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28 October 2022

The Supreme Court says the recognition of foreign bankruptcy is governed by comity. Where an international treaty does not expressly cover foreign bankruptcy proceedings, they are to be recognized in Ukraine if the principle of comity is met and the proceedings are otherwise not contrary to Ukrainian public policy. Besides, being a commercial matter, bankruptcy does not need to be explicitly mentioned in a treaty governing civil matters.

In this case a liquidator in Czech bankruptcy proceedings applied to a Ukrainian court for an order recognizing the proceedings and imposing a stay on debt recovery in Ukraine. The debtor had been trading outside of Ukraine, but had assets in the country. The liquidator, seeking to dispose of the assets, needed protection against creditor claims made outside of the bankruptcy proceedings. 

The Ukrainian trial court granted the order, invoking the 2002 bilateral legal assistance treaty. The decision was canceled by the appellate court. It noted that foreign bankruptcy recognition was only possible under a treaty, and the treaty in question did not cover bankruptcy matters.

The Supreme Court reversed the appellate court’s ruling and sent the appeal back to be decided anew, subject to the Court’s findings of law.

The Supreme Court noted that under Ukrainian law the recognition of foreign bankruptcy proceedings is subject to the principle of international comity. The matter thus does not necessarily have to be governed by a treaty. If the foreign country’s courts recognize Ukrainian proceedings, a question of fact left to a trial court, and the foreign proceedings are not otherwise against Ukrainian public policy, then the Ukrainian courts should grant the recognition.

The Court further explained that the scope of civil matters in a legal assistance treaty should be construed broadly. It indicated that the civil by its nature subsumes the commercial, of which bankruptcy is a subset. So where a treaty governing civil matters does not expressly provide otherwise, it extends to bankruptcy as well. This latter finding is also likely meant to supply a recognition basis additional to comity. 

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