On 3 July 2019 the Grand Chamber of the Supreme Court rendered a precedent-setting decision on reversal of transactions aimed to defraud creditors. This decision may significantly change the position of judgment creditors seeking to resist dissipation of assets by debtors.

Previously the creditors could efficiently combat fraudulent conveyance only in bankruptcy proceedings. It is only possible where the fraudulent transaction was made within one year prior to commencement of the proceedings. This time bar precluded challenging of fraudulent transactions in many cases.

Facts of the case

The local court ruled in favor of the creditor and ordered to collect damages from the debtor. The creditor approached the bailiff and managed to start enforcement proceedings seeking actual recovery of damages. Shortly after commencement of enforcement proceedings, the debtor gifted its significant assets (house and underlying land plot) to his children. The creditor sued the debtor seeking to reverse the gift transaction as fraudulent and aimed to avoid enforcement of court decision.

Position of the Supreme Court

The Supreme Court ruled that an agreement meant to avoid enforcement of assets is deemed fraudulent and may be reversed by the court. The Supreme Court has also established the fraudulence test as follows:

  • debtor realised that his / her assets may be enforced based on the court judgment
  • transaction is entered into by the parties with a sole aim to avoid enforcement of assets
  • under whatever disguise, the transaction is sham and does not reflect the parties’ real intentions

It is remarkable that the Supreme Court relied on general principles of civil law envisaging that the parties to a transaction should act in a good faith and refrain from abuse of rights. The test set out in the case may potentially apply to transactions other than gifts. We anticipate that the decision of the Supreme Court will facilitate actual recovery of indebtedness in Ukraine and may be the basis for further development of fraudulent conveyance rules.

Additional notes

For further information on the topic please contact Vadim Medvedev, Partner, or by telephone +380 44 591-3355 or via e-mail.