EU project helps reform bankruptcy system in Ukraine

The improvement of investment climate and lower loan interest rates in Ukraine: that’s the result which, in the opinion of European experts, the establishment of an independent association of trustees in bankruptcy should produce.

Trustees in bankruptcy from all over Ukraine came to Kyiv to establish an association and elect its board. Experts believe that the establishment of an independent organization would help ensure the integrity and effectiveness of trustees in bankruptcy. This is a part of reform of the bankruptcy institute in Ukraine. The EU-funded Pravo-Justice Project helped organize this meeting, as well as to approximate Ukraine’s bankruptcy code to European standards.

In addition to the obligatory presidium, the huge auditorium features secret voting booths. That’s how the board will be elected. The foundation meeting of the association was attended by the total of 490 trustees in bankruptcy – almost a half of the total number of trustees registered in our country.

The institute of trustees in bankruptcy has been in existence in Ukraine for quite a while. There are almost 1200 registered trustees in the country. This number includes those who abuse their powers, thus causing distrust in the very bankruptcy procedure. The new association would identify them and take appropriate action against them, MP Taras Tarasenko, attorney-at-law and formerly a trustee in bankruptcy, says.

Photo: counting votes at the Congress of Trustees in Bankruptcy in Kyiv on 20 November

“Among the trustees are those who do not perform their functions: the so-called “dormant” trustees who simply have an official ID card,” Taras Tarasenko says. “But also, there are “black” trustees, i.e. the ones abusing their powers. We don’t know exactly how many of them are there. But it would be a progress if the association uses self-regulation to “self-cleanse” itself of these trustees.”

In the beginning, the identification of unscrupulous trustees will be handled by a disciplinary commission under the Justice Ministry, Deputy Minister Valeria Kolomiyets who was present at the foundation meeting says. The procedure of identifying these persons is available for everyone to see on a specialized website. The trustees who fail to submit documents, ignore inspections, do not show up at the meetings of disciplinary commission will be considered unscrupulous. Later, the Ministry’s function will be taken over by the independent association, Deputy Justice Minister says.

Photo: From left to right: MP Taras Tarasenko, Deputy Justice Minister Valeria Kolomiyets, Pravo-Justice Project Head Dovydas Vitkauskas

“The establishment of this association is very important for our country,” Valeria Kolomiyets says, “because we know that independent legal professions must control themselves. In other words, the government doesn’t have to control them, and they don’t have to report to the government. They have to develop themselves, take over certain functions from us and then influence the market. For we cannot talk about the objectivity and independence of a trustee in bankruptcy, if there is no body regulating their self-organization and activity.”

The association will solve the problem of communication and protect professional interests of trustees in bankruptcy, the association’s newly-elected chairman Mykola Lukashchuk stresses. He regards the creation of a self-regulated organization as one of the most important steps in the process of adopting a new bankruptcy code.

“The code became an impetus for us to improve the bankruptcy procedure, defining the goal worth striving for: making the bankruptcy procedure comprehensible for all parties concerned, raising the status of trustee in bankruptcy, prestige and independence of this profession, which in turn, must positively affect Ukraine’s Doing Business rankings,” Mykola Lukashchuk says.

The institute of bankruptcy in Ukraine has long been in the need of reform, Pravo-Justice Project Head Dovydas Vitkauskas says. The irresponsibility of debtors in this country is one of the main reasons for high loan interest rates. These rates are at least 5-7 times higher than in EU states, and that’s understandable: while an investor in Germany has a 90% guarantee of having the debt repaid even if the debtor files for bankruptcy, the chances that an investor in Ukraine will get their money back are only 10%.

Photo: Pravo-Justice Project Head Dovydas Vitkauskas

“We hope that the new bankruptcy law will seriously promote this interest to make sure that creditors get more money back,” Dovydas Vitkauskas emphasizes. “The viability of economic system, the viability of banking and financial system depend on that. Interest rates are high, because creditors have to bear huge risk when financing Ukrainian businesses. This risk must be lowered. It is important that we guarantee, together with trustees in bankruptcy and judicial community, that creditors will get their money back. On the other hand, businesses do make mistakes and these mistakes are inevitable, and therefore, entrepreneurs must be enabled to quietly close down their business without consequences. The new bankruptcy code will help balance all that.”

The establishment of an association, Dovydas Vitkauskas emphasizes, is only the first step. Now, European experts, the government and trustees in bankruptcy must work together with judicial authorities, introduce an electronic government and change corporate culture to make the bankruptcy process more accessible, transparent, efficient and fast. And that concerns not only private but also state enterprises, because shadow schemes were often employed when these enterprises were filing for bankruptcy, and as a result, the state budget was losing billions.

Source: Novoe Vremia