The Position of the Commercial Cassation Court within the Supreme Court on the Implementation of Bankruptcy Proceedings Related to Foreign Bankruptcy Proceedings

Foreign bankruptcy procedure trustee of JSC CGM Czech a.s. (hereinafter - the company) Emil Fischer, Master of Law, lodged an application with the Kyiv City Commercial Court, in which he requested to recognize the foreign bankruptcy procedure in Ukraine and a foreign bankruptcy procedure trustee of a company, to introduce a moratorium on meeting the claims of creditors and the procedure for disposing of property.

The grounds for recourse to the court with a corresponding application were the proceedings opened by the Regional Court of Hradec Králové (Czech Republic) in the case of bankruptcy of a company established and operating under the legislation of the Czech Republic, the acquisition by the company in 2019 of the right of ownership of property in Ukraine and the need to realize on the territory of Ukraine the property belonging to it.

According to the ruling of the Kyiv City Commercial Court, a foreign bankruptcy procedure for a company and a foreign bankruptcy procedure trustee for a company, Emil Fischer, Master of Law, were recognized in Ukraine, a moratorium was introduced on satisfaction of creditors' claims and the procedure for disposing of property.

The ruling of the Northern Commercial Court of Appeal overturned the decision of the court of first instance and handed down a new decision which closed the proceedings.

According to the court of appeal, the systematic analysis of part 3 of Art. 97, part 2 of Art. 99 of the Code of Ukraine on Bankruptcy Procedures indicates that the application of a foreign bankruptcy procedure between Ukraine and the Czech Republic is possible only if there is an appropriate international agreement. Considering that the Treaty on Mutual Legal Assistance between Ukraine and the Czech Republic in Civil Matters of May 28, 2001, in force since November 18, 2002, does not provide for the application of foreign bankruptcy procedures, the court of appeal ruled that the proceedings were dismissed.

The Judicial Chamber on Bankruptcy Cases of the Commercial Cassation Court within the Supreme Court overturned the impugned ruling of the court of appeal and remanded the case for a new hearing in appeal in view of the following.

Conditions for application of bankruptcy procedures related to the foreign bankruptcy procedure, unless otherwise provided by the Code of Ukraine on Bankruptcy Procedures or an international treaty of Ukraine, the consent to which was provided by the Verkhovna Rada of Ukraine, are defined in Art. 97 of the Code. These procedures are carried out on the principle of reciprocity.

The reciprocity principle is considered to be observed if it is established that the international treaty of Ukraine, the consent to be bound by which was granted by the Verkhovna Rada of Ukraine, provides for the possibility of such cooperation of a foreign state with Ukraine.

According to the content of the provisions of parts 4, 5 of Art. 97 of the Code of Ukraine on Bankruptcy Procedures, a commercial court refuses to apply international aspects of bankruptcy if their application is contrary to public policy, sovereignty and the basic principles of Ukrainian legislation. The commercial court has the right to refuse to apply the provisions of this section if the foreign court concerned has refused to cooperate with a commercial court or an arbitration manager of Ukraine.

On January 10, 2002, Ukraine ratified the Treaty on Mutual Legal Assistance between Ukraine and the Czech Republic in Civil Matters dated May 28, 2001, the preamble of which states that, seeking to improve cooperation in the field of legal assistance, the parties agreed to conclude this Treaty on Legal Assistance in Civil Matters. At the same time, neither the above-mentioned international Treaty nor the Code of Ukraine on Bankruptcy Procedures contain any exceptions regarding mutual legal assistance in bankruptcy cases.

It follows from the above that the Treaty in force between Ukraine and the Czech Republic dated May 28, 2001 defines mutual legal assistance in cases arising from commercial legal relations, which include bankruptcy cases.

The courts of previous instances did not establish circumstances that would allow us to consider that the recognition in Ukraine of a foreign bankruptcy procedure and the powers of a company managing a foreign bankruptcy procedure is contrary to public policy, sovereignty and the basic principles of Ukrainian legislation, and also did not reveal the facts of refusal of the relevant foreign court of the Czech Republic to cooperate with a commercial court or an arbitration manager of Ukraine. Therefore, the principle of reciprocity has been respected in this case.

So, the court of appeal misinterpreted the requirements of the law, as a result of which it reached erroneous conclusions on the closure of the proceedings in the case and did not review the merits of the judgment of the first instance court in appeal procedure.

The text of the Resolution of the Commercial Cassation Court within the Supreme Court of December 22, 2021, in case No. 910/5107/2 can be found at the following link - https://reestr.court.gov.ua/Review/104291599.

This and other legal positions of the Supreme Court can be found in the Database of Legal Positions of the Supreme Court - lpd.court.gov.ua/login.