RECOMMENDATIONS OF PRESIDIUM OF THE SUPREME ECONOMIC COURT OF UKRAINE

of June 4, 2004 No. 04-5/1193

About some questions of practice of application of the Law of Ukraine "About recovery of solvency of the debtor or recognition by his bankrupt"

Due to the origin in court practice of the questions connected using the Law of Ukraine "About recovery of solvency of the debtor or recognition by his bankrupt" with subsequent changes and amendments (further - the Law), for the purpose of the correct and identical application of provisions of this Law, the presidium of the Supreme Economic Court of Ukraine considers necessary to provide to economic courts of Ukraine the following recommendations.

1. General questions of bankruptcy proceeding

1.1. By preamble of the Law it is determined that this Law establishes conditions and procedure for recovery of solvency of dolzhnikasubjekt of business activity or recognition by his bankrupt and applications of the liquidating procedure, complete or partial satisfaction of requirements of creditors.

Input of the special procedure provided by the Law directed to recovery of solvency of the debtor or recognition by his bankrupt, and application of the liquidating procedure aim at satisfaction of requirements of creditors (complete or partial). At the same time, effects of initiation of proceeedings about bankruptcy influence the rights and obligations of all creditors of the debtor.

The basis for input of such procedure is the condition of insolvency of the debtor which is established by court in the presence of the signs provided by the Law.

1.2. Economic courts shall consider that establishment in the Law of special procedure for satisfaction of property requirements of creditors does not allow satisfaction of these requirements in individual procedure (as article 12 of the Law provides input of the moratorium on satisfaction of requirements of creditors along with initiation of proceeedings), and creation of necessary conditions both for overcoming insolvency of the debtor, and for more complete satisfaction of requirements of creditors is aimed at providing definiteness of amount of its property during all insolvency proceeding, that is shown in providing all creditors with equal legal opportunities in case of satisfaction of their requirements, realization of their rights and legitimate interests, ensuring the constitutional principle of equality of all before the law including in conditions when the property of the debtor is not enough for complete satisfaction of all requirements of creditors.

Under such circumstances in the case of bankruptcy the problem of equitable and pro rata distribution among creditors of property (competitive) mass of the debtor is solved. Therefore, economic courts shall not allow during proceeedings about bankruptcy of individual satisfaction of requirements of the certain creditor at the expense of property of the debtor entering competitive weight as it which violates the rights and legitimate interests of other creditors and participants of proceeedings about bankruptcy and contradicts the special regulation established by the law.

Exceptions of this rule can be established only by the Law, in particular in case of satisfaction of requirements of the current creditors, requirements concerning payment (collection) of the salary and other requirements to which operation of the moratorium does not extend.

1.3. Bankruptcy proceeding consists of stages of factual determination of insolvency of the debtor and indisputability of requirements of the creditor initiating production (when proceedings are initiated according to the statement of the creditor), identifications of creditors and investors, carrying out sanitation (when the last is possible) or recognition of the debtor by the bankrupt and his liquidation, or the conclusion of the voluntary settlement.

All specified procedures constitute the complete and isolated from claim production process which purpose is the satisfaction of requirements of creditors in case of impossibility of recovery of solvency of the debtor.

2. Legislation on bankruptcy

2.1. According to part one of article 5 of the Law bankruptcy proceeding is regulated by this Law, the Economic Procedure Code of Ukraine (further - HPK of Ukraine), other legal acts of Ukraine.

At the same time, the Law should be considered as the legal act containing the special regulations having priority in relation to regulations general concerning regulation of procedure for bankruptcy proceeding, recovery of solvency of the debtor, recognition by his bankrupt and application of the liquidating procedure, the conclusion of the voluntary settlement between the debtor and creditors, satisfactions of requirements of creditors and so forth.

2.2. So in preamble of the Law of Ukraine "About procedure for repayment of obligations of taxpayers to budgets and the state trust funds" of 21.12.2000 N2181-III (with changes and amendments) is specified that regulations of this Law do not regulate question of repayment of the tax liabilities concerning subjects to which insolvency proceedings are applied.

2.3. Article 74 of the Law of Ukraine "About the Government budget of Ukraine for 2004" in 2004 establishes prohibition to carry out restructuring or debt write-off (shortages) of subjects of housekeeping on taxes, charges (obligatory payments), to grant delays concerning debt payment due dates, and also to perform debt write-off of subjects of housekeeping on the loans attracted by the state or under the state guarantees, to budget loans, financial aid on returnable basis in the budget. This prohibition cannot be applied to debtors concerning whom proceeedings about bankruptcy as these issues shall be resolved by the rules established by Articles 18, 36 Laws are open. Thus, availability in the voluntary settlement of conditions concerning payment by installments, delay, forgiveness (write-off) of tax debts or their parts, the stipulated in Article 36 Laws, cannot be the basis for refusal in approval of the voluntary settlement on the case of bankruptcy or recognition of such voluntary settlement invalid.

2.4. Part 4 of article 106 of the Law of Ukraine "About obligatory national pension insurance" regarding first-priority collection of shortage on payment of insurance premiums and their priority before all other obligations and penalties (except obligations concerning salary payment (income) on which in connection therewith the Law assesses insurance premiums and the expenses connected with execution of judgments on collection of shortage) shall be applied by economic courts taking into account priority and procedure for satisfaction of requirements of creditors, according to article 31 of the Law.

2.5. In hearing of cases about bankruptcy economic courts should consider that the special regulations regulating questions of satisfaction of requirements of creditors during bankruptcy proceeding can contain also in other legal acts.

So, "About input of the moratorium on forced realization of property" the moratorium on application of forced realization of property of the state companies and economic societies in which authorized capitals the share of the state constitutes at least 25 percent which regulations are special in relation to the provisions of the law is established by the Law of Ukraine.

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