On June 10, 2022, the first-instance court granted the application of the arbitration administrator and imposed subsidiary liability for the Company’s obligations in the amount of UAH 1,572,761.54 on its owner – the Enterprise; cash in the amount of UAH 1,572,761.54 an amount has been charged from the Enterprise for the Company.

The court decision was motivated by the fact that the conclusion of land lease agreements between the Company and the Vinnytsia City Council dated 04.10.2010, the rent was UAH 151,437.59/year, did not bring any economic benefit to the Debtor, but led to an increase in its payables debts. Therefore, the insistence of the Enterprise, as the founder and owner of the Company, on the conclusion of a contract known to be disadvantageous for the Debtor is a sign of actions bringing to bankruptcy.

The first-instance court concluded that the only possible way to repay the creditor’s claims is to impose subsidiary liability on the owner of the Debtor because due to the lack of property assets, it is impossible to sell the bankrupt’s property.

The “Bauman Kondratyuk” Bar Association did not agree with the court’s decision, appealed it and prepared a procedural position for the court of cassation, – noted the prescriptions of the Article 61(2) of the Code of Ukraine on Bankruptcy Procedures – during the exercise of its powers, the liquidator has the right to make claims to third parties which, in accordance with the legislation, bear subsidiary responsibility for the debtor’s obligations in connection with bringing it to bankruptcy. The amount of these claims is determined from the difference between the amount of creditors’ claims and the liquidation mass. In case of debtor’s bankruptcy due to the fault of its founders (participants, shareholders) or individual persons, including the fault of the debtor’s head, who have the right to give instructions binding on the debtor or have the opportunity to determine his actions in another way, the debtor’s founders (participants, shareholders) – a legal entity or individual persons, in case of insufficient property of the debtor, may be held subsidiary liable for its obligations. Charged amounts are included in the composition of the liquidation mass and can be used only to satisfy the demands of creditors in the order of precedence established by law.

The offense defined in accordance with the norms of the Code of Ukraine on Bankruptcy Procedures, for the commission of which a type of civil liability is applied – subsidiary, must be correlated with the presence of the necessary conditions (elements), which are the basis for the application of this type of liability.

The object of offense at issue and defense in the imposition of subsidiary liability is the rights of creditors to satisfy the claims that remained unsatisfied by debtor in the bankruptcy case.

Subjects of the offense (subsidiary liability) that can be prosecuted in a bankruptcy case at the request of the liquidator are the founders (participants, shareholders) or other persons, including the head of the debtor, who have the right to issue binding orders instructions to the debtor, or have the opportunity to determine its actions in a different way, provided that these persons are guilty of declaring the debtor bankrupt, that is, the subject (subjects) of subsidiary responsibility committed guilty actions that led to the debtor’s bankruptcy.

The court, which resolves the dispute about subsidiary liability in the bankruptcy case, establishes the circumstances of behavior (action or inaction) that must be in a cause-and-effect relationship with regard to the violation provided for in Article 61 §2 of the Code of Ukraine on Bankruptcy Procedures, as well as the fault subjects of subsidiary liability in the case of bankruptcy.

In the process of solving the question of the guilt (type of guilt) of the subject of subsidiary responsibility, it is necessary to proceed from the duties and powers of the subjects’ responsibility in relation to the debtor, assigned to them by law and/or the statute, taking into account the provisions of the Article 4 §§1 and 3 of the Code of Ukraine on Bankruptcy Procedures.

Regarding the objective side of the offense for bringing subjects to subsidiary liability in the case of bankruptcy, it should be noted that although the prescriptions of the Article 61§2 of the Code of Ukraine on Bankruptcy Procedures contain the disposition (content) of the offense of “bringing to bankruptcy”, for which a “sanction” in in the form of subsidiary liability is provided, but it is not specify the actions/inaction of the subjects of such liability, which indicate/prove bankruptcy.

At the same time, based on the provisions of Article 73 and Article 74 § 1 of the Code of Ukraine on Commercial Procedure (regarding the party/participant in a bankruptcy case, the burden of circumstances proving, which it refers to as the basis of its demands and objections), the court emphasizes that the circumstances proving the existence or absence of any of the above elements/components of the objective side of a civil offense (asserted or denied: commission of an act, inaction, existence of debt during the period when the debtor committed a property act, etc.) must be proven by the procedure established by law.

Investigating the issue of the cause-and-effect relationship between the conclusion of the relevant contracts and the bankruptcy of the Enterprise, the Supreme Court established: (1) land plots on the street Mayakovsky, 243, which were the subject of land lease agreements dated 10.06.2022, was used by the debtor long before the conclusion of these agreements (decisions of the Executive Committee of 03/26/98 N 367 and of 01/28/2001 No. 2467); (2) the conclusion of the specified lease agreements took place as a result of bringing the legal relations that regulate the use of land into compliance with the current legislation of Ukraine, because the Enterprise used the corresponding land plots provided for the maintenance of buildings and the functioning of the Enterprise in its business activities; (3) The Company and the Enterprise are separate legal entities that have independent balance sheets and independently carry out economic activities; (4) the main reasons for the Company’s unprofitability were the lack of government purchases for vouchers, the outdated material base, which in conditions of high competition made the sanatorium (subsidiary) unattractive for the commercial sale of vouchers; the presence of debts, a lawsuit with the State Property Fund of Ukraine made it impossible for it to participate in public procurement.

Based on the established circumstances, the court concluded that the Company’s registration of land relations concerning the land plots, which it actually used, by the current legislation, and the Enterprise’s encouragement to enter into the relevant lease agreements for these land plots by the subsidiary (debtor) cannot be the reasons that led to the deterioration of the sanatorium’s (subsidiary’s) financial and economic condition and its bankruptcy.