A court decision is an obligation backed by the authority of the State
However, in Ukraine businesses have been struggling for years to have court decisions enforced, while the state as debtor often ignores the rulings issued in its own name.
The recent corruption scandal involving shadow payments at Energoatom once again draws attention to the Business Ombudsman Council’s systemic report “How Business Can Achieve Enforcement of a Court Decision in Ukraine,” published back in February 2021. The failure to implement the key recommendations set out in that report not only keeps Ukraine at low positions in rule-of-law rankings, but also creates a fertile environment for corruption, undermining the country’s economic security.
A systemic problem: moratoria and restrictions on the powers of enforcement officers
One of the main obstacles to enforcing court decisions is the presence of legislative moratoria. At the time the report was prepared, nearly twenty of them were in force. These moratoria, adopted by Parliament, often protect state-owned enterprises and companies in the fuel and energy sector. For example, the moratorium on the forced sale of assets of state-owned enterprises has been in place since 2002. There are also numerous moratoria and restrictions on enforcement actions against enterprises in the fuel and energy complex. These “temporary” limitations, which frequently last for years, effectively grant state-controlled enterprises a conditional immunity from liability and prevent the forced recovery of debts which leads to
- A significant imbalance between the interests of creditors and debtors,
- Ongoing abuses and deterioration of the financial condition of state enterprises,
- Obstruction of the enforcement of court decisions rendered in the name of Ukraine.
The Energoatom case and the “barrier” scheme
The existence of such moratoria, as well as the asymmetry between the powers of state and private enforcement officers, creates numerous loopholes in the enforcement system and provides fertile ground for corruption. The “barrier” scheme at Energoatom is a vivid example. Under this scheme, unscrupulous individuals exploited the restrictions on debt collection from a state company for their own benefit. In practice, the inability to enforce lawful debts enabled corrupt actors to demand kickbacks for paying for delivered works or services, thereby creating an artificial barrier for businesses that were effectively deprived of legal mechanisms to recover what they were owed.
In its systemic report “How Business Can Achieve Enforcement of a Court Decision in Ukraine,” the BOC recommended the following:
- Abolish unjustified moratoria. A roadmap for lifting moratoria should be developed, taking into account the priorities of martial law and post-war recovery.
- Equalize the powers of state and private enforcement officers.
- Introduce effective sanctions for non-compliance with court decisions. Penalties for deliberate non-execution of court decisions should be increased, and a mechanism for imposing financial sanctions and compensation for ignoring non-monetary court decisions should be developed.
The state must not be the main debtor in court cases, nor a breeding ground for corruption schemes. Effective judicial protection and guaranteed enforcement of court decisions are essential conditions for economic growth and for strengthening the rule of law.
