LAW FIRM DIRECTORY

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Bankruptcy Yard

Practice in the field of bankruptcy is profitable and developing at a dynamic rate. However, in 2018 the number of bankruptcy cases may fall be-cause of the intense activities of private bailiffs and application of the law on financial restructuring

VITALY DUDIN

2017 was not a year of long-awaited reforms in the bankruptcy field. The bankruptcy procedure in Ukraine remains one of the most difficult in the world: Doing Business rating placed our country only in 149th place in terms of the Resolution of Insolvency indicator. In comparison with neighboring countries, the procedure is the longest and estimated as almost being three years long. And its cost is on average 40.5% of the property’s value (in Norway, this figure is 1%). According to the rating, only 8.9 cents (in the already mentioned Norway index is 93.1%) are paid off of each dollar of secured creditors at the end of proceedings. It is unlikely that these figures will surprise experts, because the statistics are not different from the data going back almost ten years. One more trend remains incorrigible: most bankruptcy cases end in liquidation and cases of sanation are rare.

Experts at the World Bank perceive the creditor's rights as unprotected. This is far from saying, however, that the current procedure also satisfies a debtor. The practice in this field requires highly-qualified lawyers meeting the expectations of clients. Therefore, the services of law firms promising to provide a rapid bankruptcy procedure will be in great demand. Perhaps the scope of work will decrease, because, according to economists, the peak of bankruptcy is now behind us (a tendency to reduce the number of commenced proceedings has been observed since 2016).

"In the past year, nothing has changed in terms of legislation", Yury Moyseev, director of the Department of Judicial Work and Bankruptcy of the Ministry of Justice of Ukraine, acknowledges. Draft law No. 3132-д (related to enhancing the efficiency of bankruptcy procedures) was never adopted, although this was recommended by a special-purpose committee back in 2016. According to Mr. Moyseev,  fundamental changes will improve the bankruptcy procedure and will become a defense against an increase in the duration of the procedure and its appreciation. The procedure for selling property will be improved: trades will be held exclusively in electronic form. "At the same time, the new version of the law on bankruptcy, which came into force in 2013, is constantly being perfected by court practice. Although the practice is quite contradictory", Yury Moyseev noted.

What innovations have been observed in court practice over the year? "I will start with decisions we have been waiting for, but have not seen, — Julian Khorunzhy, senior lawyer of Ario Law Firm, says in response to this question. — We did not see clear legal positions regarding the procedure for con ducting auctions. There was an impression sometimes that the Supreme Court of Ukraine deliberately withdraws itself from solving the most problematic issues in bankruptcy. Well, who has the right to determine the rules for conducting an auction? And does the secured creditor have the right to influence the terms of sale by granting approval to the sale of a bankrupt's property?"

At the same time, Julian Khorunzhy highlighted positive decisions: "What is important is that it is a legal opinion of the SCU that the final stage of conducting of an auction is not the signing of a protocol, but namely the conclusion of a purchase and sale agreement, so that an agreement can be appealed in court, including on the basis of the rules for declaring transactions invalid, particularly on the basis of provisions of civil law." This position is set out in the SCU decision dated 14 December, 2016 in case No. 904/9284/14. Court practice in the possibility of a debtor vindicating property, and of the secured creditor applying Article 23 of the Law On Mortgage in the event of declaring the auction as failed, has also become stable.

"It is necessary to note the already established practice on application of the principle of res judicata, enshrined in Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, that a case decision correct from the material point of view can be revoked only to correct a fundamental violation and cannot be used by higher courts to refer cases for new consideration", Julian Khorunzhy noted, and added that courts are increasingly referring to the practice of the European Court.

Who needs lawyers any more? As Yury Moyseev noted, both a debtor and a creditor need lawyers. And it is not a special complication of the procedure for a certain party, he believes. "The bankruptcy procedure has evolved from an economic category to a legal one. In my opinion, the economic component is considered to be less significant and the process is increasingly becoming a matter of litigation. Therefore, the success of the position depends on the skills of representatives of the parties and strategy and tactics set out by them. I know many worthy and qualified lawyers in this field, who can represent the client's interests in a quality manner", Mr. Moyseev said, sharing his views.

But the skills of lawyers do not always serve a useful purpose. "Ideally, the sole purpose of a bankruptcy procedure must be the maximum repayment of a creditor's claims with the possibility of restoring a company's solvency. The opposite is actually happening", Mr. Moyseev comments. "Our lawyers sometimes invent such loopholes using legislation, which leads to such circumstances as evasion of debts payable to creditors, an increase in the claims of affiliated creditors against a debtor or a bankrupt and, which is the main thing, to the removal of assets before bankruptcy proceedings are initiated." Therefore, it will be difficult to stand up to tricks from the representatives of the opposite party without a lawyer.

"Perhaps the beginning of work of private bailiffs can be called the most important innovation in the field of bankruptcy and restructuring this year, — Inna Rudnyk, senior lawyer of Alekseev, Boyarchukov and Partners Law Company, stated. — It is hoped that thanks to the institution of private bailiffs, the statistics on enforcement of court decisions and debt collection will finally gain positive dynamics in order to avoid numerous bankruptcy cases, to reduce the burden on economic courts and to balance the interests of creditors. Since it is no secret to anyone that a three-month failure to implement a court decision (a mandatory condition for filing an application to initiate bankruptcy proceedings) is often not so much due to the lack of assets owned by the debtor but to the inaction of state bailiffs."

According to Ms. Rudnyk, a reduction in the number of bankruptcy cases is expected in 2018 and, as a result, that the courts will concentrate more on pending cases. Paradoxically, this fall in the number of cases may increase the terms for their consideration. She also predicts that the Law of Ukraine On Financial Restructuring will be applied more actively: "The provisions of the Law on Financial Restructuring are still being poorly applied, because the state has established the necessary secretariats and coordinating bodies, participation of which is mandatory, for long enough. Financial restructuring is expected to become more popular next year and will also 'take away' some debtors from the bankruptcy procedure".

Practice Leaders. Bankruptcy

Leading lawyers

 

1

Julian Khorunzhyi (Ario Law Firm)

2

Roman Marchenko (Ilyashev & Partners)

3

Sergey Boyarchukov (Alekseev Boyarchukov & Partners)

4

Mykola Kovalchuk (L.I. Group)

5

Oleg Malinevskiy (EQUITY)

Leading Firms

 

1

Ilyashev & Partners

2

EQUITY

3

Ario Law Firm

4

Alekseev Boyarchukov & Partners

5

L.I. Group

Other established practices

listed in alphabetical order

 

Arzinger

Gramatskiy & Partners

Khomenko Pita & Partners

LCF Law Group

Sokolovskyi & Partners

Trusted Advisors