Restructuring and insolvency law in Ukraine

1. What is the primary legislation governing insolvency and restructuring proceedings in your jurisdiction?

The primary legislative acts governing restructuring proceedings in Ukraine are:

• the Law of Ukraine “On Financial Restructuring” No. 1414-VIII dated 14 June 2016, as amended (the “Restructuring Law”), for now to remain in force until 1 January 2028 – sets a special voluntary financial restructuring procedure (“Financial Restructuring”)
• the Code of Ukraine on Bankruptcy Proceedings No. 2597-VIII, dated 18 October 2018, which became effective on 21 October 2019 (the “Bankruptcy Code”) – governing pre-bankruptcy and within the bankruptcy proceedings restructuring options.

Some aspects of the restructuring proceedings are covered in civil, corporate and labour laws.

2. How are insolvency proceedings or restructuring proceedings initiated?

Financial Restructuring

A financial restructuring procedure can only be commenced by a debtor if:

• it has a debt to at least one financial institution, except for debtor’s related parties
• it is in a critical financial condition (i.e. unable to perform its liabilities towards creditors as they fall due), a
• its business is recognised as potentially viable by an independent auditor selected by the creditors.

State enterprises with a special status (kazenni pidpryiemstva) and financial institutions cannot use financial restructuring. The debtor has the right to select any of its creditors to participate in the financial restructuring, one of which should in any case be a financial institution. The restructuring plan can be approved if it is agreed by financial institutions holding at least 50% of the financial institutions’ claims (excluding the claims of financial institutions that are the debtor’s related parties). 

Pre-bankruptcy Restructuring

This is an out-of-court and out-of-bankruptcy settlement. Only a debtor (based on the decision of the founders (participants, shareholders)) has a right to initiate it. While restructuring negotiations take place on a voluntary basis between the parties, they have to apply to court to approve the restructuring plan in order for such plan to be enforceable against third parties (although still with some limitations). If the court finds that the restructuring plan does not meet the requirements of the Bankruptcy Code (e.g. the amounts, procedure and terms of repayment of the creditors’ claims or the scope of the trustee’s powers were not indicated in it), the initiation of pre-bankruptcy restructuring proceedings will not be approved. Thus, notwithstanding the “out-of-court” nature, pre-bankruptcy restructuring proceedings still require the court’s involvement.  

Other Restructuring Proceedings/techniques

Sanation (rehabilitation) is a restructuring within a bankruptcy proceeding (discussed further below). The debtor and its creditors may agree on other different restructuring procedures. However, in case bankruptcy commences before the agreement on voluntary restructuring is reached, the parties will most likely not be able to complete such restructuring. In any event, such arrangements are not exempt from the clawback and cherry-picking bankruptcy rules. The specific terms of such arrangements would bind only the parties to the arrangement.

3. What are the legal reasons for insolvency in your country?

Financial Restructuring

The key characteristics are the following:

• an out-of-court voluntary procedure aimed at development and adoption by, inter alia, a debtor, the involved creditors and investors (if any) of a restructuring plan (the “Restructuring Plan”)
• a moratorium, imposed for the period of the restructuring (up to 180 days) and extended to the involved creditors’ claims (subject to certain exceptions) and to any claims of a debtor’s related parties
• standstill agreement, which may be entered into instead of a moratorium to agree not to enforce the claims for a specific period of time
• creditors’ cram down, so that if the restructuring plan is not approved by all of the involved creditors, but only those holding more than two-thirds of the involved creditors’ claims, it can still be sanctioned by the arbitration committee (special body)
• availability of group restructuring, which means that the debts of related parties can be restructured in one (same) restructuring procedure
• tax and regulatory benefits (VAT exemption on various property transfers, no merger control clearance under certain conditions).

The Restructuring Plan can specify different ways of restructuring claims including: 

• termination or amendment of agreements
• issuance of securities
• satisfaction of claims
• alienation of the debtor’s property
• reorganisation, e.g. merger, corporate consolidation, spin-off and split
• debt forgiveness
• attracting new investments to the debtor’s capital, etc.

Pre-bankruptcy Restructuring

The procedure includes the elaboration and adoption of the Restructuring Plan, which may consist of the same restructuring methods as in bankruptcy proceedings. Additionally, the Restructuring Plan can provide for the adoption of measures to obtain loans, as well as propose the split of creditors participating in the restructuring proceedings into different categories. To approve the Restructuring Plan, the debtor convenes a meeting of creditors by written notification of all creditors who are to take part in the restructuring. In case the Restructuring Plan provides for participation of secured creditors, such plan must be approved by the secured creditors (in each category) holding two-thirds of creditors’ votes out of the total amount of secured claims included in the Restructuring Plan. If the Restructuring Plan foresees a change in the priority of claims of secured creditors, each of them has to vote for such a plan. Moreover, the Restructuring Plan must be approved by unsecured creditors (of each category) holding more than 50% of the total amount of unsecured claims included in the Restructuring Plan in the respective category. The application of any restructuring methods in the course of a pre-bankruptcy restructuring procedure should be approved by the court and should not take longer than 12 months.

At the same time, there is a risk that creditors that do not take part in a pre-bankruptcy restructuring can initiate bankruptcy proceedings. It is thus safer to involve all creditors in the pre-bankruptcy proceedings.

4. Which different types of restructuring / insolvency proceedings exist and what are their characteristics?

Restructuring Law refers to:

• secured creditor – a creditor whose claims are secured by collateral (including a mortgage)
• involved creditor – a creditor determined by a debtor (including a secured creditor), if it has signed a consent to restructuring as well as a collection body – being state tax authority – if so classified by the debtor in the restructuring application.

Involved creditors can be further divided into different classes by the debtor.

5. Are there several types of creditors and what is the effect of a difference?

As regards restructuring, no.

As regards insolvency, the debtor is obliged to apply to the commercial court with a request to open insolvency proceedings in case the fulfilment of claims of one or more creditors leads to failure to fulfil the debtor’s obligations in full to all other creditors (i.e. the risk of insolvency exists) within a 1-month period from the day of emergence of such risk. The Bankruptcy Code specifically provides for joint and several liability of the management of the company for non-compliance with the above obligation. However, such liability does not apply during martial law in Ukraine and within 6 months from the date of its termination, if the debtor’s failure to apply for bankruptcy is caused by armed aggression against Ukraine (including a debtor’s single property complex being located in the territory temporarily occupied or where active military actions are taking place).

Where insolvency is the result of the management bodies’ mismanagement or destructive interference, managers (shareholders, owners) will bear the subsidiary liability in case of lack of debtor’s property to satisfy all creditors’ claims.

6. Is there any obligation to initiate restructuring / insolvency proceedings? For whom does this obligation exist and under what conditions? What are the consequences if this obligation is violated?

Under the Restructuring Law, the debtor’s management bodies do not act as separate participants but represent the debtor in a regular manner. No special duties are provided by law, though certain limitations are set (e.g. no decision on disposal of the debtor’s property, debtor’s reorganisation, etc). Also, a Restructuring Plan agreed by the parties to the procedure may include an obligation of a debtor to substitute the director or the members of its representative bodies by the ones determined by creditors which are financial institutions.

Under the Bankruptcy Code, the representative bodies are under the obligation to take timely measures to prevent the insolvency and file for bankruptcy. The representative bodies do not act in insolvency proceedings as separate participants but act in the name of the debtor. After launching insolvency proceedings, representative bodies continue to operate the company, subject to certain limitations on decision-making regarding property alienation, debtor’s reorganisation etc, until the sanation (rehabilitation)/liquidation procedure (depending on the creditors’ discretion) is initiated. The Bankruptcy Code allows representative bodies to participate in the creditors’ committee with an advisory vote, which means that representative bodies may also take part in upholding decisions regarding the invalidation of burdensome agreements, applying to the commercial court with a request to appoint/fire the trustee and/or decide on extending/shortening the duration of asset management and/or sanation (rehabilitation) procedures etc. The main duties during all stages of the insolvency proceedings are maintained by a trustee (insolvency/bankruptcy manager). In particular, the trustee exercises inter alia the following functions:

• enjoys all rights of an asset manager (in asset management), a rehabilitation manager (in sanation), and a liquidator (e.g. sells the debtor’s property and distributes between creditors)
• convenes a creditors’ meeting and creditors’ committee and participates in such meetings and committees with an advisory vote
• obtains information from the state registers
• applies to the commercial court with various claims (e.g. invalidation of agreements, challenging of creditor’s claims etc.).

7. What are the main duties of the representative bodies in connection with restructuring / insolvency proceedings?

Under the Restructuring Law, shareholders have a duty not to sell their property (except for ordinary commercial activities) and not to carry out any reorganisation (mergers, acquisitions, separations etc.) in the course of the restructuring procedure.

Under the Bankruptcy Code, shareholders have a duty to perform actions aimed at the prevention of a debtor’s insolvency. Also, shareholders take a decision on initiating pre-bankruptcy restructuring proceedings in order to restore solvency. In the course of pre-bankruptcy restructuring proceedings, shareholders may provide the debtor with financial assistance in the amount which is required for debt repayment. Shareholders may take part in the creditors’ committee with an advisory vote. 

1. What is the primary legislation governing insolvency proceedings in your jurisdiction?

The primary legislative act governing insolvency proceedings in Ukraine is the Code of Ukraine on Bankruptcy Proceedings No. 2597-VIII, dated 18 October 2018, which became effective on 21 October 2019 (the “Bankruptcy Code”).

2. How are insolvency proceedings initiated?

There are two types of insolvency proceedings, namely corporate and consumer (see more under Q4). Corporate insolvency proceedings can be initiated by a debtor or any creditor through filing an application to a commercial court; whereas insolvency, only by a debtor. 

3. What are the legal reasons for insolvency in your country?

Corporate insolvency

Corporate insolvency proceedings can be initiated if there are outstanding claims which a debtor is unable to satisfy, or if there is a risk of the debtor’s insolvency. The Bankruptcy Code neither specifies the time frame for the claims to be overdue nor provides any requirements for the amounts of such claims. Moreover, there is no obligation for the creditor to prove the existence of other creditors having past due receivables against the debtor. The court has discretion to commence insolvency proceedings based on the documents and/or evidence provided to the extent they evidence that a debtor cannot pay its debts. 

Consumer insolvency

The Bankruptcy Code allows the debtor to apply to a commercial court to start consumer insolvency proceedings if at least one of the following conditions is in place:

• the amount of overdue obligations, if this amount is not less than 30 times the minimum wages
• a debtor has stopped repaying loans or making other scheduled payments in the amount of more than 50% of monthly payments for each of the loan and other obligations within 2 months
• a resolution has been adopted in the enforcement proceedings on the absence of the individual’s property, which may be subject to foreclosure
• there are other circumstances confirming that in the near future, a debtor will not be able to fulfil monetary obligations or make regular current payments (threat of insolvency).

4. Which different types of insolvency proceedings exist and what are their characteristics?

Corporate insolvency

If the commercial court accepts the bankruptcy application and commences proceedings, notice of the same is published on the website of  the Ukrainian Judiciary (https://supreme.court.gov.ua/supreme/pro_sud/og_pov/). Within 30 days of publication, creditors must register their claims with the insolvency officer. Creditors should monitor the website for such notices to protect their full set of rights during all stages of insolvency proceedings.

The moment that corporate insolvency proceedings begin, it is declared that:

• creditors’ claims can be satisfied only within the framework of the insolvency proceedings
• the debtor’s property can be seized only by the commercial court, and previously existing seizures may be cancelled by the court
• penalties, fines and interest being charged on the debts cease to accrue following the debtor being declared bankrupt
• a moratorium is imposed on the satisfaction of the creditors’ claims
• owners’ (shareholders’/participants’) corporate rights could be exercised, though with some restrictions
• decision on reorganisation or liquidation.

There are three stages which may apply during the bankruptcy proceedings depending on the debtor’s circumstances:

• disposition of property
• sanation (i.e. rehabilitation)
• liquidation.

Asset management

Asset management is broadly analogous to receivership in other jurisdictions. To secure the creditors’ property interests, the commercial court introduces disposition of property over the debtor’s property. An asset manager is appointed and conducts an analysis of the debtor’s financial state and all claims filed against it. The asset manager then implements measures to supervise and control the debtor’s property by restricting the debtor’s right to dispose of its assets. During disposition of property, the commercial court approves a list of creditors and their demands as well as the composition of the committee of creditors.

Asset management lasts up to 170 days from the date the commercial court starts insolvency proceedings. Depending on its results, the asset management stage may be followed by:

• sanation (rehabilitation)
• liquidation, or
• a return to solvency, payment of debts by the debtor, and termination of the insolvency proceedings. 

Normally, it is up to the creditors to decide which stage of procedure is appropriate in each case. If there is a chance to restore the debtor’s solvency and satisfy the claims of all creditors, the parties may decide to proceed with sanation (rehabilitation). However, if sanation (rehabilitation) does not seem to be realistic, then liquidation should start.

Sanation (rehabilitation)

Sanation is broadly analogous to a rehabilitation procedure in other jurisdictions and includes a system of measures aimed at restoring the debtor’s solvency and discharging its outstanding debts. The commercial court starts the sanation procedure at the request of the committee of creditors. It may include measures such as refinancing, rescheduling of debt payments, restructuring of the debtor or its business, closure of unprofitable manufacturing facilities, sale of the debtor’s property, employee lay-offs, etc.

During sanation, the debtor’s directors are suspended and its governing bodies are dissolved. All powers are transferred to a certified sanation manager. The Bankruptcy Code does not limit the term of the sanation period, enabling parties to implement long-term restructuring programmes and restore the debtor’s solvency.

Sanation is followed by:

• liquidation, or
• a return to solvency, payment of debts by the debtor, and termination of the insolvency proceedings.

Liquidation

Liquidation begins when the commercial court declares the debtor insolvent. Insolvency occurs if:

• no settlements have been made with creditors within the time frame envisaged by the sanation plan and the committee of creditors has not filed a petition to extend it, or
• funds from the sale of the debtor’s property during the sanation period do not satisfy all the demands of creditors.

The liquidation procedure focuses on realising and distributing the debtor’s assets. A standard liquidation procedure may not exceed 12 months. Overall, the winding up of the debtor is organised and carried out by a liquidator (or a liquidation commission) appointed by the court.

The commercial court may terminate bankruptcy proceedings particularly when:

• the debtor has completely discharged all its liabilities to its creditors
• the court approves the sanation manager’s report certifying that all the demands of registered creditors have been satisfied and the debtor has returned to solvency, or
• the court approves the liquidator’s report certifying that the claims of registered creditors have been discharged.

Note that the Bankruptcy Code does not contain provisions for amicable settlements. These provisions were intentionally deleted in order to push towards sanation.

Consumer insolvency

If the commercial court accepts the bankruptcy application and commences proceedings, notice of the same is published on the website of the Ukrainian Judiciary (https://supreme.court.gov.ua/supreme/pro_sud/og_pov/). Within 30 days of publication, creditors must register their claims with the insolvency officer. Creditors should monitor the website for such notices to protect their full set of rights during all stages of insolvency proceedings.

By opening the insolvency proceedings:

• creditors may file claims to be satisfied only within the scope of insolvency proceedings
• seizure of the debtor’s property and other restrictions by the commercial court, and previously imposed seizures and restrictions may be lifted on the basis of a judgement passed by the commercial court
• the accrual of fines and other financial sanctions, as well as interest on the obligations of a debtor, shall cease
• the exercise of corporate rights of a debtor, as well as of property rights, shall be subject to the restrictions established hereby
• the moratorium shall be introduced
• all monetary obligations shall be considered due
• any alienation and disposition of the debtor’s property shall be carried out exclusively in the manner prescribed hereby.

 Preliminary hearing

No later than 60 days from the start of insolvency proceedings, a preliminary hearing should be conducted. The commercial court requires the restructuring manager to arrange a meeting of creditors to consider a Restructuring Plan. As a rule, the Restructuring Plan will identify which outstanding claims of the creditors will be forgiven. At the meeting, the creditors must decide to:

• approve the Restructuring Plan
• reject the Restructuring Plan and request the court to launch a debt repayment procedure, or
• ask the court to close the insolvency proceedings.

Debt repayment procedure

If the Restructuring Plan is approved, the restructuring manager asks the commercial court to confirm it within 10 days. The court, however, will not confirm the plan if the debtor has outstanding debts that are non-dischargeable (i.e. not written off despite the insolvency), such as alimony payments or compensation due for causing an injury. Once the plan is approved, the debtor then proceeds to satisfy the creditors’ claims in accordance with the plan. Upon the successful completion of the plan, the insolvency proceedings are closed, and the claims that were agreed to be forgiven (other than non-dischargeable debts) cease to exist.

If the restructuring plan is not completed or approved by the creditors or court, the debtor is declared insolvent and the debt repayment procedure begins. In this case, creditors file their claims against the debtor. All of the debtor’s property is realised, with a number of exceptions:

• the only place of living of a debtor, if it is not a security
• funds held in accounts in pension funds
• funds held in accounts in social insurance funds
• other property which cannot be foreclosed.

The claims of secured creditors are satisfied from the proceeds of property used to secure the debts, and the claims of unsecured creditors are satisfied from the remaining proceeds in the order of priority set out in the Bankruptcy Code. Remaining claims that cannot be satisfied due to a lack of assets are discharged.

The following types of debt are non-dischargeable:

• alimony payments
• compensation due for causing injury to the health or the death of an individual
• compensation for damage caused by a criminal offence
• lump sum payments owed to the compulsory state social insurance
• other obligatory payments for the compulsory state social insurance.

At the end of the debt repayment procedure, the commercial court closes the insolvency proceedings and makes a decision to release the debtor from his/her debts, except for non-dischargeable debts.

Moratorium on mortgage enforcement

The Bankruptcy Code allows creditors to enforce the collection of debts secured by residential property, ending a moratorium to such enforcement that was previously in place. However, the foreclosure on individuals’ immovable property securing consumer loans and eviction of persons from such property is prohibited for the whole period of martial law and 30 days thereafter.

Moreover, until 18 October 2023 (5 years from the adoption of the Bankruptcy Code), an individual debtor may restructure foreign currency loans and mortgages that were granted to the debtor by a Ukrainian bank.

For a house smaller than 120 sqm, or an apartment smaller than 60 sqm or 13.65 sqm per family member, the Restructuring Plan is as follows:

• the amount of the secured creditor’s claims must be additionally reduced by 10%, except in cases of excess of mortgage value over the amount of debt under the loan agreement
• the repayment term is 15 years unless the creditor and the debtor agree otherwise
• the interest rate is the Ukrainian index for 12-month deposits plus 1%.

For larger apartments and houses:

• the repayment term is 10 years
• the interest rate is the Ukrainian index for 12-month deposits plus 3%.

An individual debtor may also restructure his/her loans with the bank by another mutually agreed method.

5. Are there different types of creditors and what is the significance of the differences between them?

The Bankruptcy Code classifies creditors into categories depending on the type of claims and the existence of collateral. There are three types of creditors:

• secured creditors – creditors whose claims to the debtor or any other entity/individual are secured by the debtor’s property
• unsecured creditors – creditors whose claims arose before the opening of insolvency proceedings, fulfilment of which is not secured by the debtor’s property or any other security interest
• current creditors – creditors whose claims arose after the commencement of insolvency proceedings.

Based on the category of creditors, the sequence of fulfilment of their claims in the course of insolvency proceedings differs. 

Secured creditors

Secured creditors’ claims should be satisfied outside the priority sequence from the proceeds of the property used to secure those debts. 

Unsecured creditors

Unsecured creditors’ claims should be fulfilled only after, inter alia, the discharge of different social payments, compensation for death or injury caused to individuals, and tax payments. 

Current creditors

Unlike with secured and unsecured creditors, satisfaction of current creditors’ claims arising after the opening of bankruptcy proceedings are not subject to a moratorium. Any disputes between current creditors and the debtor are resolved by the commercial court considering the bankruptcy case. In liquidation procedure begins, such claims will be fulfilled in the same way as those of unsecured creditors.

Moreover, for the purposes of approving/rejecting the sanation (rehabilitation) plan, all creditors are divided into classes. Secured creditors form a separate class. Creditors included in each of the priority lines constitute a separate class (six in total based on these criteria). Those creditors whose claims belong to two or more priority lines should accordingly be included in two or more classes. The decision on approving/rejecting the sanation (rehabilitation) plan should be approved separately by each class of creditor by way of voting.

6. Is a solvent liquidation of the company an alternative to regular insolvency proceedings?

Solvent liquidation is an available mechanism to satisfy all creditors’ claims as long as the company has enough assets (otherwise, it must undergo an insolvency procedure). Solvent liquidation of the company can be initiated by its participants (shareholders), authorised bodies, or the court (if a company’s activities contradict the law or if it is registered with violation of the procedure etc.). The initiating body/person informs the state registration body about the liquidation of the company within 3 days after the decision on such liquidation and sets up an order and a term for creditors to submit their claims. Then it creates a liquidation commission, which manages the liquidation process:

• notifies participants, debtors, creditors, registration body about the company’s affiliated entities
• recovers debts and satisfies creditors’ claims. If a creditor does not submit a claim in a term set by the commission, it will be entitled to satisfy its claims only after those which have been submitted in time. The commission can refuse to recognise a claim; in this case, a creditor has 1 month to initiate proceedings against the commission. Insolvency can be initiated by a debtor or creditor at any stage, these procedures are not connected in any way
• closes the company’s branches and accounts
• distributes the remaining assets (if any) between the participants
• files the necessary documents to state bodies for the registration of the liquidation of the company.

1. If a lender wants to monitor its borrower very closely (i.e. more closely than the usual information covenants in the credit agreement require), what options are there?

The Restructuring Law requires the debtor to provide the involved creditors upon their request with such information as the financial conditions of the debtor and the sureties, information on assets, capital, incomes and expenses of the debtor, the main financial indicators during the period of restructuring, etc. Also, the debtor shall ensure the ability of the independent auditor to make the assessment concerning the viability of the debtor’s business and provide creditors with the report of the independent auditor. Creditors can ask for other information which is necessary for the assessment of the financial condition of the debtor, except trade secrets and ‘know-how’ if such disclosure will adversely affect the commercial activities of the debtor. There may be various options to ensure monitoring, though they would require the debtor’s cooperation.  

2. What issues arise if a creditor extends credit facilities or offers support conditional on additional or extended guarantees to a company in financial difficulties and/or takes asset security?

Extension of facilities or making any other transaction with a debtor in financial difficulties (and even more, which is undergoing a bankruptcy procedure), in most cases and subject to certain conditions would bear the risk of invalidation by court if executed during a bankruptcy procedure or the hardening period, being 3 years before the bankruptcy procedure has started. If such transactions caused losses to a debtor or creditors, they may be invalidated on the following grounds:

• obligations performed earlier
• obligations leading to insolvency, or becoming impossible to fulfil in full or partially
• property sold or purchased at under value
• a debtor paid for, or accepted ownership title on a property, in compensation for monetary claims of a creditor on a day when the amount of this creditor’ s claims against the debtor exceeded the value of the property
• a debtor assumed collateral obligations to secure compliance with monetary claims
• a debtor alienated the property free of charge, assumed obligations without appropriate property actions of the other party, or waived its own property claims
• a debtor entered into an agreement with the interested party
• a debtor entered into a gift agreement.

However, transactions made during a Financial Restructuring procedure as a part of a Restructuring Plan cannot be declared invalid unless the court considers that they have been made in good faith.

1. How does a lender sell a loan?

In general, non-performing loans (NPLS) can be sold by way of assignment or factoring. There is no need for the debtor’s consent for an assignment (unless otherwise provided by a loan agreement) or factoring, but the debtor shall be notified in written form.

If the state owns 75% or more of the authorised capital of the bank, then NPLs could be sold through open and transparent auctions. These auctions shall follow these requirements: the debtor, its beneficiaries, mortgagor, surety or debtor’s related parties could not purchase a loan; the starting price of the lot is set at the level of the gross book value of the financial asset; the minimum selling price cannot be less than the minimum economic benefit, which is determined at the level of the book value of the financial asset.   

2. If the underlying credit agreement prohibits transfer or assignment (i.e. a change in the lender of record), how else – if at all – can a lender transfer the economic risk and/or benefit in the loan? For instance, are sub-participation agreements allowed under the law of your jurisdiction?

Loans can be sold by way of factoring as neither transfer nor assignment is permitted. However factoring would be available only to buyers having a factoring licence. There are no restrictions on sub-participation agreements as such. Various considerations should be taken into account when selling a loan in a foreign currency, given applicable currency control regulations.

3. Regulatory issues: is any form of licence or prior authorisation from any regulatory authority required for the purchase, sale and/or transfer of loans? Does it fall within the definition of providing banking or financial services in the territory of the assignor or the borrower?

Consumer NPLs can be bought by a licensed entity only (a financial institution authorised to lend money and/or provide factoring services).

Non-consumer NPLs can be bought by either a licensed financial institution (if a new creditor under an NPL is going to continue accruing interest and other payments), or a non-licensed legal entity on the basis of the general civil law concept on replacement of a creditor (if an NPL is transferred in the fixed amount as of the moment of such transfer, without the right for a new creditor to charge interest and other payments).

If the NPL is sold with a discount, although not clearly regulated, it would likely be treated as factoring, in which case a buyer can be a financial institution with a factoring licence.

With effect from 1 January 2024 when the new law on financial services will come into effect, the scope of financial licences will be changed, so that the licence of a financial company will cover both lending and factoring activities. Additionally, a new law on factoring is being developed which is intended to provide a clear distinction between the sale of indebtedness under a civil law concept of assignment and factoring, as well as between trade and financial types of factoring, thus facilitating the assignment of NPLs in different forms.