HOW A DEBTOR CAN PROTECT THEMSELVES FROM ARTIFICIAL BANKRUPTCY

In times of economic instability, bankruptcy cases are becoming increasingly common. Creditors often file applications to initiate bankruptcy proceedings in order to speed up debt recovery and block business activities, even without obtaining a prior court decision on the debt collection. The Bankruptcy Code of Ukraine grants creditors this right.

However, for the debtor, this is not a final judgment. A well-structured legal position and substantiated objections can serve as reliable protection from bad-faith actions by the creditor.

Why is protection in bankruptcy so important?

The opening of bankruptcy proceedings has serious consequences for your business. It is important to understand that this is not just a court process, but a complete change in how your business operates.

 – Control over your business. Once proceedings are initiated, a property management procedure is introduced, meaning that an insolvency administrator is appointed. This third party gains access to your financial and primary documentation and monitors your daily operations. Effectively, your business begins to operate under their supervision.

 – Restrictions on decision-making. As a debtor and owner of the assets, you are prohibited from making decisions on liquidation or reorganization of the business, as well as disposing of key assets. Any restrictions regarding asset management may only be imposed by the commercial court.

 – Restrictions for founders and participants. Corporate rights of shareholders (participants) are exercised with limitations established by the Bankruptcy Code. Additionally, founders are not allowed to withdraw their share in the company’s assets due to exiting its membership.

All of these consequences show that bankruptcy proceedings are not just an inconvenience they are a threat to your business, requiring immediate and decisive action.

Understanding the legal grounds for initiating bankruptcy proceedings

First and foremost, you must understand on what basis the court may initiate bankruptcy proceedings. According to the law, such grounds include:

 – The existence of a monetary obligation owed by the debtor to the creditor, with the due date having expired as of the date of filing the application;

 – The creditor’s claims were not satisfied in full before the preparatory court hearing;

 – There is no dispute regarding the right between the creditor and debtor concerning the declared claims.

The last point the absence of a dispute regarding the right is a key defense for the debtor. The creditor must attach complete evidence proving their monetary claim. Unlike ordinary lawsuits for debt collection, bankruptcy proceedings apply a higher standard of proof, as the consequences can drastically affect the debtor’s business operations.

ACTION PLAN FOR THE DEBTOR

Stage 1: Thorough analysis of the creditor’s application and attachments

The creditor must attach comprehensive evidence supporting their monetary claim. Since the standard of proof is higher in bankruptcy cases than in regular debt-collection claims, every document must be carefully analyzed: seals, signatures of authorized persons, and stated amounts.

Stage 2: Collecting and providing evidence

A strong evidence base is the key to successful defense. For example, the debtor may prove:

The deadline for fulfilling the obligation has not yet arrived in such case, the court will refuse to initiate bankruptcy;

The underlying agreement is invalid (e.g., signed by the director without proper approval from shareholders, as required by corporate documents);

The absence of contractual relations or fact of service provision (e.g., primary documents do not disclose the essence of the business operation, its necessity, or result);

The document was signed by an unauthorized person or the seal used does not match;

No accounting records exist concerning this creditor in the company’s accounts;

The creditor initiating the proceeding is an interested party (e.g., a company participant);

Proof of solvency the debtor can demonstrate the ability to fulfill obligations.

Stage 3: Systematization of evidence and preparation of the debtor’s response

According to the law, the debtor must file a response before the date of the preparatory hearing (this date is indicated in the court ruling accepting the application).

The Bankruptcy Code requires the debtor to include in the response:

 – objections to the creditor’s claims;

 – the total amount of debt owed to all creditors (including taxes, wages, etc.);

 – information about the debtor’s assets and all bank accounts, with details;

 – information about accounts where securities belonging to the debtor are held;

 – information about accounts or electronic wallets opened with non-bank financial service providers;

 – information on activities involving state secrets;

 – evidence refuting the creditor’s claims (if available).

All arguments identified during prior stages must be included in the response and examined by the court. If there are doubts about document authenticity, motions for expert examinations or witness questioning should be filed. The need for such tools indicates the presence of a dispute regarding the right, which excludes the opening of bankruptcy proceedings.

Stage 4: Participation in the preparatory court hearing

Personal participation or representation in court is crucial. You can explain your arguments, clarify disputed points, and question the creditor’s representative.

Based on the results, the court will issue a ruling either opening proceedings or rejecting the application. The court will refuse to initiate proceedings if it establishes that the creditor’s claims involve a dispute regarding the right and should be resolved in a regular lawsuit.

Conclusion

The most effective defense tool for the debtor is submitting a well-reasoned response supported by evidence demonstrating a dispute regarding the creditor’s claims. Detailed preparation of the evidence base and a properly structured legal position significantly reduces the risk of bankruptcy proceedings initiated on unfounded claims.

Remember: an active, evidence-based defense strategy is crucial. This is not a formality it is strategic protection of your business.

08.09.2025