Asset Seizures in Bankruptcy: When Criminal Proceedings Block Economic Recovery

Harmonizing the norms of criminal and insolvency proceedings remains one of the most complex challenges in Ukrainian legal practice. While the state seeks a balance between the public interest and the rights of creditors, asset seizures imposed within criminal proceedings continue to paralyze entire bankruptcy processes.

This is not merely a procedural issue — it is a legal conflict that directly affects economic stability: blocked assets cannot be sold, creditors remain unpaid, and businesses lose their chance to restore solvency.

Two Parallel Realities — Criminal and Insolvency

The Ukrainian Code of Bankruptcy Procedures clearly stipulates that arrests or restrictions on the disposal of a debtor’s assets may only be imposed by a commercial (economic) court within the framework of bankruptcy proceedings.

The same court also has the authority to lift such arrests if they hinder economic activity or the implementation of a rehabilitation plan. However, all these guarantees are undermined by a single “but”: an exception for arrests imposed in criminal cases. Such arrests are issued by investigative judges and cannot be lifted by courts of other jurisdictions. As a result, the insolvency practitioner — who is legally obliged to sell assets to satisfy creditors’ claims — is often left unable to access them.

The Supreme Court of Ukraine has repeatedly emphasized that commercial courts have no jurisdiction to interfere with asset seizures imposed by investigative judges. Consequently, even a lawfully initiated bankruptcy case can be left in limbo.

When a Criminal Seizure Becomes a Barrier for Creditors

Seizures in criminal cases are typically imposed to:

1. Preserve physical evidence;
2. Secure possible confiscation;
3. Ensure compensation for damages or recovery of illicit gains.

But for a debtor under bankruptcy proceedings, this often means a complete economic standstill. Inventory processes are suspended, asset sales are blocked, and creditors’ claims remain unmet.

Moreover, criminal seizures create inequality among parties, as the state effectively gains a priority position over private creditors — contrary to the principle of proportionality enshrined in bankruptcy law.

ARMA: A New Factor in the System of Seizures

The situation is further complicated by the involvement of the National Agency of Ukraine for Asset Recovery and Management (ARMA). Courts may transfer seized assets to ARMA if they are recognized as evidence and exceed 200 times the subsistence minimum in value.

In theory, this aims to preserve or even increase the economic value of seized assets. In practice, however, transferring property to ARMA often deprives insolvency practitioners of any control over the asset.

Court practice shows that such transfers are not always justified. For instance, in case No. 752/10430/25, the court denied the prosecutor’s motion to transfer seized funds to ARMA, finding no evidence that additional management was necessary — the seizure itself already ensured preservation.

Courts Between Law and Reality

According to judicial statistics, Ukrainian courts review an average of over 250 motions per year seeking to lift asset seizures in criminal proceedings. Preliminary data for 2025 indicate at least 220 such motions.

The most common reasons for refusal include:

• lack of procedural standing by the insolvency practitioner;
• incomplete documentation;
• absence of grounds under Article 174 of the Criminal Procedure Code;
• violation of jurisdictional rules.

Moreover, orders denying the lifting of a seizure cannot be appealed, effectively ending the debtor’s ability to defend its property rights.

When the Court Allows an Exception to the Rule

There are, however, positive examples. In case No. 552/4830/23, the court partially lifted the seizure to allow payment of the insolvency practitioner’s statutory remuneration. Initially, the court considered this a matter for the commercial jurisdiction, but later recognized that such a payment did not undermine the purpose of the seizure and was consistent with the Bankruptcy Code.

This decision illustrates a flexible judicial approach, where courts begin to recognize that without coordination between criminal and insolvency processes, the very purpose of bankruptcy — restoring economic balance — is lost.

The Role of Property Registers and the Supreme Court’s Position

Another key aspect concerns the registration of encumbrances in the State Register of Property Rights. The mere existence of a court order does not legally prevent asset sales if no encumbrance has been recorded in the register.

The Supreme Court, in its ruling of September 3, 2024 (Case No. 922/987/16), stated: “If no encumbrance is registered in the State Property Rights Register, conducting an auction is lawful.” This interpretation has effectively empowered insolvency practitioners to proceed with asset sales, even when a criminal seizure formally exists but is not officially registered.

Conclusion: A Need for a Unified Rule, Not Exceptions

Ukrainian legislation must establish a clear mechanism for coordination between criminal and commercial court systems in cases where asset seizures intersect with bankruptcy proceedings. Without such harmonization, each case remains a matter of procedural interpretation — where the outcome depends not on the law, but on circumstance.

A seizure imposed without regard for bankruptcy procedure does not protect the state’s interests; it merely freezes the economic problem. Only a well-defined balance between the criminal and insolvency systems can restore fairness — protecting both the public interest and the right to effective debt recovery, which are essential for Ukraine’s economic renewal.