Will a promissory note help in bankruptcy cases?

In the practice of insolvency proceedings involving individuals, a question increasingly arises that at first glance appears straightforward: is a promissory note sufficient to support a creditor’s claim? However, the approach of the Supreme Court suggests otherwise — the mere formal existence of such a document not only fails to guarantee a positive outcome but may also be insufficient even in the absence of direct objections from the debtor.

A key reference point in this category of disputes is the ruling of the Bankruptcy Chamber of the Commercial Cassation Court within the Supreme Court dated March 1, 2023, in case No. 902/221/22, which effectively established the application of a heightened standard of proof for creditors relying on promissory notes.

As a starting point, one should refer to the fundamental provisions of civil law. Under Article 1046 of the Civil Code of Ukraine, a loan agreement is a real contract, meaning it is deemed concluded from the moment the funds are actually transferred. For this reason, a promissory note has traditionally been regarded as a document confirming both the conclusion of the agreement and the transfer of funds. This approach is well established in ordinary litigation, where the dispute is directly between lender and borrower.

However, the Supreme Court explicitly states that this approach cannot be mechanically transferred to bankruptcy proceedings. The difference lies not only in procedural form but also in the nature of the legal consequences that arise when a creditor’s claims are recognized. Inclusion of claims in the creditors’ register affects voting balance, the formation of the liquidation estate, and ultimately the satisfaction of other creditors’ claims. This creates an inherent risk of artificial debt being formed through coordinated actions between the debtor and a “nominal” creditor.

This risk leads to a fundamentally different approach to evidence. The Supreme Court proceeds from the premise that a promissory note does not have absolute evidentiary value in bankruptcy proceedings. Even if it confirms the existence of a contract and contains all necessary formal elements, it may still be insufficient where there are reasonable doubts as to the reality of the obligation.

In this context, the Court formulates a key principle: where doubts arise as to the validity of the creditor’s claims, the burden of a heightened standard of proof rests on the applicant. This means that the creditor must demonstrate not only the existence of the document, but also the actual transfer of funds, their origin, the financial capacity to provide such funds, and the existence of genuine legal relations in substance.

The practical application of this approach is clearly illustrated in case No. 902/221/22. The creditor asserted claims amounting to UAH 5,000,000, relying on a loan agreement and a promissory note. However, another creditor challenged the reality of this debt. The court, having examined the case materials, found that the applicant’s declared income over an extended period amounted to only UAH 788,489, while no additional sources of funds were proven. The creditor’s refusal to disclose income information on the grounds of commercial secrecy was critically assessed, as the burden of proof lies with the claimant.

Ultimately, the Supreme Court upheld the lower courts’ refusal to recognize the claim, emphasizing that the presumption of validity of a legal transaction under Article 204 of the Civil Code does not relieve the creditor of the obligation to prove the reality of the claimed debt. In other words, the formal validity of a contract does not equate to proof of debt within bankruptcy proceedings.

Moreover, the Court specifically notes that when examining creditors’ claims, the commercial court is not limited to verifying the formal validity of the transaction, but must assess the reality of the obligation, including by analyzing the creditor’s financial capacity. This approach prevents situations in which claims that exist only formally, without real economic substance, are included in the creditors’ register.

This approach was further reinforced by the Supreme Court in its ruling of August 17, 2023, in case No. 911/1856/21, where the Court once again distinguished the evidentiary value of a promissory note in ordinary litigation from its role in insolvency proceedings. The Court emphasized that while a promissory note may confirm the existence of a loan and the transfer of funds in disputes between lender and borrower, in bankruptcy cases the recognition of such claims affects the rights of other creditors and may alter the balance within the procedure. Therefore, the court must verify the reality of the obligation, including the origin of funds and the creditor’s financial capacity.

Thus, modern judicial practice effectively establishes a new model of proof in bankruptcy cases, where the document itself is no longer decisive, and the key factor becomes a substantive analysis of the underlying legal relationship. For creditors, this means the need to build a much broader evidentiary base than in standard debt recovery litigation, and for lawyers, it requires assessing not only the form but also the economic reality of each obligation.

And while a promissory note was once considered a sufficient instrument to confirm a debt, in bankruptcy proceedings today it serves only as a starting point — one that raises questions rather than conclusively answering them.