The legislative protection of creditors’ rights in the process of bankruptcy remains an urgent issue, according to lawyers polled by Interfax-Ukraine. Senior associate at Evris law firm Sergiy Donkov noted that the practice of bankruptcy in Ukraine is dynamically developing taking into account both the historically existing scheme of a competitive process and the world practice. At the same time, in 1992-1999 the law on bankruptcy was the final stage of procedures for the enforced recovery of creditor indebtedness up to the liquidation of a debtor legal entity with the subsequent writing-off of outstanding debts. The bankruptcy law adopted in 1999 included bankruptcy proceedings, introduced an institute of professional arbitration managers performing the functions of forming the liquidation mass, external control and management of the debtor, selling assets and settling with creditors.

“Unfortunately, during this period Ukraine chose the so called “pro-debit” model of the law on bankruptcy, i.e. aimed primarily at preserving the activities of debtors, which was economically inexpedient during the crisis of mutual settlements. The model after the changes made over 17 years has not changed much, as a result bankruptcy procedures are very long, expensive, ineffective in achieving the main goal – settlements with creditors,” the lawyer said.

According to him, international experts assess the average effectiveness of bankruptcy procedures in Ukraine at nine cents for $1 of debt.

“Thus, a lot of barriers are removed for opening bankruptcy cases. The role of secured creditors in the process is greatly strengthened. But the “sacred cow” – state property – is still prohibited. Let’s hope that a new law on state property privatization will be enacted soon, and legislators won’t be pursued by the fears of shadow privatization,” he said, stressing the need for the further reform of bankruptcy laws.

Donkov also expressed the opinion that reorganization should be only pre-trial, voluntary. This is the debtor’s last chance to negotiate with the lender about debt restructuring and avoid bankruptcy.

Senior lawyer at Integrites law firm Orest Tsimerman, in turn, believes that the situation with bankruptcy does not differ from any other practice of protecting the interests of business in the national jurisdiction.

“There is considerable experience of clashes with legislative conflicts, procedural abuses and a lack of a unified approach of courts. For non-professional players in this sphere, this situation clearly follows the meaning of the well-known expression that your fate does not belong to you in the open sea and in court,” he said. In general, according to the lawyer, the state should not solve complex problems with priority on additional norms or whole codes.

“Efforts should be aimed at improving the guarantees of independence of courts and court-appointed trustees. The best practices of work at the most problematic stages of procedures have already been worked out,” he said.

Partner of Asters law firm Andriy Pozhidayev noted the importance of protecting the rights of creditors, taking into account the legal nature and purpose of procedures for restoring the solvency and bankruptcy of the debtor. “A high level of non-fulfillment of debt obligations in Ukraine and crisis phenomena in the financial and credit system cause the fact that the number of cases on bankruptcy occupy a significant part of economic disputes considered by courts. Moreover, in many cases during the procedure of bankruptcy unscrupulous debtors see an opportunity to avoid (in full or in part) liability to the creditor, using for this purpose some ambiguous provisions of the current legislation regulating the recovery of the debtor’s solvency,” he told the agency.

The lawyer noted that at present a number of legislative changes are taking place in this area, the most significant of which include, for example, the code on bankruptcy procedures, the draft of which contains provisions aimed at limiting the possibilities of violations of creditors’ rights. “Such changes will undoubtedly have a positive impact and will contribute to the effectiveness of protection of creditors’ rights. At the same time, the draft code on bankruptcy in the current wording leaves open the main issues arising during the protection of creditors’ rights and needs to be further improved,” the expert stated.