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There is always some uncertainty when contracting with businesses that are based abroad and, when you are relying on your overseas partner for payment, one of the key areas of risk is around the insolvency or bankruptcy of your business partner. In this, the first of several articles looking at Ukrainian bankruptcy procedures, Olena Sobchenko looks at how you can find out if your Ukrainian business partner has gone into insolvency or bankruptcy proceedings and what your options are.

How do you establish whether your business partner is insolvent or has entered into bankruptcy proceedings?

The easiest was for your business partner (the Debtor) to notify you and although some Debtors may do this, there is no obligation under the Code of Ukraine on Bankruptcy Procedures (Bankruptcy Code) on Debtors to notify their business partners that the Courts of Ukraine have opened bankruptcy proceedings on them.  

Alternatively, you can monitor the status of the Debtor. When the courts open bankruptcy proceedings, notification will be filed on the official web portal of the judicial power of Ukraine (the official website of the Supreme Court). Notification (Official Publication) must be published no later than the day after the court judgement opening bankruptcy proceedings is given. The service is free however, without a Ukrainian IP address, it can be very difficult to access the official website of the Supreme Court. Fortunately, there are various online services that can help, for example, YouControl and/or OpenDataBot. These services can be used to provide you with the status of the Debtor, the date when bankruptcy proceedings were started, the name of the court, the name of the arbitration manager (property administrator) and other useful details.  These services are free and available to everyone.

Finally, if you have legal representation in Ukraine, you can ask them to check the status of your Debtors as they have access to all services provided by the government and to private companies who can carry out the searches.

What happens next?

If you find out that bankruptcy proceedings have been opened in respect of your Debtor, the next steps for you, as a creditor of the Debtor, are:

  • To submit the commercial court a written application setting out the details of the monetary claims against the Debtor together with documents evidencing the claims. The creditor must do this within 30 days of the date of Official Publication of the notification that bankruptcy proceedings have been opened against the Debtor. The application must meet the requirements set out by the Bankruptcy Code regarding form, content, and attachments.
  • To pay and attach evidence of the payment of the required court fee (currently UAH 6,028 or £155, but the amount is changed every year), together with evidence that a copy of the application to court has been sent to the Debtor and the property administrator. 

If the application meets all the requirements, the court is obliged to accept the application and pass a judgement on this, stating the date of the preliminary court hearing (see 'What (usually) happens at the Preliminary court hearing' below). If the application does not meet the requirements, the court will notify you in writing of the problems and give you time to rectify the issues with the application. 

The property administrator will notify you, the Creditor, not later than 10 days from the date of expiration of the 30 day period with the results of consideration of claims by a Debtor, fully or partially recognising or rejecting your claim, providing the reasons why the claim has been recognised or rejected and notifying the commercial court in writing of the results of consideration (by submitting a written report on the notifications sent to all creditors together with copies of notifications of delivery and descriptions of attachments to the postal items, or other documents confirming the sending of notifications to creditors). At this stage, creditors have the right to receive information on the claims of other creditors from the property administrator. Creditors may file an objection with the property administrator, a debtor, and the court regarding the recognition of the claims of other creditors.

What if you failed to submit the claim within specified time?

Do not worry, claims that are filed after the expiry of the 30 day period will be considered by the court in the same way as the claims that have been filed within the prescribed period.  Such “failed” creditors also retain all rights granted by the Bankruptcy Code to those creditors who have submitted their claims on time, with only one exception: they will not have a casting vote at the meeting and the committee of creditors.

What (usually) happens at the preliminary court hearing?

At the preliminary hearing, the commercial court will consider your claim together with all other creditors' claims.  All objections submitted by the debtor and/or property administrator will also be considered.  It is important to be present at the court hearing, so you can give some additional explanations regarding your application or any objections.

Based on the results of the hearing, the court will pass a judgement stating:

  • the amount and list of all creditors' claims recognised and not recognised by the court in UAH equivalent;
  • the date of the meeting of creditors and the creditors committee;
  • the date of the final court hearing (at which the court will decide whether to recognise a debtor as bankrupt or not and start the liquidation procedure, or to close the bankruptcy proceedings, or to extend the procedure for disposition of property (usually this procedure lasts 170 calendar days)).

If the court rejects all or any part of your claim and you disagree with the court's decision and appeal this judgement. 

The property administrator will create a register of creditors in accordance with the court judgement.  This document sets out the information about each creditor, the amount of the monetary claims and the number of votes which each pre-bankruptcy creditor has and can cast at the meeting (committee) of creditors. The register created by the property administrator will also state whether any one has a casting vote and the order of priority for satisfaction of each claim.

Each creditor's number of votes is equal to the amount of its claim divided by UAH one thousand.  However, the amount of the claim does not take into account the amount of forfeit (i.e. fines, late payment interest).

If your claim is included in the register of creditors and, as a result, you have the right to vote at any subsequent creditors meeting you officially become a significant part of the Debtor's bankruptcy procedure.

The following articles will reveal more interesting and useful details about bankruptcy procedure in Ukraine.