Amendments to the Bankruptcy Code of Ukraine

30.07.20

The Verkhovna Rada adopted amendments to the Bankruptcy Code of Ukraine, in particular, a moratorium on the bankruptcy of state enterprises (Draft Law No. 2276). What are the arguments for the necessity of such amendments, and what results are anticipated?

The main idea of the Bankruptcy Code of Ukraine was to introduce new mechanisms for the most rapid recovery of unprofitable enterprises or their least painful removal from the market.

However, even before the specialized law came into force, experts had spoken up in favor of amending it. The purpose of such changes was, according to part of the professional community, to eliminate gaps, technical inconsistencies and unbalanced provisions.

Parliament supported the proposed changes in the second reading and final readings of Draft No.2276 On Amendments to the Bankruptcy Code.

The proposed changes were aimed at resolving problem issues that arose during the practical application of the Code. Thus, the changes eliminated the possibility of budget institutions financed exclusively from the state budget filing for bankruptcy. Due to the imperfect wording of the Code, such a possibility existed theoretically. And a court could receive a statement, for example, on the bankruptcy of a court or prosecutor’s office.

Another problem issue was the impossibility of appointing an insolvency practitioner with the help of the Unified Judicial Information and Telecommunication System before its launch. Thus, in October 2019, by the time when the Code came into force, UJITS was not working properly. And this caused objective inconveniences both for the courts and for the parties of corporate and individual bankruptcies.

This problem was resolved quite successfully. Regarding the bankruptcy of individuals, the debtor was given the right to nominate an insolvency practitioner. In corporate bankruptcy, such appointment is made by the commercial court independently from among those persons listed in the Unified Register of Bankruptcy Trustees of Ukraine, in the order operating before the Code came into force, using an automated system.

I would like to mention one more provision that was included into the draft before the second reading and was absent in the initial version of the draft.

Thus, another moratorium on the opening of bankruptcies of institutions and organizations in the field of heat supply and sewerage for the duration of the Law of Ukraine On Measures Aimed at Settlement of Debts of Heat Supply and Heat Generating Organizations and Enterprises of Centralized Water Supply and Sewerage for Consumed Energy.

The legislator substitutes another crutch for unprofitable enterprises, upsetting the balance in the field of enforcement of court decisions and rehabilitation of inefficient enterprises, instead of reforming the utilities sector. And again, creditors become the hostages of “simple” solutions. And the solution to the problem is only postponed.

Olena Volianska, partner, head of bankruptcy & restructuring, LCF Law Group, exclusively for The Ukrainian Journal of Business Law