iМоRе №108. The Code of Bankruptcy Procedure increased the Index significantly

The main events of this round are signing The Code of Bankruptcy Procedure and passing a resolution about implementation of introducing the electronic temporary disability leave notes (sick leave notes)

Author:

Index for Monitoring Reforms (IMoRe) stood at +1.0 points from the 8st till the 21st of April out of the possible range from -5.0 to +5.0 points. In the previous round the Index stood at +0.2 points.

The main events of this round are signing The Code of Bankruptcy Procedure and passing a resolution about implementation of introducing the electronic temporary disability leave notes (sick leave notes).

Graph 1. Dynamics of Index for Monitoring Reforms

 

Graph 2. Meaning of IMoRe and its components in a current round of estimation

Events of the round

The Code of Bankruptcy Procedure, +4.0 points

When in Ukraine a debtor does not meet his/her liabilities, a creditor has a very limited range of instruments to get his/her money back. Since the instruments, as provided for in the current legislation, – are not effective. In particular, bankruptcy procedures last for a long time and often allows to give a creditor back only insignificant part of a debt. A procedure of foreclosure sale rarely allows to get for estate the highest possible price, since property rights of a buyer of this estate leave unprotected, thus it is very difficult to find a buyer for such estate.

Bankruptcy procedures’ of physical persons were not envisioned by the law at all. People who have debts and cannot pay them, are pressed by creditors and collection agencies. They actually find themselves in a dead-end situation, when they are pressed by all creditors, and they feel that in current conditions they will not under any circumstances be able to satisfy all debts.

The Code of Bankruptcy Procedure (2597 – VIII from 18.10.2018) is directed on solving these problems.

The Code implements an institute of a physical person’s insolvency.

A person will be able to initiate a case about his/her insolvency (admitting him/herself a bankrupt), if s/he has overdue liabilities not less than 30 minimal salaries (125190 UAH as of 2019).  

From a moment of starting a case about bankruptcy, creditors can demand to satisfy debts only on the limits of this case, fines and other sanctions are not added.

After starting a case a court can initiate restructurisation or satisfying debts of a physical person. In the first case there can be a realization of property to the benefit of creditors, grace period, deferred payment, debt relief, return of a debt by the third part. In the other case a person’s assets are going to be sold until the whole sum of a debt is satisfied. If there are not enough assets to satisfy a whole debt, then unsatisfied part will be written off by a court.

A court can strike a case if a person was charged with an administrative or criminal liability for illegal activities, connected to insolvency, or if s/he was recognized as a bankrupt during the last 5 years.

Bankruptcy of a physical person will influence his/her business reputation. During three years after being recognized as a bankrupt s/he will be considered as a one who does not have impeccable business reputation. S/he will have to inform in a written form about his/her insolvency during signing a credit agreement, loan agreement or suretyship agreement.

A range of procedures for legal entities is improved in the Code. In particular:

  1. If demands of a creditor are insured by recognizance, but a creditor considers that a cost of recognizance is not enough to satisfy a whole debt, s/he can fully or partly refuse it. Then this part of a debt will be considered unsecured and included into a register of creditors’ demands. It allows to satisfy it through a foreclosure sale.

In their experience creditors often faced a situation when costs received from selling a recognizance where not enough to satisfy a debt. Together with that there was no possibility to include a sum, not covered by a recognizance, to a register of creditors’ demands. Accordingly, it was impossible to get this sum from the realization of other property of a debtor. Now creditors will have such a possibility.

  1. Foreclosure sale on an auction will be done only through an electronic trade system. It will allow to sell assets in a more transparent way and for a fairer price.

The Code will come into force in October 2019.

Commentary of an expert

“The Code of Bankruptcy Procedure which has recently been passed gives certain hope on improving insolvency regulations of companies and physical persons in Ukraine.

As of today, a situation is not very positive – procedures of reestablishing debtor’s solvency are an acting tool neither for creditors, not for debtors. According to a rating Ease of Doing Business, a procedure in average lasts 2.9 years, more than 40% of debtor’s assets are spent on it (in comparison with around 13.2 in Europe and Asia), it is possible to take only 9.6 %of a debt from a debtor, while in developed countries this index is 70%.

There are plenty new things. It is a first time when there is possibility to recognize a physical person as a bankrupt. In comparison with previous normative acts the Code much better protects interests of creditors, which is essential in a country with not ideally functioning financial system. Because of decreasing a number of decisions that may be appealed there is a hope for expedition of cases.

At the same time the Code consists enough clumsy phrasings that can potentially lead to certain practical problems”.

Zoia Mylovanova, a member of the editorial board of VoxUkraine

Graph 3.  Events that defined the value of the Index, event’s estimation is a sum of its estimationss by directions, that is why it can be higher than +5, or be lower than -5.

 

Order of administration of the Electronic registry of sick leave notes is approved, +2 points

Decision about creation of the Electronic registry of sick leave notes was passed in November 2018. It should have been connected with the Registry of Compulsory Social Insurance.

Through the resolution from April 17, 2019, №328, the government regulated implementation procedures for maintenance of the registry of temporary disability leave notes and providing information from it. The Pension Fund will form and maintain it.

The Registry will operate with mass data from the registry of insured persons and will be filled in with data from the electronic system eHealth about proved by doctors facts of temporary disability.

Data available in the Registry will be automatically transferred to the Social Insurance Fund, which carries out an inspection of validity of issuing and prolonging temporary disability leave notes, and also pays for incapacity to work.

A reformer’s commentary

“Currently issuing and audit of sick leave notes takes place on a level of hospitals. However, a big number of such documents contains inaccurate or untrue data about patient’s health status, which is simultaneously a great field for manipulations and corruption risks.  

A new notion is introduced in the approved documents – a medical conclusion about temporary disability, on the basis of which an electronic sick leave note will be formed. Medical conclusion can be formed only with reference to a medical record in a patient’s electronic card. Thus, if a record about an illness is absent in a medical card, the system will not allow to form a corresponding medical conclusion, and, accordingly, an electronic sick leave note.

Important thing is a total cancellation of paper sick leave notes. At the same time, employers will have access to the newly-created Registry through a personal page for operative monitoring and audit of electronic sick leave notes issued to employers”.

Anastasiya Khalieieva, Ministry of Health

Commentary of an expert

“When the Registry starts working in a full-fledged mode, a process of sick leave notes issuing and their compensation will be more comfortable for all stakeholders, who do not have intentions to take advantage of their sick leaves – patients, hospitals, enterprises and the Social Insurance Fund.  This will also minimize corruption in this sphere, because an audit will be more transparent in the electronic registry. When the Registry’s data appear, state bodies will finally be able to analyze them thoroughly and make conclusions about effectiveness of the social security system in case of incapacity to work, volumes of such compensations in different sectors of economics, etc.

Certain problems might arise in the process of implementation. They may be connected to a launching of the electronic system, staff training, working on and approving business-processes of stakeholders. However, coordinated work of state bodies can minimize these risks”.

– Tetiana Tyshchuk, VoxUkraine

Chart 1. Estimations of all events and progress of the reform by directions

State Governance 0.0
Public finance +1.0
Order of administration of the Electronic registry of sick leave notes +2.0
Monetary System +2.0
Business Environment +2.0
The Code of Bankruptcy Procedure +2.0
Energy 0.0

Graph 4. Meaning of certain components of the Index and number of events

(See graphs and charts on the website)

Note: Index for Monitoring Reforms (iMoRe) from VoxUkraine aims to provide a comprehensive assessment of economic reform efforts by Ukraine’s authorities. The Index is based on expert assessments of changes in the regulatory environment in five areas:

  1. State Governance
  2. Public Finance
  3. Monetary System
  4. Business Environment
  5. Energy

For details about the Index and methodology of estimations please visit imorevox.in.ua.

VoxUkraine is a unique content worth reading. Subscribe to our e-mail newsletter, read us on Facebook and Twitter, see the latest video on YouTube.

We believe in the power of words and that ideas have the main impact. VoxUkraine gatherers the best economists and help them to deliver their ideas to tens thousands of Ukrainians. Content VoxUkraine is free (and always will be free), we don’t sell ads and we don’t make lobbyism. For do more research, create new influenced projects and publish more quality articles we need clever people and money. We have people! Support VoxUkraine. Together we will do more!


Disclaimer

The author doesn`t work for, consult to, own shares in or receive funding from any company or organization that would benefit from this article, and have no relevant affiliations