Claims and Recoveries during martial law in Ukraine

In this article, we have prepared a full overview of justice administration in Ukraine under martial law, peculiarities of bankruptcy proceedings, foreclosure, accessibility of state registers, sanctions, currency restrictions, anti-corruption measures, and Ukraine’s practical steps towards integration with the European Union.

Administration of justice during martial law

Under martial law, certain territories became inaccessible for administering justice, leading to changes in the territorial jurisdiction of court cases. However, as Ukraine gradually liberated many occupied territories, territorial jurisdiction has been restored over court cases. Courts located in safe areas continued to operate normally, while online legal proceedings, including videoconferencing, were introduced to accommodate litigants unable to attend court due to safety concerns. 

It is important to note that Ukraine has created a unique system for conducting such videos in compliance with all the principles of legal proceedings. Regardless of whether a party participates in a case via video or directly in the courtroom, all participants in the process are equal before the law and the court.

Thus, the introduction of martial law in Ukraine has made adjustments to the process of consideration of court cases. However, even under martial law, the constitutional right to judicial protection cannot be restricted. 

Renewal of procedural deadlines

It should also be noted that the introduction of martial law in Ukraine did not stop the procedural deadlines in court cases.

However, the imposition of martial law on the territory of Ukraine is a valid reason for extending such deadlines.

Thus, to restore the missed procedural deadlines, there must be a causal link between martial law and the inability to perform procedural actions.

In other words, the mere fact that martial law has been imposed on the territory of Ukraine is not an unconditional ground for a renewal of the procedural term in a case. Such ground may arise due to the introduction of martial law and make it impossible for a litigant to perform procedural actions within the time limit established by law (for example, military operations in the territory where the company’s office is located).

Extension of general and special limitation periods

It should be noted that the limitation period has been extended for the period of martial law. In other words, if a person misses the deadline for filing a lawsuit, for example, to sell a share in a jointly owned property; terminate a suretyship; etc., he or she may file a lawsuit during the war.

Bankruptcy during martial law

The war has presented numerous challenges for Ukrainian debtors, making it difficult to fulfill their obligations. Bankruptcy procedures have played a vital role in protecting creditors’ rights, and despite minor changes to the Bankruptcy Code during martial law, recent amendments were aimed to streamline the process. 

The introduction of Law No. 2971-IX has facilitated simplified bankruptcy proceedings with a shorter timeframe and under a more straightforward procedure without summoning the parties to court.

The Law has also created an automated information system, “Bankruptcy and Insolvency“, which will combine the necessary registers and databases and include the Electronic Office of the insolvency manager. In addition, the selection of insolvency managers is being improved. 

On top of that, clear deadlines for repayment of secured creditors’ claims have been established (10 business days from receipt of funds from the sale of the collateral).

In the context of legislative changes, it should be noted that Ukraine’s European integration provides for, among other things, the adaptation of Ukrainian bankruptcy legislation to EU Directive 2019/1023 as of June 20, 2019, which has already been quite successful in Germany and is being actively implemented by other European countries. Such adaptation of the insolvency and bankruptcy field is planned to be implemented by the winter of this year.

In other words, today, Ukraine is taking the most comprehensive approach to resolve the issues of access to bankruptcy procedures even in times of war and regulating the procedure for selling the debtor’s property to satisfy the claims, including those of foreign creditors.

Foreclosure and accessibility of state registers

State registers provide valuable information for debt collection and bankruptcy proceedings in peacetime. 

For example, it is vital to check the status of the debtor legal entity: whether it is functioning or possibly in a state of termination. It is also equally important to check whether the debtor has any property that can be used to repay the debt in the future. In Ukraine, such information can be obtained and verified from open state registers.

However, during the war, unauthorized access to and potential tampering with information in these registers posed significant threats. Access to some state registers was restricted as a preventive measure, but specific information remained accessible to ensure transparency.

Thus, starting from February 24, 2022, the work of the registers, particularly legal entities, individual entrepreneurs, and real estate, was temporarily suspended.

This temporarily halted the ability to conduct real estate transactions, establish and register legal entities, individual entrepreneurs, and public associations, perform notarial acts, conduct public procurement, etc.

At the same time, the government had to find a way out of the situation so that such restrictions would not lead to a complete shutdown of business in Ukraine.

Therefore, in March 2022, a list of specific registration actions allowed to be performed was promptly determined, such as the establishment of an LLC, change of economic activity codes of a legal entity, and registration of a sole proprietorship. Throughout 2022, the list of such registration actions was constantly updated and expanded.

Also, as a preventive measure, real estate transactions were blocked from the end of February 2022. However, two months after the start of the full-scale invasion, such transactions began to resume gradually.

Some registers continued to function without restrictions or access to them was gradually restored, such as the register of powers of attorney, the register of debtors, the register of court rulings, the register of persons who committed corruption or corruption-related offenses, etc.

On August 1, last year, the Ministry of Digital Transformation announced reopening the Open Data Portal. Access to the registers has been restored, so it is now possible to carry out registration actions in the register of legal entities and conduct real estate transactions without any obstacles.

This proves Ukraine’s readiness to continue to adhere to the principles of transparency and openness of data even under martial law.

It is also worth noting that the war has led to the need to create entirely new state registers, for example, the Register of Damaged and Destroyed Property, to collect data on real estate damaged or destroyed as a result of hostilities, terrorist acts, sabotage caused by the military aggression of the russian federation. Such a register will also contain information on the owners of such property, compensation for damage and destruction, and other information (documents).

Sanctions and national security measures

To combat russian influence and safeguard national interests, Ukraine has implemented sanctions on individuals and legal entities associated with the aggressor state. The National Security and Defense Council of Ukraine (NSDC) enacts these sanctions, which primarily entail economic restrictions, such as blocking bank accounts and imposing trade limitations. Cooperation with sanctioned entities may result in financial losses and reputational risks. 

Most of the “sanctioned” companies were included in the NSDC’s list because they threatened national interests and security, facilitated terrorist activities, and committed other actions that violated the interests of society and the state.

Sanctions have already been imposed on more than 300 individuals, most of whom are citizens of the russian federation, the Islamic Republic of Iran, and the Syrian Arab Republic.

Sanctions were also imposed on more than 140 legal entities, including Mahan Airlines and Fars Air Qeshm, based in the Islamic Republic of Iran, and Shahed Aviation Industries Company. The list of legal entities also includes betting and investment companies. 

• Consequences of putting a person on the NSDC sanctions list

Sanctions are restrictive measures of a predominantly economic nature. Therefore, the main consequence is a person’s inability to conduct financial transactions due to the blocking of bank accounts and restrictions on the use of other assets.

• Risks of cooperation with sanctioned companies

Companies on the sanctions list are suspected of threatening Ukraine’s national security and sovereignty. Such a company is subject to many restrictions that will prevent it from conducting business. These may include asset freezes, restrictions on trading operations, a ban on capital outflows from Ukraine, license revocation or suspension, suspension of economic and financial obligations, etc.

Doing business with a company on the NSDC list can lead to severe financial losses. Such a company may have problems paying for services and may be unable to fulfill its obligations, such as delivering the required goods.

Cooperation with a company that may be involved in terrorist financing or other national security violations also carries reputational risks.

• Responsibility for cooperation with a sanctioned company

At the same time, there is currently no liability for cooperation with a sanctioned company. However, any interaction with legal entities sanctioned by the National Security and Defense Council may give rise to the suspicion that such a company is involved in the same actions that led to the sanctions list, such as terrorist financing or other manifestations of threats to national security.

It is important that the list of sanctioned entities is publicly available. That is, absolutely everyone can freely check whether a company is sanctioned and then decide whether to take a risk and cooperate with such a company.

It is also worth noting that Ukraine is currently updating its sanctions legislation to implement the best international practices. These measures will contribute to the synchronization of sanctions restrictions in Ukraine and similar measures by partner countries (EU, USA).

Currency restrictions during martial law

From the beginning of a full-scale war in Ukraine, the National Bank of Ukraine (NBU) adopted Resolution No. 18, dated February 24, 2022, “On the Operation of the Banking System Under Martial Law”, which established a number of restrictions, including on currency transactions.

These restrictions prohibit cross-border transfers and require individual permissions granted by the NBU through applications submitted to the Cabinet of Ministers of Ukraine (CMU). 

The legislation does not define the procedure, subject, and form of appeal to the CMU. 

At the same time, samples of requests from the CMU to the NBU for granting permission to carry out a currency transaction are published on the official website of the CMU.

Therefore, the justification of the letter to the CMU should be similar to the published requests of the CMU.

Such requests must contain a proper justification of the grounds for carrying out each operation by a legal entity, given its importance for the state’s interests during martial law. Otherwise, there is a risk of refusal of the NBU’s permission to conduct a currency transaction.

Regarding the prospects for the abolition of the NBU’s currency restrictions, it should be noted that in April of this year, the NBU announced that all administrative controls imposed since the enforcement of martial law were temporary.

In addition, the NBU noted that within the framework of the new program of expanded financing from the International Monetary Fund, Ukraine gradually loosened currency restrictions after the normalization of the situation.

As the NBU notes, such steps will occur gradually without being tied to specific dates. All currency restrictions will be canceled when the main risks to the macro-financial stability of the country disappear.

The first relaxation of these rectrictions was made on June 15, 2023, the National Bank of Ukraine adopted a Resolution of the NBU Board No. 73, allowing the transfer of funds abroad to fulfill specific categories of obligations. Therefore, the NBU has mitigated the prohibitions on foreign currency transfers established by the NBU Board Resolution No. 18, “On the Operation of the Banking System during the Martial Law» dated February 24, 2022.

In this regard, the NBU allowed resident borrowers to transfer funds abroad to repay their obligations under foreign loans and borrowings that are: 

• secured by a guarantee or surety of an international financial organization;
• provided with the participation of a foreign export credit agency (ECA) or a foreign state through an institution authorized by it or through a foreign legal entity whose shareholders are a foreign state or a foreign state bank. 

In addition, the NBU has also determined that residents will be able to carry out such transactions following the terms of repayment and terms of interest payment stipulated in the loan agreement. The respective rules came into force on June 16, 2023.

EU integration and anti-corruption measures

On June 22, 2022, Ukraine received candidate status to the EU, underscoring its unwavering commitment to aligning with EU standards.

• State Anti-Corruption Program For 2023-2025

On March 04, 2023, the State Anti-Corruption Program for 2023-2025 was adopted.

High-quality implementation of the program will create the best conditions for citizens and businesses to develop in Ukraine and ensure Ukraine’s accession to the EU, NATO, and the OECD. 

The Document envisages more than 1,700 measures in 15 areas to reduce corruption and ensure integrity. In particular, in the judiciary, defense, law enforcement, state regulation of the economy, customs and taxation, urban planning and land management, corporate governance of state-owned enterprises, education, healthcare, social protection, etc.

In addition, the document provides measures to eliminate possible corruption-generating factors, improving the formation and implementation of state anti-corruption policies.

The next step will be developing a public online system that will help everyone track the progress of the document’s implementation by sector.

• The law on Deoligarchization

To minimize the influence of Ukrainian oligarchs on political, economic, and social processes in the country and on the media, the President of Ukraine initiated the Law on Deoligarchization. The Verkhovna Rada adopted this law back in September 2021.

The law defines who the oligarchs are and what they are prohibited from doing. To effectively implement the law, the National Security and Defense Council is supposed to maintain a special register of oligarchs.

Thus, a person is recognized as an oligarch if he or she has at least three of the following characteristics:

• participation in political life;
• significant influence on the media;
• beneficial ownership of a monopoly company;
• assets of more than 1 million living wages (as of today, about $72 million).

A person recognized as an oligarch is prohibited to:

• make contributions in support of political parties, make contributions to election funds of candidates (except for their election fund), political parties during the election process;
• to be a buyer (buyer’s beneficiary) in the process of privatization of large-scale privatization objects;
• to finance any political campaigning or holding meetings or demonstrations with political demands.

A person recognized as an oligarch is obliged to submit a declaration to the National Agency for the Prevention of Corruption, which must include information about his or her property, income, and origin.

The law also stipulates consequences for those who have contact with oligarchs. These are officials (the president, heads and members of parliament, government officials, heads of law enforcement, anti-corruption and security agencies, the National Bank, etc.) After contacting an oligarch or his representative, they must fill out a declaration of contacts on the NSDC website no later than the next day. A “contact” with an oligarch is considered a meeting and conversation, including online communication by phone or electronic means of any content.

As for the implementation of the Law on Deoligarchization, according to the Ministry of Justice, the only barrier to its implementation is the European Commission’s requirement to wait for the Venice Commission’s opinion after analyzing the law. Implementing the law now without the Venice Commission’s opinion would create many risks, including the need to change the existing mechanisms and processes.

It is important to note that the Ukrainian government authorities are already fully prepared to start implementing the Law. Thus, as of today, the Law is ready, the register is ready, the bylaws have been adopted, and the methodology for determining the persons to be included in the register is also ready. 

At the same time, Ukraine intends to implement the law and the mechanisms of restrictions for oligarchs in general, how our colleagues from the European Union and the Venice Commission see it. That is why, at the request of our European partners, the Ministry of Justice is still waiting for the opinion of the Venice Commission, which Ukraine expects to receive this month.

Conclusions

Despite the challenges posed by martial law and the ongoing war, Ukraine has demonstrated resilience in administering justice, facilitating bankruptcy proceedings, safeguarding creditors’ rights, ensuring transparency through state registers, and implementing necessary economic measures. The gradual restoration of territorial jurisdiction, the introduction of online legal proceedings, and the alignment of bankruptcy legislation with EU directives indicate Ukraine’s commitment to upholding the rule of law. As Ukraine progresses on its European integration path, removing currency restrictions, implementing anti-corruption measures, and adhering to international sanctions contribute to stable and coherent economic development.