On 18 June 2020, the Parliament of Ukraine finally adopted a temporary package of measures to address bankruptcy-related risks which have arisen due to the COVID-19 pandemic.
Draft Law No. 3322 On Amendments to the Code of Ukraine on Bankruptcy Procedures (aimed at prevention and overcoming of the outbreak and spread of the coronavirus (COVID-19)) (“the Law”) was eventually passed in the Parliament with further amendments in its second hearing.
The Law shall enter into force the day after its promulgation.
The adopted measures as per the Law, as was initially envisaged, can be divided into two blocks, based on a time criterion:
a)measures applicable during the lockdown period;
b)measures applicable during the lockdown and 90 days thereafter.
1. Measures which shall apply during the lockdown period:
- Introduction of the possibility to hold creditors’ meetings remotely (either by videoconference or by a poll), –
Condition added: should the proper identification of participants and verification of powers of representatives of creditors be observed. A record of a videoconference must be attached to the minutes of the meeting of creditors/ creditors’ committee;
- Release of trustees from their liability for failure to take actions as per the BCU due to lockdown measures, –
Condition added: should the trustee prove that such actions can’t be taken in the lockdown, and notify the creditors’ committee and secured creditors thereof;
- Prolongation of the duration of preliminary bankruptcy court hearings, moratorium, electronic auction announcements, implementation of a rescue plan, pending administration and liquidation procedures, and an extension of the period for avoidance transaction filings.
2. Measures which shall apply during the lockdown period and 90 days thereafter:
- Prohibition of involuntary corporate bankruptcy case filings by creditors, should claims arise after 12 March 2020, –
Note: not from 01 February 2020 as was initially suggested;
- Prolongation of a 1-month-time period within which a debtor’s director has a duty to file for bankruptcy if a ‘threat of insolvency’ occurs (which, in case of failure to do so, triggers the joint/ personal liability of the director for the debtor’s debt), –
Condition added: should a debtor prove that a failure to observe the 1-month-time period was caused by the outbreak of COVID-19 and/or by measures enacted to combat its spread;
- Temporary suspension of electronic auctions for the sale of debtors’ assets, should creditors have voted for that, –
Condition added: such creditors shall bear storage and maintenance expenses, and risks of loss or deterioration of assets;
- Suspension of the accrual of interest on obligations which have been restructured under the rescue plan. Penalties for non-performance of such obligations shall not accrue. Defaulted obligations under the rescue plan shall be subject to deferred payment for the period of implementation of the rescue plan.
Key Takeaways:
- Creditors cannot initiate a bankruptcy case against the debtor during the lockdown period and 90 days thereafter, should their claims arise after 12 March 2020.
- Debtors’ directors have not been released from a duty to file for bankruptcy within
a 1-month-time period. However, they may be excused from the observance of this strict time limit should they prove that timely filing was impeded by COVID-19 related measures. - The extension (prolongation) of the procedural terms of pending bankruptcy cases has been envisaged, although the justification for such measures is questionable in our opinion.
Author: Olha Stakheyeva-Bogovyk, Senior Associate at Hillmont Partners.
