Key facts on the draft law “On financial restructuring” (“Ukrainian approach”)

Financial restructuring can be approved for a company which:
• is potentially viable (should be confirmed by the conclusion of an independent expert); 
• is temporarily experiencing problems with liquidity and timely debt payments to its creditors;
• has a chance to return to a successful business activity in case if the issue of the “excessive” debt burden is solved;
Municipal and state-owned enterprises can apply for financial restructuring as well.

Restructuring mechanism:
• restructuring procedure can be started with the consent of at least three financial institutions which are the creditors of the debtor or with the consent of one or several financial institutions owning at least 25% of the total debt liabilities of the debtor, with the exception of his affiliated parties. This condition should motivate debtors to resort to this procedure only in case of need and in case of a high debt to financial institutions; 
• if the bank which granted the respective loan is now managed by temporary external administration, its functions are fulfilled by the State Deposit Fund;
• to avoid misuse or manipulation of the financial restructuring process, the related parties of the debtor have no possibility to influence the process; 
• coordination and monitoring of the procedure are the task of a group of independent experts representing the National Bank of Ukraine, Ministry of Finance, Ministry for economic development and trade and Ministry of Justice. 

Possible results of financial restructuring:
• revision of payment deadlines;
• revision of the interest rate or other terms of the loan agreement and other agreements;
• new funding for the debtor;
• write off of a part of the loan;
• reorganization of the debtor’s activity;
• personal changes in the debtor’s management and control bodies (general manager and/or member of the managing and controlling body);
• change of the corporate management structure;
• other measures agreed by the parties.

Tax incentives for indebted companies:
• companies are exempt from the profit tax on the cancelled part of the debt;
• transfer of debtors’ property as a part of debt settlement in accordance with the agreed restructuring plan is not subject to VAT; 
• tax authorities write off the tax debt of the debtors proportionally to the cancelled debt in accordance with the approved restructuring plan;
• postponement of tax debts which arose within 3 years prior to the start of the restructuring procedure.

Tax incentives for creditors:
• the sale of property received by a creditor as a part of debt re-payment is subject to VAT only for the profit received through the sale of this property;
• instalment for tax debts which accrued within 3 years prior to the start of the financial restructuring procedure.

The validity duration of the Law «On financial restructuring» is proposed to be set at three years after the day of adoption. 
• This duration will allow to assess the effectiveness of the financial restructuring procedure in Ukraine and to compare it with the experience of other countries. If the results turn out to be positive, the law can be prolonged.