PREVENTIVE BUSINESS RESTRUCTURING BEFORE BANKRUPTCY
On September 19, 2024, the Verkhovna Rada of Ukraine adopted Law No. 3985-IX “On Amendments to the Code of Ukraine on Bankruptcy Procedures and Certain Other Legislative Acts of Ukraine regarding the Implementation of Directive (EU) 2019/1023 of the European Parliament and of the Council and the Introduction of Preventive Restructuring Procedures.”
The law entered into force on January 1, 2025 and introduced significant changes to national bankruptcy legislation aimed at early detection and prevention of corporate insolvency.
Key innovations of the Law:
1. Introduction of a preventive restructuring procedure
The law supplements the Code of Ukraine on Bankruptcy Procedures with a new Book Three, “Preventive Restructuring.”
This procedure enables debtors who face a risk of insolvency to restructure their obligations before reaching a critical financial condition.
The goal is to ensure business continuity and prevent bankruptcy.
2. Definition of key terms
The law introduces new definitions, including:
– Preventive Restructuring Administrator: an insolvency practitioner appointed by the commercial court to oversee the preventive restructuring procedure.
– Threat of insolvency: a financial condition in which circumstances indicate that the debtor will be unable to meet monetary obligations within the next 12 months.
– Involved creditors: creditors whose claims are directly affected by the preventive restructuring plan.
3. Procedure initiation
The preventive restructuring procedure may be initiated by the debtor a legal entity or an individual entrepreneur.
Creditors, members of the debtor’s management bodies, or an employee representative may propose that the debtor initiate this procedure.
The debtor must review such a proposal and make a substantiated decision within 30 days.
4. Restrictions on the scope of preventive restructuring
The following claims cannot be subject to preventive restructuring:
– employee claims arising from labor relations,
– compensation for damages,
– alimony payments,
– payment of the single social security contribution and other mandatory payments.
5. Role of the preventive restructuring administrator
The preventive restructuring administrator is appointed by the commercial court to supervise implementation of the restructuring plan and ensure protection of the involved creditors’ rights.
6. Creation of an insolvency prevention web portal
The law provides for the creation of a web portal where entrepreneurs will be able to access information on preventive restructuring tools and procedures, tailored especially for small and micro-businesses.
Conclusion
The introduction of the preventive restructuring procedure in Ukraine is an important step toward harmonizing national legislation with European standards.
It provides businesses with an effective tool for early response to financial difficulties and continuation of operations, enhancing economic stability and protecting creditors’ interests.
27.03.2025
