“How can a business get its money back if the debtor does not have the resources to pay.”, — write: epravda.com.ua
Sometimes a business may find that a counterparty has suddenly changed shareholders and directors, and registered an office at a dormitory address or where there are no buildings at all. Dozens of other enterprises across the country may be registered for the new management. These are typical signs of closing companies due to the registration of a front person, whose personal data is used to get rid of unprofitable enterprises. Closing a legal entity in Ukraine is a very bureaucratic process, so many entrepreneurs consider alternative (usually not quite legal) ways to terminate the activities of organizations. If the company has settled with everyone and does not work, then the damage will be minimal. When such tools are used to avoid payment of debts, then bona fide counterparties will have problems. The first is how to return the money. Of course, it is better to prevent a problem than to solve it: structure the agreement in such a way as to reduce the risks, conduct claims and lawsuit work in a timely manner, agree on adequate provision of your requirements, constantly monitor changes in the counterparty’s corporate structure. However, this is not always possible.Advertisement: So, in such a situation, the creditor should understand how to act to get his, and the debtor – what risks await him. If everything is done correctly, the former shareholders and management of the debtor will have to pay. Bankruptcy procedure in Ukraine Let’s focus on the bankruptcy of legal entities. Bankruptcy of natural persons (ordinary citizens) takes place according to a different procedure and has its own characteristics. In Ukraine, the bankruptcy procedure is regulated by the Code of Bankruptcy Procedures and the Economic Procedure Code. Any creditor can initiate the case by submitting an application to the commercial court at the debtor’s place of residence. In contrast to the previous regulation, which was in effect until 2019, now, in order to open a bankruptcy procedure, it is not necessary for the debt to be previously collected by a court decision. There are no requirements for the minimum amount of debt and the amount of time it remained outstanding.Advertisement: Simply put, any overdue debt can be grounds for opening bankruptcy proceedings against the debtor company. However, bankruptcy is intended to satisfy the claims of not only the creditor who initiated it, but also other creditors who may assert their claims after the opening of the proceedings. The legislation also gives the creditor-initiator the opportunity to propose to the court the candidacy of an arbitration administrator – a specialist who has received a special certificate and actually takes over part or all of the functions of the debtor’s management during the bankruptcy procedure in order to pay off the creditors’ claims. This is a very important aspect, since the effectiveness of the entire procedure largely depends on the professionalism of the arbitration administrator. Receivables In the bankruptcy procedure, the arbitration administrator gets access to accounts, statutory and financial documentation, and the property of the debtor. This makes it possible to assess the company’s financial condition and trace what led to its insolvency. If the debtor has property left, then the demands of creditors can be satisfied thanks to its sale. If there is no such property, the source of funds may be the indebtedness of other persons to the debtor. Most often, the arbitration administrator manages to track what agreements the debtor made and who owes him money. After that, claims are sent to the debtor’s counterparties. If they are ignored, a lawsuit is filed. Read also: “I was told that I should declare bankruptcy.” The owner of “Nibulon” Vadaturskyi about business during the war. The convenience of the bankruptcy procedure is that all legal disputes concerning the debtor and his property are resolved under a simplified procedure by the same judge who hears the bankruptcy case. This saves time. The successful collection of the debtor’s receivables can significantly fill the debtor’s accounts and use these funds to repay the demands of creditors. Return of withdrawn assets Usually, when analyzing the financial condition of the debtor, it turns out that the previous owners took care in advance to deprive him of any assets that could reach him to creditors or be implemented to repay their claims. This process is not irreversible and the specific plan of action depends on the method of withdrawal of the asset. Among the most common are the provision of financial assistance to the related parties of the debtor, alienation of the debtor’s property free of charge or at significantly reduced prices, registration of fictitious payables of the debtor to related parties and crediting of counterclaims. The bankruptcy procedure provides ample opportunities for challenging the debtor’s property actions that led to his insolvency. Consideration of such disputes within the bankruptcy procedure speeds up the process compared to consideration of a separate claim. The interaction of creditors and the arbitration administrator allows to return a significant part of the debtor’s assets and to realize them for the repayment of debts. A participant of a legal entity is not responsible for the obligations of a legal entity, and a legal entity is not responsible for the obligations of its participant, except for cases established by the founding documents and the law. However, this rule does not apply to cases where a legal entity has been brought to bankruptcy. If the liquidation mass of the debtor was filled and sold, but part of the debts remained unpaid, then the obligation to pay the difference between the value of the liquidation mass and the recognized claims of creditors may be placed on the former shareholders and the management of the company (subsidiary liability). For this, it is necessary to prove to the court their guilt in bringing the debtor to bankruptcy. This can be evidenced by both incompetent and ineffective management of the company, as well as deliberate actions. Conclusion of unprofitable agreements, withdrawal of valuable assets, distribution of financial aid, untimely claim-lawsuit activity or its absence are far from all examples of actions due to which the former management of the debtor may be obliged to repay the claims of the company’s creditors. While the court decides whether there are grounds for imposing subsidiary liability, the funds and other property of former participants, founders, shareholders, directors and other persons may be seized as a measure to secure claims against them. Thanks to such property, the demands of creditors can be satisfied later, if the court finds the relevant persons responsible for the bankruptcy of the enterprise. All this causes discomfort and imposes significant risks on the former management. What else needs to be paid attention to. The described algorithm can help not only in the case of re-registration of the company to front persons, but also to speed up the repayment of debt from the existing company. In particular, for large businesses, even the prospect of opening bankruptcy proceedings can carry reputational and financial risks, for example, making it difficult to communicate with banks about current and future loans. Therefore, sometimes there are cases when it is the submission of an application for the opening of the bankruptcy procedure that motivates the counterparty to settle. Also, in the bankruptcy procedure, the cooperation of the arbitration administrator and creditors with a competent state or private executor, who will timely and fully search the property of the debtor and related persons, comply with court orders to secure applications and take necessary measures to enforce court decisions, is important. when their do not perform voluntarily. It often happens that creditors and the arbitration administrator need to communicate with law enforcement agencies, for example, when facts of non-payment of taxes, falsification of documents by the debtor’s management or the presence of signs of other criminally punishable acts are detected. Publicity can become an additional criterion for success, since media coverage of such cases creates additional pressure on the management and founders of the debtor. This algorithm is indicative and will be subject to adjustment according to the circumstances of different cases. However, its basic principles can and should be used, bearing in mind that there is a real opportunity to restore one’s rights, return what has been lost, and bring to justice those who deliberately brought the business to bankruptcy. Co-author – Oleksiy Glowatsky, lawyer, Asters lawyer