy arose in connection with the annexation of Crimea. “A striking example is the Feodosia Shipbuilding Company More, where I was appointed as an insolvency office holder”, says Roman Marchenko, Senior Partner at Ilyashev & Partners. “The company, while already in bankruptcy, was successfully fulfilling a contract to deliver warships to China. The plant has now been nationalized by occupiers. I have filed lawsuits to the District Administrative Court, which confirmed the illegal nature of the act of nationalization. Lawsuits were also filed to the Commercial Court of Crimea. It means that we found ourselves in litigation trying to prove that the confiscation of property was illegal. However, it seems that saving a state-owned enterprise is the work of an insolvency office holder”, the lawyer said.

Roman Marchenko estimates that Ukrainian courts consider tens of thousands of bankruptcy cases concurrently. However, in most cases the issue is the bankruptcy of small enterprises and, accordingly, the appropriate procedure is often initiated by the owners themselves. “The reason is the general economic situation in the country, although some pseudo-experts are trying to impose the view that mass bankruptcies of enterprises are caused inter alia by the incompetence of judges and insolvency office holders”, notes the lawyer, providing counterarguments. “Talking of bankruptcy procedures on large enterprises, in which the lawyers of Ilyashev & Partners are usually involved, the actions of judges and insolvency office holders are, in the main, grounded and professional”. In turn, Sergiy Boyarchukov emphasizes that the judicial practice often employs a creative approach, including for the reason that old, previous experience is applied to modern realities.

There are some best practices in matters of alienation of assets, disposal of property, but in general it is impossible to talk of established judicial practice on application of Law No. 4212-VI. Therefore, all parties to the procedure have the opportunity to make a contribution for the common good.

It should be also noted that Law No. 4212-VI focuses on the prevention of bankruptcy, conducting extra-judicial procedures to restore the solvency of a debtor, by applying pre-trial rehabilitation. Experts believe this procedure to be one of the most advanced bankruptcy prevention mechanisms. However, in practice pre-trial rehabilitation is not widespread. Roman Marchenko says that at the present time application of the said bankruptcy law has more to do with the winding up of a company rather than restoration of its solvency.

Speaking about the prospects for improving legislation in the field of bankruptcy, Sergiy Boyarchukov assures that the professional community criticizes the effective law so widely and unanimously that it will inevitably be amended in the near future. Roman Marchenko, while not denying the need for changes, emphasizes: improving bankruptcy procedures and advancing the profession of insolvency office holder in Ukraine is going in the right direction. He also notes some positive developments at the level of sub-regulations and practice of the Ministry of Justice, e.g. in the certification of insolvency office holders.

Practice Leaders. Bankrpuptcy

Leading FIRMS
1 Ilyashev & Partners
2 Lavrynovych & Partners
3 Alekseev, Boyarchukov & Partners
4 Gramatskiy & Partners
5 Asters
(Ilyashev & Partners)
2 Stanislav SKRYPNYCK
(Lavrynovych & Partners)
3 Oleksandr KHOMENKO
(Khomenko, Pita & Partners)
(Ario Capital Group)
(Alekseev, Boyarchukov & Partners)
(Alekseev, Boyarchukov & Partners)
Vladyslav FILATOV
(Sokolovskyi & Partners)
(AstapovLawyers International Law Group)
Yaroslav TEKLYUK
(Vasil Kisil & Partners)
(Gramatskiy & Partners)
Vitaliy TYTYCH
(Vitaliy Tytych & Partners)

* — Listed in alphabetical order.

Practice Leaders (by Ukrainian Law Firms 2014)