THE LAW OF UKRAINE ON BANKRUPTCY Dated May 14, 1992 (Vidomosti of the Supreme Rada, No. 31, item 440) With Amendments and Additions Introduced by the Following Laws of Ukraine: Dated June 17, 1993, No. 3292, VVR No. 29 1993, p. 308; Dated February 25, 1994, No. 4036, VVR No. 27 1994, p. 224; Dated March 14, 1995, No. 90/95-VR, VVR No. 14 1995, p. 93; This law determines terms and conditions, and procedures for recognition of a legal entity which is a subject of business activities as a bankrupt for the purposes of meeting creditors' claims. SECTION I GENERAL PROVISIONS Article 1. Definition of Bankruptcy Bankruptcy means the failure of any legal entity, subject of business activities, to meet, within the term established for that purpose, creditors' claims and its obligations to the budget due to the lack of liquidity of its assets. Article 2. Subjects of Bankruptcy Legal entities, subjects of business activities, unable to perform in proper time their obligations to creditors or the budget may be subjects of bankruptcy, which are subject to this Law and hereinafter referred to as the debtors or bankrupts. Article 3. Creditors 1. In accordance with this Law, "creditor" means any citizen or legal entity which have to the debtors property claims supported by the appropriate documents, except for creditors whose property claims are fully guaranteed by any mortgage. 2. If two or more creditors have property claims to the same debtor, such creditors shall form a creditors' assembly. This Law shall determined the rights of such creditors' assembly. 3. Decision of the creditors' assembly shall be deemed adopted if it is voted upon by the creditors whose property claims constitute not less than two thirds of the total number of claims. 4. If it is necessary, the creditors' assembly shall establish a creditors' committee which is the operative body of such assembly and shall determine its functions and powers. 5. A bankruptcy trustee, the head of liquidation commission and a debtor shall be entitled to participate in the creditors' assembly. Article 4. Jurisdiction of Bankruptcy Proceedings Bankruptcy proceedings shall be governed by the Arbitration Procedural Code of Ukraine taking into consideration provisions hereof. In addition, bankruptcy proceedings shall be governed taking into consideration the requirements of the Law of the Ukrainian RSR "On Banks and Banking Activities". SECTION II BANKRUPTCY PROCEEDINGS Article 5. Reasons to Initiate Bankruptcy Proceedings 1. Any written claim submitted to the arbitration court by any creditor, debtor, state tax body or state control-auditing service shall be deemed as a reason to initiate the bankruptcy proceedings. (amended pursuant to the Law No. 3292 dated June 17, 1993) 2. The creditor may apply to initiate the proceedings regarding bankruptcy of a legal entity when, within one month, such legal entity is unable to meet the demand claims recognized by it or to pay debts in accordance with acts of execution. 3. The debtor may, on its own initiative, apply to the arbitration court in the event of its financial insolvency or if it is jeopardized to be insolvent. Debtor's application shall be attached by a list of its creditors and debtors, balance sheets and other information regarding its financial and property position. Authenticity and completeness of the balance sheets and other information regarding financial and property position of the debtor shall be certified by an auditor (auditing firm) regardless reasons of the bankruptcy proceedings. (paragraph 2 point 3 Article 5 is added pursuant to the Law No. 90/95-VR dated March 14, 1995) Article 6. Withdrawal of Claims The claim of any creditor or debtor may be withdrawn by the applicant prior the arbitration court has adopted the decision on recognition of the debtor as a bankrupt. The withdrawal of debtor's claim shall be performed only under creditor's consent. Article 7. Institution of the Proceedings Upon acceptance of the application, the arbitration court shall, within five days of its receipt, adopt and send to the debtor, creditors and banks providing settlement-cash services to the debtor an award to institute proceedings which confirms the acceptance of the application and time and place of the preliminary hearing, and requires documents necessary for the proceedings which evidence financial and property condition of the debtor. Article 8. Preliminary Arbitration Court Session During the preliminary session held at least one month after the institution of the proceedings, the arbitration court shall assess submitted documents, hear explanations of the parties and banks, consider their petitions. In a result of the preliminary hearing, the arbitration court shall, by the award, if necessary, appoint the debtor's bankruptcy trustee, and bind the applicant to submit to the official press organ of the Supreme Rada of Ukraine or the Cabinet of Ministers of Ukraine an information including the following: full name of the debtor, its legal address, bank information; name and address of the arbitration court, case number. The purpose of such information is to reveal all creditors and possible [guarantors]. Article 9. Bankruptcy Trustee Under proposition of the debtor or creditors, the arbitration court shall authorize the bank which provides settlement-cash services to the debtor, State (Municipal) Property Fund, if the debtor is a state-owned enterprise, organization, or other entity to be the bankruptcy trustee and to control debtor's assets. Bankruptcy trustee shall be liable for improper performance of the above authorization. Powers of the bankruptcy trustee shall become invalid as of the date of the liquidation commission establishment. Article 10. Revealing Creditors and Guarantors Within a one month period of the date of publication of the information on initiating bankruptcy proceedings in the official press organ of the Supreme Rada of Ukraine or the Cabinet of Ministers of Ukraine, creditors shall submit to the arbitration court their written applications along with property claims to the debtor together with evidencing documents. In a result of the consideration of such claims, the arbitration court shall, by its award, accept or waive them. The above award may be reviewed in order of supervision. Creditors' applications shall be paid by the state duties. Individuals and legal entities wishing to participate in the [sanation] shall, within the same period of time, to submit to the arbitration court applications with written obligation to assume debts, and to specify terms and conditions for the [sanation] of the legal entity-debtor. Article 11. Establishment of the Creditors' Assembly and Committee One month after the date of the publication of the information on initiating bankruptcy proceedings in the official press organ of the Supreme Rada of Ukraine or the Cabinet of Ministers of Ukraine, the arbitration court shall make an award where it binds all persons, which have submitted their applications with property claims against the debtor, to call the assembly under their participation where their authorized committee will be established, if necessary. The establishment of the committee shall be binding, if the number of creditors shall exceed ten persons. Powers of the committee shall be determined by the creditors' assembly. The decision on its establishment and the powers delegated to it shall be submitted to the arbitration court. Article 12. Adoption of the Decision on the [Sanation] Upon expiration of the term specified in Article 10 hereof, the arbitration court may adopt an award on the performance of the [sanation] of the debtor, if certain entities gave their propositions to meet claims of the creditors against the debtor and to perform its obligations to the budget, provided that the creditors' assembly (committee) shall provide its consent regarding terms for the performance of such obligations and the transfer of debts. The debtor shall retain its option regarding terms and conditions of the performance of the [sanation], if it itself applied to the arbitration court with the application on bankruptcy. In doing so, terms and conditions of the performance of the [sanation] for the state-owned enterprises through their reorganization shall be agreed upon the appropriate body authorized to manage the state-owned property, and the Anti-Monopoly Committee of Ukraine within the scope of its competence, and terms and conditions for the performance of the [sanation] through the privatization - upon the appropriate privatization organ. If several individual or legal entities wish to participate in the [sanation] of the enterprise-debtor, selection of [guarantors] shall be performed by the appropriate bodies through tender; If bankruptcy proceedings were initiated regarding the state-owned enterprise, its working collective shall have the right to demand the lease them the enterprise, provided that it shall assume debts of the enterprise-debtor. If creditors agree to transfer the debt and to change the debtor in the event contemplated by the second part of this Article, the arbitration court shall adopt an award regarding termination of the proceedings. In its award the arbitration court shall determine terms and conditions of the [sanation] of the legal entity-debtor agreed by and upon the creditors, [guarantors] and debtors in the event contemplated by the second part of this Article. (amended pursuant to the Law No. 4036 dated February 25, 1994) Article 13. Resolution on Recognition of the Debtor as a Bankrupt The arbitration court shall recognize the debtor as a bankrupt in the event of absence of propositions regarding performance of the [sanation] or, if the creditors do not agree with the terms and conditions of the [sanation] of the debtor. The arbitration court shall adopt a resolution regarding recognition of the debtor as a bankrupt. The resolution shall appoint liquidators from amongst the representatives of the creditors' assembly, banks, financial institutions, as well as the State Property Fund, if any state-owned enterprise or organization has been recognized as the bankrupt. Liquidators shall undertake to carry out procedures to meet creditors's claims. SECTION III DECLARATION ON BANKRUPTCY, ITS CONSEQUENCES AND SATISFACTION OF CREDITORS' CLAIMS Article 14. Declaration on Bankruptcy A copy of the resolution on the recognition of the debtor as the bankrupt shall be sent to: any founder of the legal entity recognized as the bankrupt; the owner of the property or any organ authorized by it; the bank which provided services to the bankrupt; the National Bank of Ukraine (if the bankrupt is a bank); the Ministry of Foreign Economic Relations of Ukraine (if the bankrupt is registered as a participant of foreign economic activities); the organ which registered the bankrupt as a subject of business activities; the state employment service at the legal address of the bankrupt; the relevant trade-unions; the procurator office (if materials of the case give the basis to consider the bankruptcy as intended). Article 15. Consequences of the Recognition of the Debtor as a Bankrupt Upon the recognition of the debtor as a bankrupt: business activities of the debtor shall be terminated; the right to manage the debtor's property and all its property rights and obligations shall be transferred to the liquidation commission; terms of all debentures of the debtor shall be deemed expired; calculation of any penalty and interest for all kinds of the debtor's debenture shall terminated. Upon submission of the procurator office, petition of the debtor, bankruptcy trustee or creditors, the arbitration court may: to recognize as invalid any agreement on the debtor's property sale carried out within three months prior to the initiating the bankruptcy proceedings, if it was performed for the benefit of any interested entity which represented the debtor; to recognize as invalid any agreement executed by the debtor regarding its property sale or undertaking any obligations by the latter within one year prior to the beginning the bankruptcy proceedings, if the sale of property was carried out in order to hide that property or not to pay debts; if as a result of such agreement the debtor have received much less than the actual price of the agreement (property); as well as, if at the date of the agreement the debtor was actually insolvent or became insolvent as a result of the performance thereof. Article 16. Liquidation Commission Liquidators appointed by the arbitration court shall establish a liquidation commission. The liquidation commission shall also include the bankruptcy trustee. The liquidation commission shall: manage the bankrupt's property; perform inventory and assessment of the bankrupt's property; recognize the liquidation mass and dispose it; use all efforts to collect receivables; sell the bankrupt's property and carry out other steps directed to meet creditors' claims in accordance with the Law of the Ukrainian RSR "On Enterprises in the Ukrainian RSR". Actions of the liquidation commission may be claimed at the arbitration court. Article 17. Removal of Employees. Benefits and Compensations for Removed Employees Removal of employees of the bankruptcy subjects shall be performed in accordance with the requirements of the Labor Code of Ukraine. Issues regarding an employment of the removed employees shall be solved pursuant to the Law of the Ukrainian RSR "On Employment of Population". The removed employees of the bankruptcy subjects shall retain their benefits and compensations provided for in Article 26 of the Law of the Ukrainian RSR "On Employment of Population". Article 18. Property Which is Subject to Seizure In order to repay any debt, all property of the bankrupt possessed pursuant to the ownership right or which is at its full economic disposal may be subject to seizure. In the events contemplated by applicable legislation, upon creditors' claims other property may also be subject to the seizure. Article 19. Property Assessment Property which is subject to the seizure shall be assessed by the liquidation commission pursuant to the procedures established by the Law of Ukraine "On Privatization of Small State-Owned Enterprises (Small Privatization)". Assessed value of property which is sold at the auction shall be equal to the original value. Article 20. Sale of Property Decision on the sale of the bankrupt's property shall be made by the liquidation commission under consent of the creditors' assembly (committee). The head of the liquidation commission shall, through mass media organs, provide the information on procedures for the sale of the bankrupt's property, its composition, terms and conditions to purchase such property. In the event of existence of two and more offers, the head of the liquidation commission shall declare a tender (auction). Procedures for the performance of such tender (auction) shall be determined pursuant to the Law of Ukraine "On Privatization of Small State-Owned Enterprises (Small Privatization)". In doing so, the sale of property of the state-owned enterprises-bankrupts shall be carried out taking into account requirements contemplated by the Law of Ukraine "On Privatization of Property of the State-Owned Enterprises" (2163-XII) and other legislative acts of Ukraine connected with privatization issues. (this Article is amended pursuant to the Law No. 4036 dated February 25, 1994) Article 21. Priority of Creditors' Claims 1. Funds received from the sale of the bankrupt's property shall be directed to meet creditors' claims. The priority shall be given to cover expenditures arisen in connection with the bankruptcy proceedings in the arbitration court, work of the liquidation commission and bankruptcy trustee, as well as creditors' claims guaranteed by mortgage shall be satisfied. 2. In first turn, obligations of the enterprise-bankrupt to its employees shall be performed (except repayment of working collective members' contributions to the charter fund of the enterprise or any payment on shares of the working collective). 3. Secondly, state and local taxes and non tax payments due to the budget, as well as claims of the state insurance and social protection bodies shall be satisfied. 4. Thirdly, claims of creditors not guaranteed by mortgage shall be satisfied. 5. Fourthly, claims regarding repayment of the working collective members' contributions to the charter fund of the enterprise and any payment on shares of the working collective. 6. Fifthly, all remaining claims. 7. Claims of each following group shall be satisfied after complete satisfaction of the preceding claims. 8. In the case of insufficient property to meet in full all claims of the same group, such claims shall be satisfied in proportion to the certain amount due to each creditor. 9. Claims submitted after expiration of a term established for their submission shall not be considered, and relevant debts shall be deemed paid. 10. Claims unsatisfied due to the insufficiency of property shall be deemed paid. 11. Property (except funds of the state-owned enterprises-bankrupts) remaining after the satisfaction of claims of the creditors and members of the working collective shall be transferred to the owner or the relevant privatization body in order to be sold, if the arbitration court has adopted the award on liquidation of the legal entity-bankrupt. Funds remaining after the state-owned enterprise-bankrupt has satisfied all claims of the creditors and members of the working collective shall be credited to the relevant non-budget privatization fund. (this point is amended pursuant to the Law No. 4036 dated February 25, 1994) Article 22. Termination of the Bankruptcy Proceedings Under results of work carried out by the liquidation commission, the latter shall, after hearing members of the liquidation commission and the creditors' assembly or committee, adopt the award on approval of the liquidation balance or appointment of new liquidators. If pursuant to the liquidation balance, no property remained after satisfaction of the creditors' claims, the arbitration court shall award on the liquidation of the legal entity-bankrupt. If the bankrupt's property is sufficient to satisfy all claims of the creditors, it shall be deemed free of debts and continue its business activities. The arbitration court may adopt the award on the reorganization (liquidation) of any legal entity free of debts only if its remaining property assets are less than it requires for its operation pursuant to legislation or petition of its property owners. Chairman of the Supreme Rada of Ukraine I. PLYUSCH The city of Kiev, May 14, 1992 No. 2343-XII DECREE OF THE SUPREME RADA OF UKRAINE ON INTRODUCTION OF THE LAW OF UKRAINE "ON BANKRUPTCY" The Supreme Rada of Ukraine hereby DECREES: 1. To introduce the Law of Ukraine "On Bankruptcy" as of July 1, 1992. As for agricultural enterprises this Law shall be effective as of January 1, 1993. 2. Prior to June 1, 1992 the Cabinet of Ministers of Ukraine shall: submit to the Supreme Rada of Ukraine propositions regarding making certain applicable legislative acts of Ukraine compliant with the Law of Ukraine "On Bankruptcy"; to provide decisions of the Ukrainian Government in compliance herewith; to ensure that ministries, state committees and departments of Ukraine shall review and cancel their normative acts which are in conflict herewith. Chairman of the Supreme Rada of Ukraine I. PLYUSCH The city of Kiev, May 14, 1992 No. 2344-XII ??