On 19 October, the new Law of Ukraine “On Financial Restructuring” (the “Law”)
came into force.
The Law expires on 19 October 2019 and is aimed at facilitating out-of-court
voluntary financial restructuring of financial indebtedness of Ukrainian companies. The new procedure is expected to allow eligible creditors to lead the financial restructuring of Ukrainian debtors without commencement of any bankruptcy procedures and, moreover, should prevent subsequent initiation of bankruptcy proceedings against the relevant debtor by hostile parties.
Target: any Ukrainian company at its own discretion may initiate the financial
restructuring process, subject to the Creditors section below. The Law mechanics cannot be used by (i) state-owned public enterprise, or (ii) a financial institution.
Creditors: at least one unrelated financial institution (whether Ukrainian or foreign; if foreign, the debt in question must be a loan) must be one of the pool of creditors involved in the restructuring.
Financial restructuring may be commenced if all of the below conditions are met:
(i) a debtor is deemed to be in a critical financial situation (unable to pay off a loan when it is due),
(ii) business activities of the debtor are recognized as prospective,and
(iii) creditor(s) consent to the restructuring.
Assets subject to financial restructuring:
(iv) any assets located in Ukraine;
(v) any foreign assets and receivables originating from foreign law contracts.
The Law also introduced the concept of a standstill agreement, and envisages resolution of disputes among involved parties by means of arbitration proceedings. The Law is yet to be tested in practice for its efficiency as it mostly provides for general framework of financial restructuring with secondary legislation still required in different aspects for due implementation of new procedures.