Resolution of the Supreme Court of Ukraine, dated November 16, 2016, case No. 908/560/16. Available at http://reyestr.court.gov.ua/Review/62880970

I.T.G-INVEST LLC submitted an action to the Zaporizhzhia Region Commercial Court requesting invalidation of loan agreement No. 19 of 10.02.2009 and additional agreements No. 1 of 15.04.2011, No.2 of 04.11.2011 and No. 3 of 30.07.2014.

The lower courts ascertained that on February 10, 2009 Loan Agreement No. 19 (Loan Agreement)  was concluded between ACTIVE SOLAR LLC (the lender from Austria) and SEMICONDUCTOR PLANT OJSC (the borrower from Ukraine), whose successor is SEMICONDUCTOR PLANT JSC.

Clause 8.1 of the Loan Agreement provides that all disputes between the parties arising during the period of effect of this Agreement, in respect of which the parties fail to reach a settlement agreement, shall be resolved by the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry.

According to the first part of Article 8 of the Ukrainian Law On the International Commercial Arbitration, the court in which an action is brought in a matter which is the subject of an arbitration agreement shall, if any of the parties so requests not later than when submitting his first statement on the substance of the dispute, stay its proceedings and refer the parties to arbitration unless it finds that the agreement is null and void, inoperative or incapable of being performed.

The Zaporizhzhia Region Commercial Court on January 6, 2015 by its decision started bankruptcy proceedings in respect of SEMICONDUCTOR PLANT JSC and declared as undisputable the monetary claims of I.T.G-INVEST LLC (the plaintiff in this case), which were addressed to the debtor (SEMICONDUCTOR PLANT JSC).

On April 6, 2016 ACTIVE SOLAR LLC, guided by part one of Article 8 of the Ukrainian Law On the International Commercial Arbitration, filed a motion for termination of the proceedings in this case because of the arbitration clause in the Loan Agreement.

The representative of I.T.G-INVEST LLC objected granting the motion because I.T.G-INVEST LLC was not a party to the Loan Agreement, and therefore the arbitration clause contained in clause 8.1 of this Agreement should not cover disputes involving the plaintiff, I.T.G-INVEST LLC.

The Zaporizhzhia Region Commercial Court by its ruling of April 6, 2016 terminated the proceedings in this case.

The Court of Appeals cancelled the ruling of the Court of First Instance and remanded the case.

In making its decision the Court of Appeals proceeded from the fact that the arbitration clause of the Loan Agreement should not apply to disputes involving I.T.G-INVEST LLC, and the clause couldn’t be the ground for termination of the proceedings in accordance with the first part of Article 8 of the Ukrainian Law On the International Commercial Arbitration.

The Supreme Court of Ukraine affirmed the decision of the Court of Appeals.

Article 10 of the Ukrainian Law On the Restoring the Solvency of a Debtor or Recognizing It As a Bankrupt (Bankruptcy Act) sets forth that the court which considers a bankruptcy case shall resolve all property disputes with claims addressed to the debtor, including disputes on invalidation of any transactions, contracts concluded by the debtor, and so forth.

A systematic analysis of provisions of the Bankruptcy Act gives grounds for a conclusion that from the moment of commencement of bankruptcy proceedings the debtor is placed into a special legal regime that changes the entire complex of debtor’s legal relations, and in bankruptcy proceedings special provisions of the Bankruptcy Act have priority in application over other Ukrainian legislative acts.

Therefore, transactions (contracts) or debtor’s disposal of property committed by the debtor after the initiation of bankruptcy proceedings or within one year preceding the initiation of bankruptcy proceedings can be respectively recognized or refuted by court in bankruptcy proceedings at the request of an insolvency practitioner or bankruptcy creditor (part one of Article 20 of the Bankruptcy Act).

Thus, the peculiarity of resolving bankruptcy disputes is that they shall be considered and resolved by court without starting new proceedings, and this conclusion is consistent with the general thrust of Article 10 of the Bankruptcy Act, which provides for concentration of all disputes within the framework of bankruptcy proceedings for judicial control over activities of a debtor, retention of all  debtor’s property within the bankruptcy estate, and for taking other measures which purpose is total or partial satisfaction of creditors’ claims.

© Yuriy Karlash, English translation, 2017

© Yuriy Karlash, compilation, 2017