Liquidation of problematic assets in Ukraine

What Are Problematic Assets?

Problematic assets may include assets that do not generate the expected economic result, have restrictions on their use, require court recovery, or cannot be realized without additional legal resolution. These may include:

• overdue accounts receivable;
• claims against problematic debtors;
• pledged or mortgaged property;
• assets subject to seizure;
• disputed real estate;
• property with problems in title documents;
• assets of companies undergoing bankruptcy proceedings;
• property that cannot be properly sold due to legal restrictions;
• other assets with high legal or economic risks.

In banking practice, the concepts of non-performing loans and non-performing assets are used separately. However, for ordinary businesses, the term “problematic asset” is broader and may include any asset that requires restructuring, recovery, sale, or another legal solution.

A problematic asset does not always have to be simply written off the balance sheet. Depending on the circumstances, it may be recovered, restructured, sold, transferred to an investor, or realized within bankruptcy proceedings.

When Legal Analysis of Problematic Assets Is Needed

It is advisable to seek legal analysis if:

• a debtor has failed to repay the debt for a long period;
• enforcement proceedings are not producing results;
• the asset is subject to seizure or another encumbrance;
• the property is the subject of a court dispute;
• there are difficulties with the realization of pledged property;
• the debtor is approaching insolvency;
• it is necessary to sell a claim;
• the asset must be prepared for sale to an investor;
• the company wants to remove non-performing assets from its balance sheet;
• the asset needs to be assessed in the context of bankruptcy proceedings.

Benefits of Working with Prikhodko & Partners

We help:

• conduct a legal audit of the asset and determine its actual legal status;
• review documents and the legal basis for the right;
• analyze court disputes, seizures, and encumbrances;
• assess the possibility of debt recovery;
• prepare a restructuring strategy;
• support the sale of an asset or claim;
• represent the client’s interests in court;
• support work with the asset in bankruptcy proceedings;
• assess risks before acquiring a problematic asset.

Legal Audit of a Problematic Asset

A legal audit may include:

• review of title documents;
• analysis of the history of the asset;
• review of agreements;
• analysis of court cases;
• review of enforcement proceedings;
• review of seizures, pledges, and other encumbrances;
• analysis of third-party rights;
• review of limitation periods;
• assessment of the possibility of realizing the asset;
• analysis of risks of challenging a future transaction.

As a result, the client receives not an abstract description of the asset, but practical options for further action with an assessment of the legal risks.

Working with Problematic Accounts Receivable

The mere existence of a debt in accounting records does not mean that it can actually be recovered. Before starting work, the following are reviewed:

• the legal basis on which the debt arose;
• agreements and primary documents;
• deadlines for fulfilling obligations;
• whether the debt has been acknowledged;
• the limitation period;
• the debtor’s financial condition;
• the existence of court decisions;
• enforcement proceedings;
• other creditors of the debtor;
• signs of insolvency.

Depending on the results, possible scenarios include negotiations, restructuring, court recovery, enforcement proceedings, or sale of the claim to another party.

Sale of a Claim

Civil legislation allows a claim to be transferred to another person in relevant cases. A claim that is not of a personal nature may also be the subject of a sale and purchase agreement. ([Legislation of Ukraine](https://zakon.rada.gov.ua/laws/term/435-15/page6?utm_source=chatgpt.com “Цивільний кодекс України | від 16.01.2003 № 435-IV (Терміни в документі) // Термінологія законодавства”)) For the owner of the asset, this may provide an opportunity to:

• recover part of the debt value faster;
• avoid spending additional resources on lengthy recovery proceedings;
• transfer the risks of further work with the debtor to an investor;
• remove problematic debt from the balance sheet;
• secure an economic result instead of waiting years for recovery.

Before assigning the claim, the lawyer reviews the agreement, whether such transfer is permitted, the documents relating to the debt, and the risks of a future challenge.

Working with Pledged and Mortgaged Property

The existence of security improves the creditor’s position, but does not mean that the creditor automatically receives the property or funds. It is necessary to review:

• the validity of the pledge or mortgage agreement;
• ownership rights to the property;
• the existence of other encumbrances;
• the priority of creditors’ claims;
• seizures of the property;
• court disputes;
• the possibility of foreclosure;
• the method of further realization of the asset.

If the debtor is already undergoing bankruptcy proceedings, work with the secured asset must take into account the special rules of the Bankruptcy Procedures Code of Ukraine.

Problematic Assets in Bankruptcy Proceedings

The current Bankruptcy Procedures Code of Ukraine regulates restoration of the debtor’s solvency, the status of creditors, the work of the insolvency practitioner, and the liquidation procedure. ([Legislation of Ukraine](https://zakon.rada.gov.ua/laws/show/2597-19?utm_source=chatgpt.com “Кодекс України з процедур … | від 18.10.2018 № 2597-VIII”)) For a creditor, this may mean the need to:

• submit creditors’ claims in due time;
• substantiate the amount and legal basis of the debt;
• check the status of the secured claim;
• monitor actions involving the debtor’s assets;
• participate in court disputes concerning property;
• protect interests during distribution of funds;
• analyze transactions of the debtor that may affect the creditor’s rights.

For the owner or director of the company, on the contrary, it is important to review asset transactions and documents before proceedings are opened, as they may later become subject to analysis within the bankruptcy procedure.

Sale of a Problematic Asset to an Investor

In certain situations, selling a problematic asset to an investor may be economically more appropriate. This may apply to:

• a claim against a debtor;
• problematic real estate;
• pledged property;
• assets involved in court disputes;
• business shares;
• assets of a debtor company;
• other property rights with investment value.

Legal support for such a transaction includes structuring the agreement, allocating risks between the parties, checking authority, encumbrances, and the required registration actions.

Risks When Working with Problematic Assets

Main risks include:

• expiration of the limitation period;
• absence of assets belonging to the debtor;
• the existence of several creditors;
• seizures and other encumbrances;
• invalidity of certain documents;
• court disputes concerning the asset;
• challenges to the claim;
• risk of the transaction being declared invalid;
• bankruptcy of the debtor;
• incorrect assessment of the economic value of the asset.

That is why legal assessment should precede active recovery or sale.

Cost of Legal Support for Problematic Assets

The price is affected by:

• the type of problematic asset;
• the amount of debt or value of the property;
• the volume of documents;
• the existence of court disputes;
• the existence of enforcement proceedings;
• the number of encumbrances;
• the debtor’s financial condition;
• the need for court recovery;
• the need for transaction support;
• participation in bankruptcy proceedings.

In one case, a legal audit and preparation of a sale agreement may be sufficient. In another, the work may include court recovery, enforcement proceedings, or multi-stage participation in bankruptcy proceedings.

Common Situations Involving Problematic Assets

Conclusion

Liquidation of problematic assets requires an individual approach because different legal tools apply to each type of property or claim. In one case, debt recovery may be the optimal solution; in another, restructuring, sale of the claim, or realization of property may be more appropriate; and if the debtor is insolvent, participation in bankruptcy proceedings may be required. A preliminary legal audit makes it possible to assess the actual value of the asset, the risks, and the available options for recovery or realization.

Does your company have problematic debt or an asset that is difficult to realize? Submit a request on the Prikhodko & Partners Law Firm website. A lawyer will audit the documents, assess the risks, and suggest a possible scenario for recovery, restructuring, or sale of the asset.