Ilyashev & Partners | View firm profile
Vadym Kizlenko
Attorney at Law, Counsel, Insolvency Receiver, Co-Head of Insolvency and Financial Restructuring at Ilyashev & Partners
Andrii Konoplia
Attorney at Law, Counsel, Insolvency Receiver, Co-Head of Dispute Resolution Practice, Co-Head of Insolvency and Financial Restructuring at Ilyashev & Partners
Pursuant to the Law of Ukraine “On Investment Activity,” investments include all types of property and intellectual assets invested in business and other types of activities, resulting in profit (income) and/or the achievement of social and environmental effects. The objects of such activities may include any property, including working capital in all sectors of the economy, securities (excluding bills of exchange), targeted monetary deposits, and property rights.
The subjects of investment activity in Ukraine may be citizens and legal entities of Ukraine and foreign states, as well as the states themselves, which make decisions on investing their own, borrowed, and raised property and intellectual assets in investment objects. In this article, we will focus on specific risks for investors who have already made or are only planning to invest funds in Ukrainian enterprises, in the context of potential bankruptcy proceedings initiated against such enterprises.
Affiliation and Limitations of Creditor-Investor Rights
One of the most common ways of investing in the Ukrainian economy is through a loan granted by a shareholder or by increasing the authorized capital of a company by its participant (shareholder) to replenish working capital.
As a rule, such financial injections are aimed at improving the overall condition of the company and are usually carried out by shareholders or persons related to the debtor. However, therein lies the trap: within the meaning of the Code of Ukraine on Bankruptcy Procedures (CUBP), such persons are considered “affiliated.”
Article 1 of the CUBP stipulates that persons affiliated with the debtor include, inter alia:
- a legal entity established with the participation of the debtor;
- a legal entity that exercises or has exercised control over the debtor within the last three years;
- a legal or physical person over whom the debtor exercises or has exercised control;
- a legal entity with which the debtor is under the common control of a third party;
- the direct owners (participants, shareholders) of the debtor.
It should be emphasized that this list is not exhaustive. The wording “other persons with respect to whom there are reasonable grounds to consider them affiliated” is a rather relative concept, and the final assessment of these grounds will be provided specifically by the court.
In the context of judicial practice, it is worth noting that we are aware of precedents where courts of cassation of various jurisdictions identified the same person as both affiliated (related) and non-affiliated in relation to the same legal entity in different disputes.
Why is this status critical? According to the provisions of Art. 48 of the CUBP, creditors affiliated with the debtor have only an advisory vote at meetings and committees of creditors. That is, in fact, they are deprived of real influence on the bankruptcy procedure: they cannot vote on any issues that fall within the competence of the creditors’ meeting/committee, including the transition to the next judicial procedure (rehabilitation or liquidation).
Case Study
In the practice of Ilyashev & Partners, we often see situations where an investor who has provided actual funds to save a business is recognized as an affiliated person and ends up on the sidelines of the decision-making process. Sometimes, this disenfranchisement of a real investor is used by bad-faith creditors for the hostile takeover of a business through bankruptcy proceedings. Moreover, according to established judicial practice, subsidiary liability for the debtor’s obligations may be imposed on its participants (shareholders).
Thus, a paradoxical and dangerous situation arises: a shareholder invests their own funds in the development of the company, and in the event of its bankruptcy, they not only lose the right to vote and the opportunity to recover the investment, but also risk being held liable for the company’s debts with their own assets.
In our opinion, the key to determining whether a person is affiliated should not be their formal legal status, but the reality of the investment and an assessment of its economic feasibility. However, for now, investors need to be as cautious as possible and calculate these risks at the stage of entering the project.
Requirement for Original Documents: A Heightened Standard of Proof
According to recently formed practice, in bankruptcy cases, it is not enough to submit only copies of contracts or bank statements to confirm a debt. In the presence of the slightest objection from the debtor or other creditors, the court is obliged to apply a heightened standard of proof and verify the procedural quality of the evidence.
Particular attention should be paid to the conclusions of the Supreme Court set out in Resolution No. 902/122/25 dated December 4, 2025. In this case, lower courts recognized the creditor’s claims based on copies, believing that in insolvency cases, the court only establishes the existence of an obligation without delving into the merits of the dispute. However, the Supreme Court refuted this position.
According to the position of the cassation instance, the commercial court must conduct a detailed verification of the grounds for the emergence of monetary claims through a thorough examination of primary documents and contracts. Application of the heightened standard includes:
- inspection of original documents in the presence of objections;
- verification of the method of obtaining evidence;
- analysis of the internal consistency of documents submitted by a certain creditor in systemic connection with documents provided by the debtor;
- assessment of the ability of the evidence to collectively confirm the existence of real obligations.
That is, in the presence of reasoned objections from a participant in the case, the court cannot consider certain circumstances proven if only copies of documents have been provided to confirm them. It is our conviction that foreign investors must take this practice into account. The experience of Ilyashev & Partners’ attorneys in handling complex bankruptcy cases shows that we recommend, even at the stage of drafting contracts with Ukrainian counterparties, clearly stating in the text that the contract is concluded in a specific form, and ensuring the systemic preservation of the entire evidentiary base.
Conclusions Regarding Foreign Law
As a rule, a foreign investor insists that legal relations be governed by the law of a foreign state. This is logical and understandable for the investor, but in a bankruptcy case of a Ukrainian enterprise, it can create additional difficulties when proving the validity of their claims.
A Ukrainian court reviewing a bankruptcy case does not possess (and is not required by law to possess) the intricacies of foreign law. The determination of the content of such norms is carried out by the court ex officio, but participants in the case have the right to assist the court in this. Usually, this is done by providing legal opinions from foreign experts (Legal Opinion).
However, in practice, such opinions often give rise to new questions:
- Is the expert’s qualification sufficient, and how is it confirmed?
- Does the conclusion cover all norms regulating the dispute, or only a part of them?
In the practice of Ilyashev & Partners, there have been cases where the court, having read the experts’ conclusions, asked to specify which specific norms regulate the legal relationship and ultimately grant the right to demand performance of obligations by the debtor. However, there are situations where this is difficult to do. For example, English law, which belongs to the Anglo-Saxon legal system, does not contain codified regulatory acts that would regulate certain legal relations. These legal issues are regulated by legal precedents and customs applied in England as a source of law alongside regulatory acts that apply to certain legal relations.
Advice to Foreign Investors in Ukraine
For foreign investors working in the Ukrainian market, it is important to understand that the status of being “one of their own” to the debtor company can create additional risks for the investor (a potential creditor in a bankruptcy case). The combination of the loss of voting rights, the need to confirm claims with proper evidence (with mandatory submission of original documents), and the difficulties with the application of foreign law requires careful preparation.
Ilyashev & Partners recommends developing asset protection strategies in advance, taking into account the current positions of the Supreme Court, so that at a critical moment, the investment does not turn into an irreversible loss. Specifically, we advise:
- Structure investments carefully: Conduct due diligence on potential affiliation risks at the pre-investment stage.
- Maintain an evidentiary trail: Ensure that all financial transactions are supported by primary documentation (contracts, invoices, proof of payment) and stored in accordance with strict record-keeping protocols.
- Pre-negotiate dispute resolution: When drafting agreements, clearly define the applicable law and, where possible, secure legal opinions regarding the enforcement of claims in Ukrainian bankruptcy proceedings.
- Monitor the debtor’s financial state: Stay vigilant regarding the debtor’s solvency to react timely to potential insolvency filings.
Ilyashev & Partners is a leading Ukrainian law firm providing insolvency and restructuring services in Ukraine, with a strong focus on distressed assets, bankruptcy proceedings, and creditor protection in Ukraine. The firm advises international investors, financial institutions, and businesses on navigating Ukrainian insolvency law, including complex risks arising in distressed investments.
We represent clients in bankruptcy proceedings in Ukraine, including creditors, investors, and shareholders involved in distressed companies, and advise on debt recovery, restructuring strategies, and protection of investments in Ukraine. Our lawyers have extensive experience handling issues related to affiliated creditors, loss of voting rights in insolvency proceedings, and risks of subsidiary liability for shareholders in Ukraine, helping clients structure investments and claims to avoid adverse outcomes.
A key area of our expertise is advising foreign investors on legal risks in distressed assets in Ukraine, including evidentiary requirements in bankruptcy cases, application of heightened standards of proof, and challenges related to the use of foreign law in Ukrainian court proceedings. We help clients build robust legal strategies to ensure enforceability of claims and protection of their position in insolvency processes.
In addition, we support clients in cross-border insolvency matters involving Ukraine, including coordination with foreign counsel, asset tracing, and dispute resolution strategies. With deep expertise in insolvency and distressed investments in Ukraine, Ilyashev & Partners helps clients mitigate risks, protect assets, and maximise recovery in complex restructuring and bankruptcy situations.
To learn more, please visit the Ilyashev & Partners Law Firm website or contact Vadym Kizlenko directly.