Ukucky Law On Restoring Debtor S Solvency

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1 KYIV, UKRAINE 6 JUNE 2013 CROSS-BORDER INSOLVENCY PROCEEDINGS IN UKRAINE

2 CROSS-BORDER INSOLVENCY PROCEEDINGS IN UKRAINE Generally, cross-border insolvency is considered to take place when an insolvent debtor has assets in several jurisdictions or when any of such debtor s creditors has its seat in a jurisdiction other than that where the insolvency proceedings are initiated. It is worth noting that, until recently, the concept of cross-border insolvency was nowhere to be found in Ukrainian law. The situation has drastically changed on 19 January 2013 when a new draft of the Ukrainian Law on Restoring Debtor s Solvency or Declaring Debtor Bankrupt (hereinafter referred to as the Law ) came into effect. The new draft introduced into Ukrainian legislation the cross-border insolvency concept which is well-known to the majority of jurisdictions. Andrey Astapov Managing Partner Head of the Dispute Resolution Practice astapov@astapovlawyers.com General provisions applicable to foreign insolvency proceedings under Ukrainian Law 1) The Law provides for two types of bankruptcy proceedings, namely main and non-main proceedings. According to the Law, a main proceeding is a bankruptcy proceeding against a company itself, whereas a non-main proceeding is one opened against such company s permanent establishment. 1 The principal difference between main and non-main proceedings also lies in their objectives. In particular, a main proceeding aims at adjudicating a bankruptcy case per se, whereas the purpose of a non-main proceeding is to assist with certain procedural steps dealing, in particular, with evidence collection, security for creditors claims etc. Oleh Beketov Partner Head of International Litigation Department beketov@astapovlawyers.com 2) The Law prescribes that foreign proceedings are to be applied based on the reciprocity principle unless otherwise provided by Ukraine s international treaties. 2 Moreover, the Law says that reciprocity is deemed to exist if it is found that the international treaties of Ukraine provide for possible cooperation between a foreign state and Ukraine. Oleksiy Zorin Associate International Litigation Department zorin@astapovlawyers.com 1 Article 119(6) of the Ukrainian Law on Restoring Debtor s Solvency or Declaring Debtor Bankrupt 2 Article 119(2) of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 2 Cross-border insolvency proceedings in Ukraine

3 3) One should note that the Law sets several limitations with respect to the applicability of foreign proceedings. In particular, the Law is not applicable to bankruptcy proceedings initiated against banks and other financial institutions. 3 4) The Law addresses the issues of providing foreign receivers with access to Ukrainian courts, recognition of foreign insolvency proceedings in Ukraine and relevant judicial assistance and cooperation between Ukrainian courts and foreign courts and receivers. In particular, the Law obliges Ukrainian courts to assist foreign receivers or cooperate with relevant foreign courts in accordance with the duly ratified international treaties of Ukraine. Recognition of foreign bankruptcy proceedings The Law establishes a detailed procedure for the recognition of foreign bankruptcy proceedings in Ukraine, which entitles foreign receivers to file with Ukrainian courts relevant applications for recognition of foreign bankruptcy proceedings. It should be noted that the Law defines a foreign receiver as a person who is appointed ad interim by a foreign court judgment within a foreign bankruptcy procedure and authorised to manage the business operations, reorganisation or liquidation of the debtor as well as to act in other jurisdictions. 4 According to the Law, to have a foreign bankruptcy proceeding recognised in Ukraine, a foreign receiver should file a relevant application with a Ukrainian commercial court. Such application must be drafted in the official language of the jurisdiction where the foreign insolvency proceeding has been initiated. A Ukrainian translation of the application must be attached thereto. 5 The application must be also accompanied by the following documents: a duly certified copy of the foreign judgment initiating the foreign bankruptcy proceeding and appointing the foreign receiver; a document evidencing that the abovementioned foreign judgment has come into effect (unless this directly appears from the contents of the judgment); a document evidencing that the debtor who did not participate in the foreign bankruptcy proceeding had been duly notified of the date and place of the hearing; a document evidencing the authorities of the foreign receiver; and information about other foreign bankruptcy proceedings initiated against the debtor. 3 Article 119(2) of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 4 Article 119(1) of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 5 Article 122 of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt Cross-border insolvency proceedings in Ukraine 3

4 It is important to note that all documents submitted to Ukrainian courts must be accompanied by their duly certified translations into Ukrainian. 6 Moreover, all foreign documents are to be properly legalised unless otherwise is provided by the international treaties of Ukraine. 7 It is worth noting that the Law contains no clear indication as to which competent commercial court is authorised to consider applications for recognition of foreign bankruptcy proceedings. At the same time, the substance of the Law gives us grounds to assume that such an application may be filed with a commercial court that has jurisdiction over the place where the debtor is or his assets are located in Ukraine. The Law and other legislative acts also remain silent about the payment of a court fee when applications for recognition of foreign bankruptcy proceedings are filed. Thus, it seems possible to assume that no court fee is payable by receivers upon filing of their respective applications with Ukrainian courts. Upon receipt of an application on recognition of foreign bankruptcy proceeding, a Ukrainian court is to notify the debtor thereof in writing within three days and give him thirty days for filing relevant objections. Thereafter the court is to schedule a hearing to consider the application, inviting both the foreign receiver and the debtor. Having considered the case documents and heard the explanations of the parties, the court has discretion to either issue an order recognising the foreign bankruptcy proceeding or dismissing the application. 8 It should be mentioned that applications for recognition of foreign bankruptcy proceedings may be dismissed by courts to the extent permitted by the Law or the applicable international treaties of Ukraine. However, a court order recognising or refusing to recognise a foreign bankruptcy proceeding may be appealed in accordance with the general rules set forth in the Ukrainian Code of Commercial Procedure. Judicial assistance Another important procedure introduced by the Law in the context of the recognition of foreign bankruptcy proceedings is judicial assistance. This procedure enables foreign receivers to request Ukrainian courts to protect the assets of debtors or the interests of creditors (e.g. to collect evidence, obtain information about debtors assets or business operations etc). 9 6 Article 122(2) of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 7 As a general rule, Ukrainian courts do not accept documents obtained abroad unless they have gone through the process of apostilisation or consular legalisation or unless they are admissible under bilateral international treaties. 8 Article 124 of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 9 Article 123 of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt 4 Cross-border insolvency proceedings in Ukraine

5 Foreign receivers may seek judicial assistance by filing relevant applications with a competent commercial court of Ukraine. It is important to note that such an application may be filed together with an application for recognition of foreign bankruptcy proceeding or after the recognition of the bankruptcy proceeding is granted. 10 An application for judicial assistance must be drafted in the official language of the jurisdiction where the foreign bankruptcy proceeding has been opened with a Ukrainian translation attached thereto. Upon its consideration of the application for judicial assistance, the court is to issue an order, a copy of which must be sent to the foreign receiver within three days from the date of such order. TOP-4 best law firm in Ukraine by Kommesant Publishing House and law magazine Yuridicheskaya Practika Dispute Resolution Law Firm of the Year 2013 in Ukraine by Global Law Experts (GLE) Awards In general, we believe that, with the adoption of the Law, Ukraine has made an important step forward in the implementation of the cross-border insolvency concept. However, given that the Law is rather new, there is no extensive court practice with regard to its enforcement. Nevertheless, we are quite positive about the further applicability of the Law since it enables participants in cross-border proceedings to reach debtors assets which are located in Ukraine. This is definitely going to be of great help in adjudicating cross-border bankruptcy cases initiated in foreign jurisdictions. Recommended in Dispute resolution in Ukraine by Chambers and Partners Global 2013 The team had been recognized as very good for international arbitration by Legal 500: Europe, Middle East & Africa 2013 AstapovLawyers International Law Group is an international full-service law firm with over 120 professionals based in the offices of Kyiv, Odessa, Moscow and Almaty, who share an understanding of CIS business environment, legal systems and solution-oriented approach. We are consistently named among the leaders of the legal service market for quality, responsiveness and reliability as well as for the depth of our expertise. The firm is experienced in providing legal advice in international trade of commodities, international corporate law, mergers and acquisitions, competition and compliance, international financial transactions, tax, international arbitration/litigation, mediation, asset management, real estate and construction, foreign investments, antitrust, family, energy and natural resources, maritime and transportation law, intellectual property and others. AstapovLawyers has been recognized among TOP-4 best law firms in Ukraine by Kommersant/Yuridicheskaya Practika, TOP-25 law firms in Russia by Vedomosti/Pravo.ru and one of the rapidly growing firms in Kazakhstan. 10 Article 128 of the Ukrainian Law On Restoring Debtor s Solvency or Declaring Debtor Bankrupt Cross-border insolvency proceedings in Ukraine 5