Modern application of insolvency proceedings demonstrates the broad functionality of this legal mechanism. For creditors, bankruptcy has increasingly become an effective means of recovering debtor assets to satisfy outstanding monetary claims. This is particularly significant in the Ukrainian context, where debtors frequently attempt to dissipate assets by transferring them to affiliated parties, creating artificial creditor claims, or fragmenting their business across multiple groups of companies.<\/p>\n
The full-scale war has significantly exacerbated these challenges and reinforced the importance of formal insolvency proceedings. The destruction or loss of access to assets, business relocations, disruption of supply chains, declining demand, currency volatility, increased financing costs, and moratoria on the enforcement of certain categories of debt have created an environment in which many companies have become effectively insolvent.<\/p>\n
Since 2022, statistics have shown a substantial increase in insolvency proceedings initiated in Ukraine. In 2022, courts handled 1,002 bankruptcy cases, followed by 1,556 in 2023, 1,957 in 2024, and 2,469 in 2025.<\/p>\n
In a wartime economy, insolvency proceedings are increasingly used by creditors as a strategic tool to secure control over a debtor’s assets. This article will be of particular interest to creditors considering bankruptcy as a means of debt recovery; banks and financial institutions managing portfolios of distressed debt in Ukraine; investors evaluating the acquisition of distressed assets on the Ukrainian market; business owners and management of companies facing financial distress; as well as legal advisers representing creditors’ interests in insolvency proceedings.<\/p>\n
Why Insolvency Proceedings Are an Effective Asset Recovery Tool<\/strong><\/p>\n The traditional mechanism for debt recovery through enforcement proceedings may be effective where the debtor holds funds in bank accounts or owns assets that may be subject to enforcement (such as real estate, movable property, etc.), and where the debtor has a relatively small number of creditors and a limited amount of outstanding indebtedness.<\/p>\n However, where the debtor has numerous creditors, a substantial credit (loan) burden, affiliated companies, disputed assets, or ongoing litigation concerning its property, initiating a separate enforcement proceeding is, as a rule, ineffective.<\/p>\n Insolvency proceedings operate differently. They shift the dispute from “individual enforcement” to “centralized enforcement,” where all claims against the debtor, information regarding its assets, affiliated parties, property disputes, and the actions of the debtor’s management are consolidated within a single court proceeding. This enables a creditor not only to obtain an enforceable judgment formally, but also to identify and recover the debtor’s actual assets from which the outstanding debt may be satisfied.<\/p>\n In enforcement proceedings, recovery is generally limited to the attachment, seizure or withdrawal of funds and the compulsory sale of the debtor’s property. Insolvency proceedings have a broader scope. They allow creditors to gain access not only to the debtor’s “visible” assets, but also to information regarding its financial condition, accounts receivable, corporate rights, transactions entered, asset transfers, and management actions.<\/p>\n In enforcement proceedings, a creditor may encounter a situation where the debtor’s property has already been formally transferred to another owner and is therefore no longer available for enforcement. In insolvency proceedings, however, the creditor or the insolvency practitioner may challenge such asset transfers.<\/p>\n Another significant advantage is the possibility of holding the debtor’s management and its founders (shareholders or participants) liable. In enforcement proceedings, the enforcement officer does not analyze the debtor’s business activities, assesses the commercial reasonableness of its decisions, or investigate whether assets have been transferred to affiliated parties.<\/p>\n By contrast, these issues form an integral part of insolvency proceedings. The insolvency practitioner analyses the debtor’s financial and business condition, reviews transactions, identifies accounts receivable, while creditors, acting through the creditors’ meeting and creditors’ committee, may oversee the practitioner’s activities and initiate the procedural steps necessary to protect their interests.<\/p>\n When Should a Creditor Consider Bankruptcy Instead of Ordinary Litigation?<\/strong><\/p>\n Where the debtor has sufficient liquid assets, does not dispute the debt, and voluntarily complies with the court judgment, enforcement proceedings may be a significantly faster, less expensive, and more effective means of debt recovery.<\/p>\n However, where the debtor’s conduct demonstrates clear bad faith towards its creditors, including attempts to dissipate assets or otherwise act to the detriment of creditors, insolvency proceedings are the only legal mechanism capable of effectively protecting creditors’ interests.<\/p>\n The initiation of insolvency proceedings should be considered in the following circumstances:<\/p>\n Key Asset Recovery Mechanisms Available Under Ukrainian Insolvency Law<\/strong><\/p>\n One of the key asset recovery tools available in bankruptcy proceedings is the ability to challenge suspicious transactions and property-related actions undertaken by the debtor before or after bankruptcy proceedings.<\/p>\n The first category comprises transactions entered into for significantly less than market value. In practice, these may involve the sale of real estate, equipment, vehicles, corporate rights, claims, or other assets at a price below market value, particularly where the transaction took place during the ‘suspect period’ (within the three years preceding insolvency proceedings).<\/p>\n The second category includes transactions whereby the debtor performed its property-related obligations before they became due, made payments to a creditor, accepted property in satisfaction of monetary claims at a time when the aggregate claims of creditors exceeded the value of the debtor’s assets, or assumed security obligations to secure monetary liabilities.<\/p>\n The third category consists of fraudulent transactions, namely transactions entered by the debtor to the detriment of its creditors. Established case law confirms that fraudulent transactions are not necessarily fictitious. It may have been properly executed and documented, yet its actual economic purpose is to remove assets from potential enforcement. According to the Supreme Court’s legal position, any transaction entered into by a debtor to the detriment of creditors may be characterized as fraud and challenged within insolvency proceedings, taking into account the general principles of good faith set out in paragraph 6, part 1, Article 3 of the Civil Code of Ukraine.<\/p>\n The fourth category concerns asset transfers to affiliated or interested parties. Pursuant to Article 42(2) of the Code of Ukraine on Bankruptcy Procedures, transactions entered into by the debtor within the three years preceding the commencement of insolvency proceedings may be declared invalid where the debtor concluded the transaction with an interested party. The concepts of an ‘interested party’ are defined in Article 1 of the Code and include, among others, people who have corporate, managerial, financial, or other connections with the debtor.<\/p>\n The fifth category includes gifts and other forms of gratuitous transfer of property. Article 42(2) of the Code expressly provides for the possibility of challenging transactions where the debtor transferred property without consideration, assumed obligations without receiving corresponding consideration from the other party, waived its own proprietary claims, or entered into a gift agreement.<\/p>\n In insolvency cases, creditors frequently encounter situations where, by the time proceedings commence, the debtor’s principal assets no longer belong to them. Real estate may have been sold, equipment transferred to an affiliated company, accounts receivable assigned to a third party. In addition, corporate rights or other property rights may be transferred to foreign entities.<\/p>\n In such circumstances, an ordinary liquidation procedure without active measures to recover the debtor’s assets is likely to end with the approval of a liquidation balance sheet providing only minimal, or even no, satisfaction of creditors’ claims.<\/p>\n At the same time, Ukrainian legislation does not limit creditors or the insolvency practitioner to pursue only those assets that remain on the debtor’s balance sheet as of the date when insolvency proceedings are commenced. On the contrary, the Code of Ukraine on Bankruptcy Procedures aims to maximize the liquidation estate by recovering assets, or their value, where they have been removed in violation of the debtor’s rights or its creditors.<\/p>\n Moreover, according to established judicial practice, a liquidator cannot acknowledge asset absence. The liquidator is required to determine when and on what terms the assets were transferred, identify the ultimate recipient, and assess whether the relevant property may be returned to the liquidation estate. In other words, the liquidator is obliged to take all necessary measures to identify the debtor’s assets. Neither the court nor the creditors should have any reasonable grounds to doubt the adequacy of those efforts.<\/p>\n Asset recovery strategies are implemented in several stages.<\/p>\n The first step is to establish the chain of asset transfers (from the debtor to the initial transferee and subsequently to affiliated companies, relatives, or foreign entities).<\/p>\n The next step is to develop a legal strategy, including selecting the appropriate remedy, such as seeking a declaration of invalidity of the transaction. This is done by applying the legal consequences of invalidity, recovering the property, or claiming compensation equal to its value.<\/p>\n Finally, the necessary evidence is collected \u2013 including financial statements, banking records, registration data, information concerning the relationship between the parties, and independent market valuations of the assets \u2013 then the relevant claim is filed with the court.<\/p>\n Can Directors and Shareholders Be Personally Liable in Ukrainian Insolvency Proceedings?<\/strong><\/p>\n A significant advantage of insolvency proceedings for creditors is the ability to move beyond the principle of limited liability of a legal entity. Where insolvency results from the bad faith actions of the company’s directors, shareholders, participants, beneficial owners, or other persons who exercise de facto control over the debtor, Ukrainian law allows the issue of their personal and financial liability to be raised.<\/p>\n Ukrainian legislation provides for two principal forms of such liability: subsidiary liability for causing the debtor’s insolvency, and joint and several liability of the directors or governing bodies for failing to file a petition to commence insolvency proceedings in a timely manner where there was a threat of insolvency.<\/p>\n Subsidiary liability is intended to compensate for financial losses caused by unlawful decisions, actions, or omissions. Accordingly, the court must establish a causal link between the conduct of the relevant person and the resulting insolvency of the debtor.<\/p>\n People who may be held subsidiary liable include the debtor’s founders, participants, shareholders, directors, as well as any other persons who were entitled to issue binding instructions to the debtor or who were otherwise able to determine or control his actions.<\/p>\n Joint and several liability serves a different purpose. Its purpose is to prevent situations in which the company’s management continues to enter into contracts, incur new liabilities, or selectively satisfy certain debts while already knowing that the debtor will be unable to meet its obligations to all creditors.<\/p>\n To impose joint and several liabilities, it is necessary to establish the circumstances demonstrating that the director knew, or ought reasonably to have known, that satisfying the claims of one or more creditors would inevitably make it impossible for the debtor to fulfil its obligations to its remaining creditors.<\/p>\n How Are Assets Sold During Ukrainian Insolvency Proceedings?<\/strong><\/p>\n Auctions are the final stage of insolvency proceedings. It is at this stage that identified or recovered assets are converted into cash for distribution of proceeds to creditors in satisfaction of their claims.<\/p>\n Creditors should note that the effectiveness of insolvency proceedings is measured not only by whether a suspicious transaction has been successfully challenged or an asset recovered from a third party, but also by whether that asset has been sold at the highest price reasonably achievable.<\/p>\n The sale of a debtor’s assets is conducted through an electronic auction platform. In practice, insolvency sales in Ukraine are carried out through the Prozorro.Sale electronic trading system.<\/p>\n A wide range of assets may be sold in insolvency proceedings. These assets include manufacturing facilities, real estate, equipment, vehicles, accounts receivable, corporate rights, proprietary rights, claims, and entire business enterprises as ongoing concerns. For investors, such assets may present attractive acquisition opportunities due to their discounted pricing and potential for integration into existing business operations.<\/p>\n Secured vs Unsecured Creditors<\/strong><\/p>\n \u00a0<\/strong><\/p>\n How Can Foreign Creditors Recover Assets Located Outside Ukraine?<\/strong><\/p>\n Foreign creditors are entitled to file monetary claims, participate in insolvency proceedings, challenge the debtor’s transactions, influence the formation of the liquidation estate, and exercise procedural rights on the same basis as domestic creditors.<\/p>\n The primary task for a foreign creditor is to properly substantiate its monetary claims. Even where a claim is supported by underlying commercial documents or has already been confirmed by a judgment of a foreign court or an international arbitral award, the creditor must still file a proof of claim in the Ukrainian insolvency proceedings and submit to the court both the supporting primary documentation and the relevant judicial or arbitral decisions.<\/p>\n For foreign creditors, the principal practical challenges include complying with the statutory deadlines for filing claims in insolvency proceedings, obtaining legalisation or apostille of documents where required, providing certified Ukrainian translations, securing recognition and enforcement of foreign court judgments or arbitral awards where applicable, addressing currency and sanctions restrictions, and coordinating the work of Ukrainian and foreign legal advisers.<\/p>\n Cross-border asset recovery within Ukrainian insolvency proceedings is, in turn, a complex and multifaceted process requiring the coordination of Ukrainian insolvency procedures with parallel legal actions in the relevant foreign jurisdictions.<\/p>\n Insolvency proceedings in Ukraine can provide the foreign creditors with recognition of their claims, procedural consolidation of disputes, oversight of the insolvency practitioner, access to information concerning the debtor, the ability to challenge suspicious transactions, the formation of the liquidation estate, and court decisions ordering the recovery of assets or compensation for their value.<\/p>\n At the same time, where assets have been transferred abroad or registered in the name of foreign companies or trust structures, their actual recovery into the liquidation estate will invariably require active legal action by both the creditors and the insolvency practitioner in the jurisdiction where the assets are located.<\/p>\n Asset Tracing Before Insolvency<\/strong><\/p>\n Effective asset recovery in insolvency proceedings often begins even before a bankruptcy petition is filed.<\/p>\n Creditors should begin by conducting basic due diligence on the debtor, including:<\/p>\n Typical Challenges<\/strong><\/p>\n The principal challenges to insolvency proceedings in Ukraine may include:<\/p>\n Practical Recommendations for Foreign Creditors<\/strong><\/p>\n Ukrainian insolvency proceedings have evolved into one of the most effective legal mechanisms for recovering corporate assets. When used strategically, they allow creditors not only to participate in the distribution of the debtor’s estate but also to reverse fraudulent transfers, pursue responsible directors and shareholders, and maximize recoveries through coordinated judicial and insolvency actions.<\/p>\n Ilyashev & Partners is one of Ukraine’s leading law firms in bankruptcy, insolvency and financial restructuring, advising creditors, investors, financial institutions, insolvency practitioners, and businesses on corporate insolvency, debt restructuring, distressed assets, insolvency litigation, and cross-border insolvency.<\/em><\/p>\n Our bankruptcy lawyers represent secured and unsecured creditors, debtors, and investors throughout Ukrainian insolvency proceedings, including creditor claims, asset recovery, restructuring, creditors’ committees, fraudulent transfer litigation, director and shareholder liability, and acquisition of distressed assets.<\/em><\/p>\n The firm has extensive experience in asset recovery through insolvency proceedings, including challenging undervalue and fraudulent transactions, tracing assets, protecting creditors’ rights, and recovering property transferred to affiliated parties. We also advise foreign creditors on cross-border insolvency, recognition of foreign judgments and arbitral awards, international asset recovery, and coordination of parallel proceedings across multiple jurisdictions.<\/em><\/p>\n Combining one of Ukraine’s strongest dispute resolution practices with deep insolvency expertise, Ilyashev & Partners helps clients minimise financial risks, recover distressed assets, and successfully resolve complex bankruptcy and restructuring matters in Ukraine.<\/em><\/p>\n <\/p>\n Yaroslav Mudryi<\/strong><\/p>\n Lawyer, Ilyashev & Partners Law Firm<\/p>\n To learn more, please visit the\u00a0<\/em>Ilyashev & Partners Law Firm website<\/em><\/a> or contact <\/em>Yaroslav Mudryi<\/em>\u00a0<\/a>directly.<\/em><\/p>\n <\/p>\n","protected":false},"featured_media":0,"template":"","class_list":["post-57848","press_releases","type-press_releases","status-publish","hentry"],"acf":[],"_links":{"self":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/press_releases\/57848","targetHints":{"allow":["GET"]}}],"collection":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/press_releases"}],"about":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/types\/press_releases"}],"wp:attachment":[{"href":"https:\/\/my.legal500.com\/developments\/wp-json\/wp\/v2\/media?parent=57848"}],"curies":[{"name":"wp","href":"https:\/\/api.w.org\/{rel}","templated":true}]}}\n
\n\n
\n \u00a0<\/strong><\/td>\n Secured Creditors<\/strong><\/td>\n Unsecured Creditors<\/strong><\/td>\n<\/tr>\n \n Priority of Claims<\/td>\n Priority is given to secured creditors’ claims from the proceeds of the sale of the bankrupt debtor’s assets that are subject to the security interest.<\/td>\n Priority is assigned to unsecured claims according to the statutory order. The Code of Ukraine on Bankruptcy Procedures, Article 64(1)(4), provides that claims of creditors without collateral are satisfied in the fourth order of priority.<\/td>\n<\/tr>\n \n Primary Source of Recovery<\/td>\n The collateral or mortgaged property. The secured creditor is repaid from the sale proceeds if the asset is sold successfully.<\/td>\n The debtor’s liquidation estate, after satisfaction of higher-ranking claims and taking into account the priority satisfaction of secured claims from the proceeds of the encumbered assets.<\/td>\n<\/tr>\n \n Participation in Creditors’ Meetings (Creditors’ Committee)<\/td>\n Creditors whose claims are secured by the debtor’s assets may participate in creditors’ meetings only with an advisory vote, unless they have waived their security or hold an unsecured portion of their claim that carries voting rights. This is expressly provided for in Article 48(1) of the Code of Ukraine on Bankruptcy Procedures.<\/td>\n Creditors entitled to vote at creditors’ meetings are unsecured bankruptcy creditors whose claims have been recognised by the commercial court following the preliminary hearing, as provided for in Article 48(1) of the Code of Ukraine on Bankruptcy Procedures.<\/td>\n<\/tr>\n<\/tbody>\n<\/table>\n \n
\n
\n