Opinion
Bankruptcy procedures (Eng)
LEGAL ADVICE
Kyiv, 25 May 2009
Customer: ____________ (hereinafter referred to as the Company).
Basic data: the Company is a non-resident and sells pharmaceuticals on the basis of international contracts to the legal entities residents of Ukraine for the further distribution on the Ukrainian market. One of the contracting parties has a considerable debt for the goods supplied. The contacting Party is situated in Kiev. According to the information provided by the Company, at present the contracting Party is carrying on with its business activities, all the primary documents regarding pharmaceuticals supplies are drawn up properly, stated monetary claims were not considered in the Court of Laws, there is no court decision as for the debt to the non-resident Company.
Issues for the legal advice:
1. Right of the Party interested and reasons for bankruptcy case initiation.
2. Application of the bankruptcy petition by the creditor.
3. Initiation of the bankruptcy court case.
4. Securing of the creditors’ claims and moratorium on the settlement of the creditors’ claims.
5. Collection of the debtor’s property and the priority the creditors’ claims settlement.
INVESTIGATION:
Investigation of the current legislation of Ukraine including current international treaties that are ratified by Ukraine in order stipulated by the law and are an integral part of the Ukrainian legislation as well as special literature enable to make the following summary conclusions as for the present issues.
The Law of Ukraine “On the debtor solvency renovation or its recognition as a bankrupt” No 2343-Õ²² as of 14 May 1992 with amendments (hereinafter referred to as the Law No 2343) stipulates general conditions and procedure of solvency renovation of a business entity which is a debtor or its recognition as a bankrupt with the further liquidation, partial or ’complete settlement of creditors claims.
Bankruptcy is an debtor’s inability, legally declared by the Economic Court, to restore his/her solvency and settle creditors’ legally recognised claims avoiding liquidation procedure. According to the definition of the bankruptcy, the Company may acquire the status of bankrupt only under the Economic Court decision.
However, application of bankruptcy petition does not mean that the debtor shall be obviously recognized by the Economic Court as a bankrupt. The debtor is recognized as a bankrupt only if there is no other way to settle his/her debts.
1. Right of the Party interested and reasons for bankruptcy case initiation.
Court cases regarding bankruptcy of the non-resident legal entities are within the jurisdiction of the Economic Courts of Ukraine and shall be considered domiciliary to the debtor, in the present case, by the Kyiv Economic Court. Bankruptcy petition shall be submitted to the Economic Court by the debtor or his creditor.
According to Article 1 the Law No 2343, the creditor refers to the legal entity or natural person having monetary claims, duly confirmed by the documents, as for the debtor’s liabilities. According to the legislation the creditors are divided into bankruptcy creditors and current creditors.
Bankruptcy creditors mean creditors having claims to the debtor prior to the initiation of the bankruptcy court case, their claims are not secured by the debtor’s collateral. The creditors whose claims origin as a legal succession, provided the said claims applied prior to the initiation of the bankruptcy court case, are also bankruptcy creditors.
Current creditors refer to creditors having claims to the debtor after the initiation of the bankruptcy court case.
Bankruptcy court cases with participation of the non-resident creditors are governed by the Law No 2343, if otherwise is not set forth by the Ukraine international contracts approved as obligatory by the Verkhovna Rada.
Legal entities including foreign ones have a right to apply to the Economic Court.
Bankruptcy case is initiated if indisputable claims of the creditor (creditors) to the debtor in the aggregate are not less than three hundred minimum wages and the debts have not been settled within three months after the due date.
Indisputable claims of the creditors:
- creditors’ claims are recognized by the debtor; the recognition shall be confirmed by documents;
- creditors’ other claims are confirmed by the order of enforcement or settlement documents, according to which, as required by the legislation, the cash assets are written-off from the debtors’ accounts (in present case, the Court Decree as for debt collection which is issued after the creditor’s claims are approved by the Court).
As of 25 May 2009 the minimum wages in Ukraine is 625 UAH, therefore, the amount of indisputable creditor’s claims to the debtor shall be more than 187,500.00 UAH.
2. Application of the bankruptcy petition by the creditor.
Bankruptcy petition shall be submitted by the creditor in writing, signed by the creditor’s manager (other person whose responsibilities are stipulated by the Law or the Articles of Association, for example, by the attorney), and contain the following:
- name of the Economic Court the application is submitted to;
- name of the debtor, his postal address;
- name of the creditor, his postal address;
- number (code), identifying the creditor as the payer of taxes and dues (obligatory payments);
- description of the circumstances confirming debtor’s insolvency, the following information shall be mentioned: amount of claims, terms of settlement, amount of penalty (fine), bank details of the settlement document regarding withdrawn of cash assets from the debtor’s bank or correspondent account and the date it was accepted by the debtor’s bank;
- other general requirements, stipulated by the Economic Procedure Code of Ukraine;
- list of documents attached to the application.
Also, the following documents shall be attached to the creditor’s application:
- decision of the Court, the Economic Court, which considered creditor’s claims;
- copy of the unsettled invoice, according to which, as required by the legislation, the cash assets are written-off from the debtors’ accounts, there shall be conformation from the debtor’s bank of acceptance of the document to the execution with valid date, executive documents (executive notary inscription etc.), or the other documents, confirming that the debt is recognized by the debtor;
- evidences that value of collateral is not enough for the full settlement of the claim, secured by the collateral, provided that single confirmed creditor’s claim is secured by the debtor’s assets.
The creditor’s claim may be based on the united debtor’s debt as for different liabilities to the creditor.
By the general provisions of the Law No 2343, it is stipulated that the creditors may unite their claims to the debtor and apply to the Court with the single application. In this case when conducting bankruptcy procedures, the Creditor’s Committee acts on the behalf of all the creditors.
Stamp Duty in the amount of 85 UAH, information and technical expenses for the Court procedures in the amount of 312.5 UAH (total amount of expenses is approximately 200 USD) shall be paid on the application of the bankruptcy petition.
3. Initiation of the bankruptcy court case.
The judge, after accepting the bankruptcy petition, within five days approves the initiation of the bankruptcy court case and sends the approval to the Parties and to the Bankruptcy State Authority. The approval shall contain the following:
- conformation that the bankruptcy petition is accepted for consideration;
- procedure of debtor’s property disposal;
- appointment of the property administrator;
- date when preparatory court session takes place, that shall be within 30 days after the initiation of the bankruptcy case;
- declaration of moratorium on the settlement of the creditor’s claims.
At the preparatory session the judge consideres the documents submitted, hears the Parties, considers reasons of the debtor’s objections.
In order to find all the creditors and persons willing to participate in the court procedure, at the preparatory session the judge obligates the applicant on his own account, to put advertisement regarding the initiation of the bankruptcy case in the official periodicals within ten days.
Newspaper advertisement shall contain the following:
- debtor’s full name;
- his postal address;
- bank details;
- name and address of the Economic Court;
- number of the court case;
- information on the property administrator.
The Economic Court in the approval of the bankruptcy case initiation may oblige the debtor to submit the auditors opinion or to conduct the audit. If the debtor is not able to pay for the audit, the Economic Court may assign the audit on the creditors account provided the latter does not object. The absence of the auditors’ opinion does not terminate the initiation and conduction of the bankruptcy case.
Based on the results of the consideration of the creditor’s application and the debtor’s comments at the preparatory court session, the approval shall contain the following information:
- amount claimed by the creditors, who submitted bankruptcy petition;
- date when the register of the creditor’s claim was drawn up by the property administrator. The register shall be drawn up and submitted to the Economic Court for approval within two months and ten days as of the date of the preparatory court session;
- date of the preliminary court session, which shall take place within three months after the date of the preparatory court session;
- date of the first general meeting of the creditors, the meeting shall take place within three months and ten days after the date of the preparatory court session;
- date of the court session where the debtor’s reorganisation shall be approved, or the debtor is recognized as a bankrupt with further liquidation, or termination of the bankruptcy case, which shall take place within six months as of the date of preparatory court session.
It is worthy to be mentioned, that the debtor has a right to submit application to the Court and to postpone the consideration of the court case for the term not longer than two months for settlements of the creditors’ claims or for the amicable agreement.
Amicable agreement refers to the agreement between the debtor and the creditor (group of creditors) regarding to the extension on debt repayment and (or) installment of date or termination of the liabilities under the Parties agreement.
4. Securing of the creditors’ claims and moratorium on the settlement of the creditors’ claims.
Based on the application of the bankruptcy case, the Parties and participants or at its own discretion, the Economic Court has a right to take measures as for securing the creditors’ claims.
Based on the application of the property administrator, or the creditors, or at the court own discretion
If the debtor’s manager obstructs the property administrator, or violates rights and legal interests of the debtor or the creditor, under the participants’ application, the Economic Court has a right to remove the debtor’s manager form office and transfer his duties to the estate administrator. The Court shall approve the decision as for removal of the debtor’s manager from office, the decision may be appealed.
The Economic Court also has a right to abolish or change the measures as for securing of the creditor’s claims before the mentioned circumstances take place, for that the approval shall be prepared, the approval may be appealed.
Moratorium as for settlement of the creditor’s claims comes into effect simultaneously with bankruptcy case initiation, that shall be reflected in the Economic Court approval.
When the moratorium on the settlement of the creditor’s claims is in force:
- the collection based on the executive documents and other documents supporting collection according to the legislation, is prohibited;
- forfeit (penalty, fine) shall not be accrued, the other sanctions as for non-execution or improper execution of the cash liabilities, liabilities as for retirement insurance
5. Collection of the debtor’s property and the priority the creditors’ claims settlement.
The Resolution of the Economic Court as for recognition of the legal entity Ukraine resident bankrupted and the Court Decree on property collection shall be sent to the legal executor for bankrupt’s property realisation.
The claims of the creditors to the debtor legally recognized as a bankrupt, shall be settled in the following priority:
First priority, the debtor’s obligation arising as consequence of causing harm
Second priority, settlements on loss-of-employment compensation and remuneration of labor to the persons employed under the employment agreements, royalties.
Third priority, creditor’s claims secured by the debtor’s property.
Forth priority, claims as for taxes and duties payments (obligatory payments).
Fifth priority, settlements with the other creditors.
Claims of every priority in line shall be settled only after settlement of the previous priority.
In case of the lack of cash assets for the full settlement of all the claims of the first priority, the cash assets shall be distributed between the creditors of the corresponding priority proportionally to their claims.
After the settlements with the creditors, the legal entity Ukraine resident recognised as a bankrupt is excused from the creditors’ claims, submitted after recognition of its bankruptcy.
Therefore, if the claims to the bankrupted debtor are settled partially or are not settled (including the belated application), the bankrupt is excused form their further settlement.
Summary:
1. The Law of Ukraine does not stipulate for the non-resident companies any special limits as for bankruptcy petition regarding legal entity Ukraine resident to the Economic Court. Such petition can be submitted provided the following requirements are met:
1) Creditor’s monetary claims exceed the amount of 187,500.00 UAH;
2) Creditor’s monetary claims are indisputable;
3) Creditor’s monetary claims have not been settled within three months after the due date.
Based on the information provided by the Company, the requirements 1 and 3 of those stated above are met, however, the Company does not have indisputable claims to the debtor, since there are no documents evidencing that the debtor recognizes his/her debts, also, there is no court decision as for the claims.
Therefore, in case the Company submits bankruptcy petition, the initiation of the bankruptcy case will be declined.
In order to confirm indisputability of the Company monetary claims, it is necessary to get a written confirmation from the debtor where he/she recognizes the claims, or the decision of the relevant court and the Court Decree on its execution.
2. The bankruptcy case can be divided into the following stages:
1) application of the bankruptcy petition;
2) court approval on the bankruptcy case initiation and appointment of the preparatory court session date (within 30 days after the acceptance of the bankruptcy petition);
3) appointment of the date for preparatory court session and preliminary court session on the bankruptcy case (within 30 days after the preparatory court session);
4) drawing up the register of the creditor’s claims by the property administrator (within two months and ten days as of the date of the preparatory court session);
5) first general meeting of the creditors (within three months and ten days after the date of the preparatory court session);
6) preliminary session regarding the bankruptcy case;
7) date of the court session where the debtor reorganisation shall be approved, or the debtor is recognized as a bankrupt with further liquidation, or termination of the bankruptcy case (within six months as of the date of preparatory court session).
Approximately, the general duration of the bankruptcy case is 7 (seven) months from the moment of bankruptcy petition application.
3. Moratorium as for settlement of the creditor’s claims is in force during the bankruptcy case consideration, the Economic Court may take measures as for securing of the creditors’ claims, conclusion of contracts and/or debtor’s property alienation, that is performed in compliance with the procedure stipulated by the Law No 2343.
4. For the bankruptcy case the creditor bares the following expenses: Stamp Duty and information and technical support for the Court procedures. The total amount of minimum expenses is approximately 200 USD. When considering the bankruptcy case, the other expenses required for case investigation may be imposed on the creditor by his/her consent.
5. When considering the bankruptcy case, the debtor may propose his/her own plan of debts settlement according to which he/she will not be recognized as a bankrupt.
6. The legal entity Ukraine resident may be recognized as a bankrupt only by the corresponding court resolution after the bankruptcy case consideration by the Economic Court.
7. Once the debtor is recognized as a bankrupt, the liquidation procedure becomes obligatory and the creditors’ claims shall be settled in the priority. Taking into account the circumstances the Executor is aware of, the Company’s claims to the debtor shall be settled as the fifth priority provided the claims of the previous priorities are fully settled.
The Executor’s admonitions:
Hereinafter in case of provision by the Customer or by the third parties with the documents and/or information missing at the moment of performing of such investigation, and/or documents appeared in the parties after completing of this investigation, under the terms that they have essential influence on the presented circumstances, investigation content, set risks and given recommendations are invalid and investigated issues are liable to additional studying.