How Sanctions Legislation Affects Insolvency Procedures in Ukraine

Sanctions are not a form of punishment — they are a defensive mechanism of the state. However, in the field of bankruptcy, they have caused a legal paralysis. Insolvency practitioners, courts, and creditors now operate in a reality where Ukraine’s sanctions framework and the Code of Bankruptcy Procedures (CBP) interact without proper synchronization. The result is hundreds of cases where liquidation or creditor settlements are practically impossible.

Sanctions as Economic Restrictions, Not Punishment

According to the Law of Ukraine “On Sanctions” and the position of the Grand Chamber of the Supreme Court (judgment dated 6 July 2023, case No. 9901/376/21), sanctions are restrictive economic measures aimed at persons who pose a threat to Ukraine’s national security and sovereignty. In the field of bankruptcy, the most relevant types of sanctions include:

• asset and account freezes;
• confiscation of assets for the benefit of the state;
• trade restrictions;
• prohibition of capital withdrawal abroad;
• suspension of financial and economic obligations.

These measures directly restrict participants in insolvency proceedings — especially when sanctions are imposed on debtors, beneficiaries, or creditors. A key role is played by Cabinet of Ministers Resolution No. 187 of 3 March 2022, which introduced a moratorium on the performance of obligations towards persons connected with the aggressor state. In practice, this means that:

• the claims of such creditors cannot be recognized in bankruptcy cases;
• their rights to demand repayment are effectively “frozen” during the period of sanctions;
• courts reject petitions to initiate bankruptcy proceedings filed by sanctioned creditors.

The Supreme Court, in its judgment of 17 June 2025 (case No. 909/130/24), explicitly stated that such petitions are not a legitimate means of protecting creditors’ rights, but rather an attempt to circumvent sanctions.

Technically, bankruptcy proceedings against sanctioned debtors are possible, since the CBP does not contain a direct prohibition. This was confirmed by the Supreme Court judgment of 6 December 2023 (case No. 926/5366-b/22). However, the implementation of such cases faces serious obstacles:

• Asset sales are impossible: insolvency practitioners cannot organize auctions.
• Bank accounts are blocked: under National Bank regulations, insolvency practitioners cannot use the funds.
• No time limits for sanctions: proceedings risk becoming endless, with cases effectively “stuck” without resolution.

Legal Conflicts and Challenges for Insolvency Practitioners

One of the major issues is the conflict between sanctions law and the Bankruptcy Code. An insolvency practitioner must act within the CBP, but at the same time is legally unable to:

• sell the debtor’s assets;
• use funds from frozen accounts;
• implement restructuring if it involves disposal of property.

As a result, creditors often file complaints about the “inaction” of insolvency practitioners, even though they are legally constrained. Ukrainian courts have begun to acknowledge these situations — for instance, in the decision of the Eastern Commercial Court of Appeal dated 25 September 2025, the court ruled that a liquidator could not act where the debtor’s assets were subject to sanctions or arrest.

Banks, ARMA, and the State Property Fund: New Sources of Conflict

Further complications arise from parallel asset management mechanisms:

• Banks often block company accounts merely because among their beneficiaries are citizens of Russia or Belarus — even without official sanctions. This is direct interference in insolvency proceedings and requires regulatory clarification.
• ARMA (the Asset Recovery and Management Agency) receives court orders to manage assets even when liquidation is already underway. There have been cases where two different judges transferred the same property to ARMA, creating internal conflicts and making the insolvency practitioner’s work impossible.
• The State Property Fund gains control over companies whose shares have been nationalized. These enterprises then enter long privatization processes — leaving creditors waiting for years without compensation.

Sanctions are designed to protect Ukraine, but they simultaneously limit the rights of domestic creditors. The inability to sell assets or make payments reduces financial turnover and weakens the overall economy. Sanctions intended to protect national interests end up blocking the tools of insolvency practitioners and depriving creditors of the ability to recover their claims.

The Ukrainian legal community emphasizes the urgent need to integrate the sanctions regime into bankruptcy legislation. The goal is not to weaken sanctions, but to create a mechanism of balance — one that protects national security while ensuring fair treatment of bona fide creditors. Until such alignment is achieved, every bankruptcy case involving a sanctioned entity will remain an example of how different legal norms can paralyze one another.