Nataliya TISHCHENKO, arbitration manager, lawyer, managing partner of the Nobili law company, spoke about military challenges and pain points faced by the bankruptcy practice, whether European integration processes bypassed it, challenges that arise for the applicant when opening proceedings, whether approaches to remuneration of the arbitration manager have changed , whether it is possible to seize property from a bankrupt for military purposes.
— Natalia, tell us about the military challenges faced by arbitration managers in their work, and about the pain points of the professional community.
— Arbitration administrators as members of the judicial system must adapt to today’s realities. Frequent adjournments of court hearings in view of security measures during the alarm have a significant impact on the terms of consideration of cases. The scale of destroyed property is impressive. The property, which could be transferred to the liquidation mass of the debtor and at the expense of which the creditors’ claims should be repaid, requires an additional burden, in particular, the recording of losses, the execution of additional procedural documents. Assets of the debtor, which are currently in the temporarily occupied territory, are not available for inspection and protection. The arbitration administrator cannot physically fulfill his obligations regarding the inventory of the debtor’s property, its inclusion in the liquidation mass and preservation. Consideration of cases in court is ongoing and cannot be completed taking into account the future compensation of damages from the aggressor or in anticipation of the liberation of temporarily occupied territories.
Competences to detect the so-called Russian trace were added to the functions of the arbitration manager. And believe me, it is not so easy to detect it with the available tools. With closed registers, it is quite difficult and expensive to find any information about the participants in the case.
The country is at war. And more and more often we see a colleague in the ranks of the Armed Forces. Unfortunately, the role of the arbitration manager in the economic component is being leveled in our country. Deputies of the Verkhovna Rada did not support the booking of arbitration managers. In addition, the community has already lost high-class specialists who died defending Ukraine.
— What are you currently paying more attention to in your professional activity?
— As an arbitration manager, lawyer and managing partner of a legal company, I pay attention to several key aspects in my professional activity.
Right now, it’s important to keep up with all the updates and changes in bankruptcy and other legal regulations to stay on top of the current requirements. Right now, when the decisions of local courts began to be considered by the Supreme Court, the practice of applying the provisions of the Code is being formed.
Of course, my team and I are focused on protecting the interests of clients and ensuring the best results for our clients, using our experience and knowledge in the field of law and economics. Our experience and knowledge in bankruptcy practice enable us to effectively work with complex cases that require careful analysis and informed decisions. Focusing on ensuring the efficiency and transparency of bankruptcy procedures and other legal processes is an important part of our work.
As a managing partner of a law firm, I also focus on the overall development of the company, its reputation and ensuring a high level of professional activity of all employees. The success of our professional activities largely depends on reliable relationships with clients, so I pay special attention to this. An important part of my work is effective communication and collaboration with other legal professionals.
A separate direction of my work is popularization of bankruptcy procedures. As a member of the Council of the National Association of Arbitration Managers of Ukraine (NAAKU), I organize events related to the coverage of problematic issues in the field of bankruptcy. It is important that the parties to the process sit down at the same table and search for the truth together. It is for this reason that NAACU holds round tables that gather banks, judges, arbitration managers, regulatory authorities and other experts related to the topic of bankruptcy. Last year, the Association was especially proud of holding the first forum. And I hope that this year’s forum will be as successful and magical as the last one.
— What challenges do the applicant face today when opening bankruptcy proceedings?
— Applicants who file for bankruptcy face a number of challenges that can complicate the process and affect its effectiveness. Here are some of the key challenges that filers may face when filing for bankruptcy:
• Protracted procedures: the bankruptcy process can be lengthy and require a significant expenditure of time and resources, which can complicate the financial situation of the applicant.
• Document and Evidence Requirements: Applicants must prepare a large amount of documents and evidence to substantiate their claims and claims, which can be a complex and time-consuming process.
• Uncertainty of the legal process: there are often different readings and uncertainties in judicial practice regarding the application of the Bankruptcy Code, which can make it difficult to predict the outcome of the proceedings.
• Risk of abuse: applicants may face the risk of abuse by debtors or other interested parties, which may delay or complicate the process.
• Financial costs: The costs associated with the remuneration of the arbitration administrator and other procedures can be high, especially for applicants with limited financial resources.
• Business Continuity: During bankruptcy proceedings, applicants may face difficulties in ensuring the continuity of their business and maintaining their reputation.
• Communication with the Arbitrator and other stakeholders: Applicants must interact effectively with the Arbitrator, judges and other stakeholders, which requires communication and legal skills.
• Choosing the best strategy: choosing the most effective strategy to achieve your goals in the bankruptcy procedure can be a difficult task, especially without sufficient experience and knowledge in this area.
In general, filers face a number of challenges that can complicate the bankruptcy filing process. To overcome these challenges, it is important to have access to professional legal assistance and the expertise of bankruptcy professionals.
— How is the field of restructuring and bankruptcy integrated into Europe?
— The processes of European integration have not bypassed the practice of bankruptcy: almost all procedures in force today comply with the directives of European legislation.
But with regard to the procedure for conducting pre-trial rehabilitation, the norms of the Code do not establish a clear procedure for their application, contain contradictions with other provisions of the Code, do not establish clear guarantees for the debtor and creditors that would ensure the implementation of the rehabilitation procedure before the opening of bankruptcy proceedings. Experts call this the key reason why the procedure of pre-trial rehabilitation actually remained an ineffective method of debt settlement and is currently not in demand. In my opinion, this procedure is the “medicine” that is so necessary to save business during economic crises.
On May 9, the Verkhovna Rada of Ukraine adopted in the first reading the draft law “On Amendments to the Code of Ukraine on Bankruptcy Procedures and other legislative acts of Ukraine regarding the implementation of Directive 2019/1023 of the European Parliament and the Council of the European Union and the introduction of preventive restructuring procedures.”
Consequently, bankruptcy law will be strengthened with new safeguards against insolvency.
— In your opinion, the Bankruptcy Code has been perfected? What still needs to be improved?
— The current Code of Bankruptcy Procedures of Ukraine, adopted in 2019, is a key normative legal act regulating bankruptcy procedures in the country. It was designed to improve existing procedures and ensure a more efficient and transparent bankruptcy process. In general, it satisfies the main aspects of efficiency and compliance with modern requirements of the market and economy:
• Transparency and openness: The Code provides for more transparent procedures, including the creation of an electronic auction system for the sale of the debtor’s property. This contributes to increasing the efficiency and openness of the process.
• Protection of creditors’ interests: The Code aims to strengthen the rights of creditors in bankruptcy proceedings, in particular by giving them greater influence in decision-making.
• Speeding up procedures: The changes to the Code were intended to speed up bankruptcy procedures and make them more efficient for all stakeholders.
• Reducing abuse: new mechanisms prevent abuse of the bankruptcy process, for example, by applying stricter sanctions for wrongdoing by debtors.
• Harmonization with international standards: The Code was developed taking into account the best international practices and standards, which contributes to its relevance in the modern context.
• Balance of interests: The Code is aimed at balancing the interests of creditors, debtors and other interested parties.
Despite these positive changes, there are some aspects that may need further improvement:
• Long-term processes: sometimes bankruptcy processes can last a long time, which negatively affects the debtor’s economic activity.
• Application in practice: some provisions of the Code may be difficult to apply in practice and require further clarification and instructions.
• Jurisprudence: Sometimes there may be differences in the application of the Code by the courts, which may create uncertainty in the procedure.
Overall, although the Code on Bankruptcy Procedures has its merits and is a significant step forward compared to previous legal acts, there is room for further improvement, especially in terms of practical application and increasing the efficiency of procedures.
My personal experience is that no tool will work according to the rules if the users are not motivated. The Code provides for many obligations and responsibilities of the arbitration administrator, but the reward is usually incomparable. It is one thing to lead the bankruptcy of a small company with 10 employees and a turnover of 1 million hryvnias per year, and quite another to manage a large business with 1,000 employees with a multibillion-dollar annual turnover. In addition, the profession requires competences not only in law, but also in economics at the same time. The arbitration administrator must be knowledgeable in the field of accounting, be a good negotiator, have mediator skills, and be ready for tough stressful situations. I believe that the first thing that needs to be improved is the payment mechanisms for the arbitration manager’s fee. A motivated trustee is the foundation of a working bankruptcy law.
From the practice of applying the norms of the Code, the need to settle the issue of abuse regarding:
• a dispute about the right that is the basis for opening bankruptcy proceedings;
• changes in the sequence of claims of the collateral creditor to bankruptcy claims in the event of a refusal to provide security;
• presence of related persons in the case.
With regard to the procedures for restoring the solvency of individuals in whose homes minor children live, it is necessary to introduce mechanisms to involve the Department of Child and Family Protection in the case.
Regarding the bankruptcy of developers, in the practice that is currently gaining momentum, it is necessary to regulate the status of the investor, who has only property rights to square meters.
— Over the past year and a half, many legislative changes have been made in the field of bankruptcy and restructuring of problematic debt, which of them can you single out? How applicable are they? What needs further settlement?
— This year, the Verkhovna Rada of Ukraine adopted two laws that introduce a number of innovations in the bankruptcy procedure. Changes to the Code were caused primarily by the challenges of the martial law in Ukraine, as well as the need to adapt Ukrainian legislation to EU standards.
The changes establish a number of temporary provisions that will apply during the period of martial law in Ukraine and within six months from the date of its termination or cancellation:
• the right to hold meetings and the creditors’ committee remotely: in video conference mode and with the help of a survey;
• exemption of the arbitration administrator from disciplinary liability for failure to fulfill the duties provided for by the Code, if their performance is impossible due to the conduct of hostilities in the areas where the debtor, creditor, debtor’s property, office or the place of residence or stay of the arbitration administrator are located;
• the court’s right to extend certain procedural terms;
• suspension of accrual of interest on the debtor’s obligations to creditors restructured in accordance with the rehabilitation plan or the debtor’s debt restructuring plan;
• the possibility of opening proceedings in the case of the debtor’s bankruptcy with an advance payment of the remuneration established directly under the agreement with the arbitration administrator;
• conducting a mandatory assessment of damage and/or losses caused to the debtor as a result of armed aggression against Ukraine, in accordance with the procedure established by the Cabinet of Ministers of Ukraine;
• non-application of joint and several liability to governing bodies related to armed aggression against Ukraine, in particular due to the presence of a single property complex of the debtor in the territories where hostilities are (were) taking place or in temporarily occupied territories.
Regarding the request of the arbitration administrator, very important changes have been made on a permanent basis, which will facilitate the collection of information about the debtor and ensure its timely receipt.
— Is it possible to seize property from a bankrupt for military purposes?
– Seizure of property is a coercive measure applied during martial law, and such decisions must be made by the military command. The answer to the key question of whether property can be seized is yes, it can. Another issue is that in case of confiscation of state property, it is a free seizure, and in the case of seizure of privately owned property, it is paid. However, there is currently no mechanism for when this deduction will be made, who will conduct the assessment, whether it will be complete, or whether the consequences of the seizure of this property for the debtor’s activities will be taken into account. In case of bankruptcy, it is not just a seizure of property, when the company is left to work quietly, it is already at a certain stage of bankruptcy, and it is difficult, and sometimes impossible, to assess such consequences.
— Today, how do you assess the financial realities, the remuneration of the arbitration manager? Have approaches changed?
— Currently, the amount of the arbitration administrator’s remuneration is acceptable. First of all, the arbitration manager receives remuneration for the first three months of performance of duties, which are advanced by the applicant. In the future, certain problems arise regarding the payment of the reward. If the debtor does not have cash, the creditors do not want to create a fund to pay the compensation to the arbitration administrator, a fund to pay expenses, then the arbitration administrator remains without remuneration and reimbursement of expenses. Therefore, in the absence of a dialogue between the arbitration administrator and the debtor and creditors regarding the payment of remuneration and reimbursement of costs, the arbitration administrator leaves the case.
— With what plans and projects of Nobili do you associate the near future?
— We are working on attracting new clients and expanding our client base, offering a wide range of services, specializing in various fields of law. We try to integrate new technologies in our work in order to increase the efficiency, accuracy and speed of service provision. The company attaches great importance to the training of its employees in order to maintain their professional level and ensure the best quality of services.
We are currently focused on expanding partnerships with other companies or organizations to collaborate and share experiences.