The Bankruptcy Code of Ukraine has given impetus to the creation of new case law

Senior lawyer of NOBILI Law Firm Meshe Oleksiy (article for the Ukrainian Lawyer)

The Bankruptcy Code of Ukraine has been enacted, and we have the beginning of a new case law. The Code establishes the conditions and procedure for restoring the solvency of the debtor – a legal entity or declaring it bankrupt in order to satisfy creditors’ claims, as well as restoring the solvency of an individual.

OPENING OF THE PROCEEDINGS

If earlier the Law of Ukraine “On Restoration of Debtor’s Solvency or Recognition of Debtor’s Bankruptcy” allowed recovery of a natural person – entrepreneur, the Code combines a natural person – entrepreneur and a natural person into one category of debtors.
Proceedings in the case of insolvency of an individual may be opened only at the request of the debtor and in the presence of appropriate grounds indicating the insolvency or its threat.
In the application for the opening of proceedings, the individual must indicate the following: the name of the commercial court; first name, first name, patronymic, contact details; state the circumstances that became the basis for the appeal to the court, and indicate the list of documents that are attached to the application.
When preparing an application, it should also be borne in mind that such a statement must meet the requirements of the Commercial Procedure Code of Ukraine.
The individual must attach the following documents to his / her insolvency statement:
1. A document confirming the presence (absence) of the status of a natural person – entrepreneur.
2. Specified list of creditors and debtors.
3. Own description of the property belonging to the right of ownership and copies of the documents confirming the right of ownership.
4. The list of property that is pledged (mortgaged) or is encumbered in another way.
5. Copies of documents on transactions made (during the year) in respect of real estate belonging to him, securities, shares in the authorized capital, vehicles.
6. Copies of all agreements in the amount of not less than thirty times the minimum wage.
7. Information on all available accounts (including deposit accounts) opened with banks and other financial institutions in Ukraine and abroad.
8. A copy of the employment record book (if available) and information about the employer (employers).
9. Declaration of property status. The declaration is submitted for the three years (for each year separately) preceding the submission of the application to the court. The declaration must contain information on the property, income and expenses of the individual and his family members in excess of thirty times the minimum wage.
10. Evidence (receipt, payment order) of the advance to the deposit account of the court remuneration to the restructuring manager for three months of performance of duties.
11. Information (certificate) on the presence (absence) of outstanding convictions for economic crimes.
12. Power of attorney or other document certifying the authority of the representative, if there is a representative.
At the same time as the application for the opening of proceedings, the individual is obliged to submit proposals for debt restructuring.

After filing a declaration of insolvency of an individual to the commercial court, such a court actually begins its consideration. If there are no grounds for refusing to accept the application or returning such an application, the court shall, no later than five days from the date of receipt of the application, issue a decision to accept the application for consideration, appoint a preparatory hearing.
At the same time, you should be prepared for the fact that the court has the right to decide on the obligation of an individual to provide additional information and take measures to ensure creditors’ claims: prohibition to enter into transactions, obligation to transfer property for safekeeping actions, seizure of property and a ban on travel abroad.
In the preparatory session, the commercial court considers the submitted documents, finds out the grounds for initiating insolvency proceedings, as well as resolves other issues.
As a result of the preparatory hearing, the court decides to open proceedings or to refuse to open insolvency proceedings (the debtor has fulfilled his obligations or has been brought to administrative or criminal responsibility for actions related to insolvency).
In the case of opening proceedings, the court introduces a procedure for restructuring the debts of an individual, a moratorium on satisfaction of creditors’ claims for a period of 120 days and appoints a restructuring manager.

SOLVENCY RECOVERY

The debt restructuring procedure of an individual is one of the court procedures used to restore the debtor’s solvency by changing the method and procedure for fulfilling its obligations in accordance with the debt restructuring plan.
Very interesting is the obligation of state bodies to provide the restructuring manager and the court with information on the income of an individual and his family members, on the crossing of the state border by an individual and his family members for the last three years and on the property declared by such persons. ¬border.
The opening of insolvency proceedings has corresponding consequences, as from the moment of opening certain restrictions are set for an individual and his creditors. Restrictions can be as follows: creditor claims and their satisfaction occur within the framework of the insolvency case; seizures of property and the application of restrictions on an individual may be applied only by a court; the exercise of corporate rights and their realization, alienation and disposal of property is subject to the restrictions established by the Bankruptcy Procedure Code of Ukraine; as already mentioned, a moratorium on satisfaction of creditors’ claims is introduced; the accrual of fines, other financial sanctions and interest ceases; the term of fulfillment of all monetary obligations of an individual is considered to have come.
In order to identify all creditors, the announcement of the opening of insolvency proceedings against an individual is officially published.
Creditors submit monetary claims against the debtor within thirty days from the date of official disclosure.
Further, the Debtor Debt Restructuring Plan is being developed, the purpose of which is to restore the solvency of an individual. Depending on the nature of the relationship, the plan may include the following: the circumstances that caused the insolvency; information on creditors’ claims recognized by the court, indicating their size and priority of satisfaction; information on the debtor’s property status and all income; the amount that will be allocated monthly to repay creditors’ claims; creditors’ claims against the debtor, which will be forgiven (written off) in the case of implementation of the debt restructuring plan; the amount that will be left to the debtor each month to meet household needs (at least one subsistence level); sale of part of the debtor’s property; changing the manner and procedure of fulfillment of obligations, deferral or forgiveness of debts or fulfillment of such obligations by third parties.
However, it should be borne in mind that not all debts are subject to restructuring. These include arrears of alimony, compensation for damage caused by injury, other damage to health or death of an individual, the payment of a single contribution to the obligatory state social insurance and other obligatory payments to the obligatory state social insurance.
It is important that the tax debt, which arose within three years before the date of the decision to initiate proceedings, is recognized as bad and written off in the debt restructuring procedure.
The restructuring plan must be approved by the creditors’ meeting and submitted to the court by the restructuring manager for further approval. The court is obliged to approve a debt restructuring plan if such a plan is approved by the creditors and the debtor, but subject to the repayment of debts that are not subject to restructuring.
From the date of approval of the debt restructuring plan, the debtor begins to repay creditors’ claims in accordance with the terms of such plan. The approved plan may be the basis for the renegotiation of civil contracts of the debtor with new conditions for their implementation. Upon expiration of the debt restructuring plan, the debtor is obliged to submit a report on the implementation of the plan to the court and creditors.
Based on the results of the report, the court decides to close the insolvency proceedings in connection with the implementation of the debtor’s debt restructuring plan. In this case, the individual is considered exempt from debt.
In case of non-fulfillment of the plan and the presence of creditors’ complaints, the court decides not to fulfill the debtor’s debt restructuring plan, declares the debtor bankrupt and introduces a procedure for repayment of the debtor’s debts.

DEBT REPAYMENT

Debt repayment of debts is the last court procedure in the case, which is used to satisfy creditors’ claims through the sale of property of an individual.
Notice of the debtor’s bankruptcy and the introduction of the debtor’s debt repayment procedure is published on the official web portal of the judiciary of Ukraine.
The manager of the sale of property together with the debtor conducts an inventory of the property and determines its value. The debtor’s property, which is subject to sale in the procedure of debt repayment of the debtor, is the liquidation estate.
The liquidation estate includes all the debtor’s property owned by him, except:
1. Dwelling, which is the only place of residence of the debtor’s family (apartment with a total area of ​​not more than 60 m2 or living area of ​​not more than 13.65 m2 for each family member or a house with a total area of ​​not more than 120 m2) and is not the subject of collateral.
2. Funds held in the debtor’s accounts in pension funds and social insurance funds.
3. Other property, which according to the law cannot be levied.
The court also has the right at the reasoned request of the debtor and other participants in the proceedings to exclude from the liquidation estate of the debtor: if the property is necessary to meet the urgent needs of the debtor or his family members; illiquid assets worth no more than ten times the minimum wage or income from the sale of which will not significantly affect the satisfaction of creditors’ claims.
The total value of the debtor’s property, which is excluded from the liquidation estate, may not exceed thirty times the minimum wage.
All property that is included in the liquidation estate is subject to sale, and the proceeds from such sale are deposited in a separate bank account, from which the satisfaction of creditors’ claims. Creditors ‘claims included in the register of creditors’ claims are satisfied in the following order:
1. In the first place, the requirements for the payment of alimony, compensation for damage caused by injury, other damage to health or death of an individual, payment of insurance premiums for compulsory state pension and other social insurance are met.
2. In the second place, the requirements for the payment of taxes and fees (mandatory payments) are met and settlements are made with other creditors.
3. Penalties (fine, penalty) are paid in the third place.
The requirements of each subsequent turn are satisfied at the expense of funds from the sale of the debtor’s property after full satisfaction of the requirements of the previous turn. In case of insufficiency of the means received from sale of property of the bankrupt, for full satisfaction of all requirements of one turn claims are satisfied in proportion to the sum of the claims belonging to each creditor of one turn.
Creditors’ claims on the debtor’s obligations secured by the pledge of the property of an individual are satisfied at the expense of such property. Claims that are not satisfied due to the insufficiency of the debtor’s property are considered repaid.
Upon completion of the debt repayment procedure, the commercial court, ruling on the closure of insolvency proceedings, decides to release the debtor – an individual from debt.
Having got rid of all debts, the individual should not forget that he bears reputational losses, namely:
1. Insolvency proceedings on an insolvency application may not be instituted within five years after the individual has been declared bankrupt.
2. Within five years after a natural person has been declared bankrupt, such person shall be obliged to notify the fact of his / her insolvency before concluding loan and credit agreements.
3. Within three years after a natural person has been declared bankrupt, he or she may not be considered to have an impeccable business reputation.