In short: liability of directors and officers in the event of corporate insolvency in Ukraine

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Directors and officers

Liability of directors – failure to initiate insolvency proceedings and negotiation

If the proceedings are not initiated, what liability may arise for the directors and officers? What are the consequences for directors and officers if a company carries on business while it is insolvent?

The Bankruptcy Code of Ukraine, dated October 18, 2018 (the Bankruptcy Code), states that if the debtor fails to comply with his obligation to file a bankruptcy application with the commercial court in the circumstances above, the director of the debtor (liquidator of the debtor) is civilly liable (joint and several liability) for the unsatisfied claims of the creditors.

The Code of Ukraine on Administrative Offenses establishes administrative liability for the concealment of permanent insolvency; in other words, when the founder (participant or shareholder) or an officer of the company intentionally conceals, by means of false information, the financial insolvency of the company and this causes serious material damage to the creditors.

Liability of directors – other sources of liability

Apart from the lack of legal action, are the corporate officers and directors personally liable for the obligations of their company? Are they responsible for the pre-insolvency or pre-reorganization actions of the company? Can they be sanctioned for other reasons?

When the insolvency of an entity arises as a result of the actions of its founders or participants or other persons, who are likely to influence the actions of a debtor, these persons may assume subsidiary liability.

Ukrainian criminal and administrative law provides that the directors of an insolvent company are liable for the administrative offenses and offenses described below.

The Criminal Code of Ukraine provides that the founder (participant or shareholder) or the manager of the company is criminally liable (fine of up to 68,000 hryvnas with prohibition to hold certain positions or to engage in certain activities until ‘to three years) for willful bankruptcy. Within the meaning of criminal law, “deliberate bankruptcy” refers to specific acts of the founder (participant, shareholder) or manager of the company which have resulted in the financial insolvency of the company and caused material damage to creditors or to the State. (more than 567,500 hryvnas).

The Ukrainian Criminal Code also imposes a fine of up to 68,000 hryvnas or a suspended prison sentence of up to four years, with the prohibition to hold certain positions or to engage in certain activities until to 10 years for having inserted false information in accounting documents in order to conceal the facts of the bankruptcy of a financial institution.

The Code of Ukraine on Administrative Offenses establishes administrative liability for the following offenses:

  • fraudulent bankruptcy (i.e. when the founder (participant or shareholder) or managers of the company, as well as the sole proprietor, intentionally make an official declaration of financial insolvency and this declaration causes material damage gross (which is also greater than 567,500 hryvnas) to creditors or to the State) (fine between 12,750 and 34,000 hryvnas); and
  • unlawful actions during bankruptcy (i.e. when the founder (participant or shareholder) or manager of the company against which insolvency proceedings are opened by the court intentionally conceals assets, information about assets, illegally transfers assets or also disposes of them such as forgery, concealment or destruction of documents of the business activity of the company and such illegal actions cause significant material damage (fine between 8,500 and 17,000 hryvnas)) .

Liability of directors – defenses

What are the defenses available to directors and officers in the context of insolvency or reorganization?

Directors and officers enjoy the general scope of the defense. If a question of subsidiary or joint liability of the directors and officers arises, they can defend themselves by arguing that their conduct has not resulted in the insolvency of a company.

Change of duties of directors

Are directors’ obligations to the company transferred to creditors when insolvency or reorganization proceedings are likely? When?

According to the bankruptcy code, before the start of the reorganization or liquidation procedure, the duties of the administrators are not transferred to the creditors. The limitation on the functions of directors is only applied after the opening of the insolvency proceedings.

Powers of the directors after the opening of the procedure

What powers can directors and managers exercise after the opening of liquidation or reorganization proceedings by or against their company?

According to the bankruptcy code, the appointment of the asset manager is not a reason for terminating the powers of the administration of debtors (administrators and officials). However, agreements relating to the assets of the debtor must only be concluded by the administration of the debtor with the consent of the asset manager.

Also, following the appointment of the asset manager, the debtor administration does not have the right, without the consent of the asset manager, to take decisions concerning:

  • reorganization and liquidation of the debtor;
  • constitution of legal entities or participation in other legal entities;
  • creation of branches and representative offices;
  • payment of dividends;
  • issuance of securities by the debtor;
  • withdrawal of participants from a debtor by a legal person, acquiring shares of the debtor from shareholders;
  • grant loans, guarantees, sureties, enter into trusts; Where
  • the transfer or charge of ownership.

The decision to receive a loan, to participate in unions, associations, holdings, financial and industrial groups or other associations of legal persons must only be taken by the administration of the debtor with the agreement of the asset manager.

When the recovery procedure is initiated, the powers of the debtor’s management bodies are transferred to the recovery manager, notwithstanding the powers granted to the management bodies by the recovery plan.

As from the court decision opening the liquidation procedure, the power of administration of the debtors in matters of management of the bankrupt and the disposal of his property ends, the administrator of the debtors is revoked.


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