The authors of this article intend to disclose the peculiarities of execution proceedings and those numerous difficulties and obstacles that are faced by foreign creditors (claimants) in the process of actual debt recovery under the foreign judgments or arbitral awards in Ukraine.

Execution proceedings constitute the final stage the creditor must go through upon the completion of the complex and onerous process of negotiations with the debtor in respect of the proper performance of the debtor's obligations, followed by the protection of the creditor's rights in a foreign court or an international arbitration tribunal as well as further application to the Ukrainian court for recognition and enforcement of such foreign judgment or arbitral award in Ukraine.

However, in spite of the rather complicated and time-consuming, as well as costly path left behind, this final stage of the execution proceedings makes the creditor confront a lot of other problems associated with both debtor's mala fide actions aimed at delaying or preventing the enforcement of foreign judgment/arbitral award and numerous gaps in Ukrainian execution (enforcement) regulation as described in more details below.

Initiating the Execution Proceedings

Pursuant to Article 18 of the Law of Ukraine "On Execution Proceedings" (the "Execution Proceedings Law"), the state enforcement officer shall commence execution proceeding on the basis of a writ of execution under the following circumstances/documents:

"1) Upon application of the claimant or its representative for enforcement of the decision as set forth in Article 3 hereof;

2) Upon application of the prosecutor in case of representation of the citizens or the state in court;

2-1) If the writ of execution has been submitted by a court on the basis of its ruling on granting the enforcement for a foreign judgment pursuant to the procedure provided by law; and

3) In other cases prescribed by law."

In this regard it is worth mentioning that the Execution Proceedings Law has been amended by clause 2-1 of the above cited Article 18 quite recently – pursuant to the Law of Ukraine No. 1837-VI "On Amending Certain Laws of Ukraine Regarding the Regulation of the Matters of International Private Law", which has introduced the long-awaited amendments to the Civil Procedural Code of Ukraine regarding the procedure for recognition and enforcement of foreign judgments and arbitral awards.

Thus, pursuant to the aforementioned provision of the Execution Proceedings Law, the writ of execution issued on the basis of a court ruling on granting the enforcement for a foreign judgment or arbitral award in Ukraine shall be sent by such court to the respective division of the state execution (enforcement) service (the "SES"), which shall initiate the respective execution proceeding exclusively on this basis.

However, notwithstanding the quite express and clear wording of the abovementioned clause 2-1 Article 18 of the Execution Proceedings Law, in actual practice, things are such that:

(а) The creditor who filed an application to the court for issuance of writ of execution is not aware whether such writ of execution has been issued by the court and sent to the respective division of the SES.

(b) Being guided by the previous edition of Article 18 of the Execution Proceedings Law and clauses 3.1. (which has not yet been amended with provisions of clause 2-1 Article 18 of the Law) and 3.8 of the Instruction on Performance of Execution Actions, upon receipt of such writ of execution from a court the SES' officer refuses to institute the execution proceeding as far as there is no application from the creditor for initiating the execution proceedings.

Under the foregoing circumstances, the creditor appears to be left completely outside the execution proceeding and it would take additional time and costs for the foreign creditor to appeal the SES resolution on refusal to institute the respective execution proceedings. Besides, under such circumstances, the creditor is also deprived of the opportunity to independently handle the voluntary payment of debt by the debtor prior to filing the writ of execution issued by a court with a respective SES division.

In practice, in order to avoid such situation, it would be the most expedient for the creditor to personally obtain the writ of execution provided that the claimant succeeds in convincing the court not to send such writ of execution to the competent SES, and file a motion for initiation of of the execution proceeding with the respective division of the SES.

Meanwhile, we hope that the said existing problems in application of the amendments introduced to the Execution Proceedings Law (Clause 2-1 Article 18) will be removed by their unambiguous interpretation to be introduced to the Instruction on Performance of Execution Actions and to be followed by the SES' officers.

Granting the Enforcement

For a long time at the stage of of execution proceeding initiation, foreign creditors came across the situation when the SES refused to initiate the execution proceeding due to the inexplicit and unclear wording of a court ruling on granting the enforcement of a foreign judgment or arbitral award, claiming that there was no indication of particular actions to be taken for enforcement of the foreign judgment or arbitral award. In such situation the SES also used to apply to the court which issued such writ of execution and respective ruling for detailed explanations/clarifications to be provided to the SES officer in order to commence the actual enforcement. Considering the fact that the Ukrainian legislation also provides that the court may refuse to give any such explanation/clarification, one can only imagine how much effort should be taken by the foreign creditor in order to get things moving.

Thus, for a long time the SES (its respective divisions) formally refused to take any actual action to enforce the foreign court decision or arbitral award because the rulings on granting the enforcement for foreign judgments or arbitral awards in Ukraine and the writs of execution issued thereunder lacked the word "to collect/recover". However, owing to the better awareness of the state execution officers of the peculiarities of the enforcement of foreign judgments in Ukraine and introduction of the abovementioned amendments to the Execution Proceedings Law, the cases when the execution proceeding initiation is refused on the ground mentioned above are rather rare.

Voluntary Enforcement

Under Article 27 (1) of the Execution Proceedings Law copies of Resolutions issued by SES officers and other enforcement documents shall be sent to respective addressees with a cover letter by ordinary mail. To begin the countdown of the seven-day period set forth by law for the voluntary enforcement of court decision and to commence compulsory execution proceedings under such decision, the enforcement officer should firstly ascertain (a) whether the debtor has received a resolution on initiating the execution proceeding and (b) whether the debtor has taken any actions aimed at the voluntary performance of the respective decision. All this, together with the debtor's mala fide actions, seriously delays the actual commencement of the proceeding.

Pursuant to the Execution Proceedings Law if the debtor receives the resolution on initiating the execution proceeding later than its due delivery date, the debtor may submit a written application supported by evidence confirming the late receipt of such resolution. Upon receipt of such application the SES officer should respectively postpone the execution actions. Inn order to avoid such delays in the execution proceedings, the creditor may prepay enforcement-related costs under Article 27 (2) of the Execution Proceedings Law to have all the execution (enforcement) documents sent by the registered mail.

Suspension of Execution Proceedings

The Execution Proceedings Law contains a number of provisions allowing suspension or termination of execution proceedings for various reasons. In particular, Article 33 of the Execution Proceedings Law provides that both the execution (enforcement) officer and the parties may apply to the court that has issued the writ of execution for suspension or extension of enforcement, if there are circumstances that complicate or prevent such enforcement.

However, there is no specific list of such circumstances that creates yet another opportunity for abuse by unscrupulous debtors.

It should also be noted that if such application for suspension or extension of the enforcement of foreign judgment or arbitral award is actually filed with the competent court, an altogether paradoxical situation arises as the court that has issued the writ of execution is prohibited by Ukrainian laws from reviewing the merits of the foreign court decision or arbitral award, including the amounts and the schedule of payment under such foreign decision/awards.

Closure of Execution Proceedings (Foreign Currency)

One of the main problems faced by foreign creditors during the closure of execution proceedings is the currency to be used by the SES for seizure of the debtor's assets and further transfer of such sums to the creditor.

In most instances, the decisions of foreign court and/or awards of foreign or international arbitration courts obliges the debtors to pay/compensate certain amounts to the claimants' accounts in foreign currency as the contracts giving rise to the right of claim by foreign creditors are, of course, provide for foreign currencies to be used for payments thereunder.

However, under the existing procedure, after the SES officer seizes and forecloses the national currency funds on the accounts of the debtor in Ukraine under respective execution (enforcement) orders, such funds are then transferred to the national currency accounts of such SES.

Pursuant to Article 51 of the Execution Proceedings Law, if the debtor's available national currency funds are not sufficient to immediately satisfy the claimant's claims, the state execution officer shall also foreclose on the debtor's foreign currency funds. To this end, the state enforcement officer shall instruct the bank or another credit institution, on whose accounts such funds are held, to sell the respective foreign currency amount sufficient to repay the debt and to transfer its national currency equivalent to the SES bank account (which are open only in national (Ukrainian) currency) for its further transfer to the creditor within seven days.

Therefore, after the execution proceedings are completed and the enforcement officer finally succeeds to recover certain amounts from the debtor, the foreign claimant faces a quite logical, but rather complicated question: How to get the recovered funds that are now held in the national currency account of the SES? If such foreign creditor has a representative office in Ukraine, the recovered funds are transferred to the national currency account of this representative office.

And what if this is not the case? The foreign creditor then finds himself in a very complicated and cost-burdensome situation where the SES can only transfer the funds to a national currency account opened in Ukraine. Thus, the transfer of the funds recovered by the state enforcement officer to the foreign creditor's accounts becomes a new challenge for the latter. And again the creditor has to deal with this challenge at his own cost and expense.

To add to that, since the Execution Proceedings Law does not specify the date when the execution officer has to calculate the national currency equivalent of the debt amount (whether it should be the date of application to the court or the date of initiating the execution proceedings), as the practice shows the foreign creditor receives a smaller debt repayment amount resulting from currency exchange rate fluctuations while recovering the debt in a foreign currency.

Conclusion

The conclusion forced by all of the above is that there is still a need to improve the SES and the execution procedure itself subject to the modern realities and needs of execution process participants (first of all, those of the creditors, of course) to forestall and prevent the abovementioned problems constantly arising throughout the execution proceeding.

The impossibility of obtaining any effective protection for one's rights, even then the relevant court decision and/or arbitral award are rendered, demonstrates the pressing need to reform the current system for enforcement of the foreign judgments and arbitral awards in Ukraine. At the same time, it should be mentioned that while deciding on introduction of the widely discussed novelties (such as the establishment of an institution of private execution (enforcement) officers), consideration should be given to Ukrainian realities and public legal awareness level.

The existing system can be improved, first of all, by amending the current legislation governing the procedure and time frames for execution proceeding, as well as the procedure for transferring the recovered funds to the creditors' accounts, and by increasing the liability for failure to enforce the judgments and the liability of SES. Such amendments would considerably reduce the debtor's "influence" on the execution proceeding.

Vasil Kisil & Partners

Through relentless focus on client success, the Vasil Kisil & Partners team delivers integrated legal solutions to complex business issues. In Ukraine, the Vasil Kisil & Partners brand is synonymous with great depth and breadth of legal expertise and experience, which has created superior value for our clients since 1992.

Vasil Kisil & Partners is a Ukrainian law firm that delivers integrated business law, dispute resolution services, tax law, energy and natural resources law, intellectual property law, international trade law, labour and employment law, real estate and construction law, as well as public private partnership, concessions & infrastructure law.

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Pavlo Byelousov is an Attorney-at-Law with Vasil Kisil & Partners and Myroslava Savchuk an Associate with Vasil Kisil & Partners.

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.