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Bankruptcy & Restructuring Q&A

With Andrii Grebonkin – Clifford Chance LLC
Posted: 14th October 2013 10:57
Have there been any regulatory changes or interesting developments over the past twelve months?
On 19 January 2013 the restated Insolvency Act became effective in Ukraine.  The introduced changes, which impacted both debtors and creditors, were an attempt to create a more streamlined and efficient insolvency process and to remedy some of the real and perceived defects in the law.  The most significant novelties related to: decreasing the length of insolvency proceedings; a new concept of hardening periods; extension of grounds for liability of directors and shareholders and persons with control for a debtor's insolvency; changes in the status of secured creditors (e.g. the secured creditors may no longer vote at the creditors' meeting); expedited insolvency restructuring; implementation of the UNCITRAL Model Law on Cross-Border Insolvency.
Which industries are in most need of bankruptcy and restructuring expertise?
Despite the fact that the peak of recent credit crunch has passed, certain metallurgical companies and real estate developers continue to face significant financial difficulties in servicing their external financial indebtedness.
The wide range of industries in the state sector of economy requires an arms' length assessment in terms of the feasibility of the business models they use.  However, implementation of insolvency and restructuring expertise to a state sector usually faces various legislative restrictions that make such implementation cumbersome or impossible at all (e.g. a ban on commencement of insolvency against certain types of companies, dependency on limited state funding, unclarity in procedures).
What methods are creditors using to assert their claims against insolvent debtors and recover as much value as possible?
The methods would mainly depend on the status of the creditor (i.e. secured or non-secured) and other circumstances of a particular situation.  This said, while assessing the recovery strategy, a secured creditor would usually consider enforcement of security or commencement of insolvency (the restricting factor here would be that an insolvency petition may be submitted to the extent the amount of claim exceeds the value of collateral).  It is important to note that upon commencement of insolvency proceedings, the secured creditor would most likely not be allowed by court to enforce its security.
Do you believe that "Amend and Extend" is a possible solution or is it merely papering over the cracks?
In many cases this will allow the debtor to come out of a difficult financial situation but a number of additional measures would be required in order not to have a similar insolvency situation in the near future.  Such measures would include re-evaluation of the business model, cost-cutting procedures, transparent financial management, review of the financial reports by creditors, major creditors acting in accord, etc.
Does your jurisdiction offer any restructuring schemes to aid insolvent organisations?
The amendments to the Insolvency Act introduced a new procedure to allow for the expedited restructuring of a debtor.  Such procedure allows the debtor, with the approval of the debtor's shareholders, secured creditors and at least 50% of unsecured creditors by value, to reach an expedited restructuring under the authority of the insolvency court, in effect overriding any dissenting minority creditors.  The core document in this process would be a restructuring plan which is pre-approved by such shareholders and creditors with a final approval by a court. After that, a moratorium on satisfaction of creditors' claims is imposed and the parties involved may immediately start carrying out the restructuring plan.  No formal insolvency proceedings are commenced.
Can you talk us through the process of acquiring an insolvent business in your jurisdiction?
The acquisition of a debtor's business during Ukrainian insolvency may be structured either as a share deal or an asset deal.  While a share deal will not be generally subject to restrictions applicable in insolvency process, the asset deal should be complied with a detailed statutory procedure of an auction sale of the debtor's assets.
The Insolvency Act also contemplates a procedure for the replacement of a debtor's assets.  This would work by permitting a debtor to incorporate a subsidiary and become its sole shareholder.  In return for the shares in such entity, the debtor will be able to contribute its assets and certain liabilities to the share capital of such entity.  Subsequently, these shares may be sold and the proceeds received from such sale used for the satisfaction of creditors' claims.
How has the rise in cross-border activity changed the complexity and sophistication of bankruptcy and restructuring?
Ukraine has recently become one of some 20 jurisdictions that introduced the provisions of the 1997 UNCITRAL Model Law on Cross-Border Insolvency.  Subject to execution of a relevant treaty between Ukraine and an applicable jurisdiction, this would, among other things, allow foreign insolvency practitioners to apply to Ukrainian courts for freezing orders and for the recognition of foreign insolvency proceedings in Ukraine.  Additionally, Ukrainian courts will be obliged to cooperate with foreign insolvency courts and provide relevant legal assistance in relation to any foreign insolvency proceedings.
What key trends do you expect to see over the coming year and in an ideal world what would you like to see implemented or changed?
The newly restated Insolvency Act will continue to be tested in practice and certain opinions of Ukrainian higher courts on various aspects of the insolvency laws of Ukraine will likely be issued.  As the restated rules significantly decreased the ability of debtors and their affiliated creditors to use insolvency as a tool for the purpose of suspension of payment obligations due to moratorium, we also expect a lesser ratio of so called 'technical' insolvencies instigated for such a purpose.  As a matter of amendments, state-owned debtors and debtors engaged in some market sensitive industries (e.g. energy and coal mining) should cease to enjoy preferential treatment in insolvency.  The framework of enforcement of security during insolvency would also need to be adjusted to allow secured creditors either to vote at the creditors' meetings or to enforce the security during insolvency, none of which, subject to a few exceptions, the secured creditors are allowed to do now.
Andrii Grebonkin is a Senior Associate at Clifford Chance LLC and can be contacted by phone on +380 (44) 390 2231 or alternatively via email at

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