The National Bank of Ukraine welcomes Parliament’s adoption of Draft Law No. 3555 on Financial Restructuring in the second reading and as a whole. A total of 229 MPs voted in favor of this bill.
“The passage of this draft law marks a significant step forward in the implementation of the financial sector reforms in Ukraine. Setting up a legal framework for voluntary corporate debt restructuring is set forth in the Memorandum on Economic and Financial Policies between Ukraine and the International Monetary Fund and is one of the objectives set out in the Comprehensive Program of Financial Market Development of Ukraine until 2020. The passage of this draft law brings us a step closer toward accelerating the pace of economic recovery and addressing the issue of nonperforming loans in the banking sector. The NBU looks forward to further fruitful cooperation with the Verkhovna Rada of Ukraine,” said NBU Governor Mr Vladyslav Rashkovan.
Financial restructuring of debts will address the legacy of a substantial amount of non-performing loans and the risks of going bankrupt and terminating business operations faced by potentially viable enterprises due to temporary liquidity problems and enable these enterprises to return to sound financial performance. This law will enable banks to reduce the amount of nonperforming loans and channel the released funds toward resuming lending and boosting the economy. Furthermore, financial restructuring of debts will enable companies to avert the risk of bankruptcy and give them a breathing space to return to solvency, thus allowing Ukrainian citizens to keep their jobs and creating more jobs in the economy.
Draft Law No. 3555 is intended to establish a reliable and effective legal framework for informal workouts of bad debt to settle disputes between creditors and enterprises. The financial restructuring procedure provides for voluntary rather than obligatory participation of all companies. Debts shall be restructured based on terms agreed by all parties involved.
This Draft Law enhances the role of arbitration in dispute resolution between participants involved in the restructuring proceedings. Additionally, the arbitration will approve a restructuring plan should it be approved by two- thirds of the involved creditors.
The financial restructuring procedure provides for the following:
- the extension of maturity terms
- the revision of interest rates and loan agreement terms and conditions
- debt rollover
- forgiveness of a part of the debt
- investment injections into the debtor’s capital
- the reorganization of debtor's business
- the replacement of a chief executive officer and/or Executive Board Members of a debtor
- the reshaping of the debtor’s corporate governance structure.
This draft law was developed by the NBU and the Ministry of Finance of Ukraine with assistance from the European Bank for Reconstruction and Development. The draft law was submitted to parliament for approval by the Cabinet of Ministers of Ukraine on 30 November 2015.
Twenty-six draft laws required for advancing financial sector reforms are pending approval by parliament. These include strategically important draft laws pertaining to the protection of creditors and financial services consumers' rights, financial restructuring of corporate debts, and consolidation of the state regulation of financial services markets functions.