Normal Bankruptcy

The Ministry of Economy is busy coping with bankruptcy cases, says Economy and European Integration Minister Serhiy Teriokhyn, adding that “bankruptcy is currently the number-one privatization method, although it should be a way to return money to those that have started in business, or to their creditors.” He is echoed by Pavlo Mykhailidi, President of the Crisis Managers Association of Ukraine, who says that bankrupt businesses can be regarded as both a tragedy for their owners and a way of reviving the economy, particularly the industrial sector.

However, crisis managers have serious grievances with regard to the Ministry of Economy. They believe that its role still boils down to issuing and canceling licenses by officials in charge of arbitration, and coordinating the appointment of such bureaucrats at enterprises with state-owned shares. Experts are also worried about the performance of the Bankruptcy Management Agency, which has the monopoly right to sell the property of bankrupt businesses. Market operators believe that state-run businesses actually pave the way for bureaucratic abuses. CMAU further believes that the BMA has got lost in the ministerial maze in the five years of its existence. Therefore, the agency should be liquidated and replaced with a State Financial Recovery and Bankruptcy Management Committee that would take a complex approach to such issues. As a result, the structure of financial recovery of Ukrainian enterprises would become clearer. legislative base of bankruptcy should be upgraded. Valentyna Danishevska, director of the Commercial Law Center, points out that until recently the goal of legislators was to lead enterprises to bankruptcy, or if such enterprises were already bankrupt, to prevent them from getting back on their feet and then hand them over to the “right people.” Allowing any business an opportunity to survive and become solvent was out of the question. After the bill “On the Renewal of the Debtor’s Solvency or the Determination of Bankruptcy” was passed, the situation changed. Still, not everyone realizes that bankruptcy is basically meant not to destroy a given business, but to allow it to get reorganized and show a more effective performance.

Every business that is legally proclaimed bankrupt should be regarded in terms of further development. When it is absolutely clear that the current owner is incapable of running it adequately, this business should pass into someone else’s hands. This is the simplest and most advantageous way to preserve enterprises that are needed by the economy.

However, according to Pavlo Mykhailidi, this kind of result is hard to achieve in Ukraine, since a uniform bankruptcy-management policy is never mentioned. He also notes that bankruptcy legislation cannot coexist normally with that of executive production, taxation, and labor relations. Danishevska agrees, emphasizing that the law should envisage special bankruptcy status for urban-planning, insurance, and pension companies, also for those whose liquidation may result in social upheavals. Sectoral ministries should have a degree of influence on those empowered to declare such businesses bankrupt and to assume their liabilities. However, few try to do so. One of the reasons is the widespread belief that if a business goes bankrupt, no one should take over the liabilities. This was true of enterprises that were deliberately loaded with debt and then declared bankrupt. The current law is meant to protect people who entrust their enterprises with their money and prevent them from suffering any losses. Creditors must have their loans repaid, says Leonid Talan, all the more so as the law provides for disposition, readjustment, and liquidation of time-limits; the latter are quite extensive and can be expanded by means of special status, defense importance, or municipal ownership clauses.

In order to optimize the new law, Ms. Danishevska proposes to finally determine the role of the state in matters relating to financial recovery. It is only by balancing its functions as a debtor, creditor, or shareholder that the general attitude to bankruptcy will change in Ukraine. In addition, it is necessary to provide conditions to effectively protect the right of ownership and to counteract hostile corporate mergers. Norms must be established to determine criminal and administrative culpability for fake or deliberate bankruptcies. It is further proposed to alter the procedures of detecting creditors and notifying interested parties of bankruptcy proceedings. It is necessary to upgrade procedures for convening creditors’ meetings, electing a creditors’ committee and determining its competence, and to readjust the role of certain state bodies in bankruptcy proceedings. In the opinion of the conference participants, the complex implementation of all these methods will allow the economy and the state to receive not only losses but also revenues from such bankruptcies.