The Legal 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. Mgr. Emil Fischer, lodged an application with the Kyiv City Commercial Court seeking recognition of the foreign bankruptcy procedure in Ukraine and the company's foreign bankruptcy trustee, as well as to impose a moratorium on creditors' claims and the property disposal procedure.

The grounds for filing the relevant application with the court were the bankruptcy proceedings initiated by the Regional Court in Hradec Králové (Czech Republic) in the bankruptcy case of a company established and operating under the laws of the Czech Republic, its acquisition of ownership of property in Ukraine in 2019 and the need to sell its property in Ukraine.

According to the ruling of the Kyiv Commercial Court, upheld by the decision of the Northern Commercial Court of Appeal, the foreign bankruptcy proceedings of the said company and the foreign bankruptcy trustee of the company, Mgr. Emil Fischer, were recognized in Ukraine, a moratorium on creditors' claims and property disposal was introduced.

The court decisions were motivated by the fact that at the time of consideration of the application, Ukraine and the Czech Republic had an agreement dated May 28, 2001, which provides for mutual legal assistance in cases arising out of commercial legal relations, including bankruptcy cases. On October 15, 2014, the Regional Court in Hradec Králové issued a resolution declaring the debtor, CGM Czech a.s., bankrupt and announcing a tender for the debtor's property, and appointed Mgr. Emil Fischer as bankruptcy trustee. The bankruptcy proceedings of CSM Czech a.s. have not been finalized at the time of the court's consideration of the case; the foreign bankruptcy trustee has not missed the deadlines established by the legislation of Ukraine; the recognition of the foreign bankruptcy proceedings of CSM Czech a.s. in Ukraine does not contradict public policy, sovereignty and the basic principles of Ukrainian legislation.

The Commercial Cassation Court within the Supreme Court overturned the decision of the court of appeal in part of upholding the decision of the court of first instance to introduce the property disposal procedure, and sent the case for a new consideration on appeal.

Agreeing with the courts of previous instances that there are grounds to satisfy the application of Mgr. Emil Fischer, the foreign bankruptcy trustee of CGM Czech a.s., seeking recognition of the foreign bankruptcy procedure and the foreign bankruptcy trustee in Ukraine, and imposition of a moratorium, the cassation court concluded that the court of appeal prematurely agreed with the local commercial court on the possibility of introducing a procedure for disposing of the debtor's property in this case, given the following.

The Code of Ukraine on Bankruptcy Procedures provides for clear procedures that apply to debtors depending on their economic situation, existing creditor claims, etc. At the same time, declaring a debtor bankrupt under the Code is accompanied by the commencement of a liquidation procedure, not a procedure for disposing of the debtor's property (Article 58 of the Code of Ukraine on Bankruptcy Procedures).

According to the provisions of part 1 of Article 104 of the Code of Ukraine on Bankruptcy Procedures, the ruling of the commercial court on the recognition of a foreign bankruptcy procedure must specify the status of the foreign bankruptcy procedure in accordance with the provisions of this Code.

A comprehensive analysis of Art. 104 of the Code of Ukraine on Bankruptcy Procedures and Art. 8 of the Law of Ukraine "On Private International Law" shows that the court of appeal had to establish the content of the legal provisions according to their official interpretation, the practice of application in the Czech Republic in relation to the foreign bankruptcy proceedings in which the debtor is involved, and determine the status of the foreign bankruptcy proceedings in accordance with the provisions of the said Code.

At the same time, having limited itself to the information on the bankruptcy proceedings opened against CGM Czech a.s., the court of appeal did not establish the stage at which the said procedure was in the Czech Republic at the time of satisfaction of the application of Mgr. Emil Fischer, the status of the foreign bankruptcy procedure in accordance with the provisions of the Code of Ukraine on Bankruptcy Procedures, did not find out whether the Czech Republic's legislation provides for procedures similar/identical to the procedures regulated by the legislation of Ukraine, and did not compare them in order to establish the compliance of the procedures already introduced in the Czech Republic with the procedure required to be introduced in Ukraine, and also did not determine the presence/absence of the possibility for Mgr. Emil Fischer to exercise his powers in the courts of Ukraine other than opening additional bankruptcy proceedings alongside the existing proceedings in the Czech Republic's court.

The failure to clearly establish the circumstances regarding the stage of the bankruptcy proceedings was one of the grounds for sending the case for a new trial to the Northern Commercial Court of Appeal. However, in violation of Art. 316 of the Commercial Procedural Code of Ukraine, the court of appeal did not establish the stage of the bankruptcy proceedings and, accordingly, did not assess the procedure for disposing of the property of the legal entity CGM Czech a.s. introduced by the court of first instance.

The text of the Resolution of the Commercial Cassation Court within the Supreme Court of November 08, 2022, in case No. 910/5107/20 can be found at the following link - https://reyestr.court.gov.ua/Review/107531932.

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.