The order of property realisation in bankruptcy (insolvency) procedure under the law of Ukraine and Germany

If the amount of satisfaction of secured creditors' claims is directly proportional to the sale of the debtor's collateral property, would it not be appropriate for those creditors to sell this property on their own or to transfer it to their ownership immediately? Why then does the legislator provide for a special procedure for the sale of the property to a secured creditor? In the end, we have a question: if the collateral covers the entire monetary claim of the creditor, regardless of its value, then why do the parties provide for the value of the collateral (mortgaged property) in the contract? Overall, the conclusion is that the sale of the debtor's property under Ukrainian law is quite problematic, and ETS, which was designed to eliminate the problematic issues, instead creates new ones, which, of course, needs to be corrected.

Findings of a comparative review of German legislation on improving the situation in Ukraine

A completely different legal regulation of these issues can be seen in Germany. The authors propose to proceed to the analysis of German legislation. Thus, § 159 of Insolvenzordnung [31] (hereinafter - Statute) stipulates that the insolvency trustee must immediately liquidate the property constituting the bankruptcy estate after the report review meeting unless this is contrary to the decision of the creditors' assembly. We note that the German legislator does not stipulate the obligation of the insolvency trustee to sell the property from the bankruptcy estate through a public auction. It is also worth mentioning the position of D. Lasser, who noted that the insolvency trustee “has a choice between initiating an auction or selling property in a private way” [32]. Moreover, this lawyer argues that the sale of property through an auction is mostly inappropriate and unprofitable [32]. N. Haverkamp takes a similar position, noting that the auction for the sale of property “is a long-term bureaucratic process, which often results in a lower purchase price than when sold privately” [9].

§ 160 of the Statute is devoted to significant transactions, for which the insolvency trustee must obtain the consent of the creditors' committee, and in its absence, respectively - the assembly of creditors. Moreover, this rule provides for cases where the consent of the representative body of creditors is required, namely: 1) privately sale of the enterprise, plant, or part of real estate in, sale of the debtor's share in another enterprise if such shares are intended to create permanent ownership to the enterprise or obtaining the right to periodic profit; 2) if the transaction consists in concluding a loan agreement with a significant encumbrance for the insolvency property; 3) if the insolvency trustee intends to perform certain procedural actions relating to a lawsuit with a significant price (application, accession, refusal, or avoidance of such actions). Also, quite interesting are the provisions of this norm on the quorum of creditors' assembly. Thus, it is not required for a decision at a creditors' assembly, and creditors must be notified of this in the invitation to such a meeting of creditors' assembly. Therefore, we conclude that the provisions of the Statute are mostly aimed at the ephemerality of the insolvency procedure, rather than compliance with certain legislative formalities. Indeed, if the creditor is interested in voting against the transaction, he must be present, otherwise, it is presumed that there are no objections.

Approaching the question of the ephemerality of the insolvency procedure and the focus on any profitmaking, the authors cannot mention the provisions of § 164 of the Statute. This norm indicates the validity of the transactions of the insolvency trustee if they are committed in violation of §§ 160-163 of the Statute. Of course, something similar can be seen in the Bankruptcy Code, in particular in Art. 73, the analysis of which was carried out above. But this similarity is very tiny since § 160 is devoted to significant transactions, § 161 - a temporary prohibition of significant transactions, § 162 - the sale of the company to particularly interested persons, and § 163 - the alienation of the company at a reduced price. Thereby, these provisions of the Statute are aimed primarily at stimulating the ephemerality of the competition process, for which the German legislator is ready to make various sacrifices, even so-called “illegal law”. After all, such provisions at least contradict the established practice of contractual relations, and at most - open the way to various kinds of abuse by the insolvency trustee. N. Haverkamp notes that the insolvency trustee often sells property at a below-market value because in this way he manages to reduce his time costs. However, in this case, he can be prosecuted [10].

The authors do not deny in any means the possibility of bringing the bankruptcy trustee to prosecution, but in authors' opinion, such a task is not easy, as it is necessary to prove in court the commission of illegal actions, the consequences of such actions, and the causation. In general, this state of affairs can be explained by the fact that, unlike Ukraine in Germany, the debtor is not released from its obligations if the size of the bankruptcy estate was not sufficient to cover all creditors' claims. Therefore, the question of the most efficient sale of the debtor's property should for the most part concern the debtor himself, when the creditors are concerned indirectly. In fact, it is precise because of this circumstance that issues related to the validity of the property sale agreement in Germany have a completely different substantive regulation, and for Ukraine, it is currently unattainable and, frankly, unlikely to be attractive.

As already was mentioned, § 161 of the Statute provides for the possibility of a temporary prohibition of the transaction. It stipulates the obligation of the insolvency trustee to notify the debtor of the decisions of creditors' self-government bodies relating to transactions falling under § 160. If the participants in the creditors' assembly do not give their consent, the court may, at the request of the debtor or the qualified majority of creditors provided for in paragraph 3, part 1 of § 75, temporarily prohibit the insolvency trustee from making transactions and convene creditors' assembly to resolve the issue. After all, the provisions of this rule of law indicate that the procedure for a transaction by an insolvency trustee is much simpler than postponing its commission. Therefore, by its essence, this norm is mostly declarative and almost does not create obstacles.

§ 162 of the Statute is devoted to the sale of the enterprise to particularly interested persons. Thus, for this transaction is obligatory the consent of the assembly of creditors, if the buyer of the enterprise or a person who owns 1/5 of the capital of the enterprise, are:

1) an interested person within the meaning of § 138, including a person who is an enterprise and has a share in the buyer's capital or is dependent on the buyer or a third party acting at the expense of the buyer or at the expense of the enterprise dependent on the buyer;

2) a non-competitive creditor or a competitive creditor with claims of not lower rank, whose rights to separate satisfaction, according to the court, are at least 1/5 of the sum of all claims with separate satisfaction and the number of claims of competitive creditors with claims of not lower level.

§ 163 is devoted to the sale of the debtor's enterprise at a lower price. This regulation allows the debtor or a qualified majority of creditors (paragraph 3, part 1, § 75) to apply to the court to state that there is another buyer and sale to him would be more profitable. In this case, the court may require the trustee to obtain the consent of the creditors' assembly.

Section 3 of the Statute is devoted to the sale of the property to which there is a right to separate satisfaction. Thus, § 165 of the Statute provides for the right of the insolvency trustee to hold an auction for the sale of real estate, in respect of which there is a right to separate satisfaction. Indeed, § 166 of the Statute is devoted to the sale of movable property. Accordingly, the insolvency trustee has the right to such realisation, if the property is at his disposal. At once there is a question with a way of sale in such case, after all unlike realisation of real estate the German legislator does not make a specification here. Therefore, it is worth paying attention to the provisions of § 1235 of the German Civil Code [33]. This regulation stipulates that the collateral must be sold at a public auction.

The provision of p. 1 of § 1238 of the German Civil Code [33] attracts attention in terms of improving Ukrainian legislation since it stipulates that the sale of a mortgaged property can take place only if the buyer pays the full amount for the goods in cash, otherwise his rights are lost. Of course, the Ukrainian legislation also states something similar, but we have already described that there is a statutory delay in the payment of the full proper amount for the purchased goods. In addition, the Statute states that the insolvency trustee must provide information to the creditor regarding the property in case of its sale in accordance with § 166. The authors emphasise the provision of § 168, which states that before the sale, the insolvency trustee warns the creditor about the sale of a property. A creditor has the right within a week to determine another method of sale that would be more profitable for him. Thus, the authors conclude that the sale of a property is possible in any way in consultation with a non-competitive creditor.

It should be noted that in case of non-application of § 166 in accordance with the provisions of § 173, the non-competitive creditor has the right to independently sell the property belonging to him. However, Part 2 of this rule provides for the right of the court to set time limits for a non-competitive creditor and, in case of non-compliance, to oblige the insolvency trustee to sell the property. The authors also agree with the position of S. Greif, who noted that: “A creditor who has the right to a separate satisfaction may declare that the object does not belong to the bankruptcy estate, and demand its return, referring to the right seen from the legislation provisions outside the Statute” [7]. Therefore, it can be assumed that despite the obligation imposed by the German legislature on the insolvency trustee to sell the property of creditors with the right to separate satisfaction, in the latter for the most part there is the possibility for those creditors to perform self-realisation.

Summarising all the above-mentioned, the authors conclude that in Germany, the insolvency trustee is endowed with greater discretion, which, in turn, leaves room for all sorts of abuses. In the authors' opinion, such an experience is inappropriate for Ukraine, as we currently tend for the legislator to try to restrict the bankruptcy trustee as much as possible in the freedom of choice. Moreover, despite such restrictions, abuses by bankruptcy trustees remain possible. Therefore, it is even scary to imagine the consequences of using similar procedures with the German competitive process. On the other hand, the provisions of German law, which provide for a greater role of creditors' representative bodies in the sale of the debtor's property, are noteworthy because in this way the powers of the insolvency trustee are reduced. Therefore, in addition to the aboveprovided proposals, the authors consider it is necessary to make the following changes in domestic legislation.

Firstly, there is a need to move away from selling property at an auction. No, of course, such a type of sale must exist, but it cannot be non-alternative. Therefore, the authors propose to provide an opportunity for the secured creditor to sell the mortgaged property of the debtor independently out of competition. Such innovation will be especially relevant given the existing case law. In turn, the creditors' committee or assembly must be authorised to sell the debtor's property privately. However, despite this, the authors believe that the bankruptcy trustee should continue to sell the property at public auction with the help of a modified ETS. The authors would like to highlight that this approach is not a novelty, since it existed in the days of the Russian Empire, which, in particular, was noted by G. Shershenevich, who pointed out that the law gives to creditors' assembly the right to choose the method of property realisation [3, p. 428]. Secondly, it is necessary to remove from the Ukrainian legislation the provisions on the second repeated auction because its existence only contributes to the sale of property for a pittance. Instead of a second repeated auction, a meeting of the creditors' assembly or committee should be initiated, at which creditors should decide whether to sell the property privately or to hold the auction again. However, the price and conditions of such an auction should be determined by creditors themselves.

Legislative provisions on the functioning of the ETS also need to be improved. First of all, it is necessary to recognise the need for participation in the bidding of at least two buyers because with the participation of only one such bidding cannot be considered public. In addition, it is necessary to remove Part 3 of Art. 85 of the Bankruptcy Code. The authors are confident that with the introduction of these changes in the procedure of the realisation of bankrupt property, the bankruptcy procedure in Ukraine will become much more productive.

CONCLUSIONS

In this research, a theoretical and practical generalisation was made and the ways of solving the mentioned problems of legal regulation of the order were proposed, as well as the method of sale of the debtor's property in the bankruptcy (insolvency) procedure under the law of Ukraine and Germany. As a result of the study, the authors came to the following conclusions:

1. The provisions of the Bankruptcy Code regulating the sale of bankrupt property contain many problematic issues that complicate the work of law enforcement agencies, and therefore need an immediate resolution.

2. Notwithstanding the high hopes and expectations placed on the ETS, currently the electronic trading system does not cope with the set task.

3. Unlike Ukraine, in Germany the sale of the debtor's property at auction is considered an unprofitable and unjustifiably long procedure.

4. In Germany, the insolvency trustee privately sells the debtor's property, according to which the discretion of his powers is much wider than his prototype in Ukraine, and therefore, the German insolvency trustee has room for various abuses.

5. For Ukraine, Germany's experience in the sale of the debtor's property is not entirely relevant. At the same time, there is a possibility of its partial borrowing.

6. Ukraine should move away from the mandatory sale of bankrupt property at auction and authorise the representative bodies of creditors to sell property privately.

7. It is argued that due to the existing case law, secured creditors in Ukraine are currently in a rather difficult situation, and therefore it is necessary to authorise them at the legislative level to independently sell the mortgaged property of the debtor.