Supreme Court on Condiction Claims in Bankruptcy Cases

In bankruptcy cases, disputes over a creditor’s status are rarely technical matters. The distinction between competitive and current claims determines the order of satisfaction, procedural rights, and, in many cases, the actual likelihood of recovering funds. That is why identifying the precise moment an obligation arises has long become one of the most contentious issues in insolvency practice.

The Bankruptcy Chamber of the Commercial Cassation Court within the Supreme Court considered such a dispute in case No. 906/43/22 involving creditor claims exceeding UAH 216 million.

Bankruptcy proceedings were initiated in February 2022. At the same time, the sale and purchase agreements and financial assistance agreements underlying the creditor’s claims had been concluded between 2018 and 2021.

After the bankruptcy proceedings commenced, several of those transactions were challenged and later declared invalid in separate court proceedings. Restitution was not applied. Instead, the creditor submitted claims under Article 1212 of the Civil Code of Ukraine, arguing for the return of property acquired without sufficient legal grounds.

At first glance, the issue seemed straightforward. The debtor had received the funds long before bankruptcy proceedings were opened. Based on this logic, both the trial court and appellate court classified the claims as competitive, concluding that the obligation arose at the moment the debtor actually received the money.

The Bankruptcy Chamber of the Supreme Court disagreed.

The decision is notable because the Supreme Court clearly separated two legal concepts that are frequently conflated in practice: the consequences of declaring a transaction invalid and condiction obligations.

The case did not concern classic restitution as a consequence of invalidity under Article 216 of the Civil Code. Instead, it focused on claims brought under Article 1212 — namely, claims for the return of property obtained without sufficient legal grounds.

At this point, the Court turned to another important legal concept: the presumption of validity of a transaction established by Article 204 of the Civil Code of Ukraine.

Until a contract is declared invalid, it remains legally effective and produces legal consequences for the parties. Consequently, there is a lawful basis for acquiring and holding the property in question.

Until that legal basis ceases to exist, there can be no unjust enrichment.

The Bankruptcy Chamber effectively questioned a widespread approach under which the date of transfer of funds automatically determines the date a claim arises.

The Court specifically noted that transferring money merely constitutes performance of a contract.

A condiction obligation, however, does not arise at the moment of performance.

Its emergence requires the disappearance of the legal basis that justified the transfer.

In this case, the Supreme Court identified that legal event as the moment when the court decision declaring the transaction invalid entered into legal force.

Only at that point does the obligation to return unjustly acquired property arise.

The practical implications of the ruling extend far beyond the facts of this particular dispute. The Chamber concluded that if a decision declaring a transaction invalid enters into force after bankruptcy proceedings have already been opened, such claims may acquire the status of current claims.

For insolvency practice, this conclusion raises more questions than it answers.

Transactions are challenged in bankruptcy cases on a regular basis: financial assistance agreements, intra-group transfers, fraudulent transactions, and transfers of assets to affiliated entities. Until now, participants in such disputes typically focused on the date of actual transfer of funds.

Following case No. 906/43/22, that approach may no longer be sufficient.

A different question now emerges: does this legal framework create a mechanism through which certain claims could potentially change status after bankruptcy proceedings have already begun?

For creditors, insolvency practitioners, and legal representatives, this means that analysis must extend beyond contract dates and payment dates to include the precise moment a legal obligation itself comes into existence.

In some bankruptcy cases, that date may prove more important than the amount of the claim itself.