Sunday, March 8, 2015

The Bankruptcy in Ukraine

Recognizing business entities bankrupt

If a business entity is not able to fulfill its monetary obligations in due time with regard to other parties, a territorial community or the state, in any way other than through restoration of its solvency, this entity (the Debtor) shall be recognized insolvent.

A debtor's incapability to restore its solvency and satisfy the creditors' claims in any way other than through application of the liquidation procedure by court shall be deemed as bankruptcy.

Subject to bankruptcy (further referred to as the Bankrupt) may be only a business entity. Government-owned enterprises or separated units of business entities cannot be recognized bankrupt.

With regard to state-owned commercial enterprises, the law envisages additional requirements and guarantees of the Ukrainian people's ownership rights.

Creditors of Insolvent Debtors

Creditors of insolvent debtors are entities specified in Clause 1 of Article 209 of this Code having legislatively confirmed claims to the debtor on monetary obligations, including the creditors whose claims are fully or partially guaranteed by a pledge. Authorities in charge of collection of taxes (mandatory payments) determined by law shall have the rights similar to those of creditors.

If two or more creditors have claims to one debtor simultaneously, they form a creditors' assembly (creditors' committee) in accordance with law.

Actions to Prevent Bankruptcy of Business Entities

Founders (participants) of a business entity, property owners, state authorities and local governments having economic competence shall take timely actions their competence in order to prevent bankruptcy of the business entity.

When taking actions to prevent bankruptcy, the property owners of a state-owned (communally-owned) or private enterprise, founders (participants) of a business entity/ insolvent debtor, creditors or other persons may provide the said entity with financial support in the amount sufficient to satisfy the creditors' claims, including payment of taxes and duties (mandatory payments) and restoring its solvency (pre-court reorganization).

Financial support of a debtor envisages undertaking the relevant obligations before the persons providing such support in accordance with the procedure established by law.

The pre-court reorganization of state-owned enterprises shall be exercised at the budget cost in the amount determined by the Law on the State Budget of Ukraine. Conditions of the pre-court reorganization of state-owned enterprises at the cost of other funding sources shall be coordinated with the authority having economic competence with regard to the debtor in accordance with the procedure established by the Cabinet of Ministers of Ukraine.

Procedures Applied to Insolvent Debtors


In the cases envisaged by law, the following procedures shall be applied to insolvent debtors:
disposal of the debtor's property;
amicable agreement;
reorganization (restoration of solvency) of a debtor; and
liquidation of a bankrupt.

Debtor reorganization or liquidation of a bankrupt shall be exercised in accordance with antimonopoly and competition legislation.

Starting on the day when the decision is made to initiate the bankruptcy procedure, reorganization of the debtor legal entity by its owner (authorized body) and transfer of the debtor's property to the authorized capital stock shall be allowed only in cases and in accordance with the procedure envisaged by law.

Property Assets of an Insolvent Debtor

In order to regulate the debts of the insolvent debtor the property assets belonging to the debtor on the basis of the tangible property rights, right in personam, and intellectual ownership rights shall be used.

The bankruptcy estate shall include property assets of the persons liable for the obligations of the insolvent debtor in accordance with law or the debtor's constituent documents.


Responsibility for Violation of Bankruptcy Legislation

In cases envisaged by law, a business entity/debtor, its founders (participants), property owner and other persons shall have legal responsibility for violation of bankruptcy legislation, such as fictitious bankruptcy, concealed bankruptcy or intentional actions aimed at bankruptcy.

Fictitious bankruptcy is a knowingly false application by a business entity to court stating incapability to fulfill obligations to the creditors and the state. Having verified the fact of fictitious bankruptcy, that is, actual solvency of the debtor, the court shall reject the debtor's application for bankruptcy and apply the sanctions envisaged by law.

Intentional bankruptcy is the stable insolvency of a business entity caused by purposeful actions by the property owner or the officer of a business entity, if this caused material damages to the interests of the state, society or the creditors, which are protected by law.

Concealed bankruptcy, fictitious bankruptcy or intentional bankruptcy, as well as illegal actions as part of insolvency procedures related to disposal of the debtor's property that caused  
material damages to the interests of creditors and the state, shall entail criminal responsibility in accordance with law.




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