Bankruptcy of Legal Entities in Ukraine

What Is Bankruptcy of a Legal Entity?

Bankruptcy of a legal entity is a procedure provided for by current legislation, consisting of a set of legal, organizational, and economic measures aimed at resolving issues related to the inability of a business entity to fulfill its financial obligations.

Who and When Can Initiate Bankruptcy Proceedings?

Bankruptcy proceedings against a legal entity may be initiated either by the debtor itself or by its creditors (including through a joint application) by filing a petition with the commercial court located at the debtor’s registered address.

Grounds for Applying to Court

It is important to understand that the grounds for initiating bankruptcy proceedings differ depending on whether the application is submitted by a creditor or by the debtor. The Bankruptcy Procedures Code of Ukraine does not contain an exhaustive list of grounds for opening bankruptcy proceedings.

Grounds for Creditors

For creditors, the main grounds are the existence of a monetary obligation that has become due and the absence of a dispute regarding the right to claim payment. Current legislation does not establish a minimum debt amount required to initiate bankruptcy proceedings.

At the same time, the creditor must substantiate its monetary claims and provide evidence confirming the debt, including the grounds for the claim, its nature, the amount, and the moment the obligation arose. Such evidence may include agreements, accounting documents, court decisions, and other supporting materials.

Documents Attached to the Creditor’s Application

• proof of payment of the court fee (10 subsistence minimums for able-bodied persons);
• proof of advance payment of remuneration to the insolvency administrator (three minimum salaries for three months of duties);
• a power of attorney or another document confirming the representative’s authority;
• proof that a copy of the application was sent to the debtor.

During the preparatory hearing, the commercial court examines the circumstances and verifies the grounds for opening proceedings, including the debtor’s ability to fulfill due financial obligations. The debtor may provide evidence confirming its ability to repay the debt.

Grounds for the Debtor

For the debtor, the primary ground is insolvency or the threat of insolvency. In other words, if satisfying the claims of one or several creditors makes it impossible to fulfill obligations to other creditors, or if the debtor’s due liabilities exceed the value of its assets, the law allows — and in some cases obliges — the debtor to independently apply to the court.

Documents Attached to the Debtor’s Application

The debtor’s application must include evidence of the threat of insolvency; the debtor’s balance sheet for the latest reporting date; a list of creditors with details of existing monetary obligations and due dates; a list of the debtor’s assets indicating their book value, etc.

Main Court Procedures Applied to a Debtor — Legal Entity

• administration of the debtor’s property;
• rehabilitation (sanation);
• liquidation procedure.

What Each Procedure Includes

Administration of the Debtor’s Property

Administration of the debtor’s property is the initial stage, which includes a set of supervisory and control measures regarding how the debtor manages its assets.

Purpose:

• preserve assets and ensure their effective use;
• analyze the financial condition of the debtor;
• determine the next procedure (rehabilitation or liquidation).

What Happens During Property Administration

• a property administrator is appointed from among licensed insolvency administrators;
• a moratorium on satisfying creditors’ claims is introduced;
• the powers of management bodies are not terminated, but their authority becomes limited and decisions require approval from the property administrator;
• competitive creditors submit written claims to the court;
• the debtor’s financial and economic condition is analyzed;
• creditors’ meetings decide on the next procedure (approval of a rehabilitation plan or transition to liquidation).

What Is a Moratorium?

A moratorium on satisfying creditors’ claims means:

• suspension of the debtor’s performance of due monetary obligations;
• suspension of obligations related to taxes and mandatory payments that have become due;
• termination of enforcement actions.