ON JUNE 18, AN EXPERT DISCUSSION “FOREIGN CURRENCY BORROWERS. NEW RULES” WAS HELD WITH THE PARTICIPATION OF REPRESENTATIVES OF THE REGIONAL JUSTICE REFORM COUNCILS (RJC).
NATIONAL EXPERTS OF THE EU PROJECT “PRAVO-JUSTICE”, JUDGES, LAWYERS, INSOLVENCY OFFICERS, PRIVATE ENFORCEMENT OFFICERS AND OTHER PARTICIPANTS DISCUSSED RECENT LEGISLATIVE CHANGES, AS WELL AS PRACTICAL EXPERIENCE IN APPLYING THE BANKRUPTCY PROCEDURE UNDER THE NEW RULES.

In his opening remarks, Oleksandr Bondarchuk, Acting Chairman of the National Association of Insolvency Practitionersoutlined the main problems of applying the bankruptcy procedure for individuals: “The analysis of bankruptcy procedures for individuals today shows a low number of proceedings, and there are several reasons for this. First and foremost, it is the legislative complexity and overregulation of the procedure. This problem is being addressed by a working group at the Ministry of Justice. The second problem is economic – it is still too expensive for a mass debtor, which can be solved by amending the legislation or involving the Ministry of Justice’s free legal aid offices. […] Thirdly, the word “bankruptcy” frightens the mass debtor, so it is necessary to disseminate information about the possibility of using the bankruptcy procedure.”

Dovydas Vitkauskas, Head of the EU Pravo-Justice Project emphasized the social significance of this problem: “We need to consider this problem as a social one. Based on the best European practices, we see that not only the Ministry of Justice and the legal aid system, but also the Ministry of Social Policy interact here. That is why it is important for us to orient the Ministry of Social Policy that they may have a certain obligation to solve these problems in a more comprehensive manner.”

The first session “Restructuring of foreign currency borrowers’ debts: new rules and procedures” was opened by Georgiy Grigoryan, attorney at law, national expert of the EU Project “Pravo-Justice”.
Він детально зупинився на складнощах при складанні проєкту плану реструктуризації на пільгових умовах, таких як:

  • determining the exact amount of debt for the correct calculation of the restructuring plan;
  • determining the market value of the property through an appraiser provided by the lender;
  • the absence of an insolvency officer who verifies the accuracy of the information provided by the debtor.

“Having made a correct and high-quality calculation, a foreign currency borrower can count on good financial conditions for restructuring. Moreover, in case of insufficient income to restructure the debt according to the schedule defined by the preferential terms, a minimum monthly amount of the restructuring plan may be set, not less than half of the minimum wage,” noted Georgiy Grigoryan. Olena Fonova, PhD, judge of the Economic Court of Luhansk Oblast, coordinator of the Donbas RPRPdrew attention to the procedural problems associated with the reduction of the period for approval of the restructuring plan to 15 days: “The advantages of the new procedure for foreign currency borrowers are its free of charge, efficiency, and preferential treatment. At the same time, this procedure is currently virtually impossible. […] By interfering with the review process and trying to make it faster, the legislator did not take into account all the points that remained from the old procedure, in particular, the need to submit an assessment of the market value of the property by an appraiser appointed by the lender, but which cannot be done under the new procedure due to its efficiency.” Within Sergiy Donkov, Member of the Council of Insolvency Practitioners of Ukraine, will speak at the second session “Procedural aspects of insolvency proceedings for individuals”spoke about the necessary improvements to the bankruptcy procedure for individuals, as laid down in the government draft law No. 4409: “The promotion of the bankruptcy procedure for individuals is primarily aimed at simplifying the opening of a bankruptcy case, reducing the volume of documents prepared for the opening of such a case, as well as simplifying the procedure for appointing an insolvency officer so that it is predictable for an individual debtor.” In turn, Iryna Butyrska, lawyer, PhD in Law, coordinator of the Chernivtsi RRRPfocused on the most controversial issues regarding the grounds for closing insolvency proceedings against an individual.
The relevant rules governing the grounds for closing such proceedings are often unclear and conflicting in the Bankruptcy Code, giving rise to uneven application practices: “The grounds governing the cases of closure of bankruptcy proceedings in general and insolvency in particular require prompt legislative improvement in order to regulate such cases in a much more transparent and unambiguous manner.” The third session of the event was devoted to the tax consequences of the debt restructuring procedure.Sergiy Voltornist, attorney at law, insolvency officer, familiarized the participants with the changes to Art.
165 of the Tax Code of Ukraine dated April 13, 2021, according to which the amounts by which the debt of foreign currency borrowers is reduced (forgiven) by restructuring obligations under a loan agreement are not included in taxable income.
Attorney Serhiy Lytvynenko added that this provision applies to mortgage loans and does not cover all cases of forgiveness of obligations to the lender: “Certain provisions of the Tax Code indicate that a forgiven debt of an individual may be the basis for accrual of tax liabilities. However, taxation of written-off debts contradicts the task of the bankruptcy institution of an individual. The rules underlying the Bankruptcy Code are aimed at clearing the debtor of debts, not accumulating new ones.” During the fourth session on the legal grounds for lifting the moratorium, Oleksandr Sivokozov, Deputy Chairman of the Council of Private Enforcement Officers of Ukraine, member of the Dnipropetrovs’k Regional Council of Private Enforcement Officers, outlined the grounds for the sale of the only housing of foreign currency borrowers.
Among other things, this applies to residential real estate that is actually used for commercial activities or leased: “In fact, the debtor, having an outstanding debt, receives income from the property that is protected by law.” “It is necessary to use the bankruptcy procedure, to popularize and offer this procedure. After all, a fresh financial start is an important step for any citizen who finds himself in a desperate situation,” emphasized Roman Chumak, coordinator of the Kharkiv RRRP, attorney at law, managing partner of Ares Law Firm, at the end of the discussion. For reference:The Regional Justice Reform Councils (RJCs) were established with the support of the EU Project “Pravo-Justice” and operate in Chernivtsi, Dnipropetrovs’k, Kharkiv, Lviv, Odesa regions and Donbas. To date, members of the Councils have been actively involved in the preparation of a draft law on mediation, amendments to the Bankruptcy Code, proposals to improve legislation on enforcement proceedings, the introduction of an electronic court, and discussions on the concept of transitional justice. The RECs act as permanent working groups that promote the implementation of reforms in accordance with the bottom-up principle: by bringing region-specific challenges and their potential solutions to the level of central authorities.

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