EU “Pravo Justice” Program & USAID New Justice Program Joint Position Paper: Why Ukraine Needs New Enforcement Legislation

Recently the Ministry of Justice drafted a bill that was approved by the Ukrainian Government and registered in the Parliament on 5 June №3609. While the document contains some positive initiatives, it has already raised concerns in the professional community (Open statement of Ukrainian Bar Association) and among international experts. Most importantly, the draft provides no comprehensive solution to the systemic problems that have existed in the enforcement system for decades – as attested by numerous violations of the European Convention on Human Rights Article 6  for which Ukraine was punished by the European Court of Human Rights (ECHR) – nor does it solve the threats of undue influence and corruption in the enforcement system.

Of particular concern are the proposed regulatory initiatives by the MOJ aimed at stricter control over the PEOs through inspections and disciplinary procedures and marginalising self-governance of the Association of PEOs of Ukraine, while at the same time discriminating in favour of the State Enforcement Service. .

According to the MOJ official statistics , in 2019 the unpaid debt based on court judgments amounted to UAH 796.8 billion, while only UAH 20.7 billion was collected during the same period. The total amount of outstanding court-ordered debt in 2019 represents more than one-fourth of the Ukrainian annual GDP. It also proves that the annualised rate of enforcement is equal to a mere 2.6%. More than half of the above-mentioned court-ordered debt of UAH 796.8 billion is owed by State entities, including State-owned businesses.

The reform of the enforcement service started in 2016 introduced the so-called “mixed” enforcement system by improving incentives for the State Enforcement Officers (hereafter SEOs) and launching the new profession of Private Enforcement Officers (hereafter PEOs). Since they started working in 2017, PEOs have delivered significant results. The aforementioned official statistical data shows that the PEO performance in terms of the amount of collected debt is 5 times higher compared to the State Enforcement Service. In comparison, in 2019, 230 acting PEOs collected UAH 4.2 billion, while 4,472 SEOs collected UAH 16.5 billion over the same period.

As reiterated by the Committee of Ministers of the Council of Europe (hereafter COE CM) within the ambit of the procedure for supervision of execution of judgments of ECHR taken with regard to Ukraine, the primary concern remains the lack of further tangible action in adopting the relevant institutional, legislative and other practical measures. COE CM called upon the Ukrainian authorities to sustain their political commitment and achieve rapid progress on reform of the enforcement system. Specifically, the Committee, “in view of the need to elaborate and adopt a comprehensive legislative package”, encouraged the Parliament of Ukraine to include the development of a complete systemic enforcement framework in its agenda. Furthermore, the authorities were invited to “cooperate with international partners, including the World Bank, the International Monetary Fund and the European Union” on the issue of the enforcement reform.

At the same time, the serious institutional and capacity gaps remain to this day, in particular (i) weak PEOs independence, (ii) unfettered discretionary powers of the MOJ as regards PEOs; (iii) limited PEO mandate disallowing enforcement against State entities or in their favor; (iv) absence of a genuine automated bank account blocking and write-off system; as well as (v) no effective incentives that would stimulate debtors to enforce their obligations to pay voluntarily and timely.

In view of the need to support decisions of the Committee of Ministers of the Council of Europe, a comprehensive problem solving mechanism should be developed for a genuine enforcement reform.

This solution should involve a broad, open discussion with representatives of the legal community, businesses and other service users, professional associations, and scholars, as well as international and local experts.

As a starting point for such a discussion, the Parliament could consider the aforementioned bill №3609 alongside the Joint Enforcement Bill (№s 3726-3729), which was developed by the Association of PEOs of Ukraine in collaboration with the Ukrainian legal community, representatives of banks, businesses, civil society organisations, academia and international partners. The latter initiative is based on European standards and best practices in advanced European jurisdictions. Most notably, the Joint Enforcement Bill takes into account recommendations of COE CM with regard to the Ivanov/Burmych group of ECHR cases, which inter alia suggested ensuring institutional “independence” of enforcement service from the State political machinery.

As noted by various domestic and international observers on various occasions in the past, a failure to take decisive action with regard to the persistent structural problem of non-enforcement will have negative repercussions on the economy and financial system of Ukraine, business and investment climate, trust in the justice sector and other institutions, and the overall social fabric of the society.