The law on the application of bankruptcy procedure during martial law was adopted: what changes are foreseen?

On July 26, 2023, the Law was signed by the President of Ukraine. The Law enters into force on the day following its publication.

The amendments were developed for simplifying access to the bankruptcy procedure and increasing the effectiveness of its application in the conditions of martial law and the post-war period, as well as clarifying a number of procedural issues and eliminating technical deficiencies in the Code of Ukraine on bankruptcy procedures (further referred to as the Code).

We suggest considering the main changes provided for by the Law.

The peculiarities of the bankruptcy procedure during martial law 

The Law provides for the following provisions, which will be in effect during martial law in Ukraine and within six months from the date of its termination or cancellation:

• the possibility of holding meetings (committee) of creditors remotely by video conference or by survey;
• the arbitration manager is released from disciplinary responsibility for failure to fulfill the duties provided for by the Code if their performance is impossible due to the hostilities at the location of the debtor, creditor, the debtor’s property, the location of the office or the place of residence or stay of the arbitration manager;
• the court is empowered to extend certain procedural terms: holding a preliminary court hearing, appeal within the bankruptcy proceedings for invalidation of transactions committed by the debtor, the moratorium on the satisfaction of creditors’ demands, the announcement of the first, repeated, and/or second repeated auction, execution of the plan of rehabilitation or restructuring of the debtor’s debts, procedures for disposal of property, liquidation, restructuring of the debtor’s debts and repayment of the debtor’s debts;
• suspension of interest accrual on the debtor’s obligations to creditors restructured following the rehabilitation plan or the debtor’s debt restructuring plan. Penalty for non-fulfillment of such obligations by the debtor are not accrued;
• the possibility of opening proceedings in the bankruptcy case without making an advance payment to the arbitration manager to the court’s deposit account;
• damage and/or losses caused to the debtor as a result of armed aggression against Ukraine are subject to mandatory assessment following the procedure established by the Cabinet of Ministers of Ukraine;
• joint and several liability does not apply to the debtor’s management bodies following Part 6 of Art. 34 of the Code, if the debtor did not apply to the commercial court with a statement to open bankruptcy proceedings, as a result of armed aggression against Ukraine, including due to the presence of the debtor’s single property complex in the territories where hostilities are (were) taking place, or in the territories temporarily occupied by the russian federation following the list approved by the Ministry of Reintegration of Temporarily Occupied Territories;
• a new reason for refusing to open bankruptcy proceedings upon the creditor’s application is added  –  if the debtor proves before the preparatory court hearing that he is included in the electronic register of participants in the selection and execution of state contracts (agreements) and has an active contract with state customers in the field of defense, or the creditor’s demands are not satisfied as a result of armed aggression against Ukraine, including due to the presence of the debtor’s single property complex in the territories where hostilities are (were) active, or on the territories temporarily occupied by the Russian Federation following the list approved by the Ministry of Reintegration of Temporarily Occupied Territories.

The form and procedure for responding to the request of the arbitration manager 

In addition to the above-mentioned temporary changes, which will apply during martial law and within six months from the date of its termination or cancellation, the Law also establishes separate provisions that will apply permanently. Among them, in particular, the introduction of a new institution – the request of the arbitration manager (by analogy with the attorney’s request).

It is established that the persons to whom the request of the arbitration manager was sent are obliged to provide the arbitration manager with the requested information and copies of documents, except confidential and/or official information and copies of documents containing confidential and/or official information, no later than ten working days from the date of receipt of the request.

In case the request of the arbitration manager concerns the provision of a significant amount of information, the term of consideration of the request may be extended up to 20 working days, of which the arbitration manager is notified in writing no later than five working days from the date of receipt of the request.

The satisfaction of the request of the arbitration manager can be carried out by providing the requested information and copies of documents in the form of an electronic document.

The new powers of the property manager in the bankruptcy procedure 

The Law supplemented the list of powers of the property manager. In particular, it is stipulated that during the property disposal procedure, the debtor is obliged to provide the property manager with the possibility of direct access to the information stored in the databases used by the debtor’s officials for accounting, tax, and management accounting, as well as for the formation of accounting, statistical and tax reporting.

In addition, the debtor is obliged to provide the property manager with the opportunity to print and/or copy the necessary documents.

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