АЛЕРТ: Ожидаемые изменения в сфере финансовой реструктуризации в Украине

On 19 September 2019 the Parliament of Ukraine upheld the Draft Law No. 1070 On Amending Laws of Ukraine Regarding the Improvement of Conducting Financial Restructuring Procedure (‘the Law’), which was stated by the President of Ukraine to be urgent, and adopted it in its 2nd reading. 

The adopted Law shall come into force the day following its official publication.

The Law provides for some amendments to the following five laws of Ukraine: On Banks and Banking Activity, On Protection of Economic Competition, On Mortgages, On Securing Creditors’ Claims and Registration of Encumbrances, and On Financial Restructuring.

The introduced amendments purport to improve practical application of the Law of Ukraine On Financial Restructuring as an effective out-of-court restructuring tool to amicably resolve, inter alia, the problem of non-performing loans.

The Law envisages the following improvements:

  1. Release From the Permit Requirement:
    1.1. Banks no longer need to obtain a permit from the National Bank of Ukraine to make an investment if such an investment is made within the financial restructuring procedure as per the Law of Ukraine On Financial Restructuring (‘LFR’), provided they observe other relevant provisions of the Law of Ukraine On Banks and Banking Activity. This should simplify the process of providing fresh capital into a business in distress.
    1.2. Banks or other financial institutions shall no longer need to obtain a permit for concentration from the Antimonopoly Committee of Ukraine should they acquire an ‘integral industrial complex’ or shares in a legal entity by way of a foreclosure on collateral or any other security. Such actions shall fall under the exception rule and not be construed as ‘concentration’ within the meaning of the Law of Ukraine On Protection of Economic Competition, provided such original acquisition is followed by a further sale in favour of unaffiliated parties within two years as of the date of the original acquisition and in the event that such acquisition is envisaged under the approved financial restructuring plan as per the LFR.
    1.3. There is no longer a need to obtain a permit for concentration from the Antimonopoly Committee of Ukraine for any acquisition, obtaining of property rights to assets, administration of assets, lease, concession or obtaining in any other way of the right to use the assets, should such actions be performed as per the approved financial restructuring plan under the LFR. Such actions shall not be construed as an infringement of legislation on protection of economic activity and shall not trigger any liability.
  2. Survival of the Unsatisfied Claim:
    2.1. Upon completion of the out-of-court resolution as per the approved financial restructuring plan, the mortgage holder’s claims under the main obligation that remained unsatisfied due to the insufficient value of the mortgage, shall not be terminated and be subject to further satisfaction.
    2.2. The same rule as above applies to encumbered assets. Should the pledgee obtain property rights to encumbered assets as per the approved financial restructuring plan in accordance with the LFR and certain claims remain unsatisfied due to the insufficient value of the security, the remaining part of claim shall still be valid, not terminated and be subject to satisfaction.
  3. Simplification in the Financial Restructuring Procedure as per the Law of Ukraine On Financial Restructuring:
    3.1. The Law introduces simplified prerequisites for a joint participation of ‘related debtors’ (from one group of companies) in the financial restructuring procedure. Should the ‘related debtors’ wish to participate in one consolidated financial restructuring procedure they no longer need to meet the requirement of having at least one shared financial institution as a creditor. However, they would still need to obtain a written approval for conducting such consolidated financial restructuring from the respective affected financial institutions, as creditors, of each debtor.
    3.2.The Law envisages a simplified procedure of document execution. Unlike before, there is no need to obtain the debtor’s signature when taking a decision on different matters within the financial restructuring procedure. Only the affected creditors that voted for such a decision should sign the relevant documents.
    3.3. The Law details the provision on assignment of claims. An affected creditor may at any time during the financial restructuring procedure assign its claim against a debtor. Thus, the new affected creditor obtains all rights and obligations of the initial affected creditor.
    3.4. The Law clarifies the extra ‘exit’ procedure. Affected creditors, that are not related and hold more than 50 per cent of all affected non-related party claims, may file to the Secretariat a motion in a simple written form claiming that the negotiations regarding the restructuring were terminated without reaching an agreement. To this end, no confirmation from the debtor is needed in support of such motion.
    3.5. The Law envisages the possibility of transferring to the debtor any assets/ property of the affected creditor for rent and/ or leasing, and also execution by the parties of any other contracts under the current law as an extra option under the financial restructuring plan.
    3.6.The Law prolonged the effect of the LFR for three more years, till 19 October 2022, unless any other amendments are
    introduced before such date.

Conclusion

The adopted amendments provide an improved framework for further practical application of the financial restructuring procedure, the benefits of which should be felt by debtors and creditors shortly.

As such, debtors shall be able for another three years or so to avail themselves of the amicable out-of-court restructuring procedures in circumvention of the statutory court bankruptcy procedure. This possibility shall not only be beneficial for debtors who have the chance to turnaround their businesses. Creditors shall also gain more options and schemes when working out their non-performing loans.

Disclaimer
Our views and recommendations are based on information obtained from, or are based upon public information sources that we consider to be reliable but for the completeness and accuracy of which we assume no liability. All estimates and opinions included in the report represent the independent judgment of the analysts as of the date of the issue. We reserve the right to modify the views expressed herein at any time without notice. Moreover, we reserve the right not to update this information or to discontinue it altogether without notice.
This information is given without any warranty on an «as is» basis and should not be regarded as a substitute for obtaining individual advice.
Neither Hillmont Partners, nor any of their respective directors, officers or employees nor any other person accepts any liability whatsoever (in negligence or otherwise) for any loss howsoever arising from any use of this document or its contents or otherwise arising in connection therewith.
This analysis is being distributed by electronic and ordinary mail to professionals, who are expected to make their own decisions without undue reliance on this publication, and may not be redistributed, reproduced or published in whole or in part for any purpose.