Case Study: Inside Ukraine’s First Preventive Restructuring Procedure

On 1 January 2025, the Law On Amendments to the Bankruptcy Procedures Code of Ukraine and Other Legislative Acts to Implement Directive (EU) 2019/1023 and Introduce Preventive Restructuring Procedures came into force.

This law provides Ukrainian businesses with access to a new tool – preventive restructuring, a mechanism that has already proven effective in many European jurisdictions.

Our team was not only directly involved in drafting this legislative initiative, but also became the first in Ukraine to implement it in practice. Being pioneers in this area is both a privilege and a heavy responsibility; the market’s perception of this new tool largely depends on the success or failure of our case.

Despite the novelty of the procedure, we’ve already advised several colleagues on how to prepare for its launch. Still, the market remains cautious – shaped by a lack of precedent and the unsuccessful track record of previous pre-trial rehabilitation procedures. Many are watching from the sidelines, analyzing our experience. Only a few are willing to be first. And yet, we already see a line forming.

So, how difficult is it really? What challenges have we faced? And what does the preventive restructuring process look like from within? This article tells the full story.

Background

Our client is a large enterprise – a well-known business center in the heart of Kyiv. Back in 2020, the company underwent a financial restructuring process due to the COVID-19 pandemic, which effectively brought business operations to a halt. As a result, debt owed to the banks began to accumulate rapidly. Despite these challenges, the restructuring was successfully completed: the business recovered, and the client resumed regular servicing debt obligations.

Up until russia’s full-scale invasion, the company remained in good standing with its creditors. However, the outbreak of war changed everything. The business was forced to shut down: rental income collapsed, and the client’s logistics division suffered a direct missile strike – warehouses were completely destroyed. Among the major creditors were two large state-owned banks.

Faced with a difficult wartime dilemma – either lose the business (including mortgaged assets) or find new capital for recovery – the client sought additional financing. The banks, however, refused to extend new loans.

In response, the company took a strategic decision to temporarily divert part of its cash flow – originally earmarked for debt servicing – to rebuild its destroyed infrastructure. While this move technically constituted a default under the existing payment schedule, it was economically justified even from the creditor’s perspective: it was, after all, a step toward business recovery.

With the launch of the preventive restructuring framework in Ukraine, the client saw a new opportunity. Unlike financial restructuring, which is governed by more rigid procedural rules, preventive restructuring offers significantly more flexibility. As soon as this option became available, the client identified it as a viable alternative to either losing the business or securing unlikely financing. The decision was made: initiate the preparation of a preventive restructuring plan.

Developing the Plan

Preparing a preventive restructuring plan is far more complex than it might initially seem. In this particular case — where 90% of the debt was held by just two creditors — the planning process took over two months.

The main challenge wasn’t just the complexity of the negotiations. A significant amount of analytical and evidentiary work was required to ensure strict compliance with Article 33-15 of the Bankruptcy Procedures Code of Ukraine. Even for small or medium-sized businesses, going through this process without experienced legal counsel is nearly impossible — especially when the creditor side is advised by seasoned professionals.

And even that’s not enough. In our case, the client also enlisted internationally recognized financial advisors, valuation experts, and auditors — a move that significantly increased the cost of the procedure but was essential. Without this level of professional input, it would have been impossible to prepare a plan that met the “best interests of creditors” standard.

What Makes it so Complex

The “best interests of creditors” test requires that no creditor be left worse off than they would be in either of the following scenarios:

• the debtor’s liquidation under bankruptcy proceedings; or
• the implementation of an alternative scenario outside the restructuring process.

Meeting this standard involves a two-tiered analysis. It requires both a comparison with the hypothetical liquidation value and an assessment of the feasible alternatives available to each class of creditors.

The latter is particularly challenging. For example, a secured creditor may be better off enforcing a mortgage — making it their optimal option. Meanwhile, for unsecured creditors, that same scenario could result in the worst possible outcome. As a result, substantiating the restructuring plan requires detailed financial modeling, in-depth analysis, and independent expert valuations.

Scope of the Plan

Not including appendices, the narrative part of the plan alone exceeded 150 pages. It was structured around the 15 elements outlined in Article 33-15 of the Bankruptcy Procedures Code of Ukraine. Preparing it required substantial time, interdisciplinary coordination, and significant resources — all of which must be factored into early-stage planning.

That said, it’s important not to discourage businesses considering the use of preventive restructuring. For micro and small enterprises, the process is far less demanding: instead of a full restructuring plan, they may submit a restructuring concept — a high-level outline of the company’s vision without granular detail. This can be prepared within two to three weeks, enabling the procedure to be launched quickly while leaving room for refinement later.

Affected and Unaffected Creditors

In our case, there was the question of defining the circle of affected creditors, as well as determining which claims should be considered affected and which should not. For example, at the stage of preparing and submitting the draft preventive restructuring plan, the business had a number of overdue monthly loan payments. This was an undisputed debt existing at the time of the court application. At the same time, the preventive restructuring plan provides for a certain future cutoff date until which time the business will not service the debt, and the debt will continue to accumulate.

At this point, creditors had not issued a demand for early repayment of the entire loan amount. The law stipulates that the plan must cover the restructuring of both obligations that have arisen and those that will arise during the preventive restructuring procedure. The complexity lay in understanding exactly what is meant by claims “arising” during the procedure: should the plan assume that the bank will demand early repayment of the full amount and include that sum in the claims, or should it be based on the plan’s proposal under which the business will start servicing the loan from a certain date, including only those claims that will definitely arise from the start of the procedure until that date?

After analyzing the law, particularly the definition of future claims, we concluded that the plan should include only those claims that will definitely arise during the procedure. The law uses the phrase “claims that will arise,” without the word “may,” to avoid an unpredictable number of claims that would complicate decision-making. Therefore, the restructuring plan accounted only for overdue payments and those the debtor consciously decided not to pay until the plan’s approval.

What to Restructure

The next question was whether to restructure only overdue and future overdue claims, or the entire obligation. Neither the Code nor the EU Directive provides a definitive answer, so the business has a choice. Our client decided to restructure the full amount of the obligation, regardless of whether the bank had issued a demand for early repayment.

After the initiation of the preventive restructuring procedure, we faced another challenge that confirmed the correctness of our approach to defining the scope of future creditors. The State Tax Service filed a claim asserting it was not included among the affected creditors, despite the existence of a tax assessment notice. However, the State Tax Service itself stated in its claim that this obligation is disputed and may only become confirmed during the procedure if the debtor loses the case against the State Tax Service. The debtor challenged the tax assessment in court, and if successful, the obligation will not materialize.

Analyzing this claim and the relevant statutory language, which refers to obligations that “will arise” rather than those that “may arise,” we concluded that the Tax Service’s disputed claim is conditional and its outcome is uncertain. Including the State Tax Service as an affected creditor in this instance would imply the debtor’s recognition of the obligation, potentially undermining its position in court. The State Tax Service could use the inclusion as evidence of the debtor’s acknowledgment of the debt.

Therefore, it was decided that contingent claims are not those that will definitely materialize; they may or may not arise.

Ghosts of the Past

During the procedure, an issue arose where some creditors claimed that the restructuring plan did not include a financial analysis regarding signs of bankruptcy, insolvency, hidden bankruptcy, or illegal actions. This refers to outdated methodological guidelines from the Ministry of Justice, which do not correspond to current realities either in preventive restructuring or corporate bankruptcy.

We were prepared for such a question. However, Article 33-15 of the Bankruptcy Procedures Code of Ukraine does not require such an analysis. It only states that the plan must contain information about the debtor, its financial condition, and the reasons for insolvency or threat of insolvency. The law does not mandate conducting such a financial analysis.

In our case, we still disclosed whether insolvency or merely a threat thereof exists. We conducted financial condition analytics and concluded that, despite the size of the debt, the debtor is not insolvent. It is possible to fulfill overdue obligations before the bank demands early repayment of the loan.

At the same time, we decided not to conduct the financial analysis in the format provided by outdated methodological guidelines, as this approach complicates entering the preventive restructuring procedure for businesses in general.

If conducting a financial analysis at the stage of preparing the plan or restructuring concept were mandatory, it would increase costs and delay the timeline, which is critical. Although in our case the financial analysis was done to confirm the position, it was not submitted to the court because this approach is an archaic one for the preventive restructuring procedure.

Legislative regulation of this issue is possible but complicated — the list of documents cannot be exhaustive, and new requirements will always arise. The law requires only information about insolvency or its threat, without conclusions. Therefore, we will maintain the position that conducting financial analysis according to the outdated methodological guidelines is not mandatory.

Creditors Push Back

Some creditors — understandably — may be unhappy with the preventive restructuring procedure. It requires them to wait and negotiate with the debtor, rather than pursue an alternative route, even if that alternative is practically nonexistent. In our case, several appellate complaints — not only from banks — were filed challenging the ruling to initiate the procedure.

In reality, the appellants were not objecting to the procedure itself but rather expressing their general dissatisfaction. In my view, this reflects a national tendency — a habit of litigating — as no viable alternative repayment plan has been proposed.

These complaints are based on claims that the draft plan is unfeasible or contains formal deficiencies (such as minor punctuation inaccuracies or a lack of sufficient disclosure) and, therefore, argue that the court should not have initiated the procedure. But it’s important to note: this is only a draft plan, which is not legally binding under the law and is expected to evolve through negotiations with creditors.

Article 33-5 of the Bankruptcy Procedures Code of Ukraine clearly outlines the grounds for refusing to approve a plan — and “non-compliance of the plan with the law” is not among them. Moreover, while the application to open the procedure must include a draft plan, this does not mean the court is required to conduct a detailed review of its content at this initial stage.

At this phase, the court is only expected to verify whether the plan includes the required sections and basic information. It is not required to assess the accuracy or validity of that information. Doing so would effectively shift the substantive review stage (the final hearing) to the very beginning — which would be a procedural and conceptual mistake.

At the time of opening of the procedure, the judge does not yet have full information about the business, creditors, or debtor. Only during the procedure — through review of motions, complaints, audit reports, and possibly additional expert evaluations — can the court reasonably assess whether the plan complies with the law.

Therefore, an in-depth analysis of the plan at the initiation stage is counterproductive, as it complicates and delays the process. The EU Directive emphasizes that access to the procedure should be as straightforward as possible. After initiation, if creditors find the plan unrealistic or gather sufficient votes against it, they can influence the subsequent course of the process.

A creditor may also file a motion to close the procedure after its initiation if the restructuring plan has no reasonable prospect of being approved. This is why shifting plan-related objections to the opening stage is highly risky.

In our case, after the plan was submitted, the banks demanded early repayment of the loan. Although under the loan agreements the obligation does not become due simply upon notice, the banks argue that the debtor became insolvent before the procedure was opened. They insist that in such a case, the court must apply a higher evidentiary standard: the debtor must present a particularly substantiated plan, and the court must scrutinize it thoroughly at the initiation stage.

I believe this is a flawed approach. Entry into the procedure should remain accessible. A higher evidentiary threshold should only apply after the procedure has been opened — from day two onwards. At that point, the debtor’s arguments must be backed by robust evidence.

This issue is currently the subject of appeal proceedings and may significantly influence future judicial practice. I hope the court takes these arguments into account not only in this case but also in shaping the broader legal framework.

Financial Model

The financial model proposed in the draft preventive restructuring plan at the stage of filing with the court forms part of a broader strategy. Typically, a debtor develops several restructuring scenarios — from those most favorable to itself to those most acceptable to creditors. It is possible to submit a plan that is highly creditor-friendly but minimally beneficial to the debtor; however, doing so may result in the court opening the procedure while leaving the debtor with no room to maneuver during subsequent negotiations. Creditors would effectively receive a favorable starting point and push for even further concessions.

At the same time, the restructuring terms cannot be entirely unacceptable to creditors. If creditors immediately find the plan to be unviable, they may strongly disagree and petition the court to terminate the proceedings without even entering negotiations. Therefore, striking a balance is crucial: the financial model must not provoke outright rejection but rather encourage dialogue and enable the debtor to make concessions during the process.

Given the novelty of the preventive restructuring procedure and its difference from traditional financial restructuring, the initial understanding of this balance in our case was not perfect. Creditors perceived the base model — which already included certain obligations on the part of the debtor — as unacceptable. During negotiations, both creditors and the debtor, raised questions about the possibility of revising the financial model. The answer is straightforward: the initial model is merely a starting point. It should evolve through meetings with creditors, facilitating compromise between the parties.

In practice, the financial model includes minimum acceptable terms — below which the debtor should not go. From there, the debtor can move toward terms that are more favorable to creditors. Therefore, in our view, the terms of our plan, unlike those under liquidation or other insolvency procedures, are both more attractive and more promising.

Restructuring Terms

According to forecast by an internationally recognized firm, in the event of bankruptcy proceedings or an alternative scenario, and taking into account the dynamics of the real estate market, asset realization timelines, and associated costs, creditors could expect to recover approximately 30% of their claims over a period of about five years.

In contrast, the implementation of the restructuring plan involves repayment of 100% of creditor claims—albeit over a longer horizon of 12 to 15 years.

This outcome is based on financial analysis. The question of the time value of money remains open: what is ultimately more advantageous for a creditor—30% now or 100% in 10 to 15 years?

That said, I can state with confidence that the relevant “best interests of creditors” tests have been met. 

Change of Creditor Status

Despite the existence of basic legal framework for the preventive restructuring procedure, there remains at least one unresolved practical issue that requires both procedural and possibly legislative clarification.

Unclear Procedure for Recognizing Affected Creditor Status

Specifically, a key practical question arises: what should a creditor do if the debtor did not include them in the procedure, but the creditor believes they should be included? Current legislation grants certain rights to affected creditors (such as challenging claims, participating in negotiations, and having access to the restructuring plan, etc.), but it does not clearly regulate the process for challenging the fact of exclusion from the restructuring procedure itself.

In this context, attention can be drawn to Article 33-5 of the Bankruptcy Procedures Code of Ukraine, which obliges the Commercial Court to consider applications, motions, and complaints submitted by the parties to the case, the restructuring administrator, as well as other persons whose rights have been violated within the procedure, no later than 10 days. This provision may theoretically serve as a basis for an excluded creditor to file a complaint about their non-inclusion in the procedure, especially if other creditors of the same class were included.

For illustration: if the debtor has five suppliers but only included four of them, completely overlooking the fifth—neither including them as an affected creditor nor as an excluded creditor— such omission breaches the principle of pari passu treatment among creditors of the same class. Under the preventive restructuring plan, the debtor is obliged to list all known creditors—both those included and those excluded.

Recommendations for Regulation

Obviously, burdening the commercial court with complaints about creditor exclusion at the initial stage of the procedure is inefficient. Therefore, it would be advisable to consia der introducing a pre-trial (within the case) mechanism for resolving such issues.

Specifically:

• Require the excluded creditor to first submit a relevant request to the debtor or the preventive restructuring administrator;
• Set a deadline for its consideration (e.g., 5 business days);
• Grant the right to appeal to the court only if such a request remains unanswered or is denied;
• Authorize the court to order the debtor or administrator to amend the restructuring plan or to recognize the relevant creditor as affected.

Such clarification could enhance the legal certainty of the procedure, ensure a balance of interests among parties, and contribute to the practical effectiveness of the preventive restructuring mechanism.

Appointment of Administrator

In our case, the debtor was not required to propose a candidate for the administrator, since according to Article 33-2 of the Bankruptcy Procedures Code of Ukraine, the appointment of an administrator is mandatory only upon submission of a restructuring concept, but not a restructuring plan. In this instance, a plan was submitted.

Nonetheless, despite the optional appointment, due to the scale and public nature of the case, the debtor proposed a candidate for the administrator — which was subsequently approved by the court. This partially relieved the debtor’s burden, as at the current stage, communication with creditors primarily occurs through the administrator.

It is important to emphasize that before the court opens the preventive restructuring procedure, the administrator cannot participate in the preparation of the restructuring plan draft, as this would create a risk of being considered conflicted. This already constitutes a potential conflict of interest.

Instead of Conclusions

The success or failure of the first preventive restructuring procedure in Ukraine will largely depend on the genuine willingness of parties to communicate and find positions that bring them closer together.

Currently, communication with creditors exists, but it needs to be strengthened, as the debtor is interested in dialogue and in exploring financial models that would enable reaching an agreement without resorting to destructive scenarios.

Bankruptcy proceedings or cross-class approval of the plan is an undesirable outcome, as it implies disregarding the interests of certain classes of creditors.

Therefore, intensifying and deepening the dialogue and involving all parties in constructive work towards a mutually-agreed solution is a key element for effective implementation of the procedure.