Substitution of a Creditor Following an Auction: What Must Be Proven in Court?

The acquisition of receivables at an auction conducted in bankruptcy proceedings may provide grounds for substituting the claimant in ongoing commercial litigation. However, when deciding whether procedural succession is justified, the court is not required to determine the final amount of debt recoverable from the defendant. This approach was confirmed by the Commercial Cassation Court within the Supreme Court of Ukraine in its judgment of 27 July 2026 in Case No. 41/96.

From a Bankruptcy Auction to Substitution of the Claimant

The sale of receivables is one method of realising a debtor's assets in bankruptcy proceedings. The purchaser acquires the right to demand performance of the relevant obligation. However, where litigation concerning that debt is already pending, the change of creditor must also be reflected in the proceedings. This was the situation considered by the Supreme Court in Case No. 41/96.

The original claimant, JSC K.Energo, brought proceedings against the housing construction cooperative Krystal-20, seeking recovery of outstanding payments under a heat supply agreement, contractual penalties, statutory interest at three per cent per annum, and inflation-related adjustments. Subsequently, as part of the bankruptcy proceedings involving JSC K.Energo, formerly known as PJSC Kyivenergo, an electronic auction was held for the sale of claims relating to outstanding receivables. The successful bidder was Sportsservice-STM LLC, which later changed its name to Kyivenergo-Borg LLC.

The list of debtors whose obligations formed part of the auctioned assets included Krystal-20. On this basis, the new creditor applied to the commercial court to be substituted for the original claimant. The court of first instance granted the application, and the commercial court of appeal upheld that decision. The defendant challenged the ruling before the Supreme Court.

Procedural Succession Does Not Arise Automatically

The central legal issue concerned the application of Article 52 of the Commercial Procedural Code of Ukraine, which governs procedural succession. The Supreme Court emphasised that procedural succession derives from succession to substantive rights. In other words, an assertion that one party has acquired another party's rights is not, by itself, sufficient to justify substitution in judicial proceedings. The court must establish that the relevant substantive right has actually passed from the original creditor to the successor.

Accordingly, the court must examine evidence confirming the original creditor's departure from the underlying legal relationship and the transfer of its rights to another party. In this case, the relevant evidence included the results of the electronic auction, the certificate documenting the acquisition of the assets at auction, and the list of debtors whose obligations were included in the assets sold. The courts also established that Sportsservice-STM LLC and Kyivenergo-Borg LLC were not two separate purchasers of the claim, but the same legal entity operating under a changed name. Having assessed these circumstances, the Supreme Court agreed that there were sufficient grounds to substitute the new creditor for the original claimant. Therefore, the mere fact that an auction has taken place does not relieve an applicant of the obligation to prove the transfer of the specific claim. Nevertheless, properly documented auction results may provide a sufficient legal basis for procedural succession.

Must the Exact Amount of Debt Be Determined When the Creditor Is Substituted?

The most significant aspect of the judgment concerns the scope of judicial review when an application for procedural succession is considered. The case raised a question regarding the amount of debt covered by the claim transferred to the new creditor. The Supreme Court distinguished between establishing that a claim had been transferred and determining the substantiated amount of the outstanding debt. At the stage of considering an application to substitute the claimant, the court must verify whether the relevant substantive right has passed to the applicant.

By contrast, the amount of debt transferred to the new creditor must be examined when the underlying dispute is determined on its merits. This distinction is fundamental. Procedural succession does not amount to a determination of the debt recovery claim itself. Substituting the claimant does not mean that the court has already accepted every amount sought, confirmed the calculation of contractual penalties, or approved claims for inflation adjustments or statutory interest.

Those matters must be assessed in the main proceedings, taking into account the evidence and arguments presented by both parties. Consequently, the debtor does not lose the right to challenge the amount claimed merely because the court has allowed a new creditor to participate in the proceedings.

Implications for Purchasers of Distressed Receivables

The Supreme Court's position is particularly relevant to investors acquiring claims in bankruptcy proceedings.

First, it confirms that pending litigation may continue following a change of creditor, without the need to commence a new action solely because the relevant asset has been purchased. However, purchasers must pay particular attention to documenting the acquisition of the claim. Evidence relevant to procedural succession may include the auction record, the document confirming acquisition of the assets, proof of payment, and the composition of the auction lot, particularly the list of debtors and the obligations underlying the claims sold. If the documents do not establish whether a particular claim was included in the purchased assets, substitution of the claimant may become more difficult.

What Defences Remain Available to the Debtor?

The Supreme Court's reasoning is equally relevant to defendants in debt recovery proceedings.

A debtor may examine and challenge the evidence relied upon to establish the transfer of the claim to the new creditor. In particular, the debtor may question whether the assets sold at auction actually included the obligation that forms the subject matter of the litigation.

However, objections concerning the principal amount outstanding, the calculation of additional charges, or the legal basis for recovering particular sums should be examined when the underlying dispute is heard on its merits. Procedural succession therefore does not deprive the defendant of available procedural protections. Equally, an application for substitution should not become an opportunity to determine the entire debt dispute prematurely.

Conclusions for Commercial Litigation

In its judgment of 27 July 2026 in Case No. 41/96, the Commercial Cassation Court dismissed the defendant's cassation appeal and upheld the substitution of JSC K.Energo with Kyivenergo-Borg LLC.

The court must verify that the relevant substantive right has genuinely passed to the new creditor. However, at that stage, it is not required to make a final determination of the amount recoverable from the debtor.

Substitution of a creditor establishes its entitlement to participate in the proceedings; it does not predetermine the outcome of the dispute.