Ukraine and COVID-19: First Attempts to Reform the Domestic Bankruptcy Law
The COVID-19 lockdown has largely paralyzed the economy across the globe and will inevitably (if not yet) cause liquidity problems for many businesses. As a result, many anticipate a tsunami of bankruptcy cases to follow shortly.
In order to prevent such a prospect in the face of COVID-19 many jurisdictions are taking emergency steps to reform their insolvency & bankruptcy laws. Some countries are adapting their existing bankruptcy law provisions to the current realities by way of introducing some changes thereto, others are even developing new legal instruments in the form of ‘light touch’ procedures. Whichever action plan is taken, it is deemed justified for the purpose to prevent a wave of bankruptcy cases.
- Measures that shall apply during the lockdown period
- Measures that shall apply during the lockdown period and 90 days thereafter
Ukraine is no exception to this global trend. On 10 April 2020, Draft Law No. 3322 ‘On Amendments to the Code of Ukraine of Bankruptcy Procedures (“BCU”) (aimed at prevention and overcoming of the outbreak and spread of the coronavirus (COVID-19))’ was registered with the Parliament of Ukraine. Although it is still under consideration in Parliamentary committees and further changes may follow, the initial Draft Law suggests the following changes to the BCU:
1. Measures that shall apply during the lockdown period (until 11 May 2020, if not prolonged further):
- Introduction of a possibility to hold creditors’ meetings remotely (either by videoconference or by a poll);
- Releasing a trustee from the liability for failure to take action as per the BCU due to lockdown measures;
- Prolongation of the duration of preliminary bankruptcy court hearings, of a moratorium, of electronic auction announcements, of implementation of rescue plans, of pending administration and liquidation procedures, and an extension of the period for avoidance transaction filings.
2. Measures that shall apply during the lockdown period and 90 days thereafter:
- Prohibition of involuntary corporate bankruptcy case filings by creditors (should claims arise as of 01 February 2020);
- Relaxation of debtor’s director’s duty to file for bankruptcy within 1 month as of the date of appearance of a ‘threat of insolvency’, which, in the case of failure to do so, triggers a joint liability on the director for the debtor’s debt – by way of prolongation of the given time period;
- Temporary suspension of electronic auctions for the sale of debtor’s assets, should creditors have voted for that;
- Suspension of the accrual of interest over obligations which have been restructured under the rescue plan and of fines for non-performance of such obligations. The possibility for deferred payment for the entire period of implementation of the rescue plan is envisaged.
In brief, let’s live and see what the future of these proposed domestic measures shall be, and whether they can mitigate the negative impact of the restrictive measures imposed due to COVID-19. The hope is that they will prevent a wave of bankruptcy cases, at least in the short term, so that businesses get some ‘breathing space’ to consider and negotiate a longer-term rescue strategy with creditors.