The Dispute Must Be Genuine: A Court Approach to Opening Bankruptcy Proceedings

The judgment of the Commercial Cassation Court within the Supreme Court of Ukraine dated June 25, 2026, in case No. 910/11182/25 clarified several important issues for bankruptcy practice: when a claim filed by a debtor genuinely indicates the existence of a dispute over a right, how bankruptcy proceedings interact with preventive restructuring, and whether personal sanctions imposed on the ultimate beneficial owner prevent bankruptcy proceedings from being opened against the legal entity itself. The Supreme Court’s key conclusion is that the mere existence of separate litigation does not automatically establish a dispute over a right within the meaning of Part 6 of Article 39 of the Code of Ukraine on Bankruptcy Procedures. A court must assess not only the procedural form but also the debtor’s actual conduct and the substance of its objections.

From Acknowledging the Debt to Filing Two Lawsuits

JSC Oschadbank applied for the opening of bankruptcy proceedings against Three O LLC due to the debtor’s failure to perform its obligations under a syndicated loan agreement. The debt to the banks arose from long-standing credit relations, while in 2025 the debtor itself initiated preventive restructuring proceedings. Within that procedure, Three O LLC included the claims of Oschadbank and Ukreximbank in its restructuring plan, confirmed in writing its readiness to repay the debt and, on September 2, 2025, filed an application for approval of a plan in which it fully acknowledged its obligations to the banks.

Shortly before that, however, the debtor had filed two separate lawsuits: one seeking recognition that its obligations under the loan agreement had been terminated, and another seeking to have the loan agreement itself declared invalid. This inconsistency became a key factor in the Supreme Court’s assessment.

A Dispute over a Right Is Not a Mere Procedural Fact

Part 6 of Article 39 of the Code of Bankruptcy provides for refusal to open bankruptcy proceedings where the creditor’s claims indicate the existence of a dispute over a right that must be resolved through ordinary litigation. The Court confirmed that bankruptcy proceedings may be opened only where there is no genuine uncertainty regarding the parties, the grounds and subject matter of the obligation, its amount and structure, or the terms for its performance. At the same time, the concept of a dispute over a right must be interpreted substantively rather than formally. In the Three O case, the Court considered the entire chronology of the debtor’s conduct. Initially, the company acknowledged the debt, included it in its preventive restructuring plans and confirmed in writing its readiness to repay it. It then filed lawsuits disputing both the existence of its obligations and the validity of the agreement, only to subsequently acknowledge the debt again in its application for approval of the restructuring plan.

The Supreme Court therefore concluded that the mere existence of cases No. 910/10679/25 and No. 910/10837/25 did not establish a substantive dispute concerning Oschadbank’s claims. This approach has significant practical implications: a debtor cannot create an obstacle to bankruptcy simply by filing a lawsuit. What matters is whether there was a genuine and consistent dispute regarding the debt, its amount, structure, or legal basis.

Another argument raised by Three O LLC concerned the ongoing preventive restructuring procedure. The Code of Ukraine on Bankruptcy Procedures does provide that, once such a procedure has been opened, the debtor may benefit from a temporary prohibition on the opening of bankruptcy proceedings. However, this protection is limited in time. The Supreme Court held that the statutory period of protective measures is mandatory and cannot be extended by the court at its discretion. Once that period expires, the measures terminate automatically. An extension is possible only where the conditions expressly prescribed by law are met, including where the debtor has duly and timely filed an application for approval of a preventive restructuring plan. In this case, the debtor failed to prove that, while the protective measures were still in effect, it had submitted a proper application together with the required minutes of the creditors’ meeting.

Sanctions Against a Beneficial Owner Do Not Automatically Block the Company’s Bankruptcy

A separate aspect of the dispute concerned sanctions imposed on the ultimate beneficial owner of Three O LLC. The debtor argued that the freezing of assets and suspension of economic and financial obligations applicable to that person effectively made bankruptcy proceedings against the company impossible. The Supreme Court rejected this approach. The mere fact that a sanctioned person is the ultimate beneficial owner of a legal entity is not, in itself, sufficient to conclude that bankruptcy proceedings cannot be opened against that company. This does not mean that the sanctions regime is irrelevant. Ukrainian sanctions legislation also covers assets in respect of which a sanctioned person may directly or indirectly exercise powers equivalent to disposal. Therefore, each case requires an assessment of the control structure, the specific sanctions imposed, and the nature of the transactions involving the relevant assets. In case No. 910/11182/25, the Supreme Court found no indication that the bankruptcy procedure was being used to circumvent sanctions, remove assets from their scope, or otherwise violate public policy. The initiating creditor was Oschadbank, 100% of whose share capital is owned by the State of Ukraine.

Significance of the Judgment for Bankruptcy Practice

The judgment in case No. 910/11182/25 reinforces a broader trend toward a substantive rather than purely formal assessment of a debtor’s conduct. Filing a lawsuit does not, by itself, create a dispute over a right. Preventive restructuring does not provide indefinite immunity from bankruptcy. Sanctions against a beneficial owner do not automatically prohibit bankruptcy proceedings against the legal entity. In each of these situations, the court examines the actual substance of the circumstances: whether a genuine dispute over the debt existed, whether the debtor’s position was consistent, whether the deadlines and requirements governing protective measures were observed, who exactly is subject to sanctions, and whether the bankruptcy procedure is being used to circumvent them. For creditors, this means that the complete history of their relationship with the debtor becomes particularly important — correspondence, restructuring documents, reconciliation statements, partial payments, and previous acknowledgements of debt.