Debt collection in Ukraine

The debt collection procedure in Ukraine begins with an assessment of the debtor’s solvency, its scope of activity, the history of the enterprise, the availability of documentary evidence of the debt, current court cases and enforcement proceedings, as well as the possibility of disputing the debt. Such an assessment determines the strategy that will be used on behalf of the client in the collection process.

If the debtor has no current court cases or outstanding court decisions on debt collection, and is actively engaged in commercial activities, then it is advisable to use the out-of-court debt collection stage.

This stage includes active negotiations with the debtor in order to reach an agreement on payment of the creditor’s claims or other possible settlement options (e.g. return of goods, transfer of the debt to a third party, exchange of services or goods).

Interaction with the debtor begins immediately after sending a notice by mail, email, phone or instant messengers. This process includes intensive communication with the debtor in order to exert constant pressure. The main objective is to establish contact with key decision makers to achieve the fastest possible debt recovery.

The average time for informal extra-judicial collection is up to 60 days (except in cases where a debt repayment installment plan is agreed upon). If this stage does not bring the expected results or after the initial analysis it becomes clear that it is not applicable, it is necessary to proceed to collection through the court.

Before initiating judicial collection, it is worth paying attention to the limitation period. The limitation period for debt collection is 3 years. Missing the limitation period does not prevent the creditor from going to court, but if the debtor files a motion in court to apply the consequences of missing the limitation period, the claim will be denied. The limitation period may be extended by agreement of the parties. The limitation period is interrupted if the debtor acknowledges the debt obligation by written confirmation, partial payment, payment of interest or other action implying recognition of the debt. After the interruption, the limitation period starts counting again.

Foreign creditors should take into account that Ukraine is a party to the UN Convention on Limitation Periods in the International Sale of Goods of 1974, and therefore if a foreign creditor is registered in a country that is also a party to this convention, the limitation period in this case will be 4 years.

Before going to court, it is important to take into account the dispute resolution procedure that was agreed upon by the parties in the contract. If the contract provides for dispute resolution through the claim procedure, this condition must be met before filing a claim. Otherwise, the claim will be left without consideration. If pre-trial settlement is not agreed upon in the contract or is not mandatory due to the provisions of procedural legislation, then this procedure is applied only at the request of the creditor.

Judicial debt collection in Ukraine is realised in simplified and ordinary procedure for considering cases.

The simplified procedure is designed for uncomplicated cases with a small claim value and is based on written documents, without summoning parties to court sessions. For all other cases, the ordinary procedure is used, involving summoning parties to court hearings.

The law establishes a two-month period for case consideration in the simplified procedure, and three months for the ordinary procedure. In practice, these deadlines are not observed, and on average, the court recovery process lasts from six to fifteen months.

After the court makes a decision, each party to the case has the right to file an appeal against such a decision, which is reviewed according to the law within two months. In practice, this period may be longer by several months.

After the appellate review, the court’s decision takes effect on the day of its announcement. However, despite this, the plaintiff or defendant have the right to appeal to the cassation instance, provided there are grounds for it.

The term for cassation review is one month from the start of proceedings. In practice, the actual duration of such review ranges from one to three months. During cassation appeal, the enforcement or execution of the legally binding decision may be suspended.

After the court decision on debt collection comes into force, it is necessary to obtain an enforcement document and, on its basis, open the third stage – enforcement proceedings. If the creditor is a non-resident of Ukraine who has received a court decision in his country against a Ukrainian debtor, then in this case it is necessary to recognize the foreign court decision in Ukraine and obtain permission for its enforcement. Such a procedure is carried out within the framework of a separate trial and is regulated either by an international bilateral agreement between Ukraine and the creditor’s country on mutual legal assistance or by the principle of reciprocity, in the absence of such an agreement. The essence of the principle of reciprocity is that the creditor must prove that in his country, Ukrainian court decisions are also recognized and enforced. The key factor for the successful recognition of a foreign court decision is the availability of evidence that the Ukrainian debtor was duly notified of the foreign litigation against him. The period for presenting a court decision for enforcement is 3 years, including for a foreign court decision. At this stage, a state or private enforcement officer enforces debt recovery through freezing the debtor’s accounts and deducting money from them, seizing assets and selling them to settle the debt, or through other enforcement actions.

In most cases, in order to avoid paying the debt by seizing the debtor’s assets, many debtors – individuals transfer their assets to controlled persons, and enterprising managers or owners of the debtor company reset the company to zero and transfer it to nominal (dummy) owners or managers. Ultimately, this leads to the fact that the creditor has gone through three stages of debt collection, but as a result, has not received satisfaction of his claims.

In such circumstances, there are alternative options for debt collection, among which the following should be highlighted:

1. Initiating the bankruptcy procedure of the debtor company, during which there is a possibility to hold the management and owners of the company subsidiary liable for the company’s debts.

2. Initiating criminal prosecution of the debtor company’s management for non-compliance with the court’s decision on debt recovery (this option is also applicable to debtors – individuals).

3. Detecting fraudulent agreements. In other words, this refers to transactions where the debtor company, aware of its debt to the creditor, takes actions to alienate its assets to prevent any payments in future claims from that creditor. In such a case, the creditor has the right to initiate a court process to declare such transactions invalid and return the transferred assets back to the debtor. Consequently, the creditor can satisfy their demands by selling such assets (this option is also applicable to debtors – individuals).

If you have any questions or need support in debt collection or recognition of a foreign court decision in Ukraine, our company is ready to provide its expert assistance for the effective resolution of your financial issue. Contact us to receive additional information and professional support from lawyers of the leading debt collection agency.

# DEBT COLLECTION AGENCY UKRAINE

12.04.2024

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