Who Determines the Position of the Enterprise in Court After the Removal of the Manager: The Supreme Court Clarified the Powers of the Arbitration Manager

If in the bankruptcy procedure the court terminated the powers of the enterprise manager and assigned their execution to the arbitration manager, it is the arbitration manager who is authorized to determine the procedural position of the debtor in court. Such an arbitration manager may, in particular, refuse an appeal filed on behalf of the enterprise. This conclusion was reached by the Commercial Cassation Court as part of the Supreme Court.

Case circumstances

Within the bankruptcy case, a farming enterprise filed a claim against a counterparty for the transfer of ownership of 120 tons of ammonium nitrate and the recovery of UAH 225.6 thousand of advance payment. The commercial court of first instance denied the claim.

After that, the founder of the enterprise filed an appeal on behalf of the enterprise, requesting to overturn the decision of the court of first instance.

At the same time, at that moment in the bankruptcy case, there was already a court ruling terminating the powers of the farming enterprise manager and assigning the execution of his duties to the arbitration manager – the property administrator. He was the person listed in the Unified State Register as authorized to act on behalf of the debtor.

Subsequently, the arbitration manager filed a statement with the appellate court to withdraw the appeal. The appellate court accepted this withdrawal and closed the proceedings in the case.

The manager and founder of the farming enterprise appealed this decision to the Supreme Court. Among other things, they argued that the appellate court did not clarify the issue regarding the powers of the lawyer who filed the appeal on behalf of the enterprise based on a legal assistance agreement. The complainants also claimed that the arbitration manager allegedly acted not in the interests of the debtor.

Position of the Supreme Court

The Supreme Court reminded that the right to withdraw an appeal is a procedural right of the person who filed it, but such an action must be performed by a duly authorized representative of the legal entity.

The court noted that at the time of filing the statement to withdraw the appeal, the arbitration manager was the manager of the debtor within the meaning of procedural law. His powers were confirmed by the court ruling and information from the Unified State Register, and no restrictions on the right to act on behalf of the debtor were established.

Therefore, the appellate court reasonably concluded that it was the arbitration manager who had the right to file a statement to withdraw the appeal on behalf of the debtor.

Separately, the Supreme Court agreed that to decide on accepting the withdrawal of the appeal, the appellate court was not obliged to investigate the circumstances of concluding or terminating the legal assistance agreement between the debtor and the lawyer.

The panel of judges drew attention to the fact that a systematic analysis of the provisions of the Bankruptcy Procedure Code of Ukraine and the Law "On Advocacy and Advocacy Activity" indicates that the status of a lawyer representing the debtor is not higher than the status of the arbitration manager appointed in the bankruptcy case. Accordingly, the lawyer does not have priority in making procedural decisions over the property administrator to whom the court assigned the powers of the debtor's manager.

The court also emphasized that the arbitration manager may involve other persons to ensure the execution of his powers but is not entitled to delegate to third parties the powers directly provided by the Bankruptcy Procedure Code of Ukraine.

The Supreme Court specifically stressed that it is the arbitration manager, who is assigned the execution of the debtor manager's powers, who is authorized to determine the position of the legal entity in the dispute. Therefore, even the existence of a valid legal assistance agreement does not change the fact that the lawyer is obliged to act according to the will of the client, and in this situation, such will on behalf of the debtor was formed by the arbitration manager as the acting manager.

Regarding the arguments about possible unlawful actions of the arbitration manager, the Supreme Court noted that they cannot be the subject of evaluation in this dispute, since the cassation review concerned exclusively the legality of closing the appellate proceedings. Moreover, in this case, the ruling terminating the powers of the debtor's manager and assigning their execution to the property administrator was not appealed.

Conclusion of the court

The Supreme Court in case No. 924/700/24 (924/426/25) concluded that the statement to withdraw the appeal was filed by a duly authorized person – the arbitration manager assigned to execute the powers of the debtor's manager. Therefore, the appellate court lawfully accepted such withdrawal and closed the appellate proceedings.

As a result, the cassation appeal was dismissed, and the appellate court ruling remained unchanged.

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