Can a Customs Fine Be Discharged Through Personal Insolvency?

Financial penalties imposed by the state for administrative offences can create a debt burden that effectively prevents an individual from restoring their solvency. However, the existence of a court decision ordering payment of a fine does not necessarily mean that the obligation will survive the completion of personal insolvency proceedings.

The Supreme Court of Ukraine has established an approach under which monetary penalties for violations of customs regulations are not classified as obligations inseparably linked to the debtor’s person. Nevertheless, the possibility of discharging such penalties does not mean that opening insolvency proceedings automatically releases an individual from an administrative fine. To apply this legal position correctly, three issues must be distinguished: the nature of the monetary claim, the legal consequences of restructuring or completing the insolvency procedure, and the treatment of other penalties imposed for the same offence.

Why an Administrative Fine Is Not Always a Personal Debt

The Bankruptcy Procedures Code of Ukraine provides for the possibility of releasing individuals from their debts following judicial insolvency proceedings while establishing exceptions for certain categories of obligations. Under Article 134(2) of the Code, completion of insolvency proceedings does not extinguish, in particular, claims for alimony, compensation for damage caused by a criminal offence, injury, other harm to health or the death of an individual, as well as other claims inseparably linked to the debtor’s person.

However, the fact that a person has been held administratively liable does not mean that every monetary penalty imposed on them automatically falls within these exceptions. To apply the Bankruptcy Procedures Code, it is necessary to determine whether the relevant claim is personal in nature or constitutes a financial penalty that may be dealt with through insolvency proceedings.

The Commercial Cassation Court addressed this issue in its judgment of 16 September 2025 in case No. 916/2314/24. The circumstances were as follows. For a violation of customs regulations under Article 472 of the Customs Code of Ukraine, a court imposed a fine of UAH 3,567,630.77 on an individual. Subsequently, insolvency proceedings were opened at the individual’s request, a debt restructuring plan was approved, and, following its implementation, the proceedings were closed with the debtor being released from the relevant obligations.

Volyn Customs challenged the decision insofar as it declared the fine no longer enforceable. The customs authority argued that an administrative fine constitutes punishment imposed on a specific individual and that completion of insolvency proceedings should therefore not extinguish the obligation to pay it. The Supreme Court rejected this approach, stating that a fine for violating customs legislation is, by its legal nature, a financial penalty in the form of a monetary sanction. Consequently, the rules on the discharge of creditors’ claims set out in Article 133(6) of the Bankruptcy Procedures Code may apply to such fines.

Why Approval of a Restructuring Plan Does Not Automatically Discharge a Fine

An important clarification of this legal position appears in the Supreme Court’s judgment of 6 November 2025 in case No. 903/1062/24. In those proceedings, the customs authority submitted monetary claims against an individual, some of which were included in a restructuring plan. The authority objected to the application of the relevant restructuring mechanisms to the customs fine, arguing that the penalty was personal in nature.

The Commercial Cassation Court reaffirmed its earlier position concerning the legal nature of administrative fines. However, it emphasised the need to distinguish between approval of a restructuring plan and an individual’s release from debts following completion of the relevant procedure. These are separate procedural decisions with distinct legal grounds. The Supreme Court noted that Article 125 of the Bankruptcy Procedures Code does not include debts arising from customs fines among the categories of obligations that cannot be restructured.

Accordingly, provided that the other statutory conditions are satisfied, such a claim may be included in a restructuring plan and dealt with under its terms. Nevertheless, the mere possibility of including a fine in a restructuring plan is not equivalent to discharging the debtor’s outstanding obligations under Article 134 of the Code. In light of these conclusions, when preparing an insolvency application, it is necessary to determine how the claims of the relevant state authority are to be addressed, whether they have been submitted in the proceedings, whether they are included in the restructuring plan, and what legal consequences may follow its implementation.

Discharging a Fine Does Not Eliminate All Consequences of the Offence

Another issue that must be considered when assessing the prospects of insolvency proceedings is the distinction between monetary and non-monetary penalties.

In case No. 916/2314/24, two types of penalties were imposed for the same customs violation: a fine and confiscation of goods. The commercial court of appeal concluded that confiscation has a different legal nature because it does not constitute a creditor’s monetary claim and falls outside the mechanism for discharging an individual’s debts. Accordingly, the administrative offence judgment was declared unenforceable only in respect of the fine.

The Supreme Court reviewed the case following the customs authority’s cassation appeal solely in relation to the monetary penalty. The appellate court’s conclusion concerning confiscation was not subject to cassation review and remained in force. Therefore, applying insolvency procedures requires an assessment not only of the total amount owed but also of the legal nature of each individual claim. In addition, financial penalties for administrative offences must be distinguished from claims for compensation for damage caused by criminal offences, which are subject to a special legal regime under the Bankruptcy Procedures Code.

When analysing such cases, a lawyer should first examine the grounds on which each obligation arose, determine whether it can be included in a restructuring procedure, and separately assess the legal consequences of closing the proceedings. The existence of a court judgment imposing an administrative fine does not preclude the possibility of its discharge. However, the outcome will depend on compliance with the insolvency procedure and the circumstances established by the commercial court.

The Supreme Court’s legal position provides a basis for protecting individuals facing substantial financial penalties, but it does not establish a universal mechanism for avoiding administrative liability. For debtors, the decisive factors remain proper documentary evidence of insolvency, transparency regarding their financial position, and the correct application of the procedures established by the Code.