en

Scientific Journal of the National Academy of Internal Affairs

  • Received 08.12.2024,
  • Revised 25.02.2025,
  • Accepted 25.03.2025
Download article Download article
Vol. 30, No. 1, 2025
  • corporate insolvency; corporate governance; legal regulation; creditor protection; insolvency practitioner
  • https://doi.org/10.63341/naia-herald/1.2025.71
  • Pages 71-86

This study aimed to develop a comprehensive understanding of the mechanisms of subsidiary liability and identify ways to improve its regulation in bankruptcy law. The methodological framework was based on a combination of institutional and comparative legal approaches, enabling a thorough examination of subsidiary liability as a legal institution and comparing its regulation across different legal systems. The findings indicated that the Ukrainian model of subsidiary liability has evolved from a narrow to a broader interpretation of liability grounds, reflecting a global trend towards strengthening creditor protection. An analysis of European legislation and Ukrainian case law, along with selected cases in Germany (Wirecard) and the United Kingdom (BHS), revealed that the effectiveness of the European model is primarily ensured through the introduction of early problem detection systems and prompt responses to initial signs of mismanagement. This is complemented by a well-developed system of professional oversight by insolvency practitioners, auditors, and experts. It has been established that a key element of the European approach is a well-functioning system of cross-border cooperation and information exchange between different jurisdictions. The specialisation of proceedings and the clear distinction between various forms of liability contribute to more efficient case resolution and the avoidance of procedural complications. The necessity of systematically improving Ukrainian legislation has been substantiated through the expansion of insolvency practitionersʼ powers, the introduction of early warning mechanisms for insolvency, the creation of a national database of individuals involved in subsidiary liability cases, and the mandatory audit of enterprises experiencing a sharp increase in debt burden or changes in ownership structure. It has been proposed to supplement legislation with specialised rules governing the identification, prevention, and termination of misconduct at the pre-crisis stage, as well as to develop a clear list of risk indicators and introduce a requirement for management to notify creditors and relevant state authorities of such circumstances

References

[1] Ayotte, K., & Ellias, J.A. (2022). Bankruptcy process for sale. Yale Journal on Regulation, 39(1).

[2] Babie, P. (2016). Ukraineʼs transition from Soviet to Post-Soviet law: Property as a lesson in failed regulation. East/West: Journal of Ukrainian Studies, 3(1), 3-37. doi: 10.21226/T2MS30.

[3] Beaver, W.H., Cascino, S., Correia, M., & McNichols, M.F. (2024). Bankruptcy in groups. Review of Accounting Studies, 29, 3449-3496. doi: 10.1007/s11142-023-09779-4.

[4] Beuermann, C. (2022). Discerning the form at the second stage of vicarious liability. Cambridge Law Journal, 81(3), 495-523. doi: 10.1017/S0008197322000526.

[5] Danilov, A. (2024). Problems of application of the institute of joint and several liability in bankruptcy proceedings. Law of Ukraine, 6, 156-167. doi: 10.33498/louu-2024-06-156.

[6] Das, I. (2020). The need for implementing a cross-border insolvency regime within the insolvency and bankruptcy code, 2016. Vikalpa: The Journal for Decision Makers, 45(2), 104-114. doi: 10.1177/0256090920946519.

[7] Donkov, S., Tkachenko, D., Sokolyk, D., & Chumak, R. (2021). Analysis of the application of disciplinary measures against insolvency receivers. Retrieved from https://surl.li/ocwreh.

[8] Fedorov, V., Chipko, N., & Tishchenko, Y. (2019). Place of Ukrainian law among other legal systems of the world. Amazonia Investiga, 8(23), 76-80.

[9] Gerner-Beuerle, C., Paech, P., & Schuster, E. (2013). Study on directorsʼ duties and liability in Europe. Retrieved from https://ssrn.com/abstract=3886382.

[10] Getzler, J. (2019). Fiduciary principles in English common law. In E.J. Criddle, P.B. Miller & R.H. Sitkoff (Eds.), The Oxford handbook of fiduciary law (pp. 470-489). Oxford: Oxford University Press. doi: 10.1093/oxfordhb/9780190634100.013.26.

[11] Horvat, I.V. (2024). Bringing to subsidiary liability in bankruptcy proceedings. Civil law aspects. Actual Problems of Native Jurisprudence, 1, 72-76. doi: 10.32782/2408-9257-2024-1-13.

[12] Janger, E.J. (2022). Aggregation and abuse: Mass torts in bankruptcy. Fordham Law Review, 91(4), 361- 383.

[13] Jennings, A.K. (2024). Criminal subsidiaries. Fordham Law Review, 91(5), 2013-2076.

[14] Karmaza, O.O., Makhinchuk, V.M., Derkach, A.L., Spektor, O.M., & Sheludchenkova, A.S. (2019). Application of “Piercing the corporate veil” doctrine in the Ukrainian law. International Journal of Economics and Business Administration, 7(4), 524-538.

[15] Khalabudenko, O. (2020). A critical look at the policy of law in the context of the reform of the civil code of Ukraine (some methodological remarks). Law Review of Kyiv University of Law, 2, 259-262. doi: 10.36695/2219-5521.2.2020.47.

[16] Knieper, R., & Bityukov, A.N. (2019). Territorial communities in civil legal relations. Journal of the National Academy of Legal Sciences of Ukraine, 26(1), 36-47.

[17] Kokorin, I. (2021). Third-party releases in insolvency of multinational enterprise groups. European Company and Financial Law Review, 18(1), 107-140. doi: 10.1515/ecfr-2021-0002.

[18] Malekmohamadi, S., & Eskini, R. (2023). Theoretical foundations of parent companiesʼ liability in cases of bankruptcy of subsidiaries: A comparative study with the Australian model law. Jurisprudence and Islamic Law, 14(31), 33-60. doi: 10.22034/law.2022.48373.3018.

[19] Mares, R. (2020). Chapter 21: Liability within corporate groups: Parent companies accountability for subsidiary human rights abuses. In S. Deva & D. Birchall (Eds.), Research Handbook on human rights and business (pp. 446-470). Cheltenham: Edward Elgar Publishing. doi: 10.4337/9781786436405.00031.

[20] Mastrullo, T. (2024). The new Luxembourg insolvency and restructuring law in light of the transposition of the Directive (EU) 2019/1023. European Insolvency and Restructuring Journal. doi: 10.54195/eirj.18654.

[21] Mevorach, I. (2024). Environmental activism by parent companies: Legal incentives and economic realities. Retrieved from https://surl.li/zdkpou.

[22] Monastyrsky, U.E. (2020). Role of recovery of losses from managers or controlling persons at enterprises. In V.V. Mantulenko (Ed.), European proceedings of social and behavioural sciences: Problems of enterprise development: Theory and practice (pp. 923-931). Paris: European Publisher. doi: 10.15405/ epsbs.2020.04.118.

[23] Nuryanto, D.A., Sulistiyono, A., & Pujiyono. (2019). State-owned enterprises restructuring through holding company in responding bankruptcy in subsidiaries. In Proceedings of the 3rd international conference on globalization of law and local wisdom (pp. 179-182). London: Atlantis Press. doi: 10.2991/ icglow-19.2019.46.

[24] Pargendler, M. (2021). Veil peeking: The corporation as a nexus for regulation. University of Pennsylvania Law Review, 169, 717-781.

[25] Priguza, P. (2019). Subsidiary liability for bringing to bankruptcy in the law of Ukraine. Retrieved from https://ekmair.ukma.edu.ua/server/api/core/bitstreams/90ba1ccf-490e-4bd0-85ab-ab350b2c8452/ content.

[26] Rybalchenko, L., & Ohrimenko, S. (2024). How the fight against economic crime in ukraine has changed since the start of the full-scale invasion. Philosophy, Economics and Law Review, 4(1), 121-128. doi: 10.31733/2786-491X-2024-1-121-128.

[27] Schwartz, J. (2020). De facto shareholder primacy. Maryland Law Review, 79(3).

[28] Sharma, S. (2021). Cross border insolvency mechanism in India: The need to adopt UNCITRAL model law. International Journal of Law Management & Humanities, 4(1), 376-393. doi: 10.1732/IJLMH.25562.

[29] Šimunović, L., & Konjević, T. (2022). Implementation of the Directive 2019/1023 in the Croatian legal system: A new trend of restructuring in the Croatian insolvency law or another missed opportunity? EU and Comparative Law Issues and Challenges Series, 6, 190-212. doi: 10.25234/eclic/22415.

[30] Supreme Court. (2021). Review of the Supreme Courtʼs practice of applying the rules on vicarious liability in bankruptcy cases (current case law). Retrieved from https://supreme.court.gov.ua/userfiles/media/ new_folder_for_uploads/supreme/Oglyad_05_2020_06_2021.pdf?utm_source=chatgpt.com.

[31] Tamvada, M. (2020). Corporate social responsibility and accountability: A new theoretical foundation for regulating CSR. International Journal of Corporate Social Responsibility, 5, article number 2. doi: 10.1186/ s40991-019-0045-8.

[32] United Nations Commission on International Trade Law. (2019). UNCITRAL model law on cross-border insolvency with guide to enactment and interpretation. New York: United Nations.

[33] Yerokhin, O.P. (2024). Problematic issues of subsidiary liability in bankruptcy proceedings. Science and Technology Today, 6(34), 137-142. doi: 10.52058/2786-6025-2024-6(34)-137-142.

[34] Yuzhanina, N. (2024). The number of risky VAT payers is growing, and court decisions are being ignored by the tax authorities. Retrieved from https://7eminar.ua/news/1852-kilkist-rizikovix-platnikiv-pdv- zrostaje-a-sudovi-risennya-ignoruyutsya-podatkovoyu.

[35] Zhang, Y. (2024). Parent-subsidiary responsibility in the development of multinational enterprises. Advances in Economics, Management and Political Sciences, 83, 67-73. doi: 10.54254/2754- 1169/83/20240718.