AVELLUM and Hillmont Partners prevail in the Supreme Court: corporate agreement as loan collateral does not create an interest for the creditor

The Supreme Court upheld the position of AVELLUM and Hillmont Partners, legal counsels to US investors Argentem Creek Partners (ACP) and Innovatus Capital Partners (Innovatus), that entering into a corporate agreement as collateral for a loan does not indicate creditor’s interest in the debtor.

ACP and Innovatus provided USD 95 million in loan facility to the GNT Group, secured by guarantees and mortgages provided by foreign and Ukrainian companies, including, among other things, a corporate agreement regarding Olimpex Coupe International Limited Liability Company (Olimpex).

Following defaults under the loan, and upon the application of Madison Pacific Trust Limited (Madison), acting as facility agent for ACP, the court initiated bankruptcy proceedings of Olimpex.

Effective 1 January 2025, amendments to the Code of Ukraine on Bankruptcy Procedures introduced the concept of a creditor’s interest in the debtor. Creditors with an interest in the debtor do not have a decisive vote at creditors’ meetings and committees.

Seeking to deprive Madison of its voting rights at creditors’ meetings and on the creditors’ committee, opponents of the US investors argued for recognition of Madison as interested in the debtor. In their view, such interest arose from a corporate agreement entered into as collateral for the loan agreement.

However, the Supreme Court found that the corporate agreement in this case served merely as an instrument of securing the obligations under the loan and did not vest the creditor with the powers of a management of the debtor. This decision of the Supreme Court is of significant importance for shaping the application of the newly introduced concept of “creditor with an interest in the debtor” in bankruptcy proceedings.

In addition, the Supreme Court’s decision helps protect the interests of creditors and confirms the possibility of choosing various instruments to secure a loan.

The AVELLUM team was led by senior partner Kostiantyn Likarchuk and partner Vadim Medvedev.

Hillmont Partners was represented by managing partner James Hart, senior partners Andrii Nyzhnyi and Valentyn Zasukha, together with partner and head of the Lviv office Andrian Artsishevsky.