Genuine Dispute or Procedural Abuse: When Court Refuses to Open Bankruptcy

Article 39(6) of the Code of Ukraine on Bankruptcy Procedures requires a court to refuse to open bankruptcy proceedings where the creditor's claims reveal a dispute over rights that must be resolved through ordinary contentious proceedings.

However, the existence of a contract, supporting documents or separate litigation is not conclusive. The Supreme Court examines whether the monetary claim can be properly assessed at the preparatory hearing and whether the parties are exercising their procedural rights for legitimate purposes.

When a Debt Must Be Established in Ordinary Litigation

In its ruling of March 25, 2025, in case No. 907/600/24, the Commercial Cassation Court considered a claim arising from a loan agreement where the right to payment had been assigned several times. Identifying the proper creditor required examining successive assignment agreements, corporate decisions and legal relationships involving third parties. The first-instance court effectively conducted this examination during the preparatory hearing. The appellate court refused to open bankruptcy proceedings, and the Supreme Court upheld that decision.

Legal principle: where establishing a creditor's entitlement requires the procedural mechanisms available only in ordinary contentious proceedings, the dispute cannot be resolved at the bankruptcy initiation stage. This approach is particularly relevant to successive debt assignments, factoring arrangements and complex corporate obligations. Nevertheless, complicated documentation alone does not establish the existence of a genuine dispute.

A related issue arose in the Supreme Court's ruling of January 28, 2025, in case No. 927/531/24. A creditor sought to initiate bankruptcy proceedings against an agricultural company despite existing litigation concerning supply and equipment lease agreements. The supply agreement also failed to specify payment deadlines for certain deliveries, and the creditor had not demonstrated that a demand for payment had been made under Article 530 of the Civil Code of Ukraine. This created uncertainty regarding the payment due date, the amount outstanding and the basis for additional charges under Article 625 of the Civil Code. The Supreme Court upheld the refusal to open bankruptcy proceedings.

Accordingly, a contract and evidence of delivery do not necessarily establish that a monetary obligation in the claimed amount was overdue when the creditor applied to the court.

An Artificial Dispute Does Not Prevent Bankruptcy

The Supreme Court addressed the opposite situation on April 23, 2025, in case No. 921/476/24. The creditor substantiated its claim with primary accounting documents, reconciliation statements and evidence of partial payments. The debtor attempted to challenge the debt through separate lawsuits seeking to invalidate the supply agreement and related documents. Those lawsuits, however, were filed only after the creditor had applied for bankruptcy proceedings.

The Court considered the debtor's earlier conduct, including partial performance and signing a reconciliation statement without reservations. Together with the timing of the lawsuits, these circumstances indicated an artificial dispute intended to obstruct bankruptcy. The Supreme Court upheld the decisions opening bankruptcy proceedings.

Practical implication: filing a lawsuit after a bankruptcy application does not automatically prevent the creditor's case from proceeding. Courts assess the substance of the objections, supporting evidence and the debtor's conduct before the bankruptcy application. The filing date alone is not decisive. What matters is whether the dispute is genuine and relates directly to the monetary claim.

Related-Party Creditors Can Also Abuse Bankruptcy Procedures

In its ruling of June 12, 2025, in case No. 924/232/22, the Supreme Court examined an application by a creditor linked to the debtor through corporate and family relationships. The bankruptcy application against PJSC Proskuriv was based on an unpaid loan of UAH 175,000. Although the Court established that the monetary obligation existed, it also considered that the debtor had repaid approximately UAH 1.75 million to other creditors while leaving the much smaller related-party claim outstanding. Taken together, the circumstances indicated that the bankruptcy application was being used without a legitimate purpose of protecting the creditor's infringed rights. The Supreme Court overturned the lower courts' decisions and left the creditor's application without consideration under Article 43(3) of the Commercial Procedural Code of Ukraine.

Corporate or family connections alone do not prevent a creditor from initiating bankruptcy proceedings. Abuse must be established through specific evidence.

Practical Considerations for Creditors and Debtors

These decisions demonstrate two distinct procedural consequences.

A genuine dispute over rights requiring ordinary contentious proceedings is grounds for refusing to open bankruptcy proceedings under Article 39(6) of the Bankruptcy Procedures Code.

An abuse of procedural rights may result in the application being left without consideration under Article 43 of the Commercial Procedural Code.

Furthermore, a preparatory bankruptcy hearing is not intended for a full determination of whether transactions are invalid or fraudulent in relation to creditors. The Commercial Cassation Court's bankruptcy chamber emphasised this distinction in its ruling of March 20, 2024, in case No. 911/1005/23. Separate procedural remedies exist for such disputes.

Before applying for bankruptcy, creditors should verify their entitlement to the claim, the payment due date, the outstanding amount and the legal basis for additional charges.

Debtors should document substantive objections concerning the origin, amount or maturity of the debt at an early stage. Filing a weakly substantiated lawsuit only after bankruptcy proceedings are initiated may be regarded as creating an artificial dispute.

Where related parties are involved, additional attention should be paid to the commercial purpose of transactions, payment patterns and the reasons for selective debt repayment. Ultimately, effective business protection depends on the substance of the underlying legal relationships, reliable evidence and good-faith procedural conduct. A genuine debt does not justify an abusive bankruptcy application, while formal objections do not shield a debtor from legitimate insolvency proceedings.