On 19 January 2013, a new edition of the Law of Ukraine "On rehabilitation of debtor or its bankruptcy" (the “Bankruptcy Law”) came into force. The Bankruptcy Law provides for the possibility of a pre-bankruptcy rehabilitation of a debtor which may be introduced by the court on the debtor’s or the creditor’s request. During the pre-bankruptcy rehabilitation of the debtor bankruptcy proceedings cannot be commenced in court, and the court may establish a moratorium on the satisfaction of the creditors’ claims.

On the grounds provided by the Bankruptcy Law, either a debtor or any of its creditors may initiate bankruptcy proceedings in court, which may include the following stages:

      i.        Administration of the Debtor’s Assets;

     ii.        Financial Rehabilitation of the Debtor (or “Sanation”);

    iii.        Settlement;

    iv.        Liquidation of the Debtor.  

The law provides that the pledged property of a debtor cannot be included in the liquidation pool of the debtor’s assets and may be sold upon the consent of the respective “secured” creditor.

The Bankruptcy Law excludes the simplified bankruptcy procedure for a debtor who is not located at its legal address.

A new mean of the debtor's rehabilitation called "replacement of assets" has been implemented, according to which a part of the debtor's assets and obligations can be alienated to a newly established entity created by the debtor. The shares of such newly created entity can be included in the pool of the debtor's property and sold through auction.

The new Bankruptcy Law provides that property claims against the debtor (including disputes on the validity of the debtor's agreements, payment of taxes, and invalidation of decisions of state organs affecting the debtor’s property rights) are to be reviewed by the court within bankruptcy proceedings.

Another innovation of the Bankruptcy Law is a specific procedure for cooperation between the Ukrainian courts and foreign courts, as well as bankruptcy administrators within Ukrainian and foreign bankruptcy proceedings, including recognition of foreign court judgments.

The new Bankruptcy Law provides for significant changes to bankruptcy proceedings and it is deemed to improve the procedures of restoration of debtor solvency, as well as the protection of the creditors’ rights.

Additional notes

This LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them.  The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.