• Debt Restructuring in Ukraine: Legal Perspective
  • September 17, 2010 | Authors: Nazar Chernyavsky; Michael Kharenko
  • Law Firm: Sayenko Kharenko - Kyiv (Kiev) Office
  • The current economic crisis has had a severe impact on the Ukrainian economy. Many local companies found themselves in financial troubles after they lost the possibility to refinance foreign debts accumulated over recent years. In 2009, a record number of Ukrainian borrowers defaulted on their debt obligations, and in the absence of appropriate treatment of defaults, such companies are likely to face bankruptcy proceedings. According to the available statistics, in 80% of such cases in Ukraine companies end up in liquidation. Given that financial rehabilitation mechanisms provided for in Ukrainian bankruptcy laws have not proved to be efficient, out-of-court restructuring appears to be the only feasible option to recover solvency of generally viable businesses. Such advantages of out-of-court restructuring as the possibility to keep the process low profile and absence of any rigid procedures, timeframes or necessity to involve state authorities, may result in significant savings of cost and time for all parties and already made informal workouts the preferred model for dealing with distressed debt in many developed economies. In many countries, including Ukraine, there is no legislative framework specifically governing out-of-court restructuring (while there is a concept of pre-court rehabilitation in the Ukrainian bankruptcy law, in practice it is hardly used). At the same time, there are a number of informal instruments such as the London Approach and INSOL Principles, which are often relied on by foreign creditors in the course of cross-border restructurings, including those in Ukraine.