Ukraine: Major Issues Of Enforcement Proceedings

Last Updated: 14 June 2019
Article by Oleksandr Krenets and Artur Wolf
Most Read Contributor in Ukraine, August 2019

Current enforcement proceeding makes creditors choose a bailiff, who is able to ensure enforcement of decisions quickly and efficiently. Considerable number of participants to a court case has become a common trend these days. In certain cases this results in protracting of proceedings and making the review more complicated. Afterwards, participants will have to face challenges of enforcement...

Following adoption in 2016 of the new Law of Ukraine "On Enforcement Proceedings" and the Law of Ukraine "On Bodies and Persons, Who Carry Out Mandatory Enforcement of Court Decisions and Decisions of Other Bodies" the brand new institute of private bailiffs was introduced. This novelty along with substantial changes have revealed many issues related to enforcement of decisions against debtors having several creditors. Unfortunately, only a part of issues have been clearly and properly settled by the legislator.

We would like to discuss in more detail certain aspects related to enforcement issues in cases involving multiple participants.

Disjointed joint enforcement

In terms of enforcement of several court decisions and/or decisions of other bodies (which means several enforcement documents against one debtor), enforcement is made for the benefit of several creditors. In their turn, creditors may apply to public and private bailiffs in cases determined by law.

Thus, article 30 of the Law of Ukraine "On Enforcement Proceedings" provides that enforcement of several decisions on debt recovery against one debtor shall be carried out by the bailiff, who opened initial enforcement proceedings against such debtor, under the joint proceedings.

Enforcement of several decisions on debt recovery against one debtor carried out by the private bailiff shall be carried out under the joint proceedings as well. However, such joint proceedings have no connection with any other joint proceedings commenced by another private or public bailiff. Special legislation does not provide definition of the joint enforcement proceedings at all. The Law and special guidelines only refer to an obligation of the bailiff to open one joint proceedings on recovery of money against a debtor; it is unclear whether the same rule shall apply to proceedings on recovery of property or other assets. In many cases, given limited debtor's choice of means or lack of property, this results in enforcement of creditors claims under one (joint) proceedings whereas claims of creditors under other proceedings (not covered by the joint) remain unenforced.

Effective legislation does not clarify aspects of cooperation of private bailiffs among themselves, as well as aspects of cooperation of private bailiffs with public bailiffs.

The above issue was considered by the case-law. Grand Chamber of the Supreme Court of Ukraine in its resolution dated 5 December 2018 in case No 904/7326/17 found that para. 6 part 1 article 4 of the Law of Ukraine "On Bodies and Persons, Who Carry Out Mandatory Enforcement of Court Decisions and Decisions of Other Bodies" and para. 4 part 1 article 2 of the Law of Ukraine "On Enforcement Proceedings" envisaged main principles of discretion and binding power in terms of enforcement proceedings carried out by public and private bailiffs.

Also, according to the Grand Chamber application of a rule whereby an enforcement is transferred from a private bailiff to a public bailiff and visa versa will lead to violation of the principle of discretion meaning the right of a creditor to choose a bailiff freely and independently as provided by law. At the same time, the Grand Chamber noted that systems of private and public bailiffs should not have been considered equal and interchangeable, since conditions of cooperation with private and public bailiffs varied significantly.

When a creditor refers the case to a private bailiff the creditor will be able to enjoy the opportunity of mandatory insurance of civil liability of the bailiff, financing of enforcement costs at the expense of a private bailiff, possibility of establishing additional remuneration for a bailiff under a contract, timely repayment of expenses related to enforcement activities. This way the law provides certain possibilities to a creditor to impact enforcement effectiveness, motivation of a private bailiff, which are not available in case of a public bailiff, since the latter will anyway require compensation of additional costs (if advanced payment is not enough) at the expense of the creditor within the period established by law; also, it does not give a possibility to to establish a remuneration for the bailiff under a contract.

Civil Cassation Court of the Supreme Court of Ukraine in its resolution dated 13 February 2019 in case No 750/1590/18 also found that provisions of the Law of Ukraine "On Enforcement Proceedings" did not oblige a private bailiff to transfer the proceedings commenced by him/her to the public bailiff in case the latter was the first to open proceedings against same debtor.

Thus, currently there is no obligation of either public or private bailiff to transfer proceedings against same debtor under the law and/or private practice. Also, there is no obligation to put together enforcement proceedings commenced by different private bailiffs.

Arrest over arrest

However, this will lead to another issues – multiple arrests imposed by different enforcement subjects. Thus, simultaneous enforcement proceedings handled by different bailiffs (public and private) in respect of the same debtor may result in several arrests, writ-offs or transfer of the same debtor's property for sale. In practice, only a bailiff who imposed initial arrest and presented a payment document or put up the property for the auction, will have a possibility to make a write-off or to enforce collateral.

Civil Code of Ukraine provides that in case the bank receives a payment order issued in accordance with the terms and conditions of collateral (being the proprietary rights to monetary funds placed at the bank account) simultaneously with another payment document being the grounds for the money write-off, the bank shall make a priority write-off based on the payment document provided pursuant to the terms and conditions of such collateral. In case the bank simultaneously receives several payment documents issued in accordance with the terms and conditions of collateral (being the proprietary rights to monetary funds placed at the bank account), the bank shall make a write-off under such payment documents considering the priority of encumbrances.

Similar provisions are envisaged by the banking law.

Multiple arrests negatively affects sale of arrested property, since in such circumstances bailiff is not able to announce an auction, even if he/she is willing to do so; in contrast, he/she has to settle issues resulting from property arrest in other proceedings.

First come, first served

One of the major problems creditors face in a situation they seek enforcement against same debtor is the problem of allocation of sums collected. The problem arises in connection with the law provision whereby allocation of money which is not sufficient to repay all claims under enforcement document, shall be allocated in pursuance with established priority ranking.

It means that claims of creditors of each next priority ranking may be repaid only after repayment of claims of the preceding priority ranking in full. If collected amount is not sufficient to repay claims of one priority rating in full, claims of each creditor shall be repaid on pro rata bases. Thus, if collected amount is not sufficient to repay claims of first priority ranking, all further rankings will unlikely have a chance to be duly repaid.

It is even more unlikely in case of simultaneous enforcement proceedings commenced by a number of public and private bailiffs – the fastest will get first. Therefore, current situation requires creditors to be proactive. Such proactiveness in not limited to timely submission of the enforcement document. Creditors have to choose a bailiff who may ensure timely and efficient enforcement. Free access to automatic register of enforcement proceeding, State Register of Proprietary Rights and Encumbrances Over Real Property, other open data in order to check already existing proceedings, arrests, etc. may help here, since the right choice of the bailiff may drastically impact the enforcement.

Oleksandr Krenets, counsel, and Artur Wolf, paralegal, dispute resolution, exclusively for Yurydychna Praktyka

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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