On 14 June 2016, the Verkhovna Rada (the “Parliament”) passed a new Law on Financial Restructuring (the “Law”) with the aim of creating a workable procedure for voluntary restructuring of debt obligations. The Law is to become effective in one month, on 19 October 2016. Currently, the debt restructuring process is not formally regulated by Ukrainian legislation and is usually carried out by interested parties on a purely contractual basis.
The Law has been developed by the government in cooperation with the European Bank for Reconstruction and Development and the World Bank. Its adoption has been well received by the National Bank of Ukraine (the “NBU”) and other market players. Although it is yet to be seen how useful the new regime will be in practice, many stakeholders have already expressed their hopes that the Law would help to clean the banking system of non-performing loans and restart lending in the country.
The Law regulates the process of initiating a financial restructuring and spells out the procedure for negotiating and approving a restructuring plan. It also introduces a number of concepts which were previously not part of Ukrainian law, such as a statutory moratorium outside insolvency and standstill agreements, to allow debtors temporary relief in the course of restructuring negotiations. Interestingly, the Law envisages financial liability for debtors and creditors for breaching the Law and non-compliance with an approved restructuring plan. In order to make restructurings under the Law more attractive, the Law also provides for certain tax and provisioning benefits for those parties which opt for a restructuring in accordance with the Law.
If you would like to receive further information in connection with the above, please contact Olexiy Soshenko.