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Klaus Kessler

Rechtsanwalt (Deutschland)
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Problem of debt collection under foreign trade agreement in foreign currency

Foreign companies delivering goods / services to the territory of Ukraine sometimes face situations where Ukrainian counterparts refuse to pay the cost of such goods / services, as a result foreign companies are ought to file a lawsuit at court.

Unfortunately, a positive court decision on debt collection from a Ukrainian debtor is not a guarantee of a quick return of debt to foreign company.

According to the information posted on the official website of the Ministry of Justice of Ukraine, the total enforcement rate of court decisions in Ukraine in 2017 was 18%. This means that only 18 of 100 court decisions are executed in Ukraine.

Enforcement of a court decision on debt collection under an foreign trade agreement in foreign currency has its own peculiarities that a foreign creditor should take into account.

Debt currency in court decision

In the case the currency of the contract is a foreign currency, the value of the claim on debt collection should be indicated in the foreign currency with the definition of the equivalent of such amount in hryvnia. Definition of the claim's value in hryvnia with the indication of the equivalent in foreign currency may cause the situation that the court will also indicate the amount of the debt to be recovered in hryvnia in the court decision and court order, and moreover in an amount indicated in the claim on the date of its filing to court.

As a result, the losses of the creditor due to the devaluation of the hryvnia and exchange rate fluctuations from the moment the claim is filed to the court and until the execution of the court decision can be quite significant.

Debt currency in enforcement proceeding

Upon receipt of a court order on the execution of a court decision, the executor must recover such amount of debt and in such currency, as indicated in the court order.

Despite this, even when the debt in a court order is defined in foreign currency, the executors often calculate in practice the equivalent of the amount of the debt in hryvnia on their own and indicate such amount in the decision on the opening of an enforcement proceeding.

The reason for this is simple - it is easier technically to recover the amount of debt in hryvnia. Although the procedure for executing a court decision in foreign currency is stipulated by the legislation of Ukraine from 2015, at this moment the practice of implementing such a procedure is not well-established, and some territorial departments of the executive service do not even have bank accounts in foreign currency that are necessary for debt collection in foreign currency.

The creditor should controll the correctness of determining the currency of a debt in a decision on the opening an enforcement proceeding. If the executor in the decision on opening of enforcement proceedings will indicate the amount of debt in hryvnia, despite the fact that the currency of the debt specified in the court order is foreign currency, such a decision is to be appealed to the court. Without appealing of such a decision, due to the devaluation of the hryvnia and exchange rate fluctuations from the moment of the opening of enforcement proceedings until the time of collection of the debt, the creditor may receive a sum of money far from the actual amount of the debt.

The debtor has neither money nor property. What to do?

The biggest obstacle on the way of a foreign creditor to recover debt may be the absence of funds on the debtor's accounts (both in foreign currency and in hryvnia), as well as any movable or immovable property. In this case, the court order will be returned to the creditor without execution (clause 2 section 1 article 37 of the Law of Ukraine "On Enforcement Proceedings").

In cases where the amount of the debt is not less than 300 minimum wages (about 32 000,00 Euros) that were not satisfied by the debtor within 3 months from the date of opening of enforcement proceedings, the creditor may apply to the court to declare the debtor bankrupt.

In case of a bankruptcy proceeding initiated by a court, a creditor may apply to the court for a recognision of invalidity of transactions that the debtor has carried out

  • 1 year before or
  • after the bankruptcy proceedings have been initiated.

The consequence of the recognition of the transaction as invalid is the return by the parties to the transaction to each other all the property they received as a result of its execution.

This means that in the course of bankruptcy proceedings, the creditor will have a chance to collect the debt at the expense of funds or other property returned by the business partners of the transactions to the debtor that were recognized invalid by the court.

Conclusion

For a successful debt recovery under a foreign trade contract in a foreign currency, it is important for a foreign creditor to pay attention to the formulation of the claim and the currency of the claim, the determination of the currency of a debt in the court decision, court order, as well as decision on opening of the enforcement proceedings. Such details are often critical for the sum and the currency of debt, which will be returned to the creditor.

The fact, that the debtor has neither money nor property necessary for repayment of the debt does not always mean a complete impossibilty to recover debt. In such cases, consideration should be given to the mechanism for initiating bankruptcy procedure of a debtor and the repayment of debt within such a procedure in accordance with the current legislation of Ukraine.

Rödl & Partner
Kyiv

Mykoly Pymonenka Street 13
Building 1B, office 31
04050 Kyiv

Phone: +380 (44) 586 23 03
Fax: +380 (44) 586 23 04
E-Mail: kiew‎@‎roedl.com
Website: www.roedl.net/ua