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The Supreme Court has ruled on a reversal of bogus transactions

Not that long ago, on 3 July 2019 (case No. 369/11268/16-с), the Grand Chamber of the Supreme Court decided to set up a precedent in relation to the bogus transactions aimed at defrauding creditors. It is worthwhile noting that until recently the case law in this matter has been partially established, but now it is expected that such a decision will lay the foundation for counteracting the dissipation of assets by unscrupulous debtors.

Not that long ago, on 3 July 2019 (case No. 369/11268/16-с), the Grand Chamber of the Supreme Court decided to set up a precedent in relation to the bogus transactions aimed at defrauding creditors. It is worthwhile noting that until recently the case law in this matter has been partially established, but now it is expected that such a decision will lay the foundation for counteracting the dissipation of assets by unscrupulous debtors.

According to the merits of the case, a person was found guilty of committing a crime and the amount of the damage caused by him was determined by court decision. Subsequently, the enforcement proceedings were opened, however, the convicted person entered into gift agreements with his children and transferred to each of them the ownership of 1/2 of the house and land plot.

This is precisely why the bank filed a claim asking the court to declare the gift contract null and void.
Additionally, the bank argued that by alienating the immovable property for the benefit of the children, the convicted person knew about the judgment to recover the debt in favour of the plaintiff, so he could foresee the adverse consequences for himself in the execution of the judgment by foreclosing the immovable property, and therefore the challenged transactions can be considered as bogus.

Court Decision: giving a legal assessment herein, the Supreme Court ruled that an agreement, designed to avoid the enforcement of assets, is considered fraudulent and may be revoked by the court if:

  • the debtor realises that his/her property may be seized by a court decision;
  • the parties enter into an agreement for the sole purpose to prevent a foreclosure;
  • the agreement is fictitious and hides the true intentions of the parties.

As can be seen from the above, the law enforcement practice formed a certain test by which it is possible to determine the fictitious nature of the transaction. It is worth noting that the illustrated test-criteria are quite evaluative, which allows them to be potentially applied to transactions and contracts other than gifts.
In conclusion, it should be pointed out that taking a decision in the abovementioned case, the Grand Chamber of the Supreme Court confirmed the previously existing practice of the liquidated Supreme Court of Ukraine in recognition of the fictitiousness of gift agreements, and referred to the following court rulings: the Resolution of the Supreme Court of Ukraine of 19 October 2016 (proceedings No. 6-1873цс16), the Resolution of the Supreme Court of Ukraine of 23 August 2017 in case No. 306/2952/14-с and the Resolution of the Supreme Court of Ukraine of 09 September 2017 in case No. 359/1654/15-с.

Iryna Kalnytska

Iryna Kalnytska

Partner, Head of Tax practice, Restructuring, Claims and Recoveries practice, Attorney at law

  • Recognitions
  • The Legal 500 EMEA 2020
  • Best Lawyers, Ukraine 2020
  • Who’s Who Legal 2020
  • Ukrainian Law firms. A Handbook for Foreign Clients 2019

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