Coronavirus and bankruptcy. The United Kingdom: lessons for Ukraine
One of the most efficient bankruptcy systems in the world in terms of the variety of options for resolving temporary debt problems is the UK’s insolvency legislation. It is considered to be comprehensive, effective and offers different legal mechanisms for application in different situations when it is necessary to solve debt problems. The effectiveness of this sphere of UK law is also confirmed by how it adapts to the real situation in the economy, including the current crisis caused by the pandemic. We are sure that the example of the developers of legislative proposals in this country can be used in Ukraine as well.
On May 20, 2020, the text of “Corporate Insolvency & Governance Bill 2019-2021” was published in the United Kingdom. The document contains 238 pages of proposals to current legislation, including insolvency legislation. These proposals have been developed by a specially created group on business restructuring and insolvency during the last 20 years.
In essence, the bill consists of several reform packages relating to illicit trade law and insolvency law. Among the main proposals are change in the requirements for the content of the debtor’s liquidation application, establishment of a moratorium to protect businesses from creditors and new regulations on the content of the restructuring plan, including special measures to protect the parties under supply agreements.
Quite a lot of the bill’s provisions relate to the measures aimed at overcoming the possible long-term consequences of the pandemic, but it makes sense to focus on proposals concerning insolvency proceedings.
The bill provides for a temporary restriction on the application for liquidation of the debtor for the period of the pandemic measures. This is explained by the fact that the effects of coronavirus had negative impact during this particular period of time. It is believed that this will allow businesses to reach fairer agreements with creditors.
As is well known, the timing of the moratorium on new bankruptcy proceedings is also being discussed in Ukraine, but it is proposed to establish it before the official introduction of quarantine.
The proposal according to which the creditor however can file an application is also interesting, if it has reasonable grounds to believe that the imposed quarantine has not had a financial effect on the debtor or the debtor would have been unable to pay its debts even without this financial effect.
These proposals have provoked criticism as well. Insolvency experts point to the lack of justification for expanding the scope of the proposed measures by entities: if on the previous stages of drafting the bill it was planned to apply such measures to companies in the hospitality, leisure and retail, later they were extended to all companies. They expressed hope that when the bill goes through the adoption process the members of the parliament would provide more explanations as to why the scope of the new measures has been expanded.
The bill contains a number of novelties in insolvency, which are not related with pandemic situation. These legislative proposals have been developed over a long period of time with the aim of improving insolvency law in general. Thus, the pandemic of COVID-19 has become an accelerator for the implementation of legislative improvements to the existing system of insolvency in the country.
The same situation we do have in Ukraine. There are several draft laws in the Verkhovna Rada of Ukraine, proposing improvements to the recently adopted Code on Bankruptcy Procedures.
As a positive in an example of the UK for Ukraine – the response to the crisis in the economy should be complex, not just by focusing solely on insolvency law.
Oleksandr Biryukov, Counsel, LCF Law Group