Pretental offence for the debtor's property

Decisions of the local government may not create an injunction or coercion for the debtor, i.e. encroachment on the debtor's property rights, and thus do not violate his rights.

The issue of preserving the debtor's property is probably one of the most important in bankruptcy proceedings. The main part of the efforts of the arbitral trustee appointed to the case is aimed at protecting the property. After all, there are enough people willing to alienate the debtor's property to circumvent bankruptcy proceedings. However, not all decisions of third parties, where real estate of the debtor is included, can be perceived as a violation of his property rights. There are nuances.

In this regard, it is interesting to pay attention to the decision of the Commercial Court of Cassation while a part of the Supreme Court of 19 October-2021 in case № 910/6778/20.

The essence of the dispute

The dispute arose over a dormitory owned by AutoKrAZ PJSC which in its turn has been declared bankrupt. The Arbitration Trustee appointed as the administrator of the property disagreed with the decision of the XLI extraordinary session of the Kremenchug City Council of Poltava region dated 23 January-2020 "About granting consent for free acceptance of the dormitory from the property of AutoKrAZ PJSC to the communal property of the territorial community of the city of Kremenchuk".

He appealed to the Commercial Court of Kyiv with a statement of claim to declare this decision illegal and cancel it, because:

• it is illegal and constitutes an encroachment on the debtor's property rights,
• there are no legal grounds for the debtor (including compulsory) to transfer the dormitory to the ownership of the territorial community in communal ownership.

The Commercial Court of the city of Kyiv made the decision (which was unchanged by the decision of the Northern Commercial Court of Appeal) to satisfy the claim.

The courts declared that:

local authorities were unreasonably guided by the provisions of the Law of Ukraine "About Ensuring the Realization of Housing Rights of Dormitory Residents" for free acceptance of the dormitory as the debtor's property into the communal property of the territorial community of the Kremenchuk city,

The Bankruptcy Procedure Code of Ukraine prohibits the alienation of the debtor's property during the bankruptcy proceedings applied to him.

Cassation put the things right

The panel of judges of the Commercial Court of Cassation of the Supreme Court examined in more details the legal nature of the decision adopted by the City Council session.

It has been established that the dormitory was indeed owned by the debtor (AutoKrAZ PJSC), although it is not included in the authorized capital. It was used to house highly qualified employees of the company.

The Kremenchug city council of the Poltava region made its decision on 23 January-2020:

·        in order to protect the constitutional rights of dormitory residents regarding the exercise of the right to privatize housing,

·        to ensure decent living conditions,

·        taking into account also the numerous complaints and appeals of the dormitory residents,

·        guided by the Law of Ukraine "About Ensuring the Realization of Housing Rights of Dormitory Residents", Articles 328, 329 of the Civil Code of Ukraine, Articles 25, 26, 60 of the Law of Ukraine "About Local Self-Government in Ukraine".

As for the content of the dispute, the Supreme Court noted that:

·        prerequisites and material grounds for the protection of property rights or the right to use property in court is the presence of confirmation by appropriate evidence of the person's right to property,

·        the fact of violation of this right to property is confirmed by appropriate evidence.

Powers of local Self-Government

Studying the statements of the Law of Ukraine "About Local Self-Government in Ukraine", the court stated that in accordance with paragraph 51 of part 1 of Article 26 to the exclusive competence of local government belong:

·        giving its agreement to the transfer of objects from state to communal ownership,

·        making decisions on the transfer of objects from communal to state ownership,

·        acquisition of state property.

At the same time, the procedure and conditions for the transfer of state property to communal ownership, the mechanism of making decisions on such transfer, in addition to a special law which in this case is the Law of Ukraine "About Ensuring Housing Rights of Dormitory Residents", are also regulated with:

·        Law of Ukraine "About the transfer of objects of state and municipal property",

·        Regulations regarding the procedure for transfer of objects of state and communal property rights, approved by the resolution of the Cabinet of Ministers of Ukraine dated 21 September – 1998, № 1482.

Thus, in accordance with part 1 of Article 5 of the Law of Ukraine "About Ensuring the Realization of Housing Rights of Dormitory Residents", dormitories may become the property of territorial communities:

·        on voluntary (contractual) terms,

·        in case of refusal of the governing bodies (authorized persons) of the dormitory owners from such transfer by a court decision at the request of the local self-government body.

Terms of transfer of state-owned objects

Taking into the consideration all of the above the court came to the following conclusion:

·        even in the absence of the above grounds for the transfer of the dormitory to the territorial community of the city of Kremenchuk (subject of communal property) the contested decision of the local government to agree to accept the dormitory is:

ü firstly, one of the components of the statutory procedure for the transfer of dormitories,

ü and secondly, not an independent and sufficient basis for the transfer of the dormitory from the plaintiff to the subject of communal property,

therefore, its existence and action does not create an injunction or coercion for the debtor (plaintiff).

And if the rights of the debtor (plaintiff) are not violated, respectively the cancellation of the decision of the local government will not lead to the restoration of these rights, in connection with which the claims in this case are not subject to satisfaction.

Author: Andrii Spektor