On 1 January 2025, Ukraine took a significant step in aligning its insolvency framework with European standards by introducing a preventive restructuring mechanism.
For international investors, creditors, and legal professionals unfamiliar with Ukrainian law, this article serves as an introduction to the procedure, how it works, and what to expect.
The new framework is part of Ukraine's implementation of EU Directive 2019/1023 and aims to offer struggling but viable businesses a route to reorganise early, avoiding the costly consequences of a full-blown insolvency. But, as with any new legal instrument, challenges lie ahead.
A fresh start before it’s too late
The preventive restructuring procedure allows debtors to address financial trouble before it's terminal. This isn't about giving failing firms an unwarranted lifeline – it's about helping solid businesses overcome temporary hardship.
Only business itself (the debtor) can initiate the process, which must begin with a court application that includes a detailed restructuring plan or an outline restructuring concept (if the debtor is a microenterprise or small enterprise, they may submit a less detailed restructuring concept, provided it complies with the requirements set out in the Bankruptcy Code). That plan can include anything from deferrals and partial debt forgiveness to equity swaps, asset sales, or changes in management. The key requirement of any plan is that it must realistically restore solvency and maintain business operations.
The creditors: not just spectators
Creditors in this process aren't passive bystanders, they're active players. Once notified by the debtor, they organise into the following classes depending on the type of claim they have:
- secured creditors;
- public creditors (those with claims related to taxes and state payments);
- unsecured creditors; and
- unsecured creditors affiliated with the debtor.
Each class votes on the proposed restructuring plan. Secured creditors require a two-thirds majority of the value of claims to approve, while unsecured creditors need a simple majority. The court can still confirm a plan rejected by some classes if certain fairness conditions are met.
Beyond voting, creditors can suggest amendments, contest violations, and even petition for a different restructuring administrator. While their interests are protected, they’re also expected to engage constructively in the process.
The debtor: driving the process, within limits
The debtor remains at the centre of the restructuring procedure, with the obligation to drive the process forward while adhering to the strict legal requirements imposed by the Bankruptcy Code. The management of the debtor are not replaced or suspended but must act transparently and responsibly, prioritising recovery and equitable treatment of creditors.
Debtors are restricted from engaging in transactions that could diminish their financial standing or harm creditor interests. This includes issuing new guarantees, selling or pledging assets beyond ordinary business activities, or making unjustified payments to insiders. Any such actions must be approved by the court or be included in the restructuring plan.
During the procedure, the debtor is granted several forms of protection. These include court-imposed suspensions of enforcement actions, prohibition of insolvency claims by creditors, and the potential application of interim financing under judicial oversight.
Additionally, the debtor can propose a range of restructuring strategies: operational restructuring, sale or lease of non-core assets, injection of new equity, conversion of debt into equity, or capital increase via creditor participation. These tools enable the debtor to craft a customized recovery strategy suitable to its business model and sector conditions.
Debtors are also expected to engage in open and consistent communication with all parties, respond to information requests from the court and creditors, and submit regular updates on financial performance and restructuring progress.
The administrator: referee
The administrator of a preventive restructuring, sometimes referred to as the arbitration manager plays a key supervisory and advisory role. Their appointment is mandatory in cases where only a restructuring concept is filed, when the debtor requests protective measures, or when court approval of the plan is sought.
Administrators are responsible for evaluating the restructuring plan, ensuring that it complies with legal standards and serves the best interest of creditors. They facilitate negotiations, verify creditor claims, monitor the debtor’s financial operations, and report any irregularities to the court. They also provide binding opinions on issues such as the necessity of interim financing, the categorisation of creditor classes, or the impartiality of the plan’s execution.
An essential aspect of the administrator’s mandate is impartiality. Individuals who have existing or recent connections with the debtor or creditors, or who have previously been sanctioned in insolvency matters, are excluded from appointment. The administrator must perform independently and in accordance with professional ethics and legal obligations.
The court: guardian of fairness
The commercial court serves as the gatekeeper and final arbiter throughout the restructuring procedure. Its responsibilities begin with reviewing the debtor’s application and deciding whether to open the procedure. It verifies the completeness and legal compliance of submitted documents and determines the admissibility of any requests for protective measures or administrator appointments.
Once the procedure is opened, the court supervises its proper conduct. It reviews creditor objections, rules on disputes concerning the plan, and ensures that any approved restructuring solution satisfies the best interest of creditors. The court may also approve new financing arrangements, extend protective measures, or revoke them in cases of abuse.
The court’s most critical function is either the approval or rejection of the restructuring plan. If approved, the plan becomes binding on all creditors, including those who opposed it. The court also holds the power to close the procedure – whether for successful completion, procedural violation, or failure to submit or execute the plan within statutory limits.
All key judicial decisions are made publicly and are subject to appeal within narrowly defined circumstances. The court thus provides both procedural integrity and a final authority on the legitimacy of restructuring outcomes.
In summary
The preventive restructuring mechanism marks a major shift in Ukrainian insolvency culture from reactive to proactive. Done right, it can protect jobs, rescue businesses, and improve returns for creditors. For foreign creditors (EU/UK) it offers a familiar structure, predictability and a seat at the negotiating table.
While still in its infancy, it shows clear potential to reshape how financial distress is handled in the country. Implementation will not be without obstacles. We can expect litigation, growing pains, and plenty of legal debate. But with time and crucially, guidance from the Supreme Court decisions this mechanism can mature into a powerful, fair, and reliable tool for early business recovery.
