On September 19th, 2019 Verkhovna Rada of Ukraine has adopted the Law No. 1070 “On Amendments to Certain Laws of Ukraine on Improving the Procedure of Financial Restructuring” (the “Law”), which extends legal force of the Law of Ukraine “On Financial Restructuring” for another three years. The Law has been supported in the second readingby 300 deputies and on 23rd of September it  has been signed by the President.

This Law amends several statutory acts, including the Laws “On Protection of Economic Competition”, “On Mortgage”, “On Securing Creditors’ Claims and Registration of Encumbrances” and “On Financial Restructuring”.

The Law is expected to clarify, simplify and accelerate the procedure of voluntary financial restructuring of debtors.

The main changes that will be introduced by the Law after its entrance into force are as follows:

  • The Law introduces a possibility to conduct a single procedure of financial restructuring with respect to several

debtors who are related parties, provided that (a) such debtors have filed a joint application; and (b) the involved creditors-financial institutions of each debtor have agreed in writing to such procedure. The requirement for such debtors to have at least one joint creditor – financial institution has now been removed.

  • A new method of restructuring of monetary liabilities and the debtor’s economic activity has been introduced,

and namely the transfer of any property of the involved creditors in favour of the debtor for renting or leasing, as well as conclusion by the parties of other contracts provided by the law.

  • It has been clarified that the creditors may, without consent of the debtor, submit a written statement to

secretariat about cancellation of restructuring negotiations due to failure to reach an agreement.

  • The Law states that so-called involved creditors may assign their respective claims towards the debtor at any

time during the financial restructuring procedure, as well as pursuant to the concluded financial restructuring plan.

  • According to the amended procedure of financial restructuring set forth in Article 23 of the Law of Ukraine “On

Financial Restructuring” the key procedural decisions passed upon initiation of financial restructuring (establishment of creditors’ committee, extension or lifting of moratorium etc) shall not require the signature of the debtor, but shall be signed by the creditors only – the debtor will only be informed of such decisions either by the secretariat or by the involved creditors.

  • The provisions about liability for violation of the Law of Ukraine “On Financial Restructuring” has been

excluded.

  • The following provisions have been added to the Law of Ukraine “On Protection of Economic Competition”:

The concentration shall not be considered unlawful if the bank or other financial institution acquires assets (inthe form of a single property complex (yedynyi mainovyi kompleks), participatory interests (shares, equity)) of a commercial entity, provided that such acquisition is envisaged in the restructuring plan and is being carried out by way of enforcement of pledge (mortgage) or other security encumbrance. Another precondition is that such property must be subsequently alienated within two years from the date of acquisition in favour of commercial entities which are not connected with such bank or financial institution by control relations. The absence of a concentration permit in the course of such actions shall not be considered violation of law. In addition, it is required that: (a) the acquisition of such property into ownership must be conducted against full or partial repayment of the debt owed to a bank or another financial institution, and (b) an entity whose participatory interests (shares, equity) are acquired, is not a bank or another financial institution. It should be noted, however, that the Law does not eliminate the currently existing contradictions in the definitions of “integral property complex” / “single property complex” (although the Law provides that “single property complex” is a broader term, which includes “integral property complex” as its element).

Acquisition of the relevant assets into ownership or use (management, rent, leasing, concession, etc.) will notbe considered concentration if such actions are envisaged in the restructuring plan. The absence of a concentration permit in the course of such actions shall not be considered violation of law as well.

  • The period has been extended during which the encumbrancers are entitled to satisfy all their claims in case of

insufficient value of the collateral. Now, this period shall not be limited by the time of carrying out the “financial restructuring procedure”, but also shall extend to the period of “implementation of the restructuring plan”.

Participation in negotiations with creditors to agree on commercial terms of restructuring.

Due diligence of:

  • legal entities (corporate matters)
  • documentation
  • property, including collateral

 

Drafting and submission of documentation concerning restructuring:

  • memorandum of understanding between debtor and creditor
  • roadmap of financial restructuring
  • lists of involved creditors, secured creditors, related parties, pending litigation and enforcement proceedings
  • the composition and amount of indebtedness

 

Support in obtaining of the opinion of an independent expert on the prospects of the debtor’s commercial activities.

Preparation of contractual documentation:

  • restructuring of debts (including such options as extension of repayment terms, reduction of interest rates, conversion into equity, voluntary out of court settlement etc.)
  • legal support of new financing (including currency aspects)
  • set-off of reciprocal liabilities, novation, assignment, factoring etc.
  • preparation of security and amendments thereto (pledge agreements, mortgage agreements, suretyship etc.)

 

Support of alienation of debtor`s assets:

  • sale to third parties – with or without the encumbrance
  • transfer to the creditor of the debtor’s assets against full or partial satisfaction of claims

 

Support of corporate restructuring:

  • debt-to-Equity swap
  • reorganization
  • increase and decrease of charter capital
  • preparation and implementation of Squeeze-Out procedures
  • suppor of corporate governance reform
  • participation in preparation and holding of the meetings of shareholders / participants of the debtor
  • labor issues

 

Tax advice, including legal support in settlement with tax authorities as a result of financial restructuring, and tax debt discharge.

Procedural support:

  • litigation and arbitration
  • out-of-court settlement (including accounts receivable)
  • challenging of decisions

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