Dispute Resolution |

Managing partner, Alekseev, Boyarchukov& Partners

Partner, Alekseev, Boyarchukov& Partners

Coverage group

In Ukraine, bankruptcy was and remains a way to achieve goals which, as a rule, are not related to restoration of a debtor's solvency. This approach forms the legal culture and law-enforcement practice in this sphere. Since introduction of long-overdue legislative amendments is being successfully blocked in Parliament, the new Supreme Court, consisting of experts who are very familiar with this issue, should impose order in the bankruptcy processes

Bankruptcy procedures in our country are universal instruments, with the help of which a much more extensive list of tasks is solved than it is stipulated in a special law. On the one hand, it is the favored method of debt repayment though, on the other hand, bankruptcy procedures are quite successfully used by a debtor to avoid responsibility and not to fulfill its debt obligations. Moreover, there are often cases when attempts at unfriendly seizing of a business, as well as counteraction to it, are disguised as bankruptcy. All pursue their own market objectives. Real restoration of a debtor's solvency is remembered last of all, if it’s remembered at all. Cases including the value of an enterprise (its reputation in the market) are extremely rare.

The attempt to create legal relations in this field more civilized was undertaken in the Law On Financial Restructuring, but for various reasons it did not work. As a result, in the current circumstances absolutely all enterprises that had or have loans from banks can be considered potential defendants in bankruptcy proceedings. This creates a sufficiently favorable landscape for developing a professional community of insolvency officers, as well as related infrastructure: auditors, appraisers and, of course, law firms specializing in supporting bankruptcy procedures.



Let's be objective: it’s now extremely difficult for the classic insolvency officer to provide professional and, most importantly, efficient services. He must be a good economist, lawyer, an accountant, an auditor, an appraiser, and a manager all in one person. From our point of view, it is impossible to cope alone with such an array of tasks. An insolvency officer can effectively exercise his powers only as part of a large cohesive team, formed, for example, within one law firm.

Let's take a typical situation. The insolvency officer appointed to an enterprise should take a number of actions requiring financial resources, which he does not have. Accordingly, he needs to attract funds from somewhere to at least ensure the security of the entrusted property. In addition, he needs to evaluate this property, enlist lawyers, as it is simply impossible to take part in all trials alone. A big team can cope with it, but not a lone wolf.



Judging by established practice, the role of insolvency officer is becoming increasingly significant. The courts have finally begun to take the side of insolvency officers in disputes on declaring transactions invalid and on denial of a debtor's property actions. This is a very progressive practice that returns meaning to the work of insolvency officer in reality. It is no secret to anyone that there are common situations everywhere when an enterprise is released in advance from all its assets and the insolvency officer is provided with an empty shell. Now, provisions of Article 20 of the Law on Bankruptcy are becoming a real working tool, supplementing general rules of civil legislation on nullity of transactions (which cannot be effectively applied to all options of a debtor's asset recovery). The driver for forming such practice should be recognized the active position of the Deposit Insurance Fund with relation to the contracts of banks transferred to its handling.

This is confirmed by the decision adopted by the Supreme Court of Ukraine (case No. 3-304гс16) last year, in which the provisions of the legislation on bankruptcy became priority ones in relation to general provisions of legislation on grounds of invalidity of transactions.



However, the positive practice in cases for invalidity of transactions is rather an exception in the general array of problems which involve bankruptcy proceedings. In addition to general imperfections in legislation and a variety of procedural counteractions (which must be suppressed by updated procedural legislation), the imperfection of procedures on sale of property should definitely be mentioned in a standard set of problems.

On the one hand, the process of the entry of an insolvency officer to the bidding is regulated to the maximum: it is necessary to get the permission of a pledge creditor, to carry out unnecessary estimates, it is not clear why an enterprise should be auctioned as an integral property complex for some fabulous amount. It is a waste of scarce time, which is not enough, first and foremost for the creditors. But regulation is much softer directly at the trading stage, which enables the selling of assets at scandalous prices, frankly below market ones. In addition, court practice in these matters remains rather controversial.



It seems that the new Supreme Court, consisting of experts who are well familiar with all controversial issues, will impose order on law-enforcement practice. As for legislative changes, they are certainly required. The relevant draft law has already been developed, but its consideration has been blocked in Parliament for several years now. We do not see potential in the current membership of Parliament to adopt long-overdue changes for settlement in the field of bankruptcy. Whatever anyone says, the number of bankruptcies in our country is unlikely to become noticeably less. This is still one of the most attractive areas of the legal market, which has not least stimulated us to unite teams and strengthen our expertise in unison.