Luxury real estate for the hryvnia, or How business can cheat Ukrainians and banks

24 April 2017

ОElena Ermolova, deputy head of the Bank of Credit Dnepr Bank troubled assets department, who is involved in the drafting of the bankruptcy procedure bill, explained why the current and potential revision of the law will not contribute to the further development of the financial sector and the economy of Ukraine. The banker also offered alternative norms that could change the situation

Interesting and quite a resonant event took place last year in Kiev: at the illegal auction were sold 8 apartments of a new multistory building at a total cost of 8 UAH - for 1 UAH per apartment. How did it happen? A non-existent company conducts trades for the sale of property of the bankrupt enterprise, without allowing third parties to participate in them. This real estate is a pledge of the Ukrainian bank, which is currently in the stage of liquidation. Although the State Tax Service of Kyiv Oblast did not allow the auction to be held, the auction was still held. The owner of apartments for 8 UAH became an individual.

Consequently, the sale of property took place at a repeated auction, which involves the possibility of reducing the value of the bankruptcy procedure. In the future, this improper scheme should have developed, I think, it's obvious to everyone: an unscrupulous business - the owner of a real estate - through third parties, resell the apartment several times so that it is virtually impossible to find the culprit. Unfortunately, because of the imperfection of Ukrainian legislation, such mechanisms are not at all a rare phenomenon.

If you bring such abuse due to the shortcomings of the law in the formula, then it may look like this:

1) the court's approval of the sale of the property (without the consent of the creditor) - the value of the property is determined by the liquidator;

2) bidding - the organizer is not obliged to warn about the auction of creditors;

3) the provision of a minimum period for the registration of bidders. As a rule, the address of the auction is also not clearly indicated. Further, the property is sold to a person who has agreed with the liquidator, or happens:

4) conducting a second auction with an initial value of 80% of the first auction and the subsequent opportunity to reduce the price during the auction to 50% of the initial value of other trades;

5) holding the third auction with an initial value of 80% from other trades with the possibility of its unlimited reduction during the auction (up to 1 UAH).

The new bill, which supposedly needs to remedy this situation (No. 3132d), in fact - is not a panacea, and even more, it can reduce the time from starting a bankruptcy procedure to selling the property for 1 UAH.

In particular, we see significant risks in that the need to sell mortgaged property with a creditor canceled; that the property can be sold before the approval of the register of creditors; which is legally fixed the possibility of lowering the price of the first auction and the obligation to do so - on the third.

Stop corrupting

In turn, we, the banking community, advocate the creation of an e-commerce system on the same principle as the ProZorro Procurement system. In addition, all information about the property and conditions of the auction through electronic platforms should be placed on the website of the state body on bankruptcy. Directly and the bids themselves should be made according to the uniform rules for all in an electronic form, and participation in them can be taken through any site, connected to this resource.

Do not sell for 1 hryvnia

In addition, within the framework of this bill, it is extremely important to take into account the interests of the creditors themselves. Currently banks are practically not legally protected by unscrupulous clients. It is also necessary to restrict the rights of the liquidator and the judge. The mechanism should work so that the sale of property for 1 UAH in our country was simply impossible. We see this mechanism as follows:

  • it is necessary that the creditors' committee approves the sale of intangible property, and the lender with collateral - consent to the sale of mortgaged property;
  • it is necessary to grant the right to the creditor with the guarantee to receive mortgage property for the repayment of issued loans, not sold at repeated bids at the price of the latest bids;
  • in the case of the purchase of mortgaged property by auction with a creditor with collateral, the settlement under the contract must be made by mutual settlement of claims.

The sale process is not infinite

And the third component in the changes, in our opinion, should concern the payment of liquidator services when selling mortgaged property and compensation for its costs.

That is, the remuneration of the liquidator should be covered by funds received from the sale of property, provided that such costs were agreed with the creditor. In addition, you can set an additional bonus for the realization of mortgaged property so that payment of services was worthy and guaranteed.

I want to emphasize that the introduction and implementation of the bankruptcy law bill has long awaited the financial community, which continues to be the victim of these unlawful schemes. And while crooks make money, the economy of the country, Ukrainian banks are losing millions. It is for the same reason that the IMF is waiting for adoption of a competent bill from our country.

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