Court rules Ukrainian Railways to be successor to former division debts

26 June 2020

The Grand Chamber of the Supreme Court of Ukraine has ruled to recognize Ukrainian Railways (RAILUA) as the legal successor to the debt obligations of State Enterprise Donetska Railway, its former Donbas division, the company reported on June 25. The company also warned the court ruling threatens Ukraine’s security and the stability of its railway industry operations.


In particular, Ukrainian Railways claims that the court’s ruling will lead to the company being obligated to repay Donetska Railway’s liabilities, which exceed UAH 6.5 bln. At the same time, the company has no access to the assets of Donetska Railway, most of which are located on the occupied territories of the Donetsk and Luhansk regions (known as Donbas). The company warned that such additional obligations jeopardize its financial situation and liquidity, which are otherwise weak due to the COVID-19 crisis. Therefore, the company called upon all government bodies to take measures to protect the interests of the company and the state, among others, by initiating legislative changes that will allow for settling this issue.


Recall, Joint Stock Company Ukrainian Railways was created in October 2015 to consolidate the assets and operations of six regional railway companies, including a small part of Donetska Railway which was located outside the occupied territories. Since then, Ukrainian legislation was amended several times to protect Ukrainian Railways from the possible enforcement of paying the liabilities of Donetska Railway up until it regains full control over all the Donetska assets.


Alexander Paraschiy: The company offered no details of the court’s ruling. Theoretically, it’s possible that the Supreme Court made a ruling that could indeed imply an increase of Ukrainian Railways’ obligations, and even lead to a cross-default on other company debt, including its Eurobonds (recall, some of the debts of Donetska Railway, in the amount of USD 111 mln and UAH 958 mln, were carved out from the cross-default clause under Ukrainian Railway’s Eurobonds, but there could be other debt claims too). Otherwise, we view Ukrainian Railways’ warnings to be excessive.


Namely, the only available recent ruling of the Grand Chamber of Supreme Court related to Ukrainian Railways is the ruling on the claim of power generation company Donbasenergo, which is seeking repayment of UAH 70.3 mln in debt of Donetska Railway from Ukrainian Railways. Namely, the Grand Chamber of Supreme Court overturned on June 19 the rulings of the lower courts (which favored Ukrainian Railways) on this case and assigned a new hearing to a first-tier court. From this ruling, it’s hard to conclude that the company was recognized as a successor of Donetska Railway’s debts.

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