Lawyer, Head of Judicial Practice of NOBILI Law Firm Meshe Oleksiy
Everything you need to know about a debt restructuring plan
Debt restructuring of an individual (debtor) is the first court procedure applied by a commercial court to a debtor. The main purpose of this procedure is to restore solvency by changing the method and procedure of fulfillment of obligations. Such a replacement is in accordance with the restructuring plan.
The debtor who files for insolvency must submit a draft plan that shows the court and creditors the possibility of recovery. Therefore, today about the restructuring plan in the classic version.
Therefore, the debtor independently and with the support of the restructuring manager (arbitration manager) must analyze its financial condition and prepare a plan for approval. In general, the plan is a document that reflects the financial and property status of the debtor and declares the position of repayment of all or part of the debt.
What should be indicated in the restructuring plan?
In the restructuring plan, the debtor must provide complete and understandable information to the court and creditors. Depending on the situation, the plan states:
- A full statement of the circumstances that caused the insolvency. Such circumstances are individual, so the debtor is described independently.
- Information on the creditors’ claims recognized by the court, indicating their size and priority of satisfaction. The debtor becomes aware of such requirements from the decision of the previous session of the commercial court.
- Complete information on the property status after the inventory by the restructuring manager.
- Information on all income. What is important here is that the debtor can, and in some cases indicate, the income he plans to receive in the future.
- The amount of money that will be left each month to meet household needs, in the amount of not less than 1 subsistence level for the debtor and for each person who is dependent on him.
- Information on the sale of part of the debtor’s property, including what is the subject of security.
- Change in the method and procedure for fulfillment of obligations (number of amounts and terms of debt repayment).
- Deferment or installment or forgiveness (write-off) of debts or their part;
- Fulfillment of obligations by third parties, in particular by concluding a surety agreement, guarantee and other transactions.
- Any other measures that will be aimed at improving the property status and satisfaction of creditors’ claims (retraining, employment, etc.).
- Creditors’ claims that will be forgiven (written off) in case of positive implementation of the debt restructuring plan.
It should be noted that in order to prepare certain provisions of the plan, the debtor should negotiate with creditors. This directly relates to the deferral, installment or forgiveness (write-off) of debts, changes in the manner and procedure of fulfillment of obligations or their fulfillment by third parties.
What is not subject to restructuring?
Debtor’s debts for the payment of alimony, compensation for damage caused by injury, other damage to health or death, for the payment of a single contribution to the obligatory state social insurance are not subject to restructuring.
This rule does not apply to tax debt. The tax debt, which arose within 3 years before the date of the decision to open insolvency proceedings, is recognized as bad and written off.
How long can the debtor expect to implement the plan?
The term of implementation of the debt restructuring plan may not exceed 5 years. If the debtor has received a loan to purchase housing, the term of the plan may not exceed 10 years.
Also, the legislation provides for an extension. If more than 80% of creditors’ claims are repaid, the commercial court may extend the term of execution of the debtor’s debt restructuring plan beyond the deadline.
How is the restructuring plan approved?
The debtor’s plan must be approved.
First of all, it must be approved by the debtor himself, as the absence of such approval is a condition for refusing further approval. Also, the plan must be approved by creditors at the relevant creditors’ meeting. Approval by creditors is made out by the corresponding minutes of meeting of meeting of creditors. Such a protocol shall indicate the position of each creditor regarding the restructuring plan and their voting.
Subsequently, the restructuring manager must submit the plan and protocol to the court. The commercial court is obliged to approve the debtor’s debt restructuring plan, if such a plan is approved by the creditors and the debtor.
But the debtor should remember that there is one special condition. The debt restructuring plan is approved by the court only after full repayment of debts for alimony, compensation for damage caused by injury, other damage to health or death of an individual, for the payment of a single contribution to the obligatory state social insurance. That is, without paying debts that are not subject to restructuring, the court will not approve such a plan.
Also, the court must hear each creditor who has objections to the debt restructuring plan (if any), which in turn also affects the further approval of the plan.
It should be noted that in case of refusal to approve the plan by the court, the plan may be finalized in the future or creditors’ meetings have the right to apply to the court to declare the debtor bankrupt or to close the case.
How is the restructuring plan being implemented?
From the date of approval of the restructuring plan, the debtor begins to repay creditors’ claims in accordance with the terms of such plan.
In case the debtor violates the debt restructuring plan, creditors have the right to apply to the commercial court and raise the issue of closing the proceedings or the introduction of a debt repayment procedure.
No later than 5 days after the expiration of the plan, the debtor is obliged to provide the court and creditors with a report on the implementation of the plan with evidence of satisfaction of creditors’ claims.
Based on the results of the positive consideration 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 debtor’s solvency is restored and he is released from debt.