By September 2017, approximately 1 trillion UAH worth of unrecovered loans had accumulated in the domestic banking system. More than a third of this amount (356 billion UAH) is the share owed by state banks, and another 380 billion UAH is a loan portfolio of insolvent banks which is managed by the Deposit Guarantee Fund. On the one hand, such figures are terrifying since they reflect the depth of the crisis in the country’s financial sector. On the other hand, this is promising scope for the joint efforts by the state and private sector, lawyers, and economists to revive the economy and raise capital
With the state not making the due efforts as a legislator, the issue remains a source of major concern of the very creditors, borrowers, and the few professional players willing to risk a part of their liquidity by buying a pass to the negotiating table with a borrower which is, quite often, replaced by a "ticket to war." Courtrooms are the main venue for legal battles, while the judicial authorities, due to inactivity of legislators, grab the biggest piece of the law-making pie.
Claim assignment agreements or factoring agreements are the most frequently used mechanisms for repurchase. Discussion on the relationship between the two aforementioned legal instruments has gone on for some time now. The imperfection of domestic legislation became the source of disagreements. According to paragraph 1 of part 1 of Article 512 of the Civil Code (CC) of Ukraine, a creditor in an obligation may be replaced by another person as a result of assignment of his rights to another person under a transaction (assignment of claim). According to the provisions of part 3 of the aforementioned article, a creditor in obligation cannot be replaced if it is specified in the contract or law.
Thus, the very nature of a loan or other monetary obligation allows, according to the general rule, the assignment of all rights to a third party. The legal status of an entity – a potential creditor is one of the main stumbling blocks in the judicial practice, in particular, the existence of special judicial personality (status of financial institution). Thus, according to clauses 4 and 6 of part 1 of Article 1 of the Law of Ukraine On Financial Services and State Regulation of Financial Services Markets, a financial service means transactions with financial assets that are carried out in the interests of third parties for one’s own behalf or on behalf of these parties and, in cases provided by law, also using financial assets obtained from other entities, for the purpose of receiving a profit or preserving the real value of financial assets. At the same time, the list of financial services, including factoring, is provided for in Article 4 of this law, and part 2 of the said provision runs as follows: the provision of financial services not included in the specified list is prohibited.
A rather vague definition of financial service in the context of transaction on the buyout of liabilities, together with the severe qualification criteria for entities – providers of financial services has divided judicial practice into two opposing camps: financial and legal "Liberals" and "Conservatives."
The adherent of the conservative (rigid) approach to the interpretation of the agreement on the assignment of claim is the Supreme Court of Ukraine (SCU). Five of its rulings, adopted in April – May 2016, equated any purchase of debts for monetary funds with a factoring agreement. By so doing, it equated a commutative agreement on the assignment of the right of claim with a factoring agreement.
According to the adherents of the liberal approach, the aforementioned conclusions of the SCU contradict the legislator's logic and provisions of the Civil Code, since factoring by its nature and contracting parties, is a financial service implying the existence of the person to whom this service is rendered and corresponding remuneration for its rendering. Therefore, the main distinctive feature of a factoring agreement is precisely that the client, in addition to the right of claim, additionally makes payment for the benefit of the commission agent as payment for the service provided. In the absence of such payment, this document becomes an ordinary agreement on the assignment of the right of claim. It's worth paying attention to the fact that during 2017 the Supreme Economic Court of Ukraine (SECU) also supported this position in disputes on the invalidation of agreements on the assignment of the right of claim and did not take into account the aforementioned conclusions of the SCU.
In the absence of a unified position of the judiciary authorities in relation to the agreements on the assignment of the right of claim and factoring ratio, hopes are put both on the practice of the new Supreme Court and on legislators, which shall not only eliminate existing disagreements, but also settle this important aspect of activities of the financial market in a comprehensive manner.
FULLNESS OF REPURCHASE
According to Article 512 of the CC, a creditor in an obligation shall be replaced in the case of assignment of a claim. A new creditor shall receive the rights of the primary creditor to the obligation in the scope and on the conditions that existed at the moment of assignment of these rights.
The question that must be answered is whether an individual or non-financial company has the right to charge interest for the use of the loan’s proceeds for a new period (after the assignment of claim). Despite the ambiguity of judicial practice, we believe that the new creditor receives the rights in full, while an individual or a non-financial company (in the case of a simple agreement on the assignment of claim) has no right to charge interest for the use of loan proceeds for a new period, since they do not have the status of a financial institution.
The ambiguity of judicial practice provokes cases with a partial assignment of loan or security interest agreements, which often exposes the debtor to an extremely difficult position where both the new creditor and the previous one impose a penalty on him.
PROTECTION OF THE PURCHASED
The right of claim may be alienated by direct sale or sale by tender (within the framework of enforcement proceedings, debtor bankruptcy cases, etc.). The scope of persons who have the right to appeal against such an agreement differs depending on the type and status of the procedure.
The approach to identifying a person with material and legal interest depends on a number of legal factors on a case-by-case basis. Thus, in bankruptcy cases, judicial practice provides that participants in these disputes have the right to appeal against the agreement on the assignment of the right of claim between the primary creditor and the new one. However, such approach is not entirely correct. Creditors in a bankruptcy case as well as other participants can appeal against such agreements only if the assignment violates their rights. Thus, if the assignment of the right of claim does not affect the amount owed by the debtor to the remaining creditors, such creditors do not have the right to appeal against the agreements.
According to the provisions of Articles 512, 514, 516 of the Civil Code, a creditor in obligation shall be replaced without the content of the debtor, since it does not affect the nature, scope and procedure for performance of obligations by the debtor and does not worsen the position of the debtor. This legal position is set out in the rulings of the SCU, dated 15 April, 2015, in case No. 3-43гс15 and dated June 03, 2015, in case No. 3-198гс15.
It's worth paying attention to the scope of persons who have the right to appeal against tender results. There are two approaches to this issue in judicial practice. The first one: only those participants who were admitted to a tender have the right to appeal against the results of a tender. The second one: this opportunity is also provided to the persons who submitted an application to participate in a tender, but were not admitted to it. The latter approach was often used by unscrupulous subjects for the purpose of issuing a "technical" appeal against a tender or canceling its results under any pretext. We believe that the most reasonable and fair principle is that only participants admitted to a tender have the right to appeal against its results. SECU takes the same position, particularly in its ruling in case No. 910/20714/15, dated 10 August, 2016.