lawyer, 23 years of experience in enforcement.
Today, business in Ukraine faces the greatest difficulties as a result of the ongoing conflict and its consequences. Unfortunately, not all companies are able to overcome the obstacles caused by war, so bankruptcy may be the only option available.
On the other hand, bankruptcy can be a salvation for the debtor: during this period, the debt can be restructured, assets can be preserved and the enterprise can be restored. Conversely, it is a complex and time-consuming process that carries risks and has a large number of peculiarities.
In this article, we intend to discuss the current issue of bankruptcy of companies located in the occupied territories, taking into account the current legislation and current judicial practice.
As a result, in connection with the introduction of martial law, several temporary changes were made to the Code of Ukraine on Bankruptcy Procedures of Ukraine (hereinafter referred to as the Bankruptcy Code, the Code), which are effective during the period of martial law in Ukraine and within six months from the date of its termination or annulment.
The biggest innovation is the general rule of par. 9 points 1-6 of the section "Final and Transitional Provisions" of the Code of Civil Procedure, which requires that courts refuse to grant a bankruptcy petition at the request of a creditor, if the debtor can demonstrate before the hearing that the claim should be refused.
- Was engaged in the electronic database of participants in the selection and the administration of state contracts (agreements). It has a legitimate contract with the state regarding defense, as well as an active contract with a state customer in the field of defense.
- The creditor's demands were not satisfied as a result of the armed aggression against Ukraine, including due to the presence of the debtor's single property complex in the zones of conflict or temporary occupation of the Russian Federation.
The second part of the norm has the greatest practical importance, as it contains three separate reasons why it is advisable to refuse the bankruptcy procedure.
- the creditor's demands were not satisfied as a result of the violent attacks on Ukraine.
- the creditor's demands are not satisfied due to the presence of a single property complex of the debtor in the conflict territories.
- The creditor's demands were not satisfied due to the presence of a single property complex of the debtor in the territories of temporary residence of the Russian Federation.
In a word, currently the courts do not have the opportunity to initiate bankruptcy cases based on the statements of creditors, if the only property related to the debt is located in Berdyansk or Melitopol.
Jurisprudence, arising from the specified temporary rules of the KUzPB, indicates the obligation to refuse to recognize the bankruptcy case of any legal entity that owns property in the occupied territories. In this context, the decision of the third party depends on the decision of 3 December 2024 regarding the case number. The Civil Court of Cassation noted in its decision dated 908/2344:
"In order to establish the grounds for refusing to open bankruptcy proceedings as defined by clauses 1-6 of the section "Final and Transitional Provisions" of the Code of Criminal Procedure as a failure by the debtor - a legal entity to meet the requirements of the creditor (creditors) precisely as a result of the presence of the entire property complex of such a debtor in the territory temporarily occupied by the Russian Federation territory, it is necessary to establish the following circumstances by the court:
- the presence of unsatisfied demands of the creditor (creditors) by the debtor on the date of the preparatory meeting in the bankruptcy case; and
- the presence of a complete property complex of the debtor in the territories temporarily occupied by the Russian Federation (in accordance with the list approved by the central executive body, which ensures the formation and implementation of state policy on the issues of temporarily occupied territories)".
The specified resolution is also of significant importance from the point of view of the conclusions of the Central Administrative Court of Ukraine regarding the impossibility of conducting economic activities by debtors who have property in the occupied territories, in connection with which the question of a temporary suspension of bankruptcy proceedings should be considered:
"The presence of the entire property complex of the debtor in the territory temporarily occupied by the Russian Federation deprives him as a business entity of the opportunity to carry out the relevant economic activity, within which, in particular, he is responsible for his obligations.
In addition, the Court notes that from the moment bankruptcy proceedings are initiated against the debtor, he is in a special legal regime, which changes the entire complex of the debtor's legal relations, in particular with his creditors, changes the legal regime of the debtor's property, etc.
Whereas the presence of the Debtor's entire property complex in the territory temporarily occupied by the Russian Federation narrows (limits) the possibility to fully and in compliance with the requirements of the Law to extend the appropriate legal regime to such a debtor, to apply appropriate consequences to his property (moratorium, etc.), to ensure that the rights and interests of creditors are respected , as well as the debtor, and accordingly, to achieve the goal of conducting bankruptcy proceedings, which are defined by the Code of Criminal Procedure.
The specific moment when the moratorium on the opening of these cases begins is a debatable topic. On the one hand, on July 29, 2023, the Law came into force, which prohibits the opening of bankruptcy proceedings within a limited time. Specific changes are assumed to apply from that date. In addition, the provisions of this law provide that the moratorium is valid during the military regime.
Courts have already considered this issue and reached the following results. By decision dated October 3, 2023, in case No. В 913/101/23, the Commercial Court of Cassation recognized the following:
"Regarding the application of the above provisions of clauses 1-6 of the section "Final and transitional provisions" of the CUzPB, the Court proceeds from the fact that despite the entry into force of the relevant changes made to the CUzPB only from 29.07.2023, the provisions of this paragraph have a retrospective effect, extending to all provisions of this norm legal relations and cases related to the opening of bankruptcy proceedings.
That is, the norm of clauses 1-6 of the section "Final and transitional provisions" of the CUzPB is a separate provision regarding the order and calendar period of application of this norm regarding the extension of this norm to legal relations in time.
Therefore, the prohibition under clause 1-6 of the section "Final and transitional provisions" of the Criminal Code of Ukraine also applies to those legal relationships and cases that took place before the entry into force of the relevant norm on 29.07.2023, since the circumstances/events provided for by this norm (the beginning of armed aggression against Ukraine , the presence of a single property complex of the debtor in the territories where hostilities are (were) being conducted, or in the territories temporarily occupied by the Russian Federation in accordance with the list defined by law, etc.), as reasons for which the demands of the creditor (creditors) could not be satisfied by the debtor, had place until the settlement of these legal relations by the relevant law from 07.29.2023."
A similar position is set out in the resolution of the Central Administrative Court dated 05.03.2024 in case No. 911/414/23, where the court indicated that:
"The direct indication in the provisions of clauses 1-6 of the section "Final and transitional provisions" and Law No. 3249-IX dated 13.07.2023 (which amended the Code accordingly) to prevent the opening of bankruptcy proceedings is a separate provision regarding the order and calendar period of application of this norm and regarding the extension of this norm to legal relations in time.
The entry into force of the specified changes to the Code on July 29, 2023 (paragraphs 1-6 of the "Final and Transitional Provisions" section) in accordance with Law No. 3249-IX dated July 13, 2023 does not limit the application of the relevant provisions of the Labor Code and Law No. 3249-IX dated July 13, 2023. .2023 on procedural legal relations regarding the opening of bankruptcy proceedings, which arose before the entry into force of these changes on 07.29.2023, but for the period not earlier than 02.24.2022.
Therefore, the norm of paragraph 1-6 of the final and transitional provisions of the Labor Code of Ukraine has a retroactive effect in time, since it is applied to relations that arose before this norm came into force."
It is important to recognize that the Supreme Court's approach has created room for abuse by unscrupulous borrowers. The limit of retroactive effect of this norm in time is reliably unknown, in particular in cases where the Debtor had, but alienated, a property complex on the territory temporarily occupied by Ukraine.
Ukrainian courts have also considered the controversial topic of whether the debt's status as a full-scale pretrial invasion affects the possibility of bankruptcy. The Eastern Commercial Court of Appeal noted in its decision of September 21, 2023 in case No. 905/757/23:
The appellant's reference to the fact that the debtor's overdue debt arose long before the occupation of part of Ukraine in 2014, and even more so long before the full-scale invasion in 2022, all credit debt was overdue since 04/27/2012, the court panel considers unfounded, since the provisions of 1-6 of the "Final and Transitional Provisions" section of the Civil Code does not specify the period in which the debt to the creditor should have arisen, but only establishes that the claims of such a creditor remained unsatisfied precisely as a result of armed aggression against Ukraine.
At the same time, under the terms of the specified clause of the law, the very fact that the creditor's demands remained unsatisfied as a result of armed aggression against Ukraine is grounds for refusing to open bankruptcy proceedings at the creditor's request, regardless of whether the parties have proven the possibility or impossibility of carrying out the procedure bankruptcy in the conditions of war".
This position was more thoroughly explained by the Commercial Court of Cassation in its decision dated 03/12/2024 in case No. 908/2344/23.
Thus, from the cited judicial practice, we can follow that the fact of finding the debtor's property complex in the temporarily occupied territories is a valid and real reason for refusing to open bankruptcy proceedings. In this case, it makes absolutely no difference to the court whether the debt arose before or during the full-scale invasion. The main argument and lever of influence is that the property is located in temporarily occupied territories and this, according to the courts, does not allow debtors to fulfill their obligations to creditors, and therefore the bankruptcy procedure is premature.
Specialists of the legal service "Consultant" will provide legal services for business and help in such matters as preparation of a claim to a debtor, preparation of the contract, contract preparation , counterparty verification, claim to the debtor, demand to the debtor, and support at all necessary stages to resolve the relevant issue.
