Ukraine is in the midst of a severe financial crisis. Escalating levels of non-performing loans (NPLs), have led to a critical rise in the number of bank failures (approximately 70) and business bankruptcies and closures. Growth of the overall economy is shrinking and high NPL levels are having a significant negative impact on the country’s economy.
Under its “Reform Anchoring and Crisis Response Package 2014-15”, the EBRD deployed a range of operational tools to assist Ukraine in its effort to restart the banking sector. These included in December 2014 the appointment by the EBRD of an experienced senior advisor to assist the Ministry of Finance (MoF) and the National Bank of Ukraine (NBU) with, among other matters, the development of key legislative and regulatory initiatives. One of the EBRD advisor’s key tasks was to create an effective mechanism for out-of-court restructuring, a condition of the IMF programme for Ukraine.
Together with a legal advisor appointed by the World Bank (WB), the EBRD advisor developed a new legislative framework for out-of-court restructuring. The Law on Financial Restructuring (LFR) was submitted at the end of 2015 to the Ukrainian parliament for its approval and was approved on 14 June 2016.
The Ukrainian authorities have three months following publication of the LFR in the official gazette (i.e. by end of September 2016) to adopt all implementing by-laws and to make all the necessary arrangements for successful implementation of the law. The purpose of this TC is to assist the MoF with drafting of by-laws with respect to arbitration under the LFR (the Arbitration Rules) and to assist the Independent Association of Banks of Ukraine (NABU) with the establishment and operation of the Secretariat and Arbitration Committee, two bodies created by the LFR to administer the procedure and resolve disputes respectively.
The project is consistent with the objectives in the LTT Action Plan 2016-2018, which contemplates technical assistance in insolvency to promote reorganisation and to develop credible out-of-court workouts as an alternative to court-led processes, supported via the development of best practices and principles for creditor-led restructurings (such as the “INSOL Principles”) (see paragraph 5.1.2 of the LTT Action Plan). Furthermore the aim of the Legal Transition Programme is to support the Bank’s efforts to foster strong, resilient and effective banks in the financial sector of its countries of operations and their ability to offer a range of products where risks are well managed (see paragraph 5.4.1 of the LTT Action Plan).
The new legislative framework for financial restructuring in Ukraine is successfully developed.
TC Recipient Information
Ministry of Finance (MoF) and the National Bank of Ukraine (NBU).
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