Campaigners are urging Britain’s new Labour government to prevent Ukraine being sued in the UK courts if the country defaults on its debts to private creditors.

Debt Justice said a two-year suspension of Ukraine’s debt payments was scheduled to expire on 1 August, and that action was needed to protect Kyiv from the possibility of legal action from its creditors.

Ukraine is in negotiations with bondholders and is seeking a debt writedown of 60% on the $24bn (£18.7bn) it owes to private creditors. Bondholders – which include big investment groups such as BlackRock, Pimco, Fidelity and AllianceBernstein – have said they are willing to take a 20% loss.

Ukraine’s official bilateral creditors, including the UK, have agreed to continue suspending Kyiv’s debt payments until 2027, but there has been no agreement to extend the arrangement with private creditors. The relief offered by private creditors is worth around 12% of Ukraine’s annual national output (GDP).

Unless a deal is struck or an extension to the two-year moratorium is agreed by the end of this month, Ukraine will formally default on its debts in September.

Kyiv fears that once the 1 August deadline expires, asset managers will sell their bonds to hedge funds, which will then sue. Ukraine’s bonds are all governed by English law, so any legal case would be brought in the UK.

Debt Justice said Ukraine’s bonds were trading at 28-31 cents on the dollar, closer to Kyiv’s suggested 60% haircut than the 20% bondholders have proposed.

Heidi Chow, Debt Justice’s executive director, said: “Ukraine is resisting an invasion. It should not have to fight off shameless bondholders at the same time, who are trying to squeeze every ounce of profit out of Ukraine.

“These loans were given at high interest because of the supposed risk. That risk materialised the day Russia invaded.”

Ukraine’s bonds “are governed by UK law, so an incoming UK government could pass a law to support Ukraine by making it clear that no lenders can sue the country while the war carries on”, she said.

The Commons international development select committee called last year for legislation that would force private creditors to take part in debt relief, and in opposition Labour expressed support for the idea.

Debt Justice is urging the government to change the law so that a debtor country negotiating in good faith with its creditors could not be sued. It says this would give Ukraine the political and legal protection to maintain the current debt suspension until bondholders were willing to accept the scale of debt restructuring required.

According to the International Monetary Fund, Ukraine will just about manage to balance the books if there is a 60% debt writedown.

The IMF says Kyiv and its private creditors are working hard to reach an agreement, and that a deal is possible by the end of the month despite the rapidly looming deadline.

Chow said: “Lower-income countries are facing the worst debt crisis in 30 years. An incoming UK government can show leadership by introducing new legislation to ensure private lenders take part in debt restructuring in a swift and comprehensive way.”