Microbusiness Bankruptcy: What Needs Fixing in Draft Law No. 15024

The idea of creating a faster and less expensive bankruptcy procedure for micro and small businesses appears both logical and necessary. For small enterprises, the traditional insolvency framework is often too costly, complex, and time-consuming, making it ineffective as a tool for business recovery or orderly exit from the market. Draft Law No. 15024 attempts to address this issue by introducing a simplified bankruptcy procedure specifically designed for small businesses.

However, there is a significant difference between a sound idea and a well-crafted law. Professional discussions surrounding the draft law have shown that while the concept deserves support, its current design contains a number of structural weaknesses.

The first issue concerns the criteria used to define which businesses qualify for the simplified procedure. The draft law essentially incorporates existing definitions of micro and small enterprises from other legislation without creating a distinct insolvency-specific approach. This has raised concerns among experts: if the procedure is intended to be special, the criteria should also be tailored to insolvency realities, reflecting not only the formal status of a company but also the actual complexity of its financial situation. The scale of the proposed thresholds is also questionable, as companies with relatively substantial turnover could fall within the scope of the simplified regime. Experts therefore suggest revising these criteria to include additional factors such as asset value, consistency of financial indicators over time, and mechanisms for verifying the reliability of financial reporting.

The second challenge lies in the risk that simplifying procedures may also simplify safeguards. While the draft law aims to reduce costs, timelines, and procedural complexity, some of its provisions could weaken essential elements of the bankruptcy process. In particular, concerns have been raised about potential deviations from the principle of concentrating disputes related to the debtor’s assets within a single bankruptcy proceeding, as well as the absence of a clear mechanism for transferring a case from the simplified procedure to the general one if the matter turns out to be more complex than initially expected. Additionally, certain provisions could allow the debtor to retain excessive influence over the procedure itself. These issues go beyond technical drafting and touch upon the fundamental structure of the Ukrainian Bankruptcy Code.

A third area of concern involves maintaining a proper balance between the debtor, creditors, and the court. Some provisions of the draft law may strengthen the debtor’s position without providing equivalent safeguards for creditors. For example, although a creditor may formally initiate a simplified bankruptcy procedure, its actual commencement may depend on the debtor’s consent. Such a mechanism effectively grants the debtor a veto and reduces the practical usefulness of the procedure for creditors. At the same time, the draft law does not clearly specify what should happen if the debtor refuses to give such consent.

Another important aspect is the role of the insolvency practitioner. Any new procedure must clearly determine who controls the debtor’s assets, forms the liquidation estate, manages the process, and how the practitioner’s work is compensated. According to expert assessments, the draft law does not fully resolve the issue of remuneration for insolvency practitioners, particularly in situations where the practitioner is appointed by the court. For small businesses, this could create an additional barrier to entering the procedure, while for the system as a whole it may lead to practical uncertainty.

At the same time, the draft law also contains positive elements. It attempts to align Ukrainian insolvency law with European approaches, where micro businesses are granted access to faster and more accessible mechanisms for addressing financial distress. A key element of this approach is the principle of the “second chance,” meaning that an honest entrepreneur should not remain indefinitely burdened by debt. However, such a principle can function effectively only when procedural safeguards remain intact and when good faith can be properly assessed and verified.

In conclusion, significant improvements are required between the first and second readings in parliament. These include revising the criteria for small businesses, preventing the artificial use of simplified procedures by larger corporate groups, preserving effective judicial oversight, establishing clear rules for transferring complex cases to the general bankruptcy procedure, and avoiding a system in which the debtor exercises excessive control over the process.

Only after such revisions will the simplified bankruptcy procedure have the potential to become not merely a formal reform, but an instrument for giving small businesses a genuine opportunity for financial recovery and a new start.