Since October 21, 2019 (the time the Code of Ukraine on Bankruptcy Procedures came into force), individuals of the Bragar Group lawyer have often contacted individuals regarding the possibility of conducting their case for bankruptcy. Given the considerable costs of going to court, namely, advancing expenses in the form of a reward to the restructuring manager for three months of work, in the amount of 5 living wages for able-bodied people for each month, and this, from January 1 of this year, is UAH 31530.00 ., from July 1 – 32955.00 UAH., from December 1 – 34050.00 UAH., the decision by potential bankrupt was not immediately accepted. Expenses are advanced for three months of work, at the same time, the case can be considered for at least 4 months, and therefore there will be a need for an additional payment of funds. The amount of debt to the creditor (s) should be significant for the economic feasibility of starting a lawsuit. Since this decision is followed by the advance payment of the attorney’s fees and the work of the arbitration manager. About half of the requests of potential clients after hearing the size of the costs of doing business in court were paused. Nevertheless, the other half decided that for them the game is worth the candle. There were interesting individual single appeals of students or citizens with unstable incomes who received quick money in the amount of up to UAH 20,000.00. through online loans on the Internet. People superficially had information about the bankruptcy procedure, but received meaningful clarifications on this issue, the essence of which was to choose other ways to protect violated rights.
Decree of the Cabinet of Ministers of Ukraine No. 211 “On preventing the spread of acute respiratory illness COVID-19 caused by the SARS-CoV-2 coronavirus” in Ukraine, which entered into force on March 12, 2019, introduced severe restrictions on businesses. The government has repeatedly changed the text of the resolution, depending on the situation with the spread of the disease and the public reaction to tight regulation. Today, quarantine has been extended until May 11, which means that bans continue to apply by this date. In most cases, the enterprises went towards each other when resolving issues of postponement or changing conditions of concluded monetary obligations. Despite the number of bills adopted by the Verkhovna Rada on March 17 (No. 530-IX, No. 533-IX) aimed at overcoming the negative economic consequences for business, maintaining taxpayers and protecting labor rights, such measures are insufficient. It was the right decision to equate quarantine with force majeure circumstances and give a legal opportunity for business entities to suspend the performance of monetary obligations.
According to various estimates, the economic decline will be as sharp as during the global financial crisis of 2009, and possibly stronger, depending on how quickly it will be able to cope with the increase in the number of infections and how long the quarantine will last.
Obviously, a certain part of small and medium-sized businesses in certain areas of activity such as: tourism, hotel and restaurant business, services, hairdressing salons, beauty salons, private preschool institutions for children, entertainment, agricultural producers of products with short periods of use will go bankrupt. Citizens who did not have any savings lived solely on the basis of their wages and ended up in the ranks of the unemployed — they would be left with debts. A separate complex category will be citizens who had consumer loans not secured by real or movable property.
As you know, the amount of payments for people receiving minimal unemployment assistance without taking into account wages and insurance experience for the quarantine period has been increased from 650 UAH. up to 1000 UAH The amount of the allowance is meager and even less than the statutory minimum subsistence level. Given the state budget and significant external obligations to international financial institutions, there is no reason to hope for a one-time help of $ 2,000, as is done in America.
It is worth recalling that for the quarantine period for persons who quit their jobs on their own, the requirements to reduce the payment of unemployment benefits for up to 90 days do not apply.
According to a personal forecast, potential applicants to bankrupt themselves in a new code may be citizens who have remained unemployed or have ceased entrepreneurial activity, that is, in fact, have been left without any income. Such people do not have savings in cash or in deposit accounts. At the same time, they have significant monetary obligations to creditors (financial institutions and / or private individuals and legal entities). Obviously, they will additionally be accompanied by debts to the state and local self-government in the form of taxes and fees, as well as debts for consumed communal services.
According to official data published by the State Employment Service as of April 9, 2020, the number of registered unemployed is 377 thousand people, which is 57,000, or 18% more than on the same date last year. At first glance, the size of the percentage by which the number of unemployed has increased is not so critical, but it should be borne in mind that only people brought to real extremes will turn to the state for such scanty help. In addition, the ranks of official unemployed were joined by workers who urgently, not of their own free will, returned from abroad. Official statistics differ from the real sector of the economy due to the so-called “gray employment”.
According to the site work.ua, over the past five weeks the number of new vacancies has more than halved. At the beginning of quarantine, 54072 vacancies were published on the site, as of April 19 – only 18,390. That is, half of the business stopped, and most workers had to change their labor specialization to the real needs of employers. People are ready to do any work for which they pay a reward.
The Bankruptcy Code of Ukraine was adopted in October 2018, entered into force in April 2019, and entered into force on October 21, 2019, in fact, new novelties were adopted on the bankruptcy of individuals. Potential bankrupts were preparing and awaiting the entry into force of the new law. Therefore, from the first days, economic courts received many applications from individuals. In the future, the situation with new calls leveled off.
For forecasting, it will be correct to take into account statistics data in the pre-quarantine period, but not the first month from the date the law enters into force. That is, the number of calls with a coefficient of twice as much, for example, in December 2019 or January 2020. Such accurate statistics can be obtained from the judicial administration upon request for public information. According to rough estimates, in the pre-quarantine period, about 250 individuals a month applied to the country as a whole, so there will probably be around 500 a month in the near future.
The approximate amount of the lower limit of the debt of a potential bankrupt to one or more creditors is funds in the amount of 200 000 UAH. Of course, if a monetary obligation is secured or if property is available due to which creditor claims will be partially repaid, this amount will increase.
We understand from experience that actual life circumstances, which were complicated by the loss of income due to unemployment or a halt in entrepreneurial activity, create a portrait of a debtor in the following ways to decide on bankruptcy of itself:
According to the final and transitional provisions of the new bankruptcy code, one year from the date of its entry into force, the Law of Ukraine “On the moratorium on the recovery of property of citizens of Ukraine provided as collateral for loans in foreign currency” expires. Banks had large portfolios, consisting of outstanding loan obligations in foreign currency, secured by a mortgage – the only housing of borrowers. On the basis of a moratorium, it was forbidden to sell on account of debt, while at the same time, bank lawyers carried out active accounting and claim work. For example, in the work of the lawyer company there were appeals of citizens with the following similar situations. In 2008, a person received a foreign currency loan for the purchase of an apartment in the amount of 40,000 US dollars. The first few years the borrower paid, but later stopped paying the body and interest. The reason was the rapid devaluation of the hryvnia. In 2016, the bank receives a court decision to recover the body of the loan, interest and penalties. Given that the borrower does not have property, and a moratorium has been introduced on the implementation of the mortgage, enforcement is unsuccessful. The writ of execution could run several times from the bank to the contractor and vice versa. However, the bank continues to charge interest and penalties. As a result, in addition to the already existing court decision, the bank accrued monetary claims for several million hryvnias. As a rule, in the future, such a bad debt portfolio is sold to factoring companies.
The specified ban on the sale of mortgage property on foreign currency loans is canceled from October 21, 2020. At the same time, the Bankruptcy Code introduces a five-year special regime for restructuring foreign currency mortgages. For example, claims of a secured creditor that arose on a loan in foreign currency are converted into hryvnias at the NBU rate on the day the insolvency process is opened and repaid by the debtor in accordance with the restructuring plan in the amount of 100% of the market value of the apartment or apartment building determined by the appraiser selected by the creditor .
According to the new code, in case the total area of the apartment does not exceed 60 sq.m. or the total area of a residential building is not more than 120 sq.m., the interest rate for such a restructuring plan is set at the level of the Ukrainian index of rates on 12-month deposits of individuals (UIRD), increased by 1 pp. The restructuring plan is concluded for 15 years unless otherwise agreed by the parties. Now the UIRD index is 15.36%.
If the real estate area is larger, the interest rate for such a restructuring plan is set at the level of the Ukrainian index of rates on 12-month deposits of individuals (UIRD), increased by 3 percentage points, and the restructuring plan is concluded for 10 years.
In our opinion, such an option for resolving troubled foreign currency loans is a compromise and fair. It will allow borrowers to put an end to and once and for all get rid of the seizure of property, liabilities and calls of bank call center operators or collectors. It is obvious that unemployment and the economic downturn caused by the coronavirus pandemic will not fundamentally affect the existing numerous outstanding foreign currency loans. However, as already noted at the beginning, the costs of citizens to conduct bankruptcy litigation are considerable, and the savings can be used for priority life needs, rather than going to court. Also, this category of potential bankrupts occupy a waiting position until the fall, because at that time the judicial practice on bankruptcy of individuals will increase. Practical enforcement will address a number of gaps in the new code.