In the face of economic challenges, including those caused by the consequences of the war, Ukrainian companies are looking for tools that allow them to maintain stability and not lose assets. One of them is the preventive restructuring procedure. This legal mechanism allows enterprises that have financial difficulties not to bring a bankruptcy case. UNN spoke with lawyers to find out what practical advantages and challenges this mechanism entails.
What is preventive restructuring
The idea of preventive restructuring comes from European law. As Sviatoslav Bolinskyi, CEO of the Bolinskyi and Team law firm, explained in an exclusive comment to UNN, in the autumn of 2024, the Verkhovna Rada implemented EU Directive 2019/1023 into Ukrainian legislation, which companies in crisis situations have been successfully using in European Union countries for several years. The corresponding changes supplemented the Code of Ukraine on Bankruptcy Procedures with a new book "Preventive Restructuring."
Preventive restructuring is a legal mechanism that allows enterprises that have financial difficulties not to bring a bankruptcy case. A company can review its debt structure in advance, develop a plan, agree on it with creditors, and avoid losing assets and business reputation. This will allow it to fulfill contractual obligations, save jobs, and prevent the liquidation of the enterprise. In simple words: preventive restructuring allows stabilizing the financial condition of the enterprise and ensuring its functioning in difficult economic conditions.
How it differs from bankruptcy or reorganization
Preventive restructuring was introduced precisely to prevent insolvency.
The difference of preventive restructuring is that it is aimed precisely at preventing bankruptcy. While the task of pre-trial reorganization was to restore solvency and avoid liquidation of the enterprise, and the bankruptcy procedure is aimed at the subsequent liquidation of the company.
Serhiy Zahorodnii, Head of Tax and Criminal Law Practice at Serhiy Pager Law Firm, lawyer, explained in an exclusive comment to UNN that the preventive restructuring procedure will be useful for those legal entities and individual entrepreneurs who want to restore their financial condition and avoid bankruptcy.
A business that has debts can independently initiate restructuring even before the debt becomes overdue and negotiate with the creditor before the opening of bankruptcy proceedings and without the participation of the court.
How it works
The procedure can be initiated by both the debtor and the creditor. The company submits an application to the court with a restructuring plan, the concept of such a plan. The court makes a decision on opening the procedure within a few days. Also, the business can negotiate with the creditor before the opening of bankruptcy proceedings and without the participation of the court.
Further negotiations with creditors take place. If there are several creditors, the plan is approved by a majority of votes. In some cases, an administrator is appointed to control the implementation of the plan. Also, as in the insolvency procedure, an arbitration manager is involved.
During preventive restructuring, a moratorium on debt collection is introduced, and the debtor's property cannot be disposed of in any way (except for ordinary business activities). As a result of the procedure, the enterprise gradually repays debts in accordance with the plan. Also, the accrual of fines and other financial sanctions is stopped, and the possibility of opening bankruptcy proceedings is excluded.
For creditors, the procedure means predictability and controllability. They participate in negotiations, have the right to vote on the plan, and have better chances of getting their money back.
Lawyers admit that the procedure is new, so certain issues remain open. For example, how preventive restructuring relates to asset arrests within criminal proceedings.
Regarding the parallel existence of the restructuring procedure and arrests within the framework of criminal proceedings - in essence, they can exist in parallel, but if the arrest within the framework of criminal proceedings contradicts the interests of the enterprise being restructured - in this case, the party is not deprived of the opportunity, in accordance with the Criminal Procedure Code of Ukraine, to apply to the court regarding the cancellation of measures to secure criminal proceedings.
In practice, the new mechanism is already starting to work. TOV "Try O", the developer and management company of the Gulliver multifunctional complex in Kyiv, became the first enterprise for which a preventive restructuring procedure was opened.
This precedent is being monitored in the business environment, as it can set the tone for the formation of judicial practice and the trust of creditors in the new instrument. Preventive restructuring is a step towards modern European rules of the game, where a company's financial crisis does not doom it to liquidation, but gives it a chance to negotiate with creditors and recover.