How the War Has Changed Debtor Liability: Article 625 of the Civil Code

In Ukrainian law, few provisions appear as “simple” on paper yet turn out to be as complex in real application as Article 625 of the Civil Code of Ukraine. It obliges the debtor to compensate the creditor for inflation losses and pay 3% annual interest for the period of delay. However, during wartime this provision has essentially transformed: the rules on limitation periods have changed, special moratoriums were introduced, and the Supreme Court has developed a series of positions that fundamentally alter traditional approaches to debt recovery.

Today, Article 625 of the Civil Code is no longer a technical add-on to the principal debt. It has become an independent legal instrument capable of significantly strengthening the creditor’s position—or, conversely, shifting the balance of liability in a debtor dispute.

The Compensatory Nature of Debtor Liability

The key point confirmed by the Grand Chamber of the Supreme Court in its judgment of 2 July 2025 is that inflation losses and the 3% annual interest have an exclusively compensatory nature. The debtor therefore pays not a “penalty”, but compensation for:

— the loss of value of the creditor’s money, and

— the debtor’s use of another person’s funds during the delay.

In this logic, the debtor’s fault is irrelevant. Liability arises automatically, and accrual continues until the debt is actually repaid. Neither a court judgment nor the opening or suspension of enforcement proceedings stops the calculation of these amounts.

How Limitation Periods Were Transformed by the Pandemic and the War

Under normal circumstances, a creditor may recover inflation losses and 3% annual interest only for the last three years before filing a lawsuit. However, the COVID-19 quarantine in 2020 effectively “rewound” the limitation period: its running was extended for the duration of the quarantine and later the period of martial law. If the limitation period had not expired as of 2 April 2020, the creditor gained the ability to recover compensation for 5–7 years of delay.

This regime changed when the Law No. 4434-IX of 14 May 2025 was adopted. As of 4 September 2025, the limitation period resumed its normal running. In practice, this means that a creditor may now recover compensation only for the last three years prior to filing a lawsuit—unless they previously used the extended limitation period available up to September 2025.

The Moratorium on Liability in Credit and Loan Agreements

Credit and loan relationships are treated differently. Since 24 February 2022, a special moratorium has been in force: the borrower is exempt from liability under Article 625 of the Civil Code, as well as from penalties and fines for the duration of martial law and 30 days after it ends.

This means that inflation losses and 3% annual interest cannot be accrued for any period after 24 February 2022. However, amounts accumulated before this date are not cancelled and may still be recovered, subject to the extended limitation periods.

By contrast, ordinary commercial contracts—supply, services, lease, construction, agency, etc.—are not subject to any moratorium. Article 625 continues to apply in full to these obligations.

Why Sector-Specific Moratoriums Do Not Protect the Debtor

Certain economic sectors, such as energy, saw regulatory moratoriums on penalties. But the courts draw a strict line between penalties and compensatory payments. Since 3% annual interest and inflation losses are not penalties, sectoral moratoriums do not affect them.

The Northern Commercial Court of Appeal, in a decision of 4 September 2023, expressly stated that limitations imposed by the energy regulator (NEURC/NKREKP) do not restrict the creditor’s right to recover compensation under Article 625. Thus, even where penalties are suspended, compensation for inflation and delayed payment remains fully recoverable.

The Calculation Method: The Most Common Pitfalls

The most frequent errors relate to inflation calculations. These losses must be computed month by month, using the official inflation indices published by the State Statistics Service. If the debtor makes a partial payment, the amount is deducted not from the nominal debt but from the already indexed amount at the end of the month.

The Supreme Court also clarified how to treat the inflation index in the month of payment: if payment is made before the 15th day, the index for that month applies; if payment is made on or after the 16th, the index for that month does not apply.

Restitution Also Becomes a Monetary Debt

Another important approach from the Grand Chamber: Article 625 applies to restitutionary obligations as well—where a contract has been declared invalid and one party must return funds received. If the return is delayed, the obligation becomes a monetary debt subject to indexation and 3% annual interest on general grounds.

What This Means for Debt Recovery Practice

Current judicial practice shows that the war has not weakened debtor liability—it has reshaped its legal structure. The final outcome of a debt dispute now depends not only on the fact of delay but also on whether the limitation period was calculated correctly, when the debt arose, what type of contract is involved, whether moratoriums apply, and whether the compensation was computed properly.

For the creditor, this creates a real possibility of restoring the full economic value of the claim even after many years of non-payment. For the debtor, it creates a high-risk environment, as liability continues to accrue until actual payment, while miscalculations or late filing may result in significant additional losses.

Under today’s conditions, Article 625 has become an instrument that does not merely accompany monetary disputes—it often determines their economic substance and ultimate financial outcome. Therefore, when preparing a claim or defending against one, it is essential to consider not only the wording of the law but also the “temporal biography” of the debt: when it arose, how the limitation period was affected by quarantine and wartime laws, whether any moratorium applied, and what the Supreme Court has already said on the matter.