Draft Law No. 3555 “On Financial Restructuring” (the “Restructuring Law”) aimed at creating effective mechanisms for a voluntary financial restructuring of Ukrainian companies’ debts (the “Voluntary Restructuring”). The Restructuring Law is adopted as a temporary measure and will be in effect for three years. The Government expects that the Restructuring Law will result in reducing the amount of bad loans and restoring bank lending.
The main novelties of the Restructuring Law are as follows:
A new mechanism for the Voluntary Restructuring is introduced.
The Voluntary Restructuring may be commenced only by a debtor (not by creditors).
Creditors participating in the Voluntary Restructuring are selected by a debtor subject to their consent (the “Involved Creditors”).
At least one financial institution shall participate as the Involved Creditor in the Voluntary Restructuring. Financial institutions have generally more influence in the Voluntary Restructuring as compared to the other creditors.
Related parties of a debtor have limited voting rights in the Voluntary Restructuring.
New bodies responsible for organising and administering the Voluntary Restructuring to be established.
Mechanism for the Voluntary Restructuring
The Restructuring Law introduces a mechanism for the Voluntary Restructuring which is an out-of-court procedure initiated by a debtor and aimed at development and adoption by, inter alia, a debtor, the Involved Creditors and investors (if any) of a restructuring plan (the “Restructuring Plan”). The Voluntary Restructuring may be initiated by any legal entity that has a debt to at least one financial institution. State enterprises with special status (‘kazenni pidpryiemstva’) and financial institutions cannot act as debtors under the Restructuring Law. To be eligible to initiate the Voluntary Restructuring, a debtor should be in a critical financial condition (i.e. not being able to perform its liabilities towards creditors when they fall due), but its business shall be recognised as potentially viable by an independent auditor selected by creditors. The debtor has a right to select any of its creditors to participate in the Voluntary Restructuring one of which should, in any case, be a financial institution. The Voluntary Restructuring shall be possible provided it is agreed by the financial institutions holding at least 50% of the financial institutions’ claims (excluding the claims of financial institutions being related parties of a debtor).
The Restructuring Law provides that the Involved Creditors being the financial institutions enter into a framework agreement providing for the common principles and procedures for their cooperation during the Voluntary Restructuring (the “Framework Agreement”). The latter shall be developed and approved by the National Bank of Ukraine.
Under the Restructuring Law, a moratorium is imposed for the period of the Voluntary Restructuring (not to exceed 180 days) unless terminated earlier by the Involved Creditors. A moratorium extends to the Involved Creditors’ claims (subject to certain exceptions) and to any claims of a debtor’s related parties. If a moratorium is terminated, a debtor and the Involved Creditor(s) may enter into a standstill agreement to agree not to enforce their claims for a specific period of time.
The Restructuring Plan shall be approved by all of the Involved Creditors. If the Restructuring Plan is approved only by the Involved Creditors holding more than 2/3 of the Involved Creditors’ claims, it may be further approved by the Arbitration Committee at the request of any of the Involved Creditors. The Involved Creditors which are not the financial institutions and so are not parties to the Framework Agreement may separately agree on the procedure and amount of votes necessary for the approval of the Restructuring Plan.
Special bodies responsible for administering the Voluntary Restructuring
Under the Restructuring Law special bodies responsible for organising and administering the Voluntary Restructuring will be created: (i) the Supervisory Board to act as a coordination authority and to comprise of representatives from National Bank of Ukraine, Ministry of Finance, Ministry of Economic Development and Trade, Ministry of Justice of Ukraine, as well as representatives from financial markets associations, businesses and financial market experts; and (ii) the Secretariat to be created by the Supervisory Board and to be responsible for informational, analytical, organisational and administrative support of the Restructuring. Under the Restructuring Law, any dispute arising during the Voluntary Restructuring will have to be resolved by the Arbitration Committee to be created by the Supervisory Board. The Arbitration Rules shall be adopted by the Supervisory Board.
The Restructuring Law will create mechanisms for the voluntary financial restructuring of corporate debtors thereby improving the overall business and investment environment in Ukraine. The final text of the Restructuring Law is not yet available. The Restructuring Law is now awaiting the President’s signature and will become effective in three months after it is published.
Legislation: Draft Law of Ukraine No. 3555 “On Financial Restructuring” dated 30 November 2015.