A Ukrainian Company Received an Advance Payment but Failed to Perform the Contract: How a Foreign Business Can Recover Its Money in Ukraine

A foreign company makes an advance payment to a Ukrainian supplier for goods or services. Performance is repeatedly postponed, while the Ukrainian counterparty cites the war, transportation difficulties, or foreign exchange restrictions and, instead of providing a specific date, asks the customer to “wait.” Eventually, it becomes clear that the supplier will not perform its contractual obligations and that further delay will not result in delivery of the goods or provision of the services already paid for. The foreign customer is then faced with a different question: how to recover the advance payment made to the Ukrainian company.

Proof of payment alone is insufficient to recover the funds. It is necessary to establish whether the Ukrainian courts have jurisdiction over the dispute, document the supplier’s breach, properly formulate the claim for repayment, and assess the debtor’s financial position. The creditor should also determine in advance which funds or assets of the Ukrainian company may be available to satisfy a court judgment. Otherwise, even a fully substantiated claim may not result in actual recovery. Below, we explain the practical procedure for recovering an advance payment from a Ukrainian company in the interests of a foreign business.

When a Ukrainian company receives an advance payment but fails to perform the contract, the foreign customer’s primary concern is recovering its money. The reasons for non-performance are relevant not because the customer should continue waiting, but because they determine the appropriate recovery strategy. In practice, two situations must be distinguished: the counterparty may have encountered genuine circumstances that prevented performance, or obtaining the advance payment may have been part of a fraudulent scheme from the outset.

An operating Ukrainian company may be unable to perform a contract because of suspended production, damaged property, transportation disruptions, loss of suppliers, workforce shortages, or other consequences of the war. Such a counterparty will generally not deny receiving the funds, will remain in communication, explain the reasons for non-performance, and acknowledge its obligation to repay the advance. The main difficulty is that the funds have already been used and the company lacks sufficient liquidity to make an immediate repayment.

Negotiations may produce a result in this situation, but any agreement must be placed on a legally binding footing. The Ukrainian company should acknowledge the amount of the debt in writing, agree on a repayment procedure, and provide security in case it fails to comply. This may take the form of a pledge over property, a guarantee, or another enforceable arrangement from which the foreign creditor may recover its money.

Relying solely on a promise to repay the advance once business operations recover is risky. Even a good-faith business may ultimately become insolvent, while its assets may become encumbered in favor of banks or other creditors. Negotiations should therefore be accompanied by an assessment of the Ukrainian company’s financial position, available assets, pending litigation, and outstanding liabilities to other parties.

During the war, economic instability and the practical difficulties of verifying counterparties create opportunities for companies and individuals that accept advance payments without any genuine intention of performing their contractual obligations. They may misuse the details of another business, provide false documents, change the designated payment recipient, request payment to another company or an individual, and cease communication once the funds have been received.

Other warning signs may include the absence of genuine business operations, substantial unpaid liabilities, multiple creditor claims, frequent changes of directors or registered addresses, transfers of assets, and the use of several related companies to receive payments. No single warning sign proves fraud. A combination of such circumstances, however, requires an immediate response.

Prolonged negotiations with this type of counterparty will rarely result in repayment. They may instead be used to gain time, transfer funds, re-register assets, or discontinue the company’s operations. The foreign creditor should therefore preserve all correspondence and payment records, identify the actual recipient of the funds, investigate related companies and the debtor’s assets, and then pursue recovery before the Ukrainian courts.

If the available documents indicate that the intention to misappropriate the funds existed before the advance payment was received, a report to the Ukrainian law enforcement authorities should also be considered. Criminal proceedings do not replace a civil recovery claim. Both should form part of a coordinated strategy aimed not merely at establishing the breach, but at securing the actual recovery of funds for the foreign business.

The appropriate course of action depends on why the Ukrainian company is withholding repayment. If the counterparty remains operational, acknowledges the debt, and has genuinely encountered financial difficulties, repayment may be arranged through a written settlement supported by adequate security. If the circumstances instead indicate a fraudulent scheme, prolonged negotiations may give the debtor additional time to transfer funds or dispose of assets. The foreign creditor should therefore begin by preserving the evidence and investigating the counterparty before deciding how to proceed.

The foreign company should collect all relevant documents, including the contract, appendices, a description of the goods or services paid for, invoices, banking records, and correspondence. Messages should be preserved in their proper sequence so that they demonstrate that the Ukrainian counterparty received the funds, failed to perform the contract, and was informed of the demand for repayment.

The foreign company’s position must be unequivocal. Once it has decided to seek repayment, its subsequent correspondence should not simultaneously request continued performance of the contract. Such communications may allow the debtor to argue that the parties were still discussing delivery of the goods or provision of the services and that the repayment obligation had not yet arisen.

A written demand should be sent to the Ukrainian counterparty specifying the amount of the advance payment, the circumstances of non-performance, the bank details for repayment, and the date by which payment is expected. It should be delivered through a method that allows both its contents and receipt by the addressee to be proven.

Before commencing negotiations, the foreign creditor should establish whether the Ukrainian company remains operational, identify its management and owners, determine whether liquidation or insolvency proceedings have commenced, identify its assets, and review any other court proceedings for debt recovery. It should also verify that the payment recipient is the same legal entity identified in the contract.

If the counterparty remains in communication, acknowledges receipt of the funds, provides evidence of its operations, and identifies a credible source of repayment, the situation may involve genuine financial difficulties. If the company has no real business operations, conceals its management, repeatedly changes its registered address, transfers funds to related parties, or has numerous similar debts, the possibility of a fraudulent scheme must be considered.

The circumstances should be assessed collectively rather than in isolation. A failure to communicate does not, by itself, establish fraud. However, a combination of false documents, an absence of resources required to perform the contract, transfers of assets, and claims from other affected parties materially changes the appropriate recovery strategy.

A voluntary repayment or installment plan may be negotiated with an operating Ukrainian company. An oral promise is not sufficient. The counterparty should acknowledge the amount of the debt in writing, confirm that it has no objection to repayment, and agree on specific payment dates. The settlement should specify the currency of the obligation, the applicable conversion method, the amount of each payment, and the consequences of default. It is advisable to include an acceleration provision under which the entire outstanding balance becomes immediately due if a single installment is missed.

An installment plan is commercially reasonable only where there is a credible source of repayment and additional security. Such security may include a pledge over property, a guarantee from the business owner, or an obligation undertaken by another person with sufficient assets. If the Ukrainian company requests additional time but refuses to acknowledge the debt or provide security, continued negotiations do not protect the foreign creditor.

Even where communication remains constructive, a firm deadline should be set for an out-of-court resolution. Negotiations should not continue for months while the debtor makes no payments and its financial position deteriorates. If the first agreed payment date is missed, the creditor should proceed with recovery through the Ukrainian courts.

If the circumstances suggest that the Ukrainian company may have accepted the advance payment without intending to perform the contract, the immediate priorities are preserving evidence and identifying assets. Repeated demands and warnings are unlikely to secure repayment in this situation. They may instead alert the debtor that legal proceedings are being prepared and give it time to transfer or re-register its assets.

The foreign creditor should identify the actual recipient of the payment, investigate related companies and individuals, preserve the documents used to induce the transfer, and record any false information or attempts to conceal the recipient of the funds. At the same time, it should identify real estate, vehicles, and other assets against which enforcement may subsequently be pursued.

Proceedings before the Ukrainian courts should be prepared without prolonged exchanges of demands. The creditor should also assess whether interim measures may be obtained to restrict the debtor’s ability to dispose of its funds or property. Such measures require specific evidence of risk, including asset transfers, discontinuation of business operations, re-registration of property, or multiple outstanding debts. A general allegation that assets may be transferred will not be sufficient.

If the available evidence indicates that the intention to misappropriate the advance payment existed before it was received, a report to the Ukrainian law enforcement authorities should also be considered. This does not replace a court claim for repayment. Civil recovery proceedings and criminal proceedings serve different purposes and may, where justified, be pursued simultaneously.

If voluntary repayment cannot be secured, the foreign creditor should calculate the full amount of its claim. In addition to the advance payment, the claim may include contractual penalties, interest, compensation for inflation-related losses, substantiated damages, and litigation costs. The claim should not be overstated: every amount must have a clear legal basis and be supported by a documented calculation.

The foreign company must also prepare documents confirming its registration and the authority of its representative. These will generally include an extract from the relevant corporate register, a power of attorney, and Ukrainian translations.

Obtaining a judgment from a Ukrainian court is only one part of the recovery process. Before filing the claim, the creditor should understand which assets belong to the debtor and how enforcement will be pursued. If the Ukrainian company has no funds or property, even a fully substantiated judgment may remain unenforced. Asset investigation, court proceedings, and preparation for compulsory enforcement should therefore form part of a single advance payment recovery strategy.

Involving Ukrainian legal counsel demonstrates to the counterparty that the foreign company no longer regards the matter as an ordinary delay or an open-ended commercial negotiation. The appearance of a local legal representative confirms the creditor’s intention to pursue recovery and moves the matter into a formal legal framework.

This does not mean that counsel will immediately commence court proceedings or seek to create unnecessary difficulties for the Ukrainian business. The primary objective is to recover the funds in the fastest and most commercially reasonable manner. Litigation requires both time and expenditure. It is therefore appropriate to determine first whether voluntary repayment can be secured without a prolonged dispute.

A foreign company may find it difficult to verify remotely whether its counterparty remains operational, whether its stated office actually exists, and whether the information provided corresponds to reality. Ukrainian counsel can contact the company’s management, arrange an in-person meeting, visit the stated business address, review available information regarding the company’s operations, and assess whether the debtor is prepared to engage in substantive negotiations.

If the business is operating at the stated address, employees are present, and management remains available for communication, this may indicate that the problem results from financial difficulties rather than a fraudulent scheme from the outset. In that situation, the parties may discuss a written acknowledgment of debt, voluntary repayment, an installment plan, and appropriate security.

If no company can be found at the stated address, its representatives cannot be located, its claimed operations cannot be verified, and management repeatedly changes its explanation, the risk of bad-faith conduct becomes substantially greater. The absence of an office does not, by itself, establish fraud. Combined with false documents, discontinued communication, and transfers of assets, however, it may indicate that further negotiations are unlikely to produce a result.

The purpose of the pre-litigation stage is not to exert pressure for its own sake, but to create a structured opportunity for voluntary repayment. Ukrainian counsel can issue a legally substantiated demand, communicate directly with the company’s management, and propose a specific settlement procedure.

If the counterparty acknowledges the debt and is prepared to pay, the agreed terms should be recorded in writing. The settlement should specify the amount owed, the method of currency conversion, payment dates, the consequences of default, and the security provided for repayment. This gives the Ukrainian company a reasonable opportunity to discharge the debt without depriving the foreign creditor of its right to commence court proceedings.

Negotiations should have a defined objective and a limited duration. If the debtor refuses to provide documents, avoids acknowledging the debt, repeatedly postpones payments, or requests additional time without offering any security, continued discussions will only reduce the likelihood of recovery.

A refusal to make voluntary repayment, a breach of the agreed payment schedule, or the discovery of indications of a fraudulent scheme means that the pre-litigation stage has been exhausted. Ukrainian counsel can then prepare proceedings before the Ukrainian courts, assess whether interim measures may be obtained to restrict the debtor’s ability to dispose of funds or property, and arrange subsequent compulsory enforcement.

Where there are indications that the advance payment was intentionally misappropriated, a report to the Ukrainian law enforcement authorities should also be considered. These steps are not taken to create artificial pressure, but to protect the foreign company and preserve the practical possibility of recovering its money.

The sequence of actions is critical: first, investigate the Ukrainian counterparty and attempt to secure voluntary repayment; then, if necessary, proceed with court action and other remedies available under Ukrainian law. This approach avoids unnecessary expenditure where a negotiated solution remains possible, while preventing the loss of valuable time where the debtor is using negotiations solely to conceal or transfer funds and assets.