Repayment of a Company's Debts by a Shareholder as a Means of Liquidation

The repayment of a company's debts to its pre-bankruptcy creditors by a shareholder does not necessarily result in the discharge of the corresponding obligations. Under certain circumstances, a shareholder may acquire the rights of the creditors whose claims they have satisfied and replace them in bankruptcy proceedings. In its judgment of 3 September 2026 in Case No. 18/257, the Commercial Cassation Court of the Supreme Court confirmed that this mechanism may be applied by analogy of law where prolonged rehabilitation proceedings without an approved rehabilitation plan create a genuine threat of the company's liquidation.

Why the Shareholder Was Entitled to Replace the Creditors

Bankruptcy proceedings against PJSC Bukros Drilling Company were initiated in July 2006, and the court introduced a rehabilitation procedure in November 2017. Due to the transitional provisions of the Bankruptcy Procedures Code of Ukraine, the proceedings continued under the Law of Ukraine "On Restoring Debtor's Solvency or Declaring a Debtor Bankrupt" in the version effective before 19 January 2013.

In November 2025, a shareholder holding 11.4376% of the company's share capital used their own funds to satisfy the claims of all pre-bankruptcy creditors remaining in the register: the Main Department of the Pension Fund of Ukraine in Poltava Region, whose claim amounted to UAH 1,058,506.41, and another creditor, whose claim amounted to UAH 2,454,061.56. After making the payments, the shareholder applied to the commercial court to replace those creditors as their legal successor.

The court of first instance partially granted the application, allowing the replacement of the Pension Fund but refusing to replace the other creditor, who was also a shareholder of the company. The appellate court overturned that refusal, finding that the same legal grounds existed for replacing both creditors. In particular, it considered that the prolonged absence of an approved rehabilitation plan created a risk of the proceedings moving into liquidation, while the previously proposed plan envisaged satisfying creditors' claims exclusively through the debtor's assets.

The Supreme Court agreed with the appellate court and dismissed both creditors' cassation appeals.

Analogy of Law: Why Repayment Does Not Discharge the Obligation

The decisive issue in resolving the dispute was the distinction between the legal consequences provided for in paragraphs 1 and 3 of Article 528 of the Civil Code of Ukraine.

As a general rule, the performance of an obligation by a third party under Article 528(1) of the Civil Code of Ukraine discharges the obligation owed to the original creditor. However, within rehabilitation proceedings, such repayment is subject to the restrictions imposed by special bankruptcy legislation, which establishes the procedure and priority for satisfying creditors' claims. By contrast, Article 528(3) of the Civil Code of Ukraine allows a third party to satisfy a creditor's claim without the debtor's consent if that party is at risk of losing a right to the debtor's property as a result of enforcement against that property. In such circumstances, the obligation is not discharged because the creditor is replaced, and the party that performed the obligation acquires the corresponding rights under Articles 512–519 of the Civil Code of Ukraine.

This provision does not expressly regulate situations in which a shareholder satisfies a company's creditors' claims to prevent its liquidation. Nevertheless, the Supreme Court considered the consequences of entering liquidation proceedings, which involve the sale of the debtor's assets, to be comparable to the consequences of enforcement against property.

Although a shareholder does not own the company's assets, the termination of its business activities and the sale of its assets may directly affect the shareholder's property rights, particularly the right to receive dividends. Given the absence of specific legislative provisions governing these relationships, the Court considered it permissible to apply Article 528(3) of the Civil Code of Ukraine by analogy of law, as provided for in Article 8 of the Civil Code of Ukraine and Article 11(10) of the Commercial Procedure Code of Ukraine. No separate agreement between the original and the new creditor is required, since the transfer of rights results from the performance of the obligation where the statutory prerequisites are met. Article 52 of the Commercial Procedure Code of Ukraine provides the procedural basis for replacing a creditor in bankruptcy proceedings.

What Circumstances Must the Shareholder Prove?

The Supreme Court emphasised the exceptional nature of this legal mechanism. The possibility of applying Article 528(3) of the Civil Code of Ukraine does not mean that any shareholder is entitled to repay a company's debts and acquire the procedural rights of its creditors.

An essential condition is that the court establish that the debtor has remained in rehabilitation proceedings for a prolonged period without an approved rehabilitation plan, particularly because the creditors' meeting has failed to approve it. The court must also establish a genuine risk of the proceedings moving into liquidation and the shareholder losing their property rights. In Case No. 18/257, the courts considered the bankruptcy proceedings, which had continued for more than 19 years, the prolonged absence of an approved rehabilitation plan, and evidence that the pre-bankruptcy creditors' claims had actually been satisfied. The Supreme Court rejected the creditors' arguments that there was no threat of liquidation because those arguments sought a reassessment of the facts established by the appellate court.

The objections raised by the Pension Fund also deserve particular attention. The Fund argued that repayment of the relevant debt was a personal obligation of the company as the insured party's employer and that the funds received from the shareholder had been classified as unidentified payments. The Supreme Court agreed with the appellate court that grounds for legal succession existed, taking into account the purpose of bankruptcy proceedings — satisfying creditors' claims — and the fact that the Pension Fund had not returned the funds to the payer.

Importantly, the Supreme Court had already formulated this legal approach in its judgment of 10 July 2024 in the same case. The judgment of 3 September 2026 confirmed that the approach could be applied in practice following an examination of the specific circumstances and evidence.

For shareholders of companies that have remained in rehabilitation proceedings for prolonged periods, this case law provides an additional legal mechanism for protecting their property interests. However, its application requires adequate documentary evidence that creditors' claims have actually been satisfied, substantiation of the threat to shareholders' property rights, and consideration of the legislation governing the particular bankruptcy proceedings.

The acquisition of creditors' rights by a shareholder does not automatically terminate bankruptcy proceedings. Instead, the holders of the relevant claims change, which may affect the composition and decisions of the creditors' meeting, particularly regarding the approval of a rehabilitation plan.