In order to initiate the executive enforcement procedure, the judgment holder must present to the state enforcement service the enforcement order of the commercial court along with an application and, if applicable, the court decision to permit enforcement of a foreign court decision or the arbitration court decision.
In the case of arbitration, the judgment holder must present the arbitration court's decision and evidence that the said arbitration decision was not voluntarily and timely performed by the respondent.
The judgment holder has the right to include in the application information on the debtor's bank account(s), place of employment or receipt of other income, the location of property, etc. The judgment holder also has the right to request the state enforcement service to place an arrest on the debtor's property and cash funds (Ukrainian securities) and to prohibit their alienation. The judgment holder should also submit the documents evidencing the court's decision to confiscate property (or the absence of property) and/or the decision to apply security measures (if applicable).
Generally, the enforcement procedure is conducted at the place of location (residence, sojourn, work) of the debtor or the location of the debtor's property. In case the debtor is obliged by the court decision to take certain actions, the place of enforcement will be the place where such actions must take place. The state enforcement service, if necessary, may also conduct an investigation regarding the existence and availability of the debtor's property or work at places other than the debtor's location. In such case, the state enforcement service must act within ten working days from the receipt of instructions to conduct the investigation. Any property uncovered by the state enforcement service will be set forth in a description and subject to arrest.
An enforcement order must be presented to the state enforcement service within one year. A judgment holder, who failed to present an enforcement order within a one-year term, may petition the issuing court or the court at the place of enforcement to renew the one-year term. In such case, the court must consider the petition within a ten-day period, unless otherwise provided by law. Obviously, the judgment holder must provide a valid reason for missing the deadline for presenting the enforcement order to the state enforcement service.
Once an enforcement order is presented within the prescribed term, in the proper manner and to the correct state enforcement agency, a state enforcement representative must issue an order to initiate the enforcement procedure within three working days. The said order must indicate the requirement that the debtor voluntarily perform the obligation within seven days from the date of the order. The order must also contain a warning that unless the debtor provides documentary confirmation to the contrary, the foreign court decision will be enforced in a compulsory manner with the collection of the enforcement duties and expenses connected with the organization and conducting of the enforcement actions.
The judgment holder may also request the arrest of property and cash funds of the debtor simultaneously with the opening of the enforcement procedure. The voluntary seven-day term will not be applied if the enforcement order calls for the confiscation of property, the collection of periodical payments or security measures or if the foreign court decision is subject to immediate enforcement. A copy of the order to initiate an enforcement procedure will be sent to the judgment holder and the debtor no later than the next working day after it is issued.
There are several reasons why the state enforcement service may refuse to open an enforcement procedure, including untimely presentation of the enforcement order, improper place of its presentation, a court-ordered delay in enforcement, etc. Both a decision to open an enforcement procedure and a decision to refuse to open such procedure may be appealed within a ten-day term.
Should the debtor fail to voluntarily perform its obligations within the established term, the state enforcement service must immediately begin the enforcement procedure on the very next day. In most cases, the state enforcement service will collect the enforcement duty from the debtor which will be equivalent to 10% of the amount owed to the judgment holder or 10% of the value of the property subject to transfer by the debtor to the judgment holder.
The enforcement actions of the state enforcement service must be completed within six months from the opening of the enforcement procedure. In cases when the foreign court decision is of a non-proprietary nature (e.g., compulsory performance of certain acts or refraining from certain acts by the debtor), the enforcement procedure must be completed within two months. Importantly, the six-month term does not take into account the time necessary to conduct expert conclusions or property appraisals, to prepare technical documentation for the sale of the debtor's property, court-imposed delays or suspensions of the enforcement procedure, etc.
If the debtor voluntarily performs its obligations by repaying the amount due to the judgment holder via the state enforcement service, the cash funds will be divided as follows:
- In the first priority, the advance deposit paid to the state enforcement service for organizing and conducting the enforcement actions, if paid for applying security measures against the debtor's alienation of property or cash, is returned;
- In the second priority, the expenses of the state enforcement service, connected with organizing and conducting the enforcement actions and which are not covered by an advance deposit, are compensated. These include expenses for transporting, storing or selling the debtor's property, expenses for hiring experts and appraisers, courier expenses, property search expenses, document preparation expenses, etc.;
- In the third priority, the judgment holder's claim is satisfied and the enforcement duty is paid (10% of the actual amount collected from the debtor);
- In the fourth priority, penalties imposed by the state enforcement service are collected.
Any amount left over will be returned to the debtor. However, in case the debtor does not have sufficient funds to cover the indebtedness, the amount actually collected will be divided between the judgment holder and the state enforcement service firstly from secured claims of the judgment holder from the amount of secured property and secondly from all other available amounts.
In the event the debtor fails to voluntarily perform its obligations within the required term, the state enforcement service will levy mandatory execution in the first priority on the debtor's funds in hryvnias and foreign currency and on other valuables, including cash on bank accounts and deposits in banks and other financial institutions and on securities accounts. Any cash uncovered will be confiscated, while the funds and valuables in the debtor's bank and deposit accounts will be subject to arrest, including any funds deposited to other accounts opened after the arrest of the initially uncovered funds.
For legal entities, this means that the state enforcement service will firstly confiscate any cash funds located in the debtor's cash desk or other safety deposit boxes. The state enforcement service will then look to other funds in banks and other financial institutions, including the debtor's representative offices' or branches' accounts. The state enforcement services has the right to request information about the existence of the debtor's bank and deposit accounts from the tax and other state authorities, companies with the legal obligation to disclose such information and the judgment holder. If the legal entity-debtor fails to perform the foreign court decision and opens additional bank accounts, the state enforcement service will send notice to the law enforcement authorities to initiate criminal proceedings.
In case the debtor has insufficient funds to satisfy the judgment holder's claim, mandatory collection will be levied on the debtor's other property. The debtor has the right to suggest which property should be firstly collected; however, the state enforcement service will make the final decision regarding the order of priority of collection. The amount collected from the debtor must be sufficient to cover the underlying debt, expenses connected with the enforcement procedure, the enforcement duty and any penalties. Importantly, the state enforcement service may attach a debtor's residence and the land thereunder whenever the debt exceeds 10 minimum monthly salaries (approximately 1,400 USD in 2012).
In case the debtor is a legal entity, the state enforcement service has the right to levy collection on its property and the property on the balance sheet of its branches, representative offices and other subdivisions, regardless of who actually uses the property. Upon the arrest of property, property which is not directly used in production (securities, passenger cars, office furniture, finished products, etc.) will be sold in the first order of priority. Thereafter, real estate, machines, equipment, principle assets, raw materials and other materials intended for use in production will be sold.
Any property, which must be sold to cover the debt amount, will be sold at public sales, auctions or on a commission basis. Property must be sold at prices derived from the official appraisal value of such property. After two months any unsold property will be subject to sale at a discounted price of no less than 30% of the originally appraised value. If the property remains unsold for another month, then the appraisal price may be further decreased by 50%. If the property remains unsold for a yet another month, the state enforcement service will offer to the judgment debtor to keep the property, or the property will be returned to the debtor.
Finally, any pledged property may be subject to mandatory levying of execution if the judgment holder is not the pledgee (mortgagee). This is possible if (i) the pledge right (lien) arose after the Ukrainian court's decision to permit the enforcement of the foreign court decision and (ii) the value of the pledged property exceeds the amount of the debtor's indebtedness before the pledgee (mortgagee).
Overall, Ukrainian legislation has covered many of the gaping holes that existed in foreign court enforcement legislation contained in Ukrainian international agreements. However, the law should not be viewed as an automatic vehicle for foreign investors to quickly line up and obtain judgments against their breaching Ukrainian counterparts. Both (a) a careful review of the various international agreements to which Ukraine is a party and (b) meticulous adherence to a well-structured dispute resolution provision are absolutely mandatory prerequisites to relying on the effective Ukrainian legislation as a guideline to legal enforcement.
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.