The new year 2022 from the very beginning brought changes to the legal regulation of insolvency proceedings in Ukraine – Law “On Amending the Section “Final and Transitional Provisions” of the Code of Ukraine on Insolvency Procedures” No.1944-IX (hereinafter referred to as the Law) entered into force on 6 January 2022.
Despite its small size, the Law introduces a number of important clarifications, in particular, related to the impact of the coronavirus pandemic on the course of insolvency proceedings. We suggest looking at what exactly has changed in insolvency proceedings.
Cancellation of automatic deadline extensions
The previous version of the Code of Ukraine on Insolvency Procedures (hereinafter referred to as the Code) provided for the automatic extension of certain terms in insolvency proceedings for the period of quarantine, for example:
- holding a preliminary court hearing in the insolvency case;
- filing with a court for insolvency proceedings;
- announcements of auctions;
- implementation of the debtor’s debt rehabilitation or restructuring plan;
- asset management procedures etc.
However, since 6 January 2022, the automatic extension of these deadlines has been canceled.
From now on, these terms can be extended only by the court. To do this, the creditors’ committee, the creditor, or the court-appointed receiver must apply to the court with a request to extend the terms. The Code also authorizes the court to extend such terms on its own initiative.
Liability of the court-appointed receiver during quarantine
The law, among other things, clarifies the responsibility of the court-appointed receiver – the latter is not subject to disciplinary liability for failing to act if this was due to quarantine requirements imposed to prevent the spread of the coronavirus disease COVID-19. However, the court-appointed receiver is obliged to report such circumstances to the creditors’ committee (creditors – in the case of insolvency of an individual), as well as separately to the mortgage creditors.
Holding a meeting (committee) of creditors in a special mode
The law specifies the procedure for the remote holding of meetings (committee) of creditors by video conference, namely as follows:
- if the participant of the meeting (committee) does not have an electronic digital signature, his/her identity is confirmed in accordance with the Law “On the Unified State Demographic Register and Documents Confirming the Citizenship of Ukraine, Identity or Special Status”;
- the video conference recording medium shall be attached to the minutes of the meeting (committee);
- the protocol resolution of the meeting (committee) shall be signed by the court-appointed receiver, and in case of holding the meeting (committee) without his/her participation – by the creditor elected by the chairman of the meeting (committee);
- the procedure for alternative meetings (committee) of creditors was also clarified – by means of a survey;
- a request with a draft decision on the proposed issues is sent to all participants by the initiator of such survey, and the said request is sent to the officially notified e-mail address of the participant, and if unavailable – by mail;
- the participant’s consent to the decision shall be unconditional and expressed in signing (in particular, electronic digital signature) of the proposed decision and sending it back to the initiator within 15 days upon receipt of the request, with documents confirming the authority of the signatory;
- answers received after the deadline or those whose content does not allow establishing the will of the participant in the survey on the issue raised, are not taken into account when counting the results of voting on such issues;
- the decision adopted is sent by the initiator of the survey to all participants of the meeting (committee) of creditors within 10 days from the date of expiration of the deadline for receiving answers from participants, and the date of the decision is the last day of the period during which participants had to send their answers.
Abolition of a number of prohibitions in insolvency proceedings
As far as is known, since 17 October 2020, a moratorium has been established for the period of quarantine and for 90 days from the date of its abolition. For example, it was forbidden to initiate insolvency proceedings on claims against the debtor arising from 12 March 2020.
However, since 6 January 2022, the moratorium has been abolished, i.e. the restrictions on insolvency proceedings for claims that arose during the quarantine no longer apply.
Also, the one-month deadline for a debtor to file for insolvency proceedings through COVID-19 from now on will not be extended if the satisfaction of one or more creditors’ claims poses the threat of insolvency. It should be noted that the Code provides for joint and several liability of the debtor’s manager for violation of the said requirements regarding the term. Such a violation may be the ground for further creditors’ claims against the debtor’s manager.
In addition, the creditors’ committee and the secured creditor no longer have the right to decide on the suspension of auctions for the sale of the debtor’s property through quarantine.
Please note, however, that for the duration of the quarantine and for a period of 90 days from the date of its cancellation the rules that stop the accrual of the following remain in force:
- interest on the debtor’s liabilities to creditors that have been restructured by a debt rehabilitation or restructuring plan.
- penalties for non-compliance by the debtor with such liabilities.
The rule that overdue liabilities under a debt rehabilitation or debt restructuring plan are subject to an installment plan for the duration of the debtor’s rehabilitation or debt restructuring plan remains unchanged.
As you can see, the legislator is gradually abolishing the relaxations in insolvency proceedings that were introduced in the Code in connection with quarantine. It is therefore important not to hesitate to go to court to initiate insolvency proceedings, file creditor’s claims, and take other necessary steps in insolvency proceedings.