The National Bank of Ukraine (NBU) welcomes the approval by the Verkhovana Rada of the Code of Bankruptcy Proceedings of Ukraine (before adoption referred to as draft law No. 8060) in the second reading and as a whole. A total of 237 MPs voted in favor of this bill.
The resolution of the parliament solves an important issue of insolvency of retail borrowers who previously could not initiate bankruptcy proceedings. From now on, a borrower in a dire financial situation can officially initiate his/her bankruptcy proceedings and after complying with the entire procedure prevent adverse effects on his/her credit history. It is essential that according to the Code only the borrower himself/herlesf can file for bankruptcy and not the creditors.
Such circumstances are regulated by special laws in the USA, Germany, Latvia, Poland etc. for the purpose of solving temporary issues of citizens. These laws prescribe assistance to bona fide borrowers by, first and foremost, restructuring debts and writing down debts, if the borrower is incapable of making payments in future.
According to the NBU, after the borrower’s solvency is restored both he/she and the state will benefit. After debts were forgiven, the citizen returns to active legal work, continues to pay taxes and retains his/her career potential.
Thus, the Code of Bankruptcy Proceedings prescribes:
- introduction of the “fresh start” procedure for restoring solvency of the borrower as soon as possible. If the citizen is not at fault for their dire situation, the state will offer them to start their financial life from scratch
- minimum barriers for citizens to exercise such a legal mechanism as restoring solvency
- engaging the trustee in bankruptcy who will assist the borrower in solving their financial issues
- brining the case to court according to the borrower’s place of residence
- in order to prevent fraud, bona fide tests at the beginning, during consideration of the case and regarding consequences of declaring the person bankrupt.
Furthermore the new Code will solve the issue of FX mortgages, which became a great concern for many Ukrainians after the financial crisis in 2008. Hence, the FX mortgagors will be granted concessional loan repayment terms, if they own one dwelling (an apartment of not more than 60 sq. m or a residential house of not more than 120 sq. m); for them a concessional interest rate (at the rate of 12-month retail deposit index (the NBU index) plus 0.5% p.a.) will be applied and maturity will be greatly extended (up to 10 years).
Also, as of today, bankruptcy proceedings will be more efficient and transparent for legal entities as well. Hence, the Code shall provide as follows:
- minimizing the possibility of sham bankruptcy fostering creditors’ rights protection and consequently favoring resumption of lending
- property of bankrupt companies will only be sold at electronic auctions
- bankruptcy proceedings will become more expedient.
In general, the approval of the new code on bankruptcy shall solve the following issues:
- adequate financial reporting
- cost reduction for repayment of debts and decreased value of sold distressed assets
- encouraging responsible borrowing
- reducing negative external effects caused by inaccurate risk assessment
- reducing the social toll of diseases, crime and unemployment
- increasing generated taxable income
- fostering business
- encouraging companies
- improving stability and predictability of the financial system and the economy.