Ukrainian courts face significant difficulties in hearing bankruptcy cases involving companies whose assets are predominantly located in temporarily occupied territories. This is due to the fact that such cases encounter an insurmountable obstacle: the loss of physical control over the debtor’s property. As a result, it becomes impossible to form the debtor’s liquidation estate, and therefore the satisfaction of creditors’ claims is effectively blocked due to the lack of access to the assets from which the debt could be repaid.
This is precisely why current trends in the handling of bankruptcy cases where the debtor’s assets are located in the occupied territories require detailed analysis. Furthermore, the question arises as to whether claims can be brought against the Russian Federation within such proceedings to record the losses caused by the aggressor state. The use of this instrument, in turn, creates the legal basis for the subsequent recovery of such claims through various compensation mechanisms, in particular via the International Register of Damages for Ukraine (RD4U).
Trends in court proceedings: the fate of bankruptcy cases under occupation
Current judicial practice regarding the bankruptcy of business entities whose production facilities remain in uncontrolled territories has established a clear trend: the vast majority of such cases are subject to closure. This approach is based on the courts’ conclusion that the legitimate objectives of the Code of Ukraine on Bankruptcy Proceedings (hereinafter – the CUBP) cannot be achieved in the absence of physical access to the debtor’s assets. The main challenge is the objective impossibility of establishing the actual existence, condition and composition of the property, which prevents the liquidator from fulfilling their duties regarding the search for and realistic valuation of assets. In such circumstances, the liquidation estate cannot be formed, and further proceedings are regarded by the courts as impractical, as they merely generate additional costs without any prospect of repaying the debt to creditors.
At the same time, the consequences of closing the proceedings depend significantly on the grounds on which they are closed, which directly determines the future fate of the debtor company. If the liquidator has managed to take all available actions – in particular, to carry out an inventory based on accounting records, to realise available assets and, with the creditors’ consent, to write off inaccessible assets – the court approves the final report and closes the proceedings on the basis of para. 7(1) of Article 90 of the Code of Ukraine on Insolvency Proceedings, which entails the dissolution of the legal entity. This is precisely how the bankruptcy proceedings concerning DTEK Rovenkyantratsyt LLC (order of the Commercial Court of Luhansk Region dated 2 December 2025 in case No. 913/619/18) and DTEK Sverdlovantratsyt LLC (judgment of the Commercial Court of Luhansk Region dated 21 November 2025 in case No. 913/182/20).
If, however, the procedure is effectively blocked due to a complete lack of control over the assets, the courts resort to other legal grounds – and the enterprise continues to be listed in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations as active. In such cases, the courts may apply the general provisions regarding the absence of a subject matter of the dispute, justifying this on the grounds that the debtor company’s property has been destroyed or is completely inaccessible. In particular, this position was expressed in the ruling of the Commercial Court of Donetsk Region dated 1 April 2025 No. 905/54/21 and subsequently upheld by the Eastern Commercial Court of Appeal, where, upon closing the bankruptcy proceedings, the court was guided by a set of provisions, taking into account the provisions of para. 2 of Part 1 of Article 231 of the Commercial Procedure Code of Ukraine, Article 6 of the Convention for the Protection of Human Rights and Fundamental Freedoms, and Article 90 of the Bankruptcy Code of Ukraine.
It is worth highlighting the practice of applying paragraph 14 of Part 1 of Article 90 of the Code of Ukraine on Bankruptcy Proceedings, which is based on the Supreme Court’s resolution of 15 April 2025 in case No. 913/355/21. It clarifies that although the legislature has imposed a prohibition only on the opening of bankruptcy proceedings in cases where the debtor’s property is under occupation, this prohibition “logically extends to the subsequent conduct of proceedings in such a case”. Accordingly, if such circumstances arose after the case was opened – in particular, after 24 February 2022 – they may be classified by the court as “another case” for closing proceedings within the meaning of paragraph 14 of Part 1 of Article 90 of the Code of Ukraine on Insolvency Proceedings. This legal conclusion provides the courts with a clear procedural basis for closing cases where proceedings were opened prior to the full-scale invasion.
For creditors, the closure of proceedings under such circumstances is a matter of legal and financial certainty. While the bankruptcy case drags on for years, the current moratorium blocks any alternative means of recovery. At the same time, the proceedings continuously generate costs: the arbitrator’s fees; court costs, which, in the absence of the debtor’s assets, fall squarely on the creditors. Continuing the case under such conditions runs counter to the nature of bankruptcy legislation, which requires efficiency and reasonable timeframes for the proceedings, rather than the indefinite maintenance of the enterprise in a state of ‘frozen’ insolvency. The opposite approach – the artificial prolongation of proceedings – inevitably harms creditors’ interests rather than protecting them. The Code nevertheless preserves a mechanism for creditors to protect their interests in the future: pursuant to paragraph 2 of Part 3 of Article 65 of the Code of Ukraine on Insolvency Proceedings, if the debtor’s assets are discovered after the proceedings have been closed, and these are sufficient to cover the costs, the court may, upon the application of a party to the proceedings, reopen the case. Thus, the closure of the case may prove to be a strategic pause, allowing for the minimisation of current financial losses and the preservation of legal protection mechanisms for the future.
Strategy for recovering losses from the aggressor
A proactive stance on the part of the creditor during bankruptcy proceedings is a legal strategy capable of ensuring the best possible protection of their interests once the proceedings have been closed, particularly where the debtor company’s assets remain in temporarily occupied territories. As already noted, when closing cases, the courts state that proceedings may be resumed if the debtor’s assets are discovered. However, it is impossible to predict the course of events under which the bankrupt company will be able to generate the assets necessary to settle its debts. Instead, the inaction of creditors merely postpones the uncertainty described. That is precisely why, whilst the bankruptcy case is still open, there is a tool in the form of bringing a claim against the aggressor state, which allows for the conversion of inaccessible assets into a more liquid claim against the Russian Federation.
The legal basis for this is laid down in Part 2 of Article 7 of the Code of Ukraine on Insolvency Proceedings, according to which the commercial court, within the framework of the bankruptcy case, resolves all property disputes to which the debtor is a party, in particular disputes concerning compensation for damage and losses. Concentrating all property claims within a single set of proceedings offers a procedural advantage: the court is already familiar with the enterprise’s financial position and the circumstances of the case, which enhances the soundness and evidential value of the future decision, as well as facilitating the hearing of the case within a shorter timeframe. The essence of this approach is to transform the physical loss of control over the debtor company’s assets into a monetary claim against the debtor, confirmed by a court decision. Such an asset may be included in the debtor’s liquidation estate and subsequently sold as a lot at auction via the Prozorro.Sales trading system, or used as documented evidence when applying to international compensation mechanisms, in particular the International Register of Damages for Ukraine (RD4U). The effectiveness of this approach is confirmed by current case law, where well-founded claims against the Russian Federation, filed within the framework of bankruptcy proceedings, are upheld in full in virtually all cases. However, the choice of the specific initiator of such a claim and the procedure to be followed depend on the stage of the bankruptcy proceedings.
At the stage of asset disposal, the company’s governing bodies have not yet been removed from their duties and retain the authority to represent its interests in court. Accordingly, it is they who may initiate a claim against the Russian Federation at this stage, without waiting for the case to proceed to subsequent phases.
With the commencement of reorganisation or liquidation proceedings, the authority to represent the debtor in court passes to the insolvency practitioner. At these stages, initiating claims against the Russian Federation on behalf of the debtor company is not only a right but also a professional duty of the practitioner in the context of protecting the debtor’s assets and forming the liquidation estate. The vast majority of claims against the Russian Federation in the context of bankruptcy proceedings are filed precisely at these stages.
The practical outcome of such work is illustrated in the following cases: in case No. 913/720/20, the liquidator obtained a judgment against the Russian Federation awarding over UAH 3.4 billion, which was included in the liquidation estate as receivables; or in case No. 910/5607/23, the reorganisation administrator secured a ruling ordering the recovery of nearly USD 19.8 million from the Russian Federation.
At the same time, it is clear that the actual recovery of such sums in full is unlikely. However, the existence of accounts receivable confirmed by a court ruling increases the value of the relevant pool of claims and, accordingly, the potential amount of funds that can be raised through its sale at auction.
Particular attention should be paid to situations where the aggrieved party is an investor who has invested funds in an enterprise as part of a reorganisation procedure and has lost them as a result of the occupation of the debtor’s assets. The decision of the Commercial Court of Zaporizhzhia Region dated 17 April 2024 in case No. 910/19113/23 demonstrates that such an investor has an independent right of claim against the Russian Federation – regardless of whether the bankruptcy proceedings concerning the investment object are still ongoing. In this case, PNGU LLC, having acquired 98.31% of the company’s share capital as part of the reorganisation, effectively lost both its invested funds and the business asset following the occupation. The court upheld the claim for over US$1 million, even though the bankruptcy proceedings concerning the investment object had already been closed at the time the claim was filed.
It is precisely this circumstance that is key from a practical point of view: the investor’s right of claim against the aggressor arises from the very fact of the loss of value of corporate rights and does not depend on the status of bankruptcy. An investor may bring a claim before the court even after the proceedings have been closed – as confirmed by this case. This approach broadens the range of parties capable of independently protecting their property interests, which have been harmed as a result of aggression, extending beyond the debtor’s purely corporate structure.
The legal framework governing bankruptcy proceedings in situations where territories on which the debtor company’s assets remain are under occupation remains incomplete. No specific mechanism for such cases currently exists, and case law is still in the early stages of development.
The tools described in this article are already available. The creditors’ committee has legal leverage over the insolvency practitioner. The insolvency practitioner has the power and duty to initiate legal proceedings against the Russian Federation on behalf of the debtor. Governing bodies may act independently at the stage of asset disposal, without waiting for liquidation. The investor protects their interests even after the proceedings have been closed. The timely selection of procedural tools by each of these parties becomes a decisive step towards transforming assets that have effectively been lost into a legally established claim against the aggressor.
At the same time, the court judgment obtained in such a claim is a liquid asset: it supplements the liquidation estate, confirms the amount of damages for international compensation mechanisms, and remains in force even after the case is closed.
Source: LIGA ZAKON
