The Law of Ukraine
24 November 2009
Effects of the Ban on Early Debt Repayment
The Law of Ukraine “On Amending Certain Laws of Ukraine for the Purpose of Overcoming the Negative Consequences of the Financial Crisis” dated 23 June 2009, No.1533-VI came into effect as of 24 November 2009.
Clause 10 of this law reads as follows:
"10. The resident physical and legal persons shall be banned from an early discharge of their obligations before non-resident creditors under agreements on resident borrowers’ attracting foreign-currency credits and loans from non-residents.
The ban established in paragraph one of this Clause shall also apply to agreements concluded before the effective date of this Law.”
The enactment of this clause will block external borrowing for Ukrainian borrowers. The reason is that it is the standard provision of credit agreements and the Eurobonds issue terms that the creditor shall have the right to present the amount outstanding for early repayment in case of emergence of the circumstances stipulated in the agreement/issue prospectus (default conditions). With this Law’s ban on early discharge of credit obligations, this provision cannot be satisfied by Ukrainian borrowers. In this situation, foreign creditors are left without an important instrument of control over borrowers, which is essential for ensuring timely payment of interest, repayment of principal, and performance of other obligations, and are certain to reduce or terminate lending to Ukrainian residents altogether. This is especially dangerous in the crisis environment, as lack of sources of refinancing for the resources borrowed earlier will create the preconditions for mass-scale defaults in payment and collapse of the financial system.
Glyanec