EU helps Ukraine increase enforcement of judgements

The reforms which Ukraine committed itself to in exchange for the EU’s macro-financial assistance include permitting private enforces to collect debt under small (up to 100,000 hryvnias) claims against public bodies and state enterprises. For the first time in history of Ukraine, a representative of an independent private profession will be able to act against the state, using powers delegated to them by the state itself and compelling the government to fulfil its contractual and other financial obligations to any natural or legal person.

Ukrainian public authorities will also have to automate the processes of blocking and debiting funds from bank accounts, really enabling private enforcers to do their job efficiently.

What would that mean in practice? And how the implementation of these regulations proved itself in EU member states?

Five times more efficient

Today, non-enforcement of court judgments remains the most often filed complaint against Ukraine in the European Court of Human Rights.

According to data by the Justice Ministry, the total outstanding amount owed under court judgments today is close to 800 billion hryvnias, and the bulk of its hasn’t been paid for 10 years or more.

To realize the magnitude of this problem, it is worth stressing that this sum amounts to approximately a quarter of the country’s annual GDP.

Approximately 2.7% of the aforementioned 800 billion hryvnias is collected every year. And a substantial portion of those 800 billion is owed by the state and – especially – state enterprises, which Ukraine has almost 17 thousand.

Can a private enforcer change this situation?

Quite possibly, because since this profession was created in Ukraine three years ago, there are now 240 private enforcers working in the country and demonstrating five times higher efficiency comparing to the competitors subordinated to the Justice Ministry.

In 2019, 230 private enforcers collected almost UAH 4.2 billion comparing to UAH 16.5 billion collected during the same period by approximately five thousand state enforcers.

The EU’s experience also speaks in favor of private enforcers. The total of 23 EU states have either fully private or mixed system of enforcing court judgments.

On the other hand, the Ukrainian model lacks certain key elements today to be qualified as a mixed system according to European practice.

Private enforcers in Ukraine cannot enforce judgments against or in favor of the state or a state enterprise, whereas the Justice Ministry, courts and law enforcement authorities have too broad regulatory powers and capabilities to control private enforcers.

Considering the aforementioned context, the “control” by other bodies often allows bad debtors to take advantage of the system for their benefit and disregard court judgments.

Another way of enhancing the instruments of private enforcers is to engage them to collect moneys due to the state budget.

This practice is widely used in the EU and has proved its effectiveness as well.

In particular, the French Finance Ministry signed an agreement with the National Chamber of Enforcers to ensure collection of taxes and fines, and in Bulgaria, private enforcers collect court fees.

In automatic mode

Another major reason why state enterprises do not pay debts is moratoriums.

For example, in order to collect debt under a court ruling, a debt collector cannot freeze any asset of a state enterprise, including its immovable property, stakes and means of production, with the exception of funds left in the enterprise’s current bank account.

State enterprises are not even required to be filed in the Unified Register of Debtors, thus questioning the very purpose of its existence.

But in fact, not only moratoriums obstruct the enforcement of financial and court-mandated obligations in Ukraine.

Unlike in many developed countries, Ukrainian legislation and practice still do not provide a clear answer to the question whether a court-mandated debt obligation is primary or secondary vis-à-vis any other external (debt owed to business partners) or internal (personnel wages) corporate obligations.

Automated blocking of bank accounts of individual debtors may help resolve this situation. In Ukraine, it is already used in child support collection cases, reducing the period from the entry of an official account blocking warrant to the actual blocking of the debtor’s bank account from one month to 1-2 days.

What can this automation give Ukraine?

Take, for example, PLAIS, a Lithuanian version of an automated system of blocking and debiting bank accounts. Every year, it helps Lithuanian private enforcers, social security services and tax authorities automatically collect hundreds of millions of euros.

PLAIS makes it very easy to collect even the smallest claims, such as administrative fines.

It is not an accident, therefore, that thanks to the aforementioned PLAIS, the administrative fine collection rate in Lithuania exceeds 70% versus mere 26% in Ukraine.

The first sprouts of the enforcement system reform can already be seen.

They include the so-called “joint” package of draft laws on enforcement of court judgments (registered in the Verkhovna Rada under the numbers 3726 to 3729), which was developed by a broad circle of partners from legal community and other national (businesses, banks, CSOs, scientists) and international partners.

This initiative is already conformant with the EU’s experience, proposing to create uniform working conditions for all participants of the court judgment enforcement system.

As the EU’s experience proves, this reform can make headway in solving the problem of non-enforcement of court judgments.

By Lionel Decotte, private enforcer (France),

Katilin Popov, private enforcer (Bulgaria),

Dovydas Vitkauskas, Head of EU’s Pravo-Justice project

Source: European Pravda