On March 09, 2011 a new version of the Act of Ukraine "On Enforcement Proceedings" entered into force. It should be noted that the necessity of adoption of new provisions regulating the process of the judgments enforcement is long overdue as the situation on distressed debts enforcement in Ukraine is threshold to some extend. Thus according to various statistics of the beginning of 2011 the State Enforcement Service authorities really enforced not more than 15% of all the judgments to be enforced, whereas in Europe this figure is average 80 – 85%. These figures speak for themselves.

Thus, a creditor who had decided to enforce a debt through legal proceedings had a next perspective: litigation for a period of from several months to several years with payment of all the necessary expenses (state duty, information and technical support of the trial, holding examination, assessment, payment of all the legal services regarding the support and prosecution of the case etc.). And even if the claim is satisfied and there is a positive decision on debt enforcement that won't be a guarantee for a creditor of a real execution of the decision and a return of a net debt sum excluding all the other expenses incurred by the litigation de facto which sometimes exceed the sum of a debt. And then when a creditor had actually received a long-awaited enforcement document (writ of enforcement/order on debt recovery) and had it filled with State Enforcement authorities, suddenly there could be a situation that either it is not possible to find out a debtor's location, or a debtor has no property to levy execution upon. And if a debtor is a legal entity than it is likely to be in bankruptcy (usually, in fake one) or it is already liquidated. Such a situation was felt by foreign companies – creditors, which had their business in Ukraine, as the destiny of the accounts receivable remained unpredictable.

Went through all the judicial instances, having no real debt recovery, a creditor had no choice but to seek protection of his rights in the European Court of Human Rights upon a violation of the commitments made by a state according to the Convention for the Protection of Human Rights and Fundamental Freedoms a member of which Ukraine is. Strasbourg Court in turn having analyzed a lot of claims connected with systematic failure to execute the decisions of national courts as also a nationwide character of this problem, admitted such a practice as unacceptable and made a pilot judgment on a case of Ivanov vs. Ukraine in 2009 which ordered Ukraine to "...set up without delay, and at the latest within one year from the date on which the judgment becomes final in accordance with Article 44 § 2 of the Convention, an effective domestic remedy or combination of such remedies capable of securing adequate and sufficient redress for the non-enforcement or delayed enforcement of domestic decisions...". More simply – Ukraine had to adopt several bills which would eliminate a problem of a mass failure to execute decisions of national courts. And that resulted in adoption of the Act of Ukraine "On Enforcement Proceedings" in its new version.

However, before analyzing a new Act, I would like to point out a definition of "a distressed debt". To date this definition is widespread in Ukraine. By the way, almost every Ukrainian bank has a "Department on Distressed Debt Recovery". However there is no definition of the "distressed debt" in Ukrainian legislation. A removed analogy can be drawn between "a distressed debt" and the definition of "uncollectible bills" or "a hopeless credit transaction" which is used in the Regulation on the procedure of formation and use of reserve to compensate possible losses on banks' credit transactions. According to this Regulation, "a hopeless credit transaction" is determined as a transaction the probability of fulfillment of obligations under which by the debtor/contractor of the bank (in respect of financial status of the debtor and security level) is practically non-existent, and the risk of such situation equals its outstanding amount. To some extent the abovementioned definition shows the essence of "distressed debt" but only at the stage of its appearance. If to consider the definition of "a distressed debt" from the aspect of its recovery at the stage of enforcement of judgment, then it has a slightly different meaning. Appealing to my own work experience at the stage of the enforcement proceedings, I would define "a distressed debt" as omission or active counteraction of a debtor during the enforcement of judgment - or another enforcement document, - by State Enforcement Service authorities, caused by the impossibility or intentional unwillingness to execute it on a voluntary basis.

Undoubtedly, the starting point in solving the problem of low percentage of distressed debt repayment in Ukraine is adoption of Act of Ukraine "On Enforcement Proceedings" in its new version. The main goals of the new Act were to protect rights of recoverer, to minimize the possibility of debtor to procrastinate the enforcement proceedings and to ensure effective work of State Enforcement Service authorities while enforcing judgments.

At the same time the Act contains both positive and negative novels. Thus, the undoubted advantage is that state enforcement officers were entitled with direct access to all necessary data bases and registers, including electronic ones, containing information about debtors, their property and funds. They had such right in the past, however, due to the lack of direct rule of law, the possibility of its implementation has been highly controversial. This novel should increase the efficiency of enforcement proceedings and reduce the time of distressed debts enforcement. In addition, the recoverer got right to provide information about the location of the debtor's property or the number of his bank accounts in application on opening the enforcement proceedings.

Among the rules aimed at preventing abuse of rights by the debtors and delaying execution of judgment, it should be noted such rights of state enforcement officer as to bring court action for establishing temporary restrictions on the debtor's right to travel outside Ukraine, to seize not only the debtor's property, but his funds too at the opening of the enforcement proceedings, to obtain a court ruling on compulsory entering debtor's dwelling, etc. In addition, the debtor was denied the right to administrative appeal against state enforcement officer's actions, leaving him only the right to judicial review, which, in turn, now is not the reason to suspend judgment enforcement (formerly debtors often abuse their right to appeal to tighten enforcement proceedings).

A negative aspect of the law, in my opinion, is shortening the period of presenting enforcement document for execution from 3 to 1 year, reducing the validity period of the evaluation report the debtor's property up to 6 months as also the right of the state enforcement officer to discount again the property not sold at public auction, up to 50% of its original cost.

Besides, a significant drawback of the new Act is a rise in the cost of services of the State Enforcement Service, since it is now executive fee of 10% will be levied not on the actual recovered amount of debt, as before, but on the amount to be recovered or the value of assets to be recovered. Thus, regardless of the success of the procedure of enforcement proceedings, the recoverer in any case should share with the State Enforcement Service.

In conclusion I would like to note that although the new Act laid the foundation for reformation of the system of timely and effective enforcement of court decisions, many challenges still remain urgent. In many respects the situation has been affected by the global financial crisis which showed the failure of many borrowers to meet their financial obligations to banks, especially in time of economic and political instability in the country. A comprehensive solution is required for the problem of corruption of the State Enforcement Service authorities and also for the use of administrative resources by influential debtors during enforcement recovery of their debts. Perhaps the situation would change for the better with the introduction of the institution of private bailiffs. In many European countries (France, Belgium, Luxembourg) the institution is functioning successfully and private bailiffs are endowed with the rights of public officers and act equally with them on certain categories of cases. Some CIS countries (Russia, Kazakhstan) have also begun to work in this regard. Anyway, the problem with the recovery of distressed debts and effective enforcement of judgments in Ukraine can only be solved by introducing a transparent system of control over timely execution of court decisions and the real responsibility of the officials responsible for violations of the law on enforcement proceedings.

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