What the court procedure of disposition of the debtor’s assets provides for

An important component of bankruptcy proceedings is the procedure of disposition of the debtor’s assets. It is at this stage that the debtor’s further fate is determined: rehabilitation (reorganization) or liquidation.

Disposition of assets, in accordance with the first paragraph of part one of Article 44 of the Code of Ukraine on Bankruptcy Procedures (hereinafter — the Code), means a system of measures aimed at supervision and control over the management and disposal of the debtor’s property in order to ensure its preservation, effective use of the debtor’s assets, analysis of its financial condition, as well as determination of the next procedure (rehabilitation or liquidation).

Pursuant to part two of Article 44 of the Code, the procedure of disposition of the debtor’s assets is introduced for a period of up to 170 calendar days.

Appointment of the asset manager

With the introduction of the procedure of disposition of the debtor’s assets, the commercial court appoints an asset manager from among insolvency practitioners (arbitration managers).

The appointment of an asset manager is not grounds for termination of the powers of the debtor’s director or management bodies. At the same time, if the executive body of the debtor obstructs the asset manager in exercising their powers, fails to take measures to ensure the preservation of the debtor’s assets, or commits actions that violate the rights and legitimate interests of the debtor or creditors, the commercial court has the right to terminate the powers of the debtor’s executive body and assign the performance of its duties to the asset manager.

Moratorium on satisfaction of creditors’ claims

With the introduction of the procedure of disposition of the debtor’s assets, the commercial court also introduces a moratorium on satisfaction of creditors’ claims.

A moratorium on satisfaction of creditors’ claims means the suspension of the debtor’s performance of monetary obligations and obligations to pay taxes and fees (mandatory payments) whose due date occurred before the date the moratorium was introduced, as well as the termination of measures aimed at securing the performance of such obligations and obligations to pay taxes and fees (mandatory payments) that were applied before the moratorium was introduced.

In addition, the ruling of the commercial court on opening bankruptcy proceedings and introducing the moratorium constitutes grounds for suspension of enforcement actions. The asset manager notifies the relevant body of the state enforcement service or the private enforcement officer handling the enforcement proceedings of the introduction of the moratorium.

The moratorium terminates on the date the bankruptcy proceedings are closed.

With the introduction of the procedure of disposition of the debtor’s assets, the commercial court also imposes restrictions on the disposal of the debtor’s property by the debtor’s management bodies.

During the procedure of disposition of assets, the debtor’s management bodies are not entitled to make decisions on:

• reorganization (merger, accession, division, separation, transformation) or liquidation of the debtor;
• establishment of business companies or participation in other business companies;
• establishment of branches and representative offices;
• payment of dividends;
• issuance of securities by the debtor;
• withdrawal from the participants of the debtor as a legal entity, or repurchase from shareholders of previously issued shares of the debtor;
• alienation or encumbrance of the debtor’s immovable property, including its pledge, contribution of such property to the charter capital of another enterprise or business company;
• granting loans (credits), providing sureties or guarantees, as well as transferring the debtor’s property into trust management.

Decisions on the debtor’s participation in associations, unions, alliances, holding companies, industrial and financial groups, or other associations of legal entities, on leasing property, and on satisfaction of claims of current creditors during the procedure of disposition of the debtor’s assets are taken by the debtor’s director or management body exclusively with the consent of the asset manager.

In addition, during the procedure of disposition of assets, the debtor may not, without the consent of the creditors’ committee (or the meeting of creditors — until the creditors’ committee is formed), enter into major transactions whose execution is not prohibited by this Code, or carry out the sale of significant assets of the debtor.

Submission by bankruptcy creditors of written claims against the debtor to the commercial court

From the date of official publication of the notice on opening bankruptcy proceedings, bankruptcy creditors with claims that arose prior to the opening of bankruptcy proceedings are obliged to submit written claims against the debtor to the commercial court.

Based on the results of consideration of the claims of an individual creditor, the commercial court issues a ruling recognizing or rejecting them (in full or in part).

Following the recognition or rejection of creditors’ claims by the commercial court, the asset manager enters into the register of creditors’ claims information on each creditor, the amount of its monetary claims, the existence of the right to a decisive vote in the representative bodies of creditors, and the priority of satisfaction of each claim; notifies in writing the creditors according to the register of creditors’ claims, the authorized representative of the debtor’s employees, and the authorized representative of the founders (participants, shareholders) of the debtor of the place and time of the creditors’ meeting; and organizes the holding of such meeting.

Holding of the creditors’ meeting

The competence of the creditors’ meeting includes, in particular, adopting decisions on approval of the debtor’s rehabilitation plan and approval of amendments thereto, as well as applying to the commercial court with a motion to introduce the next procedure (rehabilitation or liquidation of the bankrupt) in the bankruptcy case.

Before the end of the procedure of disposition of the debtor’s assets, the creditors’ meeting adopts one of the following decisions: to approve the rehabilitation plan and submit to the commercial court a motion to introduce the rehabilitation procedure and approve the rehabilitation plan, or to submit to the commercial court a motion to recognize the debtor as bankrupt and open liquidation proceedings.

If the rehabilitation plan is not approved by the court within the time limit established by this Code, the commercial court issues a ruling recognizing the debtor as bankrupt and opening liquidation proceedings.