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Article in magazine "Legal practice" №9 from 26.02.2019 "will come out Of this debt" (ROS.movoyu)


An important aspect of rulemaking is the development of mediation and legal and financial tools of debt restructuring process

 

Andrew BOROVIK

Specially for "Yurydychna Praktyka"

 

Since the launch of practical Law of Ukraine # 1414-VIII "financial restructuring" (restructuring Law) and the opening of the office of the Secretariat of the financial restructuring was 23 months. All was revealed 25 cases where restructured debt in a total amount of 1.35 billion dollars. USA, 20 cases for $ 1 billion. The US has already closed successfully.

 

Successful cases

 

Despite the fact that the bulk of restructured loans refers to companies of Kiev or region (of 83.43 % of total cases), the procedure of financial restructuring have already passed major companies, including Zhytomyr, Volyn, Kherson, Ivano-Frankivsk and Donetsk regions. The procedure, as expected, the majority used the state banks of Ukraine (88 %). And today all state-owned banks, which in principle had corporate NPL (from the English. non-performing loan is overdue, the defaulting credit) have acceded to the restructuring process under the restructuring Law.

Of all the procedures of real estate transactions reached 31% of the total agricultural area and 9.9 %, wholesale and retail — 24 %, the transactions relating to the developers — 20 %, operation related to processing industry — 14 %, with the mining industry — 1 %.

All procedures carried out in accordance with the Law on restructuring (20 cases) were successfully completed, i.e., accepted and signed the restructuring plans.

None of the cases did not appeal to the arbitration provided for in the Law on restructuring to resolve problematic issues in the process of adoption of the restructuring plan.

 

Complex process

 

According to the National Bank of Ukraine the level of NPL continued to decline, albeit at a low rate. The main factor — the issuance of new loans to individuals slightly "blurs" existing loan portfolio. The process of restoring the quality of the loan portfolio for non-performing loans to unscrupulous borrowers, relatively slow. In fact, the Law on restructuring is one of the few tools for the improvement of the corporate sector (excluding natural persons). However, the size of NPL is still impressive and is without regard to the portfolio of "PrivatBank" 422 billion, of which approximately 150 billion is debt related to Crimea and temporarily uncontrolled territories. Based on these data, it can be argued that through the application of the restructuring Law has been redeveloped 13% of the total possible corporate NPL. Unfortunately, a strategic target audience of the action of this law in conditions of extremely low level and quality of new lending will decrease rapidly. However, the amount of existing problem loans for which the company-the debtor actually continues its activities remains significant. For such companies, the Law on restructuring, and they provide the growing demand for the procedure. So the volume of submitted restructuring procedures in 2018 reached 28.5 billion UAH and exceeded more than 3.5 times the figure for 2017. Based on the analysis of the existing portfolio, we can say that the volume of the procedures this year will not be less than in the past.

The process of development and implementation of the Law on the restructuring of the legal field of Ukraine was complex and had involved a huge number of international institutions, the Ukrainian financial companies and professionals. Because it has a mediative in nature, that is, the principle of voluntariness as against the debtor and against the creditor, the effectiveness of this approach doubt that, in fact, confirmed the above dynamics of the opening procedures under the Law on restructuring. In this situation the main challenges in working with NPL are the returns of Bank assets and the selection of the correct tool. And the fact that through the Law on restructuring, apply which no one was forced sanctions and the use of which does not promise the creditor direct benefits in the short term, for two years, actions have been able to restructure a significant part of the real NPL is a very significant factor. In fact, the financial market of Ukraine showed self-organization to use is completely voluntary procedures for investing in strategic financial and reputational sphere, focused primarily on Western institutions and the market in General. The Law on the restructuring saves the key basis of the restructuring process in the form of a desire of the debtor and creditor voluntarily agree on debt repayment, which for a long time is not maintained or on which there are many years of litigation, which may also indicate the strengthening of the protection of the rights of the creditor.

As to the debtor, the situation is somewhat different, and the law on the restructuring does provide a number of direct benefits, including tax, according to the companies. However, given the overall profile of the companies participating in the procedure, it is possible to note that reputational and medium-term strategy in their decisions also played a significant role when deciding about the entry into the procedure. The basis of this process, according to the open cases was the request of the debtor to repay the debt property or discounting of debt or something, and another simultaneously with the aim of returning to normal operations and access to financing. In this case, tools such as the commercial Bank is more free than public sector Bank, therefore we expect the preservation of interest of commercial banks to the procedure established by the Law on restructuring, in 2019.

 

Development of tools

 

It should be noted that 36 billion of bad loans in Ukraine restructured under this legislation, without applying any coercive measures on the part of the state apparatus and are a direct result of the use of the new financial legal instrument by the free market.

Maximum simplification of the legal procedures are always contributed to the preservation of balance of interests of all market entities. Truly free market is capable of self-organization in applying effective solutions. But excessive regulation of the market in the long term does not affect the basic laws of his existence, and only increases the gap between de facto and de jure. Because of these considerations, a very important area I think the development of mediation and legal and financial tools that meet the demands of the time, because the market will self to use them on a voluntary basis, thereby increase the effectiveness of such tools in practice. However, such laws are a good and effective tool for leveling the negative, but cannot be the only factor in the strategic recovery of the financial sector of the country. And we hope that the global changes in General macroeconomic approach, which already happen, but for various reasons have not yet reached the main strategic goal — the prosperity and development of the banking market of Ukraine.

 

BOROVIK Andrey — Deputy Chairman of the Secretariat established pursuant to the Law of Ukraine "On financial restructuring", Kyiv

The project is funded by a grant received from the European Bank for Reconstruction and Development under the Shareholder Special Fund.
The project is implemented by the administrative and financial support of NABU.