Page 1

The project of YURIDICHESKAYA PRACTIKA Publishing

Redcliffe Partners

Gramatskiy & Partners

WTS Tax Legal Consulting

Spenser & Kauffmann PwC Legal

AEQUO

Sokolovskyi and Partners BOGATYR & PARTNERS

Arzinger MORIS GROUP

L.I. Group

VB PARTNERS

Konnov & Sozanovsky

LCF Law Group

Juscutum

Legal Service ILF FCLEX ICF CMS Cameron McKenna

Alekseev, Boyarchukov & Partners ECOVIS Bondar & Bondar Baker & McKenzie Pakharenko & Partners Doubinsky & Osharova Misechko & Partners ARBITRADE B.C. Toms & Co Suprema Lex DLA Piper AGA Partners Jurimex IPStyle

Law OfďŹ ces of OMP

Wolf Theiss

Sayenko Kharenko Egorov Puginsky Afanasiev & Partners Interlegal

Jeantet

Vasil Kisil & Partners

Kinstellar

ANTIKA

EUCON

AVER LEX Ilyashev & Partners Asters

Integrites

A Handbook for Foreign Clients

KPMG Avellum GOLAW

Trusted Advisors EVERLEGAL

Dentons

Salkom

AstapovLawyers

Law Firm Ario Marchenko Danevych

TCM Group

EY


Contents 4

Editor’s Preface

7

Ukrainian Legal Market

27

Practice Areas and Industries Review

Administrative Disputes..................................... 28 Agribusiness................................................................... 30 Alternative Dispute Resolution................... 32 Amicable Debt Collection................................. 34 Anti-Corruption.......................................................... 36 Antitrust............................................................................ 38 Assets Tracing............................................................... 40 Aviation.............................................................................. 42 Banking & Finance................................................... 44 Banking Disputes...................................................... 46 Bankruptcy...................................................................... 48 Business Crime............................................................ 50 Business Protection................................................ 52 Commercial Law........................................................ 54 Competition Investigations............................. 56 Complex International Transactions........ 58 Compliance..................................................................... 60 Corporate Disputes................................................. 62 Corporate Law............................................................. 64 Counterfeiting and Piracy................................. 66 Criminal Process........................................................ 68 Cross-Border Debt Restructuring.............. 70

161

Customs Law................................................................. 72 Data Protection.......................................................... 74 Debt Restructuring.................................................. 76 Due Diligence............................................................... 78 E-Commerce.................................................................. 80 Energy................................................................................. 82 Energy Efficiency....................................................... 84 Enforcement of Foreign Awards................. 86 Family Trusts.................................................................. 88 FMCG.................................................................................. 90 Foreign Trade................................................................ 92 Government Relations......................................... 94 Human Rights............................................................... 96 International Arbitration.................................... 98 International Finance........................................ 100 International Tax.................................................... 102 Investments................................................................ 104 IT Law.............................................................................. 106 Labor & Employment......................................... 108 Land................................................................................... 110 Litigation....................................................................... 112 Maritime Law............................................................ 114

Mediation..................................................................... 116 Medicine & Healthcare.................................... 118 Mergers & Acquisitions................................... 120 Natural Resources................................................ 122 Patents............................................................................ 124 Petrochemicals........................................................ 126 Pharmaceuticals..................................................... 128 Private Clients/Wealth Management....... 130 Private Equity........................................................... 132 Privatization............................................................... 134 Property Rights....................................................... 136 Real Estate................................................................... 138 Sanctions...................................................................... 140 Sports Law................................................................... 142 Tax....................................................................................... 144 Tax Controversy..................................................... 146 Telecommunications.......................................... 148 Trade Remedies...................................................... 150 Trademarks................................................................. 152 Transfer Pricing....................................................... 154 Transportation......................................................... 156 Unfair Competition............................................. 158

Who is Who in Ukrainian Law by Practice Areas/Industries

Agribusiness........................................................................................................................ 162 Antitrust / Competition ������������������������������������������������������������������������������������������ 166 Banking & Finance / Restructuring �������������������������������������������������������������� 170 Bankruptcy........................................................................................................................... 176 Capital Markets / Liability Management ������������������������������������������������� 180 Corporate and Mergers & Acquisitions ���������������������������������������������������� 182 Criminal Law / White-Collar Crime �������������������������������������������������������������� 188 Energy & Natural Resources ������������������������������������������������������������������������������� 192 Intellectual Property................................................................................................... 196 International Arbitration ���������������������������������������������������������������������������������������� 200

International Trade....................................................................................................... 204 IT / Telecommunications & Media ���������������������������������������������������������������� 206 Labor & Employment.................................................................................................. 210 Litigation................................................................................................................................ 214 Pharmaceuticals / Medicine & Healthcare............................................ 222 Real Estate, Construction, Land ���������������������������������������������������������������������� 226 Tax and Transfer Pricing ������������������������������������������������������������������������������������������ 230 Transport: Aviation, Shipping & Maritime ���������������������������������������������� 238

The project of YURIDICHESKAYA PRACTIKA Publishing

UKRAINIAN LAW FIRMS 2016. A Handbook for Foreign Clients. ISBN 978-966-8042-69-0. Published by Yuridicheskaya Practika Publishing 25А, "L" Dehtyarivska Street, Kiev, 04119, Ukraine • Telephone: +380 44 495-2727 • Fax: +380 44 495-2777 • E-mail: info@pravo.ua EDITOR: Olga Usenko • RESEARCHERS: Olga Usenko, Alena Chernyavskaya, Oleksiy Nasadyuk, Nikita Kandyba

DESIGNER: Mykola Tytarenko

COPY EDITOR: Peter Dutczyn

The names of law firms and all lawyers whose nominations were accepted by the editor were listed without charge. It was impossible to buy entry into the Handbook. Contributors and other law firms were invited, but not required, to supply their profiles and “address boxes” which were published upon payment of a fee. The publishers and editors do not accept responsibility for any errors, omissions, mis-statements or mistakes. No responsibility for loss occasioned to any person acting or refraining from action as a result of any material in this publication can be accepted by the editors, authors or publishers. The Handbook intended to provide legal advice and should not be treated as a substitute for specific legal advice concerning individual situations. The omission of any lawyer or law firm from any section of this Handbook does not indicate that they do not practise in the area or are not well regarded. You should do your own research before engaging lawyers in any field. The views expressed in this publication by any contributor are not necessarily those of the editors or the publishers. Printed in Ukraine. First published in 2002. Electronic version of this publication is available at www.UkrainianLawFirms.com Українські юридичні фірми. Довідник для іноземних клієнтів (англійською мовою) Видавець: ПрАТ «Юридична практика»

2

Украинские юридические фирмы. Справочник для иностранных клиентов (на английском языке) Издатель: ЧАО «Юридическая практика» www.ukrainianlawfirms .com

ISBN 978-966-8042-69-0


advertisement


Editor’s Preface

Transcending Opportunities

Olga USENKO Chief Editor

4

www.ukrainianlawfirms.com

The hot-button issue of Ukrainian reforms, the speed of their implementation and selective nature is a matter of fair concern for internal investors and the outside world. While two years ago we were prepared for rapid “shock therapy”, today’s market realities resemble more a sluggish recreation. Romantic hopes for a fast recovery turned into pragmatism backed on today’s needs and tomorrow’s challenges. We have of late been observing how legal market players try to manage risks and turn them into opportunities. These reveal themselves in new types of services, customized solutions and flexible pricing. Seeking to diversify country risks Ukrainian law firms go further by opening offices in other jurisdictions. A notable shift in the vision of relationships with clients occurred when counsels not only follow but lead clients. When I ask Ukrainian legal market players trivial questions like “Who are your clients?” and “What percentage of your workflow is generated by other law firms?”, this often reveals a big mismatch of workflow source and marketing efforts. Many Ukrainian counsels realized that establishing strong contacts with foreign law firms brings more opportunities and is a prudent and calculated investment in a sustainable strategy. In terms of fierce competition and shrinking market, the fourteenth edition of Ukrainian Law Firms. A Handbook for Foreign Clients examines recently adopted law and its practical implication, impactful projects, legal market features and lawyering throughout the performance of various legal actors. Ukrainian Legal Market produces useful analytics, interviews with some headliners, systemizing facts in a compact seamless text. Up-to-date opinions and observations on the state of play and lawmaking achievements from the leading market players are published in Practice Areas and Industries Review. The story of every single counsel, practice area and industry snapshot are provided in essence at the Who is Who in Ukrainian Law section. The surveys traditionally reveal different competition segments of the market, and determine bold insights across track records, expertise and individual visibility. We have spent more than a decade establishing targeted distribution channels among general counsels, business leaders, governmental officials and lawyers from abroad. Our gratitude also goes out for information support and advice to all our partners, contributors, longtime friends and readers of the Handbook. Our editorial remains abreast of change. The on-line Handbook is available at www.ukrainianlawfirms.com and www.issuu.com.


advertisement


Ukrainian Legal Market


Ukrainian Legal Market

Notable Shifts Market Intelligence 2016

The legal market structure is a spot of the economy and is, by its very nature, sensitively flexible to all recent economic fluctuations. Market demand determines practices and industries development, and results in market segmentation. This fourteenth edition of the national legal directory is, as always, a practical guide to navigate the Ukrainian legal market and valuable source researching the market landscape. We realize that the process of completing questionnaires is a very demanding and timeconsuming process. That is why we are very thankful to all participants of the research process for their corporate submission, and to all those lawyers that gave us their fullyfledged opinions and valuable comments in their individual feedbacks by each single practice area. The data and additional insights have been thoroughly collected by e-mail, phone and during personal meetings, as well as monitored from open sources and stored all year long. The Handbook serves as a unique combination of practice areas and industries that cut offs the market. The current edition consists of 18 surveys and 22 rankings. The level of credibility and trust in us as researchers has grown substantially. The submission of information on a confidential basis significantly broadened our vision and empowered us to be more objective and get a healthy picture of the market. We also spent a great amount of time completing and structuring public transactions into the league tables. Reviewing transactional activity in a year-long period is a perfect way to benchmark positions of the major players in the marketplace. This span

into five tables is presented in this section (see Tables 1-5). Among the criteria of being included into the upper echelon is a combination of existing track record throughout the research period, complexity of performed work, practice diversity, client profile, capacity of the team, reputation. We do also retain the right to mention those counsels and lawyers who do not provide their submission but are active throughout the research period and receive strong market feedback. This allows us to produce a complete picture.

Comings and Goings

Recent market conditions have resulted in the establishment of several start-ups, local expansions and outbound investments on foreign markets, exits of international powerhouses, and new expected but not so quick predicted arrivals. In May 2015 CLACIS, a competition law advisory which focuses on matters regarding competition law and compliance in Ukraine, Russia and Kazakhstan announced its opening. Founding partner Antonina Yaholnyk is a dedicated expert with almost 20 years of legal practice. In April 2015 Oleg Vdovychen left the Kiev Advocate law firm with a group of lawyers and established Vdovychen & Partners attorneys at law. The new firm has a sharp litigation focus. LBL — Legal Bureau of Likarchuk started its work in October 2015 as a boutique law firm with its primary focus on disputes and corporate/M&A. The bureau’s head was Kostiantyn Likarchuk, the former co-founding partner of Avellum Partners. In the period between May and September

2015 he served as deputy chairman of the State Fiscal Service of Ukraine, head of Customs. In October 2015 the new Ukrainian firm EVERLEGAL was launched. The firm is an amalgamation of two legal teams — senior associates of corporate and antitrust practices of the Kiev outfit of Clifford Chance and the team of L.A. Group attorneys at law. Evheniy Deyneko became the firm’s managing partner. Jeantet, a French international law firm, was launched in Ukraine in November 2015 by taking over the Kiev office of Gide Loyrette Nouel. Following the launch, Igor Krasovskiy, who headed the banking and finance practice, and Illya Tkachuk, head of corporate and M&A, were promoted to counsels. Since 1 December 2015 the Clifford Chance office in Kiev has operated as the independent law firm Redcliffe Partners. The firm has four partners, Olexiy Soshenko and Dmytro Fedoruk, who were heads of Clifford Chance’s banking and finance and M&A/antitrust practices, as well as Rob Shantz and Sergiy Gryshko, lateral hires from PricewaterhouseCoopers and CMS Cameron McKenna, who headed the corporate and dispute resolution practices, respectively. Fulfilling an ambitious strategy to provide full-service coverage across Emerging Europe and Central Asia, on 1 March 2016 Kinstellar opened its office in Kiev, acquiring the new local firm LBL — Legal Bureau of Likarchuk. The Kiev office currently has a team of 11 lawyers and is headed by partner Kostiantyn Likarchuk. The firm has already made some key appointments of practice heads. Andriy Nikiforov joined the firm as

“Ukrainian business is actively considering foreign markets”

Oleg Batyuk, Ukraine managing partner, Dentons

8

There are several trends worldwide which are having a big impact on the legal services industry. First of all, globalization. Local, regional and international law firms expand across borders, combine with other law firms, and form networks of lawyers. The other trend is the change of the legal product from being individually customized into market-oriented. Along with this, profound penetration into the computer technology market is another factor that should not be overlooked. But these trends are yet to reach our market. In terms of the market state, the volume of work for external counsel has decreased significantly. For example, international capital markets, mergers and acquisitions, real estate, private investment funds are almost in a frozen state. At the same time, www.ukrainianlawfirms.com

there is substantial demand for corporate and banking restructuring. We are very much engaged in such projects. Meanwhile, Ukrainian business is actively considering foreign markets, and some companies are moving into those regions where we are represented. Besides, we receive many requests relating to the overall assessment of the investment situation, for instance, in China, Canada, Germany, Poland, MENA region countries. As regards foreign clients, they consider the market to be interesting and full of potential but also immensely challenging. There are niches of high activity: IT, agribusiness, pharmaceuticals, energy. The Ukrainian defense and infrastructure sectors could become very important.


counsel and head of banking, finance and capital markets, and restructuring and insolvency practices, while Iryna Nikolayevska joined the newly opened office as counsel and head of corporate/M&A. In March 2016 the IT practice of Juscutum Attorneys Association created a spin off that resulted in the establishment of Axon Partners. Dmytro Gadomsky became its CEO. Another notable departure of late is the exit of Iryna Marushko from Lavrynovych & Partners and establishment of Marushko & Associates.

Expansions: in Scope and Depth

It became a usual thing for Ukrainian law firms to open offices abroad. The motivation and access forms are different, ranging from following clients, accumulating new ones, diversifying high country risks in more stable and profitable jurisdictions. In March 2015 Ilyashev & Partners opened an office in Moscow customized towards supporting litigations and arbitrations. Vladimir Zakharov was appointed the office head. In September 2015 Lavrynovych & Partners announced the opening of the representative office in Vienna, Austria, based on the law firm BRANDSTETTER, BAURECHT, PRITZ & PARTNER Rechtsanwälte KG (BPPA). Perhaps, the leader for outbound expansion of late is Integrites. The firm significantly broadened its geographical presence. At the beginning of 2015 the firm opened offices in Aktau and Atyrau (Kazakhstan), followed by opening offices in Guangzhou (China), Integrites Benelux BV in Amsterdam (Netherlands), and an office in Munich (Germany). Another strategy of regional expansion is seen from GOLAW (previously known as Gvozdiy & Oberkovych). At the start of 2016 the firm pursued regional expansion and opened offices in Lviv and Odessa. The firm brought its established offering that appeared to be in demand for clients in the respected regions. In terms of practice areas, most attention is paid to tax advisory, litigation, white-collar crime, compliance.

Hires and Promotions

The market in personalities of 2015 was marked with unexpected departures as well as expected recognitions. In January 2015 Asters counsels Oleksiy Demyanenko and Alexey Khomyakov were promoted to partners. Mr. Demyanenko focuses on transactional work (M&A, banking and finance, capital markets), aviation, corporate restructuring of business, curwww.ukrainianlawfirms.com

rency control and cross-border planning for private clients. Mr. Khomyakov primarily focuses on taxation. The past spring was hot for promotions and lateral moves. In March Kateryna Gupalo joined Arzinger as a counsel and head of tax and customs disputes as well as white collar defense practices. The first quarter of 2015 was marked with the mass trend of lawyers move to the civil service. Amongst the key ones were: appointment of Sergiy Shklyar, founding partner and head of dispute resolution, antitrust and competition at Arzinger, as a deputy minister of Justice of Ukraine for the Enforcement Service; Nataliya Mykolska (previously counsel at Sayenko Kharenko) became a deputy minister of Economic Development and Trade in Ukraine. In July 2015 Mariya Nizhnik, partner, head of antitrust and competition at AEQUO, was appointed First Deputy Chairman of the Antimonopoly Committee of Ukraine. In May Andriy Stelmashchuk was elected the new managing partner of Vasil Kisil & Partners. Egorov Puginsky Afanasiev and Partners Ukraine (EPAP Ukraine) announced the appointment of Gleb Bialyi (co-head of domestic litigation and head of international trade and customs) as partner effected from 1 July 2015. Sayenko Kharenko enhanced its tax practice with a group of 4 tax lawyers guided by partner Serhiy Verlanov, who joined from PwC Legal. In July 2015 Avellum announced the promotion of Yuriy Nechayev (corporate/ M&A practice), to counsel; while AEQUO promoted to counsel an experienced antitrust and competition practitioner Sergey Denisenko. In September 2015 Avellum strengthened dispute resolution practice with a new partner, Dmytro Marchukov. He joined from the international arbitration and crossborder litigation practice of EPAP Ukraine. In September 2015 Olena Perepelynska, recognized expert in the field of international commercial arbitration, joined Integrites as a partner and head of CIS international arbitration practice from Sayenko Kharenko. Statnikov & Partners headed by Denis Statnikov joined Integrites to create whitecollar crime advocacy practices. Shortly Integrites announced joining of three partners from the Kiev office Gide Loyrette Nouel. Julian Ries, Oleksiy Feliv and Oleh Zagnitko with a 13-strong team came past October. In October 2015 Maksym Cherkasenko left his position as partner and head of corporate and M&A at Arzinger and moved to the of counsel position.

Kostyantyn Likarchuk, managing partner of Kinstellar (Kiev)

“The legal services market still remains highly profitable in its premium segment”

Kinstellar announced its plans to open in Ukraine in 2008, when it was founded on the basis of Prague, Bratislava, Budapest and Bucharest offices of “Magic Circle” law firm Linklaters, which was leaving the CEE region in a strategic move to concentrate on its core markets. However, Kinstellar came to the Kiev launch only in 2016, when it acquired a local dispute resolution firm LBL — Legal Bureau of Likarchuk, established in 2015 by a team of dispute resolution lawyers, who had left Avellum, another leading Ukrainian law firm. Kinstellar significantly expanded LBL’s practices by hiring rising stars in corporate and finance practices from the corporate sector and other leading international law firms operating in Ukraine and has been functioning as a full-service firm from day one. The firm inherited a solid base of local clients from LBL/Avellum and quickly expanded it significantly with international clients. With offices in the Czech Republic, Slovakia, Romania, Hungary, Bulgaria, Serbia, Turkey, Kazakhstan and now in Ukraine, Kinstellar is the main point of contact in Central and Eastern Europe and Central Asia for major international law firms, including US powerhouses Shearman & Sterling, Sidley Austin, Milbank, who traditionally have not been active on the Ukrainian legal market. With the entry of Kinstellar it is expected that these firms may be brought into the loop and, potentially, this may significantly increase competition for Ukrainian work on the foreign counsel side. For the market, the entry of a major Central and Eastern European player is a sign that despite the annexation of the Crimea in 2014, a protracted economic crisis and continued unrest in the Eastern part of Ukraine, the legal services market still remains highly profitable in its premium segment, and strong international law firms still consider Ukraine as a prospective market. After a number of exists of international law firms from Ukraine in 2015, including Clifford Chance’s sale of its Ukrainian operations to its legal team in Kiev, the entry of Kinstellar is a major sign of continued integration of the Ukrainian market with the markets of Central and Eastern Europe, where Ukraine geographically, historically and mentally belongs.

9


Ukrainian Legal Market “Entering new markets looks to be a good way out”

Dr. Oleksiy Feliv, managing partner of Integrites Kiev office

Establishing a presence of Ukrainian law firms in foreign jurisdictions is a great and definitely ambitious opportunity to boost one’s portfolio and diversify clients. Possible geographic directions for an expansion are stipulated by a number of factors, though the decisive one remains the need for our clients to follow them to new markets. It is precisely for this reason that Integrites opened full service offices in Kazakhstan and Russia. Although we position ourselves as a CIS law firm, we were driven by our clients looking more and more towards Western Europe and so we opened representative offices in London, Amsterdam, Munich and Guangzhou in China. The idea of these offices is to be the contact point for both inwards and outwards businesses and to establish close cooperation with our partner law firms in order to serve our clients best in the respective regions. With our office in London we cover the UK and related jurisdictions, with Amsterdam we cover the Benelux countries and with the office in Munich we catch Germany, Austria and Switzerland. Guangzhou is solely meant to cover China businesses. The current trends on the Ukrainian legal services market show the strengthening positions of local law firms and temporary fall in the activity of foreign law firms. Despite the interest of several big foreign law firms in entering the Ukrainian market, the current situation is unlikely to change in 2016. Further increasing competition of the legal services market will condition law firms to significantly increase the quality of services, evolve new business and management models, diversify practices and develop new legal products. Innovations play a greater role nowadays. The legal services market shrank in Ukraine and entering new markets looks to be a good way out. These challenges will very likely cause further geographical expansion of Ukrainian firms. In our case we see opportunities and further development in Central Asian markets.

In November 2015 Spenser & Kauffmann appointed Nickolas Likhachov its new counsel and head of the corporate and M&A practice. On the eve of the past year Vasil Kisil & Partners announced expansion of its management team with promotion of Vladyslav Podolyak to counsel and head of intellectual property practice. The new year was boosted by a new portion of promotions and significant hires. Sayenko Kharenko promoted Dmitry Taranyk to partner in the firm’s antitrust practice. The promotion brought the total number of partners in the firm to nine. Oleksandr Voznyuk was appointed partner in competition and antitrust practice of Asters. In January 2016 EPAP Ukraine announced the internal promotion of three counsels: Arsen Miliutin (co-head of tax and customs litigation), Viktoriya Podvorchanska (head of pharmaceuticals and healthcare) and Oleksandr Maydanyk (co-head of tax). This followed with the promotion of Oleg Boichuk and Sergiy Grebenyuk to partners, increasing partnership in Ukraine to eight, and the total number of partners worldwide to 36. Mr. Boichuk is a head of the real estate practice and a co-head of corporate and M&A. Mr. Grebenyuk heads the criminal law practice. The Ukrainian office of Wolf Theiss has strengthened its banking and finance prac-

10

www.ukrainianlawfirms.com

tice with the arrival of Oleg Mazur (previously — Marchenko Danevych) in the capacity of counsel. In February Integrites strengthened its dispute resolution practice with the arrival of a new partner in Moscow office, Andrey Ryabinin. Prior to joining he chaired the bankruptcy practice in Muranov, Chernyakov and Partners. Furthermore, the firm expanded its corporate and M&A practice in Ukraine with a new partner called Svyatoslav Sheremeta (he previously сo-headed the legal department at Dragon Capital). Finally, the partnership of Integrites announced the election of Oleksiy Feliv as managing partner of the Kiev office In April Asters announced the promotion of Tetiana Vovk to the post of counsel in the firm’s competition and antitrust practice. Spring of 2016 became a period of growing capacities and adding counsels at Spenser & Kauffmann: Igor Stepanov joined as head of the criminal law practice; Volodymyr Yaremko headed international arbitration and cross-border litigation; Maryna Tomash strengthened tax; Tetyana Ivanovych became the head of the new private clients practice; Tatiana Kharebava headed IP, IT and antitrust. Sayenko Kharenko appointed three new counsels from senior lawyers: Olexander Droug (international commercial arbitration and commercial litigation, debt re-

structuring), Anzhela Makhinova (international trade) and Sergiy Smirnov (dispute resolution). DLA Piper announced that Galyna Zagorodniuk (corporate and M&A, antitrust and competition) was admitted as an equity partner of DLA Piper  International LLP. The promotion is effective from 1 May 2016 and will bring the total number of partners to 6 in Kiev.

Structural Changes

2015 — first quarter of 2016 pursued structural changes in the Ukrainian legal market. New entrants to the market usually emerged as a result of spin offs and formed around strong individuals launching their practices. Meanwhile, the start-ups appeared to be more flexible in terms of cost management and this effected pricing on the market. Addressing the international developments, this is obviously a world-wide trend when global strategies of market players are revised. The notable shift of refocusing on the high profitability markets and withdrawing presence on markets that do not possess these criteria, is gaining momentum, and is dictated by pure financial reasons. In view of the weak inbound investment activity, our market remains unattractive for global legal powerhouses. As for the two recent international arrivals — Jeantet and Kinstellar — both arranged their access as takeovers of local teams. Despite the market shrinkage, market players confirm a shortage of skilled legal personnel. Aggressive headhunting featured on the recruitment market and resulted in a huge number of cross-firm movements. As for efficient management of law firms, it is obvious that “pure” lawyers are less valuable than those who sell services and showcase efficient BD efforts. Bearing this in mind, respective changes in the service sale mechanism are widely introduced on the market. Major Ukrainian players are keen to nurture close relationships with other foreign counsels and international powerhouses. This appeared to be particularly reasonable as referrals and best friend networks are likely to be less consuming (in terms of money and time) than business development efforts aimed at general counsels and/ or the business community. The legal practices of the Big Four advisory firms’ are enhancing their capacities as legal market players. Their intention to develop a legal offering is once again a global trend which is much more challenging for conventional legal counsels in terms of growing markets.


Business reorganizations, new challenges and strategies resulted in a vivid rebranding trend. This was accompanied not only by a new visual identity but shortened or changed names. Avellum shortened its name from Avellum Partners to simplify usage; Gvozdiy & Oberkovych was renamed GOLAW. With the number of changes in Vasil Kisil & Partners involving internal reorganization, the firm’s identity has been visually redesigned.

Market Contexts

Practice wise performance explicitly confirms that dispute resolution remains a relatively stable and profitable niche of the legal business. The domain of banking disputes tends to be a very significant part of litigation work. Another groundbreaking continuation of the past years is growth in criminal defense and white-collar crime. This field is traditionally operated by private practicing individuals, though both and criminal defense boutiques and full service players — are rapidly capturing this niche. On the transactional front, M&A deals remained limited, while activity on capital markets consisted of only liability management mandates. As lawyers stressed, the structuring covered not only the business

component, but personal assets component for beneficiaries of business groups. Competing for limited mandates, external counsels realized that clients prefer teams with sector knowledge. The industry coverage and subsequent investment is mostly stipulated by the changing market contexts, making industry choice very focused on the most profitable industries, such as agriculture, pharmaceuticals and IT. Certain niche services like cross-border asset tracing, transfer pricing or sports law are widely promoted on the market due not only to growing and emerging demand, but in expectation of a certain sort of boom in high end prospects. Apart from work with clients, many law firms are actively involved in legislative drafting and advising on sectoral reforms. And this trend is obviously finding continuation.

Pricing

Client retention and attraction of new mandates is highly determined by pricing policies. Local clientele is more sensitive in this sense. During our poll market participants noted a fall in prices for their legal work, emphasizing that their recent price arrangements with clients are fixed in

“Ukrainian business has started to

actively search for ways to sell its products and services to European consumers”

Yaroslav Romanchuk, managing partner of International Legal Center EUCON

The economic situation changed dramatically at the end of 2013 — beginning of 2014, the Russian market began to close rapidly and the European market started to open up actively after Ukraine signed the Association Agreement with the EU. Ukrainian business has started to search for ways to sell its products and services to European consumers. We felt this tendency in our company performance. Before 2014 in Warsaw we had focused exclusively on supporting Polish and European businesses in their entering the Ukrainian market, and following these events we significantly changed the business activity of branch office in Poland crossing over to support Ukrainian business in its entering European Union markets via Poland. Ukrainian manufacturers of products and services use tried and tested tactics of foreign counterparts in order to promote export positions. It is the creation of trading houses (companies) in the EU for risk diversification, including inflation, exchange, and taking advantage of opportunities on access to financial recources of European countries. Statistics for 2014-2015 show that Ukrainian business most frequently chooses Poland when entering the European market. In addition to a stable economy and close mentality, the important fact here is that the Polish authorities, central and local, assist Ukrainian business with company registration in this country. A Polish company where Ukrainian residents are the founding members can use all financial instruments: credits, loans, leasing and financing from European funds. By the way, the refinancing rate of the National Bank of Poland is currently 1.5% per year. Thus, the EU office has become for us not only a competitive advantage with regard to discovering new clients for operating on the Ukrainian market but also the basis for launching a comprehensive service.

www.ukrainianlawfirms.com

Tetyana Gavrysh, managing partner of ILF

“The full-service doctrine will develop alongside boutiques and start-ups”

Specialization has become a major trend on the Ukrainian legal services market in 2014-2016. More and more companies are focusing on specific industrial or product niches, stepping up advertising and rebranding in order to increase sales and their share of the market — companies like Alexandrov & Partners, AGA Partners, AVER LEX, AEQUO. It’s a time-proven strategy that works in an aggressive business environment, both for the legal industry and beyond. Specialization allows companies to set themselves apart in the eyes of other companies as well as from the perspective of clients, who are often left wondering what the differences are between all those law firms. And let’s be honest, even market participants themselves can’t always answer that question. Nevertheless, specializing (in niches, products and markets) isn’t all about marketing. It’s a comprehensive cycle of changes to the product, processes, team competence in hiring, motivation, and yes, marketing. The axis is always the client, a person with a certain way of thinking, not a company from some corner of industry with some income. That’s why a law firm seeking to specialize must base the transition on the needs of the clients. Then and only then can we expect better sales in the legal business. The second problem of specialization that has been generating heated discussions in the market circles is should we stick to full-service or opt for boutique and startup law firms? In my opinion, there is no one answer to this question. The market will be able to accommodate all those business models, due to the varying needs and preferences of the clients. Still, in my experience, clients tend to choose trustworthy businesses, and people have been putting more trust in law firms lately. So the full-service doctrine will develop alongside boutiques and start-ups, which in turn will keep coming with the rise of information technologies and globalization. Is Ukraine’s legal market ready for such changes, whose strategy will ultimately prevail? Only time will tell, in 5 years at least.

11


Ukrainian Legal Market Ukrainian hryvnya without any linkage to foreign currency. The management of costs (especially such important items as compensation and office lease) in local firms is predominantly carried out in the national currency. Given mitigation of currency risks this enables them to produce more favorable price offering. Fixed budgets, caps and success fees are the main pricing methods. Market insiders also single out situations when law firms become involved in projects as investors and receive benefits in the event of a positive outcome for the project. Lawyer-individualists (earlier, individual practicing lawyers worked mostly typical on the criminal defense market) became a widespread development in other parts of legal work. On leaving law firms they remained on the market but offered clients the same service for a much lower price. At present law firms testify to the fact that they feel competition from their side. On the contrary, criminal defense attorneys traditionally benefit from cooperation with established market players. Clients are less capable of paying but are very demanding and selective. This trend is not new but is getting vivid year on year.

While in previous years the extension of legal departments was observed mostly in local companies and business groups, today even international business present in Ukraine nurture their internal legal capacities to minimize outsourcing.

Prospects

The great hopes are still rest on the revival of international investments, as numerous anticipated business projects in Ukraine are currently suspended. Unfortunately, the recent speed and rate of economic recovery caused fair concerns inside the country and outside it. Thus, the optimistic scenario of facilitation of transactional activity has once again been postponed for better times. There is no doubt that dispute resolution, antitrust and competition, tax, restructuring and bankruptcy all continue to grow. Distressed assets management would be another lucrative piece of the pie. Criminal defense, white collar crime and anti-corruption compliance are, according to lawyers expectations and global anti-corruption trends, have very good prospects. The situation around the legal implications of Crimea’s annexation will not loose their sensitivity and topicality in the foreseeadvertisement

12

www.ukrainianlawfirms.com

able future either. And as disputes with foreign counterparts continuing to grow, the expertise of Ukrainian law will be much needed. Regulatory changes and recent reform of competition law may trigger new assignments for external counsels. Many market participants are interested in taking part in the new wave of privatization that was officially declared by the previous government. In the event of at least minimal macroeconomic stability, and given the historically low prices of Ukrainian assets, many experts predict M&A facilitation for the second half of 2016-2017. Among the industries of predicted transactional activity are agriculture, banking and finance, IT and FMCG industries. Furthermore, ongoing reforms in the energy sector may generate corporate and business restructuring work. As 2015 became a continuation of moves into public service, in the near feature we are highly likely to observe the reciprocal trend of comebacks. Some individual examples can be seen even right now. Apparently, the long-drawn crisis has challenged law firms to fight for new clients and market niches, introduce new solutions and innovations, pursuing flexibility and client care.


Capital Markets / liability management

Table 1

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 15 billion

Restructuring of thirteen sovereign and sovereign-guaranteed Eurobonds

Avellum acted as Ukrainian legal counsel to the Ministry of Finance of Ukraine; Dentons advised the Group of bondholders, led by Franklin Templeton Investments, one of Ukraine’s largest private creditors

Weil, Gotshal & Manges advised Ad Hoc Creditors’ Committee; White & Case acted as English law counsel to the Ministry of Finance of Ukraine

USD 1.475 billion

Reprofiling of two Eurobonds of JSC Ukreximbank maturing in 2015 and 2018, and subordinated bond maturing in 2016, in compliance with the targets of the IMF-supported program

Avellum advised the Ministry of Finance of Ukraine; Sayenko Kharenko advised JSC Ukreximbank

White & Case acted as English law counsel to JSC Ukreximbank

USD 1.2 billion

Reprofiling of JSC Oschadbank 2016 and 2018 Eurobonds, in compliance with the targets of IMF-supported program

Avellum acted as Ukrainian legal counsel to the Ministry of Finance of Ukraine; Sayenko Kharenko acted as legal advisor to JSC Oschadbank

White & Case LLP acted as English law counsel to JSC Oschadbank regarding English law.

USD 1.2 billion

Consent solicitations and default waiver matters related to Metinvest’s bonds maturing in 2015, 2017 and 2018

Baker & McKenzie represented Metinvest

Baker & McKenzie acted as international legal adviser

USD 1 billion

Issue of 1.847% Guaranteed Notes due 2020 fully guaranteed as to principal and interest by the United States of America, acting by and through the United States Agency for International Development (USAID)

Avellum advised the Ministry of Finance of Ukraine; Sayenko Kharenko acted as a legal counsel of the Initial Purchasers (Citi Group, JP Morgan, Morgan Stanley)

White & Case acted as the foreign law counsel of the Ministry of Finance of Ukraine; Arnold & Porter acted as legal counsel to the Initial Purchasers (Citi Group, JP Morgan, Morgan Stanley)

USD 750 million

Ukreximbank’s solicitation of consents from the holders of its outstanding Eurobonds due 2015

Sayenko Kharenko represented the JSC State Export-Import Bank of Ukraine (Ukreximbank); Integrites advised Autonomy Capital

White & Case represented JSC Ukreximbank

USD 550 million

Restructuring of Kyiv City USD 250 million Eurobonds due 2015 and USD 300 million Eurobonds due 2016

Avellum represented the City of Kyiv; Sayenko Kharenko advised Goldman Sachs as lead manager

White & Case acted as English law counsel to City of Kyiv; Linklaters acted as advisor to Goldman Sachs on English law matters

USD 500 million

Exchange offer in respect of outstanding USD 500 million 7.875% guaranteed notes due 2016 issued by Ferrexpo Finance plc. This exchange offer was coupled with a new issue of USD 160.7 million 10.375% guaranteed amortising notes due 2019 and a 25% cash consideration

Egorov Puginsky Afanasiev & Partners Ukraine advised Credit Suisse and Morgan Stanley as joint dealer managers; Avellum acted as Ukrainian legal counsel to Ferrexpo

Herbert Smith Freehills advised Ferrexpo on English, US and UAE law; Linklaters advised dealer managers and trustee on English and US law; Walder Wyss advised Ferrexpo as to Swiss law

USD 420 million

Liability management of loan participation notes issued by PJSC Commercial Bank PrivatBank

Avellum advised PrivatBank; Sayenko Kharenko advised Commerzbank AG, the consent solicitation agent

Linklaters represented Commerzbank AG

USD 200 million

Restructuring of outstanding USD 200 million Eurobonds due 28 April 2015 issued by DTEK, Ukraine’s leading energy holding

Avellum advised DTEK; Sayenko Kharenko advised Deutsche Bank, the dealer manager

Latham & Watkins acted as international counsel to DTEK; Linklaters acted as legal counsel to Deutsche Bank

USD 200 million

Restructuring of outstanding Eurobonds of Avangardco Investments Public Limited

Sayenko Kharenko and DLA Piper advised Avangardco Investments Public Limited

Latham & Watkins advised Avangardco Investments Public Limited

USD 50 million

Solicitation of consents of holders of USD 50 million 12.50% Guaranteed Notes of Agroton Public Limited due 2019 listed on the main market of the London Stock Exchange

Baker & McKenzie represented Agroton Public Limited

USD 10.4 million

Сash tender offer to holders of USD 50 million Guaranteed Notes due 2019 by Agroton Public Limited listed on the main market of the London Stock Exchange

Baker & McKenzie represented Agroton Public Limited

WND

All notes and new cash exchange offer transaction in relation to public debt instruments issued by Ferrexpo Finance plc

Egorov Puginsky Afanasiev & Partners Ukraine advised Deutsche Bank AG

Value

Transactions

www.ukrainianlawfirms.com

Linklaters acted as English law counsel to the arrangers

13


Ukrainian Legal Market Banking & Finance Value

Transactions

Table 2

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

EUR 1.8 billion

New Macro-Financial Assistance (MFA-III) program for Ukraine arranged by the EU

AEQUO advised the European Commission

JPY 108.2 billion (USD 915 million)

Loan from the Japan International Cooperation Agency to the Cabinet of Ministers of Ukraine for the purpose of implementing the Bortnychi Sewage Treatment Plant Modernisation Project

Avellum acted as Ukrainian legal counsel to the Ministry of Finance of Ukraine

USD 300 million

Three-year guaranteed renewable facility from EBRD to NJSC Naftogaz of Ukraine for winter gas purchases

Avellum advised EBRD; AEQUO advised NJSC Naftogaz of Ukraine

EUR 200 million (USD 227.8 million)

Loan from the KfW (Kreditanstalt für Wiederaufbau), a public law institution under the laws of the Federal Republic of Germany, to Ukraine

Avellum acted as Ukrainian legal counsel to the Ministry of Finance of Ukraine

White & Case acted as international counsel to the Ministry of Finance of Ukraine

CAD 200 million (USD 155 million)

5-year loan from Export Development Canada, Canada’s state export credit agency, to Ukraine. This transaction had to be tailored to the IMF-EFF program

Avellum represented the Ministry of Finance of Ukraine; Dentons acted as a Ukrainian counsel to lender

White & Case acted as international counsel to the Ministry of Finance of Ukraine; Dentons acted as international and Ukrainian counsel to lender

USD 100 million

Secured pre-export revolving loan facility to Myronivsky Hliboproduct Group arranged by ING Bank N.V.

Avellum acted as a legal counsel to ING Bank N.V.

USD 85 million

Financing to PJSC Myronivsky Hliboproduct, one of the biggest agricultural producers in Ukraine, provided by EBRD

Redcliffe Partners advised EBRD

Up to EUR 75 million

Financing mechanism for Ukrainian Residential Energy Efficiency Financing Facility, from EBRD for further distribution in the form of loans or grants among eligible private sector sub-borrowers

Clifford Chance* advised EBRD

EUR 60 million

Loan facility to LLC BASF provide by a foreing bank

ILF represented LLC BASF

USD 65 million

Syndicated secured pre-crop and pre-export credit facility for Kernel Group, Ukraine’s leading agribusiness, arranged by a syndicate of banks

CMS Cameron McKenna advised a syndicate of banks

USD 65 million

Refinancing by the National Bank of Ukraine of JSC Bank Finance and Credit

FCLEX represented PJSC Bank Finance and Credit

USD 50 million

Committed facility to Public Joint Stock Company Ukrtelecom from China Development Bank Corporation

Asters advised China Development Bank Corporation

EUR 40 million

Loan to Kronospan UA, a Ukrainian subsidiary of Kronospan Holdings East Limited, provided by EBRD

Sayenko Kharenko represented EBRD

Bird & Bird represented EBRD

USD 40 million

Syndicated working capital loan to Industrial Group ViOil provided by the EBRD

Sayenko Kharenko represented EBRD

Watson Farley & Williams represented EBRD

USD 35 million

Committed and anticipated facilities to one of the largest agricultural producers in Ukraine — Astarta from IFC

Asters represented IFC

Up to EUR 25 million

Secured loan facility from IFC to Nyva Pereyaslavshchyny, a leading Ukrainian pork producer

EVERLEGAL advised Nyva Pereyaslavshchyny

USD 25 million

Loan to LLC DDSG Shipping Ukraine from Ferrexpo Finance PLC

FCLEX represented LLC DDSG Shipping Ukraine

USD 25 million

Loan to Mriya Agro Holding for topping up its working capital in framework of debt restructuring by Mriya Group

Arzinger represented lenders

EUR 14.5 million

Syndicated loan for Ovostar Union, one of the Ukrainian leading agroindustrial companies, extended by AKA Ausfuhrkredit-GmbH and Landesbank Berlin AG

Baker & McKenzie represented AKA Ausfuhrkredit-GmbH and Landesbank Berlin AG

EUR 10 million

Secured loan facility to Serinus, Canada based oil and gas production company, extended by EBRD

Egorov Puginsky Afanasiev & Partners Ukraine advised EBRD

USD 10 million

Loan to the Ukrainian subsidiary of NCH Capital, one of the leading private equity funds in the US, from a Latvian bank

AEQUO advised NCH Capital

UAH 43.2 million

Additional capitalization of Megabank, Ukrainian commercial bank, arranged by International Finance Corporation (IFC), European Bank for Reconstruction and Development (EBRD) and KfW

Baker & McKenzie represented IFC, EBRD and KfW

Clifford Chance advised EBRD on English law aspects

CMS (Prague) acted as English law counsel; Harney Westwood & Riegels advised on laws of British Virgin Islands

Latham & Watkins represented lenders

Linklaters (London) represented EBRD; Ashurst, Dentons acted as legal counsel to Serinus

*Since 1 December 2015 the office operates as independent law firm Redcliffe Partners. Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there were no foreign law counsels.

14

www.ukrainianlawfirms.com


Value

Legal Support (Ukrainian Law)

Transactions

WND

Project financing to Sievierodonetsk City Council (first two stages) aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Poltava City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Konotop City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to PJSC Dneprotyazhmash company aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Pivdenagropererobka LLC company aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Slavutych City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Berdychiv City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Cherkasy City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Sumy City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Komsomolsk City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Chernivtsi City Council aimed at implementing energy-saving technologies

Sayenko Kharenko represented NEFCO

WND

Project financing to Kolomyia City Council aimed at implementing Sayenko Kharenko represented NEFCO energy-saving technologies

Legal Support (Foreign Law)

advertisement

24 Bulvarno-Kudriavska St.

www.ukrainianlawfirms.com

15


Ukrainian Legal Market Debt Restructuring / Liability Management Value

Transactions

Table 3

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

Up to USD 400 million

Amendment and restatement of pre-export facility to Kernel Group

Clifford Chance* advised UniCredit Bank Austria

USD 318 million

Debt restructuring by PJSC Bank Finance and Credit owed to the National Bank of Ukraine

FCLEX represented Bank Finance and Credit

USD 219.8 million

Debt restructuring of PJSC AutoKrAZ to the State Savings Bank of Ukraine, Prominvestbank, Delta Bank

FCLEX represented PJSC AutoKrAZ

USD 210 million

Extension of existing facility agreement between a pool of lenders and Kernel, a major Ukrainian grains and sunflower seeds producer and trader

Clifford Chance* advised Natixis S.A.

USD 187.5 million

Restructuring of indebtedness of PJSC Kherson Factory of Cardan Shafts owed to group of lenders, including PJSC Bank Finance and Credit

FCLEX represented PJSC Kherson Factory of Cardan Shafts

USD 173.1 million

Debt restructuring by Ukravto Corporation, a leader of Ukrainian automobile market, of debts owed to PJSC Raiffeisen Bank Aval, PJSC Credit Agricole Bank, PJSC ING Bank, PJSC OTP Bank, PJSC Prominvest Bank, PJSC Citi Bank

Spenser & Kauffmann represented Ukravto Corporation

EUR 100 million

Restructuring of financing to DTEK Wind Power by Erste Group Bank AG

Sayenko Kharenko represented Erste Group Bank AG

Allen & Overy acted as English law counsel to Erste Group Bank AG

USD 100 million

Restructuring of subordinated loan of the State Savings Bank of Ukraine (Oschadbank) with conversion of loan into Eurobonds

Sayenko Kharenko represented PJSC Oschadbank

White & Case represented Oschadbank

USD 99.25 million

Restructuring of secured loan provided to Ukrainian company PJSC TAKO by PJSC Raiffeisen Bank Aval, PJSC First Ukrainian International Bank, PJSC Credit Agricole Bank, PJSC UniCredit Bank, PJSC PrivatBank

Trusted Advisors represented PJSC TAKO

USD 70 million

Debt restructuring of USD 46 million financing to Sumy Frunze NPO and USD 30 million to Zaporizhtransformator

Clifford Chance* advised ING

USD 41.18 million

Amendment and restatement of EBRD’s loan to Ukrainian State Air Traffic Services Enterprise for the modernisation of the Ukrainian air navigation system

Clifford Chance* advised EBRD

USD 40 million

Restructuring of indebtedness of Master Avia LLC, one of the leading aircraft ground handling companies in Ukraine, under the loan facility provided by the subsidiary of Sberbank of Russia

AEQUO advised Subsidiary Bank of Sberbank of Russia (Ukraine)

Stelios Americanos acted as Cypriot Law adviser

USD 36 million

Restructuring of loan granted by EBRD to Interdon LLC, a Ukrainian subsidiary of a listed company Sadovaya Limited

AEQUO advised EBRD

RPC acted as English counsel to EBRD

EUR 30 million

Restructuring of a loan facility granted to a major energy equipment producer operating in Ukraine and other European countries by UniCredit Bank (Russian Federation)

AEQUO advised JSC UniCredit Bank (Russia)

USD 30 million

Restructuring of secured loan provided to Hlibprom by the IFC

Gide Loyrette Nouel** represented IFC

USD 30 million

Debt restructuring by Ukraine International Airlines’ before Finance & Credit Bank

ECOVIS Bondar & Bondar represented Ukraine International Airlines

USD 30 million

Restructuring of a secured loan to Nibulon S.A. issued by Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank International)

Integrites advised Coöperatieve Centrale Raiffeisen-Boerenleenbank B.A. (Rabobank International)

* Since 1 December 2015 the office operates as independent law firm Redcliffe Partners. ** Since November 2015 the office operates as a French law firm Jeantet. Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there were no foreign law counsels.

16

www.ukrainianlawfirms.com


Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 25 million

Restructuring of a loan facility to one of largest Ukrainian grain traders by Banque de Commerce et de Placements

Integrites advised Banque de Commerce et de Placements

USD 22 million

Restructuring of debt by Saturn LLC to a group of Chinese creditors under LC by UFW Bank issued to Bank of China

TCM Group Ukraine advised Saturn LLC

TCM Group China advised Bank of China

USD 20 million

Debt restructuring by Ukraine International Airlines to ZLATOBANK

ECOVIS Bondar & Bondar represented Ukraine International Airlines

USD 15.9 million

Amendment and restatement of shopping mall Pyramida Facilities

Redcliffe Partners advised PJSC Ukrsotsbank

USD 15 million

Restructuring of debt by a group of CIS landlords to Booking.com

TCM Group Ukraine advised a group of CIS landlords

TCM Group Netherlands represented Booking.com

EUR 12 million

Security arrangement and amendment of lending terms in respect with financing to a Ukrainian borrower for a construction project, provided by Advising Factor banka d.d., Slovenia

Wolf Theiss advised Factor banka d.d.

EUR 10 million

Restructuring of corporate loan to Agrogeneration provided by EBRD

Gide Loyrette Nouel** represented EBRD

USD 10 million

Restructuring of syndicated loan from international financial institutions by JSC Rodovid Bank

Asters represented JSC Rodovid Bank

USD 8.8 million

Restructuring of a loan granted to a Ukrainian brick producer by EBRD and secured by the borrower’s movable and immovable assets

Wolf Theiss advised EBRD

Mayer Brown International LLP acted as English law counsel to EBRD

USD 5 million

Restructuring of indebtedness owed by one of the largest Ukrainian producer of electric equipment for railway machines, large-capacity vehicles, municipal passenger electric transport, port facilities, and industrial lifting devices, under the loan provided by Ukrainian subsidiary bank of Sberbank of Russia

AEQUO advised Subsidiary Bank of Sberbank of Russia (Ukraine)

Stelios Americanos acted as Cypriot Law adviser

USD 3.2 million

Restructuring of debt by Prezence Tech LLC to Agreen LLC

TCM Group Ukraine advised Prezence Tech LLC

TCM Group China represented Agreen LLC

USD 2 million

Restructuring of debt by Agama Istra LLC to Savy Seafood LLC

TCM Group Ukraine advised Agama Istra LLC

TCM Group China advised Savy Seafood LLC

USD 2 million

Restructuring of debt by NORD LLC to Chemical Group LLC

TCM Group Ukraine advised NORD LLC

TCM Group China represented Chemical Group LLC

USD 1.7 million

Restructuring of debt by Kemiagrotreyd LLC to Bank of China

TCM Group Ukraine advised Kemiagrotreyd LLC

TCM Group China represented Bank of China

USD 1.3 million

Restructuring of debt by Factor LLC to Benhong Garment LLC

TCM Group Ukraine advised Factor LLC

TCM Group China represented Benhong Garment LLC

USD 1.2 million

Restructuring of debt by KandK Profy LLC to Electrical Appliances LLC

TCM Group Ukraine advised KandK Profy LLC

TCM Group China represented Electrical Appliances LLC

WND

Restructuring by Ramburs Group of its indebtedness under four loan facilities granted by Sberbank of Russia

AEQUO advised Ramburs Group

WND

Intra-group indebtedness restructuring by Porsche Group (debtto-equity transaction)

Arzinger acted for Porsche Group; AEQUO advised Porsche Bank AG

WND

Restructuring of USD multimillion secured mezzanine loan granted to one of the leading Ukrainian manufacturers and distributors of household products by EBRD

Integrites advised EBRD

Bird & Bird acted as English legal counsel; Harneys acted as Cyprus legal counsel; Courtenay Coye acted as Belize legal counsel

WND

Restructuring of financings earlier provided to Astarta Group by Nederlandse Financierings Mij. voor Ontwikkelingslanden N.V.

Redcliffe Partners advised Nederlandse Financierings Mij. voor Ontwikkelingslanden N.V.

www.ukrainianlawfirms.com

17


Ukrainian Legal Market Mergers and Acquisitions, Joint Ventures Establishing

Table 4

Transactions

Legal Support (Ukrainian Law)

USD 20 billion*

Establishment of joint venture between Novartis and GSK in OTC business and exchange of Oncology and Vaccines businesses between GSK and Novartis

Avellum acted as Ukrainian legal counsel for Novartis; Sayenko Kharenko acted as Ukrainian counsel to GSK on employment matters

USD 5 billion*

Demerger of coffee business of Mondelez International with further sale to JV partner. The project involved 12 jurisdictions.

Clifford Chance** advised Mondelez International; Arzinger represented D.E. Master Blenders 1753 B.V. (DEMB)

EUR 1.5 billion*

Carve-out of the chemical business of Bayer AG — Bayer Material Science AG into a separate company Covestro AG

Avellum acted as Ukrainian legal counsel to Bayer AG

Linklaters Frankfurt am Mein acted as global counsel to transaction

USD 925 million* (public sources)

Acquisition of certain divisions of eBay Enterprise from eBay Inc. by Permira, an international private equity fund

Clifford Chance** advised Permira; EY acted as a Ukrainian legal counsel to eBay Inc.

Clifford Chance acted as foreign law counsel

EUR 550 million*

Acquisition of the insurance business of Gras Savoye by Willis Group

Clifford Chance** advised Willis Group

USD 280 million

Acquisition of one of the largest petrol station chains in Ukraine operated under the LUKOIL brand, by AMIC Energy Management GmbH, an independent private equity and corporate finance and strategic advisory firm

Wolf Theiss advised AMIC Energy Management GmbH

Akin Gump Strauss Hauer & Feld advised Lukoil on English and Russian law matters

USD 150 million

Equity investment by EBRD in Raiffeisen Bank Aval to raise shareholding to 35%

Clifford Chance** advised EBRD

Clifford Chance acted as foreign law counsel

EUR 107 million

Sale of JSC LIEPĀJAS METALURGS, the largest industrial enterprise in Latvia, to KVV Group, a leading Ukrainian group active in the scrap metal business

Vasil Kisil & Partners represented JSC Liepajas Metalurgs; AstapovLawyers**** represented KVV Group

EUR 95 million

Establishment of the joint venture of Mitsubishi Heavy Industries and Siemens — Primetals Technologies, Limited headquartered in the UK, and acquisition a Ukrainian limited liability company which was carved-out from Siemens Ukraine

Gide Loyrette Nouel*** represented Mitsubishi Heavy Industries

USD 100 million

Acquisition of SCM Holdings Limited’s 44.96% stake in Euroasia Telecommunications Holding B.V. based in the Netherlands, in which Turkcell previously held stake of 55.04%

Dentons advised Turkcell Iletisim Hizmetleri

EUR 40 million

Acquisition of business and assets of Anika group of companies by FrieslandCampina, a group of companies producing nutritional ingredients

Sayenko Kharenko represented FrieslandCampina; Ilyashev & Partners advised Anika group of companies

USD 36 million

Acquisition by Ukrainian private inverstor of CarPrice, service No.1 in Russia of second-hand cars and in extension of its activity on the territories of Kazahstan, Belarus and Azerbaijan

AstapovLawyers**** represented CarPrice

USD 12 million

Acquisition of a grain elevator by OLAM Ukraine through share purchase

Ilyashev & Partners advised OLAM Ukraine

EUR 10 million

Acquisition by ACP Europe of the production unit in Ukraine and its further reconstruction

Gide Loyrette Nouel*** represented ACP Europe

USD 9 million

Acquisition of non-residential complex in Kiev

Ilyashev & Partners advised Asset Management Company Industrial Investments

USD 8 million

Two-tier acquisition of RED.MET LLC, a Ukrainian company engaged in the amber exploration business in the north-west region of Ukraine, by Redcast Holdings Limited

Wolf Theiss advised Redcast Holdings Limited

UAH 92.1 million

Acquisition by NCH Capital (USA), one of the leading private equity funds in the US with a presence in Ukraine, of Ukrainian bank PJSC ASTRA BANK from the Deposit Guarantee Fund as a result of bank’s resolution

AEQUO advised NCH Capital

Value

Legal Support (Foreign Law) Freshfields Bruckhaus Deringer acted as global counsel to Novartis

Allen & Overy represented FrieslandCampina

* Global deal, total value in all jurisdictions. ** Since 1 December 2015 the office operates as independent law firm Redcliffe Partners. *** Since November 2015 the office operates as a French law firm Jeantet. **** In May 2016 AstapovLawyers merged with European Law Firm Baltic Business Group to operate under the new joint brand of Eterna Law Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there were no foreign law counsels.

18

www.ukrainianlawfirms.com


Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 5 million (public sources)

Sale by QBE, an Australian based insurance provider, of its 50% Ukrainian subsidiary, QBE Ukraine, to Fairfax Financial Holdings Limited, a Canadian financial holding company

Wolf Theiss advised QBE; Clifford Chance** represented Fairfax

USD 4 million

Sale of two agricultural enterprises of OSI Group in Ukraine — LLC Agrosolutions and LLC Agrobeef

Arzinger represented OSI Group

USD 1.5 million

Acquistion of Allset — service of booking tables & restaurants in USA by a private investor

AstapovLawyers**** represented a private investor

USD 1.15 million

Acquisition by VIG of 20% of the shares in insurance company GLOBUS, which is present on majority of Ukrainian regions

Wolf Theiss advised VIG

RUB 3.86 million (public sources)

Sale of Ukrainian subsidiary by Petrocommerce Bank Russia

Clifford Chance** advised Petrocommerce Bank Russia

Clifford Chance acted as foreign law counsel

WND

Acquisition by George Soros’s Ukrainian Redevelopment Fund of a significant equity stake (held by Horizon Capital and an undisclosed portion of the stake held by Majgaard Holdings Ltd.) in a leading global software engineering and solutions company Ciklum Holding Limited

AEQUO advised George Soros’s Ukrainian Redevelopment Fund; CMS Cameron McKenna advised Horizon Capital

CMS Cameron McKenna Kiev acted as English law counsel

WND

Acquisition of TRANS-CON LLC, company operating major telecom infrastructure in Kiev city underground, by Mosquito Mobile

AEQUO advised Mosquito Mobile

WND

Extension of the strategic partner market agreement between MTS and one of the world’s largest mobile operators Vodafone

AEQUO advised MTS

WND

Acquisition by UBG Group from the Deposit Guarantee Fund of a bridge bank incorporated on the basis of the Ukrainian bank PJSC OMEGA BANK in the course of the bank’s resolution

AEQUO advised UBG Group

WND

Acquisition by Kontakt East Holding AB (Sweden) of a target Ukrainian company operating in IT and providing social media monitoring for Ukrainian and Russian clients for FMSG sector

AEQUO advised Kontakt East Holding AB

WND

Acquisition of Accountor Group, the largest financial and HR services company in Northern Europe, by IK Investment Partners, a European private equity group focused on mid-market investments in the Nordics, DACH region, France and Benelux

AEQUO advised IK Investment Partners

WND

Acquisition and financing of the corporate investment fund by TIS Group of Terminals, the Ukraine’s largest dry cargo port, and establishment of the asset management company

AEQUO advised TIS Group of Terminals

WND

Acquisition by Europe Virgin Fund L.P. of 50% + 1 share in Venbest Group, the largest private security firm in Ukraine, and establishment of a joint venture with current shareholders of the Group

Asters represented Europe Virgin Fund L.P.; Arzinger represented Venbest Group

WND

Purchase of 100 % of the shares in Ukrgazprombank PJSC by Primestar Energy FZE, an international trading company with headquarters in Dubai

Asters represented Primestar Energy FZE

WND

Exchange by MHP S.A. of grain growing assets Voronezh Agro in Voronezh region of the Russian Federation for Agrokultura in Lviv, Ternopil and Ivano-Frankivsk regions, Ukraine

Avellum acted as Ukrainian legal counsel to MHP S.A.; Law Offices of OMP acted as Ukrainian law legal counsel to Agrokultura A.B.

WND

Sale of a minority stake in Rozetka, a major Ukrainian online retailer, to Horizon Capital, a leading private equity fund focusing on Ukraine

Baker & McKenzie represented Rozetka; EY acted as a lead transaction legal counsel to Horizon Capital

WND

Joint acquisition of 100% of LLC Pharma Start, a top-ten Ukrainian pharmaceutical producer, by Avista Capital Partners and Nordic Capital (acting through Acino as acquisition vehicle)

Baker & McKenzie represented Avista Capital Partners and Nordic Capital

WND

Sale of MTBank, the largest private bank in Belarus and one of the fastest growing banks in the country, by Horizon Capital and Zubr Capital to a local investor

CMS Cameron McKenna advised Horizon Capital and Zubr Capital

WND

Acquisition of the insolvent bank PJSC Intercreditbank by JS Insurance Company Soyus-Agro-Polis

ECOVIS Bondar & Bondar represented JointStock Insurance Company Soyus-Agro-Polis

Clifford Chance London acted as English law legal counsel

Christodoulos G. Vassiliades & Co. acted as a English and Cypriot law counsel

Eversheds acted as English law legal counsel to Agrokultura A.B.; Freshfields Bruckhaus Deringer acted as English law counsel on Eurobond Indenture issues; Herbert Smith Freehills acted as Russian law counsel

>> Continued on page 20 www.ukrainianlawfirms.com

19


Ukrainian Legal Market Transactions

Legal Support (Ukrainian Law)

WND

Acquisition of EVRY ASA by a US private equity investment group Apax Partners LLP

Egorov Puginsky Afanasiev & Partners Ukraine provided advice to funds advised by Apax Partners LLP

WND

Sale of the Ukrainian subsidiary of April International

Gide Loyrette Nouel*** represented April International

WND

Merger of Unimilk owned by Danone Ukraine, and Danone Dnipro

Ilyashev & Partners advised Danone

WND

Acquisition of Maxymizer Limited (a group of IT-companies) by Oracle

KPMG Ukraine represented Maxymizer Limited; Nobles represented Oracle

WND

Acquisition of utility company GGE a.s. from Grafobal Group (GGE) by Infracapital Partners II LP

Sayenko Kharenko represented Infracapital Partners II LP

WND

Sale of shares of PJSC Ukrainian Exchange by PJSC Moscow Exchange MICEX-RTS to a group of international investors

Sayenko Kharenko represented PJSC Moscow Exchange MICEX-RTS

WND

Acquisition of a 19.9% stake in Polyus Gold International, Russia’s top gold producer, by Oleg Mkrtchan, Ukrainian businessman

WND

Market exit and the sale by Geveko Industri Holding AB, an international company, involved in road marking business, of its Ukrainian subsidiary Cleanosol Trading Company LLC (CTC) to local management

Value

Legal Support (Foreign Law) Clifford Chance (UK), Advokatfirmaet Wiersholm AS advised Apax Partners LLP

Allen & Overy, BDK represented Infracapital Partners II LP; White & Case represented Grafobal Group 

Linklaters advised Oleg Mkrtchan

Wolf Theiss advised Geveko Industri Holding AB

Transactions in the Antitrust Area Value

Transactions

Table 5

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

GBP 47 billion

Merger clearance for acquisition of BG Group plc by Royal Dutch Shell plc

Sayenko Kharenko represented BG Group plc and Royal Dutch Shell plc

Slaughter & May acted as international counsel to Royal Dutch Shell plc, Freshfields Bruckhaus Deringer acted as international counsel to BG Group plc

USD 66 billion

Merger clearance for acquisition by Actavis plc of control over Allergan, Inc

Asters represented Actavis plc and Allergan, Inc

USD 32 billion

Merger clearance for three-part inter-conditional transaction between GlaxoSmithKline plc and Novartis AG involving (i) establishment by GlaxoSmithKline plc and Novartis AG of a consumer healthcare joint venture, (ii) acquisition by GlaxoSmithKline plc of Novartis’ global human vaccines business, (iii) acquisition by Novartis AG of GlaxoSmithKline’s portfolio of oncology pharmaceuticals

Asters represented GlaxoSmithKline plc; Sayenko Kharenko represented Novartis

Freshfields Bruckhaus Deringer / Linklaters acted as international counsels to Novartis

Approx. USD 17 billion

Merger clearance for acquisition of Sigma-Aldrich Corporation by Merck KGaA

Sayenko Kharenko represented Sigma-Aldrich Corporation and Merck KGaA

Skadden, Arps, Slate, Meagher & Flom acted as international counsel to Sigma-Aldrich Corporation and Merck KGaA

EUR 15.6 billion

Merger clearance for acquisition by Nokia Corporation of AlcatelLucent

Egorov Puginsky Afanasiev & Partners Ukraine represented Nokia Corporation

Skadden, Arps, Slate, Meagher & Flom LLP and Roschier acted as international advisors to Nokia; Sullivan & Cromwell LLP acted as international counsel to Alcatel-Lucent

Approx. EUR 15 billion

Merger clearance for acquisition by General Electric Company of Alstom’s Thermal & Renewable Power and Grid businesses

Asters represented Alstom; Clifford Chance* represented General Electric

USD 11 billion

Merger clearance for merger of PartnerRe Ltd. and AXIS Capital Holdings Limited

Sayenko Kharenko represented PartnerRe Ltd. and AXIS Capital Holdings Limited

Davis Polk & Wardwell acted as international counsel to PartnerRe Ltd, Simpson Thacher & Bartlett LLP acted as international counsel to AXIS Capital Holdings Limited

Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there were no foreign law counsels. * Since 1 December 2015 the office operates as independent law firm Redcliffe Partners. ** Since November 2015 the office operates as a French law firm Jeantet.

20

www.ukrainianlawfirms.com


Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

EUR 7.1 billion

Merger clearance for acquisition of Pirelli & C. S.p.A. by China National Chemical Corporation

Sayenko Kharenko represented Pirelli & C. S.p.A. and China National Chemical Corporation

Freshfields Bruckhaus Deringer acted as international counsel to China National Chemical Corporation

Approx. USD 6.5 billion

Merger clearance for the indirect acquisition by Vista Equity Partners of control over Solera Holdings, Inc

Asters represented Vista Equity Partners and Solera Holdings, Inc

USD 5.81 billion

Merger clearance for acquisition of German company RWE Dea AG by Letter One Group

Ilyashev & Partners represented Letter One Group; CLACIS represented RWE

Skadden, Arps, Slate, Meagher & Flom LLP acted as international counsel to LeterOne; Linklaters acted as international counsel to LetterOne in certain aspects

USD 5 billion

Merger clearance for the establishment of joint venture in the field of coffee production between Mondelez International and Acorn Holdings BV, owner of DE Master Blenders 1753

Asters represented Mondelez International, DE Master Blenders 1753; Clifford Chance* represented Mondelez International

USD 4.7 billion

Merger clearance for acquisition by Berkshire Hathaway Inc. of Business for production of Duracell batteries of The Procter & Gamble Company

Asters represented The Procter & Gamble Company; Sayenko Kharenko represented Berkshire Hathaway Inc

Allen & Overy acted as international counsel to Berkshire Hathaway Inc

EUR 3.6 billion

Merger clearance for acquisition of Omega Pharma Invest NV by Perrigo Company plc

Sayenko Kharenko represented Omega Pharma Invest NV and Perrigo Company plc

Freshfields Bruckhaus Deringer acted as international counsel to Perrigo Company plc

Approx. EUR 3 billion

Merger clearance for acquisition of Nutreco N.V. by SHV Investments Limited

Sayenko Kharenko represented Nutreco N.V. and SHV Investments Limited

Allen & Overy acted as international counsel to Nutreco N.V. and SHV Investments Limited

USD 3 billion

Merger clearance for indirect acquisition by Hewlett-Packard Company of control over Aruba Networks, Inc

Asters represented Hewlett-Packard Company and Aruba Networks, Inc

USD 3 billion

Merger clearance for acquisition by CommScope Holding Company, Inc. of all of equity interest in certain TE Connectivity LTD subsidiaries as well as acquisition of control over all assets, properties and rights owned relating to the Broadband Network Solutions business

Asters represented CommScope Holding Company, Inc. and TE Connectivity LTD

USD 2.945 billion

Merger clearance for acquisition by Apollo Global Management of Verallia, sub-division of Saint Gobain, a leading world glass producer

AEQUO represented Apollo Global Management

USD 2.9 billion

Merger clearance for concentration and concerted actions in connection with acquisition by Mars, Incorporated of The Procter & Gamble Company’s business for production of pet food

Asters represented Mars, Incorporated and The Procter & Gamble Company

USD 2.85 billion

Merger clearance for acquisition by Alcoa Inc., the largest U.S. aluminum producer, of U.K. aerospace-components maker Firth Rixson Ltd

CLACIS represented Alcoa Inc and Firth Rixson Ltd

Approx. USD 2.8 billion

Merger clearance for indirect acquisition by Wendel SA of 100% shares of Constantia Flexibles GmbH

Asters represented Wendel SA and Constantia Flexibles GmbH

GBP 1.87 billion

Merger clearance for acquisition by Fairfax Financial of Brit plc

AEQUO represented Fairfax Financial

Shearman & Sterling LLP acted as a global competition counsel to Fairfax

USD 2.3 billion

Merger clearance for acquisition by Platform Specialty Products Corporation of shares of Alent plc

Asters represented Platform Specialty Products Corporation and Alent plc

USD 2 billion (public sources)

Merger clearance for acquisition by the Hearst Corporation of Fitch Group

Clifford Chance* represented the Hearst Corporation

USD 1.4 billion

Merger clearance for acquisition of Indesit Company S.p.A. by Whirlpool Corporation

Sayenko Kharenko represented Indesit Company S.p.A. and Whirlpool Corporation

Cleary Gottlieb Steen & Hamilton acted as international counsel to Whirlpool Corporation

USD 1.37 billion

Merger clearance for acquisition by Kraton Polymers LLC of 100% shares in Arizona Chemical Holdings Corporation

Asters represented Kraton Polymers LLC and Arizona Chemical Holdings Corporation

USD 1.2 billion

Merger clearance for acquisition by Mohawk Industries, Inc of the IVC Group

Avellum represented Mohawk Industries, Inc

>> Continued on page 22 www.ukrainianlawfirms.com

21


РУБРИКА Legal Market Ukrainian Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 1.08 billion

Merger clearance for acquisition by Fosun of the France-based vacation resort operator Club Mediterranee

AEQUO represented Fosun (China)

DLA Piper Hong Kong acted as an international competition counsel to Fosun

USD 1.07 billion

Merger clearance for contemplated merger of Chiquita Brands International, an American producer and distributor of bananas and Fyffes plc, to create the world`s biggest banana company

CLACIS represented Chiquita Brands International and Fyffes plc

USD 1.03 billion

Merger clearance for acquisition by Apollo Global Management of OM Group (USA), a manufacturer of magnetic technologies

AEQUO represented Apollo Global Management

USD 925 million

Merger clearance for acquisition by Sterling of 100% of GSI from eBay, Inc

Asters represented Sterling Capital Partners IV, L.P. and GSI Commerce, Inc

USD 827 million

Merger clearance for acquisition by Astorg Partners of 100% of shares of Kerneos

CLACIS represented Astorg Partners

USD 635 million

Merger clearance for acquisition by Cisco Systems, Inc of sole control over OpenDNS, Inc

Asters represented Cisco Systems, Inc and OpenDNS, Inc

EUR 560 million

Merger clearances for acquisition of VDM Metals companies by Goldberg, Lindsay & Co., LLC

Sayenko Kharenko represented VDM Metals companies and Goldberg, Lindsay & Co., LLC

Gleiss Lutz acted as international counsel to VDM Metals companies and Goldberg, Lindsay & Co., LLC

USD 600 million

Merger clearance for acquisition by Technicolor S.A. of control Asters represented Technicolor S.A., Cisco over the Cisco Systems, Inc.’s assets related to activity in the field Systems, Inc of Internet devices

USD 600 million

Merger clearance for acquisition by Imerys of business S&B

Arzinger respresented both parties

Approx. USD 520 million

Merger clearances for acquisition by IMS Health Incorporated of control over the customer relationship management and strategic data businesses of Cegedim SA

Asters represented IMS Health Incorporated, Cegedim SA

Approx. USD 452.5 million

Merger clearance for acquisition by Cisco Systems, Inc of control over Lancope, Inc

Asters represented Cisco Systems, Inc. and Lancope, Inc

USD 450.1 million

Merger clearance for acquisition by PZU S.A. of shares in Alior Bank

Ilyashev & Partners represented PZU

Weil, Gotshal & Manges LLP (Poland) acted as international counsel to PZU

EUR 340 million

Merger clearance for acquisition of Metso’s Process Automation Systems business by Valmet Oyj

Sayenko Kharenko represented Metso Corporation and Valmet Oyj

Hannes Snellman acted as international counsel to Valmet Oyj

USD 365 million

9 merger clearances for acquisition by Platform Group of part of OM group business

Arzinger represented both parties

USD 280 million

Merger clearance for acquisition by AMIC Energy Management GmbH of one of the largest petrol station chains in Ukraine operated under the “LUKOIL” brand

Wolf Theiss represented AMIC Energy Management GmbH

Akin Gump Strauss Hauer & Feld acted as international counsel to Lukoil

USD 272 million

Merger clearance for acquisition by Amdocs Limited of assets of Comverse, Inc.

Sayenko Kharenko represented Amdocs Limited and Comverse, Inc; DLA Piper represented Comverse, Inc

Meitar Liquornik Geva Leshem Tal acted as international counsel to Amdocs Limited

EUR 240 million

Merger clearance for acquisition of Dutch joint venture by Archer Daniels Midland Company

Integrites represented Archer Daniels Midland Company

Eversheds LLP acted as international counsel to Archer Daniels Midland Company

Approx. USD 248 million

Merger clearance for acquisition by Vivendi S.A. of shares of Dailymotion S.A

Asters represented Vivendi S.A. and Dailymotion S.A.

EUR 200 million

Merger clearance for acquisition by Perrigo Company plc of assets of GlaxoSmithKline PLC related to certain OTC products of the company

Asters represented GlaxoSmithKline PLC; Sayenko Kharenko represented Perrigo Company

Allen & Overy acted as international counsel to Perrigo Company plc

USD 175 million

Merger clearance for acquisition by Permira of X.Commerce, Inc

Clifford Chance* represented Permira

EUR 153 million

Merger clearance for acquisition of the paper chemical business of Akzo Nobel N.V. by Kemira Oyj

Egorov Puginsky Afanasiev & Partners Ukraine represented a global chemicals company Kemira Oyj; Sayenko Kharenko represented Akzo Nobel N.V.

Houthoff Buruma acted as international counsel to Kemira Oyj; De Brauw Blackstone Westbroek acted as international counsel to Akzo Nobel N.V.

USD 150 million

Merger clearance for acquisition by KKR & Co. L.P. of joint control Asters represented KKR & Co. L.P. and JBF over JBF Global Pte. Ltd. Industries Limited

USD 150 million

Merger clearance for acquisition of one of the world-famous storage companies by Iron Mountain Inc

Eversheds LLP acted as international counsel to Iron Mountain Inc

22

www.ukrainianlawfirms.com

Integrites represented Iron Mountain Inc


Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 135 million

Merger clearance for acquisition by Comverse Inc of Acision

DLA Piper represented Comverse Inc

Approx. USD 108 million

Merger clearance for the indirect acquisition by Ferro Corporation of 100% shares of Vetriceramici S.p.A.

Asters represented Ferro Corporation and Vetriceramici S.p.A.

USD 90 million

Merger clearance for concentration in connection with the establishment by GE Transportation Engines Holding B.V., JSC Remlokomotiv and LLC Transmashdizel of joint venture — Astana Diesel Engines B.V.

Asters represented GE Transportation Engines Holding B.V., JSC Remlokomotiv, LLC Transmashdizel

Approx. USD 60 million

Merger clearance for establishment of joint venture by EBRD and SOUFFLET AGRICULTURE S.A.S.

Arzinger represented European Bank for Reconstruction and Development; Peterka & Partners represented SOUFFLET AGRICULTURE S.A.S.

Approx. USD 54.6 million

Merger and antitrust clearances for (i) the concentrations in connection with the acquisition by Knauf Aquapanel GmbH of shares of Knauf/USG Verwaltungs GmbH and Knauf/USG Systems GmbH & Co. KG from USG Ventures-Europe GmbH, and (ii) related arrangements

Asters represented Knauf Aquapanel GmbH and USG Ventures-Europe GmbH

Approx. USD 32 million

Merger clearance for the indirect acquisition by Mahindra & Mahindra Ltd. of shares of Holiday Club Resorts Oy and HCR Management Oy

Asters represented Mahindra & Mahindra Ltd. and Holiday Club Resorts Oy

USD 28.2 million

Merger clearance for acquisition of Sarten Ambalaj Sanayi ve Ticaret A.Ş. by a leading Japanese trading, investment, and service company

Sayenko Kharenko represented Sarten Ambalaj Sanayi ve Ticaret A.Ş. and leading Japanese trading, investment, and service company

Freshfields Bruckhaus Deringer acted as international counsel to leading Japanese trading, investment, and service company

USD 25 million

Merger clearance for acquisition by BSH Hausgerate GmbH of FagorMastercook

Clifford Chance* represented BSH Hausgerate GmbH

USD 25 million

Merger clearance for acquisition by Mahindra & Mahindra of control over Mitsubishi Agricultural Machinery Co., Ltd.

Sayenko Kharenko represented Mahindra & Mahindra and Mitsubishi Agricultural Machinery Co., Ltd.

Mayer Brown acted as international counsel to Mahindra & Mahindra and Mitsubishi Agricultural Machinery Co., Ltd.

EUR 10 million

Foreign merger clearance for acquisition of Kem One Innovative Vinyls by OpenGate

Gide Lourette Nouel** represented OpenGate Capital

EUR 10 million

Merger clearance for acquisition by Atlantic Gateway of shares of Transportes Aéreos Portugueses, SGPS, S.A.

Gide Lourette Nouel** represented Transportes Aéreos Portugueses, SGPS, S.A

EUR 10 million

Merger clearance for acquisition by Ansaldo Energia of Alstom’s advanced gas turbine business

Jeantet advised Ansaldo Energia

USD 5 million (public sources)

Merger clearance for acquisition by Fairfax Financial Holdings Limited, a Canadian financial holding company (Fairfax), of the Ukrainian subsidiary of the QBE Insurance Group

Wolf Theiss represented QBE; Clifford Chance* represented Fairfax Financial Holding

Clifford Chance London acted as English law legal counsel

Approx. USD 4 million

Merger clearance for acquisition of two agribusiness companies in Ukraine of OSI Group (Agrosolutions LLC and Agrobif LLC) by its former local management as well as a private German investor

Arzinger represented both parties

UAH 92.1 million

Merger clearance for acquisition by NCH Capital (USA) of an insolvent Ukrainian bank from the Deposit Guarantee Fund

AEQUO represented NCH Capital

WND

Merger clearance for acquisition by George Soros’s Ukrainian Redevelopment Fund of a significant equity stake in Ciklum Holding Limited

AEQUO represented George Soros’s Ukrainian Redevelopment Fund; CMS Cameron McKenna represented Horizon Capital

WND

Merger clearance for the establishment of the joint venture between Sidel (France) and Amcor (Australia)

AEQUO represented Tetra Laval

WND

Merger clearance for acquisition by Brit Limited of a stake in Ambridge Partners LLC

AEQUO represented Brit Limited

WND

Merger clearance in a joint acquisition by Avista Capital Partners and Nordic Capital (acting through Acino as acquisition vehicle) of 100% in LLC Pharma Start

Baker & McKenzie represented Avista Capital Partners and Nordic Capital; DLA Piper represented shareholders of Pharma Start

WND

2 merger control filings in connection with direct acquisition by Unilever U.K. Holdings Limited of REN Limited and REN USA Inc. engaged in developing, manufacturing, selling, and supplying premium skincare products and toiletries under the REN brand

Baker & McKenzie represented Unilever U.K. Holdings Limited

Addleshaw Goddard LLP advised sellers of REN

WND

Merger clearance for acquisition by Unilever N.V., a company of Baker & McKenzie represented Unilever the Unilever group, of P&G’s CAMAY and ZEST personal cleansing N.V.; Asters represented The Procter & Gamble business Company

>> Continued on page 24 www.ukrainianlawfirms.com

23


Ukrainian Legal Market Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

WND

Merger clearance for acquisition by Rozetka group of LLC OTK Europlus and sale of a minority stake to a leading private equity fund focusing on Ukraine

Baker & McKenzie represented Rozetka UA; EY Legal represented the investor (Horizon Capital)

WND

Merger clearance for acquisition by McCormick & Company, Incorporated of Drogheria e Alimentari S.p.A., an Italian joint stock corporation active in the business of production and commercialization of cake decorations, spices, herbs and dry seasonings

Baker & McKenzie represented McCormick & Company

WND

2 merger control filings in connection with acquisition by Archer Daniels Midland (UK) Limited, a company of the ADM Group, of AOR NV and AOR Plastics NV

Baker & McKenzie represented Archer Daniels Midland (UK) Limited

WND

Merger control filing in connection with acquisition by Saudi agricultural and Livestock Investment Co. (Saudi Arabia’s governmental agricultural corporation) and Bunge of controlling stake in Canadian Wheat Board (CWB) through G3, a joint venture of SALIC and Bunge in Canada

Baker & McKenzie represented Saudi agricultural and Livestock Investment Co. (Saudi Arabia’s governmental agricultural corporation) and Bunge

Shearman & Sterling acted as international counsel to Bunge Group

WND

Merger clearance for acquisition by OTP banka Srbija a.d. Novi Sad, a Serbian subsidiary of Hungarian OTP Bank Plc., of Findomestic Banka a.d. Beograd (Novi Beograd), a Serbian subsidiary of French BNP Paribas

Baker & McKenzie represented OTP Bank Nyrt.; Dentons represented Findomestic Banka a.d. Beograd (Novi Beograd)

WND

Merger clearance for the indirect acquisition (as part of a global transaction) by Emeram Capital Partners GmbH of 100% shareholding in Ukrainian company involved in the provision of IT services

Wolf Theiss represented Emeram Capital Partners GmbH

WND

Merger cleararnce for the establishment of joint venture between UIA and KLM Royal Dutch Airlines

ECOVIS Bondar & Bondar represented Ukraine International Airlines

WND

Merger clearance for acquisition of EU construction materials manufacturer by Soudal Holding NV

KPMG Ukraine represented Soudal Holding NV

WND

Merger clearance for establishment by Aventis Inc. (subsidiary of Sanofi SA) and Google Life Sciences LLC of joint venture company

Asters represented Aventis Inc. and Google Life Sciences LLC

WND

Merger clearance for the indirect acquisition by Investindustrial of Asters represented Investindustrial and B&B Italia controlling stake in B&B Italia S.p.A. S.p.A.

WND

Merger clearance for the indirect acquisition by KKR & Co. L.P. of controlling stake in Ursa Insulation Holding B.V.

WND

Merger clearance for acquisition by Coty, Inc. of the share capital of certain companies in the field of cosmetics, operating under the Asters represented Coty, Inc. and Bourjois brand Bourjois

WND

Merger clearance for acquisition by Cisco Systems, Inc. of control over MetaCloud LLC

Asters represented Cisco Systems, Inc. and MetaCloud LLC

WND

Merger clearance for acquisition by Mastice SpA of share in the corporate capital of Sematic S.p.A.

Asters represented Mastice S.p.A. and SAPA S.p.A.

WND

Merger clearance for acquisition by Cisco Systems, Inc. of control over One Mainstream, Inc

Asters represented Cisco Systems, Inc. and One Mainstream, Inc

WND

Merger clearance for acquisition by ZWILLING J.A. Henckels Aktiengesellschaft of shares in Ballarini Paolo & Figli S.p.A.

Asters represented ZWILLING J.A. Henckels Aktiengesellschaft and Ballarini Paolo & Figli S.p.A.

WND

Merger clearance for acquisition by Cisco Systems, Inc. of sole control over Tropo, Inc

Asters represented Cisco Systems, Inc. and Tropo, Inc

WND

Merger clearance for acquisition by Investindustrial Industries S.A. of shares of Sergio Rossi S.p.A.

Asters represented Investindustrial Industries S.A. and Sergio Rossi S.p.A.

WND

Merger clearance for the concentrations in connection with the indirect acquisition by ÅR Packaging Group AB of shares of certain companies controlled by MeadWestvaco Corporation, as well as control over the assets in the field of folding carton packaging for tobacco, chocolate products and clothing

Asters represented ÅR Packaging Group AB and MeadWestvaco Corporation

WND

Merger clearance for acquisition by MAN Diesel & Turbo SE of 100% shares of Max Watt Turbines Private Limited

Asters represented MAN Diesel & Turbo SE and Max Watt Turbines Private Limited

WND

Merger clearance for the establishment of joint venture by Evonik Degussa GmbH and AkzoNobel N.V.

Asters represented Evonik Degussa GmbH; Sayenko Kharenko represented AkzoNobel N.V.

Stibbe acted as international counsel to AkzoNobel N.V.

24

www.ukrainianlawfirms.com

Asters represented KKR & Co. L.P. and Uralita S.A.


Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

WND

Merger clearance for acquisition by Primestar Energy FZE of 100% of shares in PJSC Ukrgazprombank

Asters represented Primestar Energy FZE and PJSC Ukrgazprombank

WND

Merger clearance for acquisition by SNAI S.p.A. of shares in Cogemat S.p.A.

Asters represented SNAI S.p.A. and Cogemat S.p.A.

WND

Merger clearance for concentration in connection with the Asters represented Siemens Aktiengesellschaft establishment by Siemens Aktiengesellschaft and JSC Termotronand JSC Termotron-Plant Plant of the joint venture Rail Automation Holding B.V.

WND

Merger clearance for acquisition by CNBM INTERNATIONAL Asters represented CNBM INTERNATIONAL ENERGY PTE LTD Inc. of shares in the capital stock of certain ENERGY PTE LTD Inc. Ukrainian companies engaged in power generation

WND

Merger clearance for acquisition by the European Bank for Asters represented the European Bank for Reconstruction and Development of shares in PJSC Ukrsibbank Reconstruction and Development

WND

Merger clearance for the concentrations and concerted actions in connection with acquisition by Denka Elastomers LLC of assets of Asters represented Denki Kagaku Kogyo Kabushiki E. I. du Pont de Nemours and Company in the field of production Kaisha and E. I. du Pont de Nemours and Company and sale of chloroprene rubber

WND

Merger clearance for acquisition by Vestel of Sharp’s assets in the Asters represented Vestel Ticaret A.Ş and Sharp field of sales of products under the Sharp brand

WND

Merger clearance for acquisition by Fater of P&G’s assets, including assets for the production and sale of hard-surface Asters represented Fater SpA and P&G cleaners under the Comet brand

WBD

Merger clearance for acquisition by Ansaldo Energia S.p.A. of parts of heavy duty gas turbine business that General Electric Company Asters represented General Electic Company previously acquired from ALSTOM

WND

Merger clearance for acquisition by Nissan Motor Co., LTD of Asters represented Nissan Motor Co., LTD and more than 50% shares of D47aktsy Nissan Otomotiv A.Ş. from Nissan Otomotiv A.Ş. Sumitomo Group

WND

Merger clearance for acquisition by Marubeni Aviation of the shareholding in Aircastle Limited

Clifford Chance* represented Marubeni Aviation

WND

Merger clearance for acquisition by Celtic BidCo of Alvogen Lux Holdings

Clifford Chance* represented Celtic BidCo

WND

Merger clearance for acquisition by Nikkei Inc. of the Financial Times from Pearson Plc

Sayenko Kharenko represented Nikkei Inc. and Pearson Plc

Skadden, Arps, Slate, Meagher & Flom acted as international counsel to Nikkei Inc., Freshfields Bruckhaus Deringer acted as international counsel to Pearson Plc

WND

Merger clearance for acquisition of Samsung General Chemicals Co Ltd and Samsung Techwin Co Ltd by Hanwha Corporation

Sayenko Kharenko represented Samsung General Chemicals Co Ltd, Samsung Techwin Co Ltd and  Hanwha Corporation

Lee & Ko acted as international counsel to Samsung General Chemicals Co Ltd, Samsung Techwin Co Ltd and  Hanwha Corporation

WND

Merger clearance for acquisition of Pantos Logistics Co., Ltd by LG International Corp.

Sayenko Kharenko represented Pantos Logistics Co., Ltd and LG International Corporation

Lee & Ko acted as international counsel to Pantos Logistics Co., Ltd and LG International Corporation

WND

Merger clearance for acquisition of Hamlet Protein A/S by Altor Fund IV Holding AB and Goldman Sachs Group, Inc

Sayenko Kharenko represented Hamlet Protein A/S, Altor Fund IV Holding AB and Goldman Sachs Group, Inc

Kromann Reumert acted as international counsel to Hamlet Protein A/S, Vinge acted as international counsel to Altor Fund IV Holding AB and Sullivan & Cromwell acted as international counsel to Goldman Sachs Group, Inc

WND

Merger clearance for acquisition by Imerys SA of Solvay’s precipitated calcium carbonate business

Sayenko Kharenko represented Imerys SA and Solvay

WND

Merger clearance for acquisition of Elysian Brewing Company, Inc. by Anheuser-Busch InBev S.A./N.V.

Sayenko Kharenko represented Elysian Brewing Company, Inc and Anheuser-Busch InBev S.A./N.V.

WND

Merger clearance for acquisition of Pivovar Samson a.s. by Anheuser-Busch InBev S.A./N.V.

Freshfields Bruckhaus Deringer Sayenko Kharenko represented Pivovar Samson acted as international counsel to Pivovar a.s. and Anheuser-Busch InBev S.A./N.V Samson a.s. and Anheuser-Busch InBev S.A./N.V.

WND

Merger clearance for acquisition by ASK Chemicals GmbH of Hexion Inc’s assets related to the developing, manufacturing and the direct or indirect sale of foundry products

Sayenko Kharenko represented ASK Chemicals GmbH and Hexion Inc; NOBLES represented Hexion Inc

White & Case acted as international counsel to ASK Chemicals GmbH

>> Continued on page 26 www.ukrainianlawfirms.com

25


Ukrainian Legal Market Value

Transactions

Legal Support (Ukrainian Law)

WND

Merger clearance for acquisition of INEOS’ chlorvinyls business by Sayenko Kharenko represented INEOS and INTERNATIONAL CHEMICAL INVESTORS S.E. INTERNATIONAL CHEMICAL INVESTORS S.E.

WND

Merger clearances for establishment of joint venture by Albemarle and Israel Chemicals Limited

Legal Support (Foreign Law) Slaughter & May acted as international counsel to INEOS and Shearman & Sterling acted as international counsel to INTERNATIONAL CHEMICAL INVESTORS S.E.

Sayenko Kharenko represented Albemarle and Israel Chemicals Limited

Mayer Brown acted as international counsel to Albemarle and Dechert acted as international counsel to Israel Chemicals Limited

WND

Merger clearance for merger of Net-а-Porter, subsidiary of Richemont Holdings Limited, and YOOX

Sayenko Kharenko represented COMPAGNIE FINANCIERE RICHEMONT SA and YOOX

Slaughter & May acted as international counsel to COMPAGNIE FINANCIERE RICHEMONT SA, Gatti Pavesi Bianchi Studio Legale Associato acted as international counsel to YOOX

WND

Merger clearance for acquisition of Sal Vesta Iberia, S.L. by AkzoNobel N.V. and Israel Chemicals Limited

Sayenko Kharenko represented AkzoNobel N.V. and Israel Chemicals Limited

WND

Merger clearance for the establishment of joint venture by Ferrostaal GmbH and Haldor Topsøe A/S

Sayenko Kharenko represented Ferrostaal GmbH and Haldor Topsøe A/S.

Corinius acted as international counsel to Ferrostaal GmbH and Kromann Reumert acted as international counsel to Haldor Topsøe A/S

WND

Merger clearance for acquisition of Wheaton Holding Corp. by Duran Group Holding GmbH

Sayenko Kharenko represented Wheaton Holding Corp. and Duran Group Holding GmbH

Freshfields Bruckhaus Deringer acted as international counsel to Wheaton Holding Corp. and Duran Group Holding GmbH

WND

Merger clearance for acquisition of Duran Group Holding GmbH by One Equity Partners

Sayenko Kharenko represented Duran Group Holding GmbH and One Equity Partners

Freshfields Bruckhaus Deringer acted as international counsel to Duran Group Holding GmbH and One Equity Partners

WND

Merger clearance for acquisition of NordGlass sp. z o.o. by AGC Glass Europe SA

Sayenko Kharenko represented NordGlass sp. z o.o. and AGC Glass Europe SA

Allen & Overy acted as international counsel to NordGlass sp. z o.o. and AGC Glass Europe SA

WND

Merger clearance for acquisition by Solvay S.A. of Cytec Industries, Inc

Sayenko Kharenko represented Solvay S.A. and Cytec Industries, Inc

Freshfields Bruckhaus Deringer acted as international counsel to Solvay S.A. and Cytec Industries, Inc

WND

Merger clearance for acquisition by GS Yuasa International Ltd. of Inci Aku San. ve Tic. A.S.

Sayenko Kharenko represented GS Yuasa International Ltd. and Inci Aku San. ve Tic. A.S.

Hogan Lovells acted as international counsel to GS Yuasa International Ltd. and Inci Aku San. ve Tic. A.S.

WND

Merger clearance for the establishment by and between ArcelorMittal Group and CLN Group of the joint venture named ArcelorMittal GLN Distribuzione Italia

CLACIS represented ArcelorMittal and CLN Group

WND

Merger clearance for acquisition of Condesa Group, European producer of welded pipes and tubes by ArcelorMittal and a syndicate of Banks

CLACIS represented ArcelorMittal Group and Condesa Group

WND

Merger clearance for acquisition by PJSC MHP of Dnister Agro (agricultural assets)

CLACIS represented MHP and Dnister Agro

WND

Merger clearance for acquisition by Quintiles Transnational Corp of 100% a US-based company, Theorem Clinical Research Holdings Inc, which has a subsidiary in Ukraine (Theorem Clinical Research Ukraine LLC)

CLACIS represented Quintiles Transnational Corp

Jones Day acted as transaction counsel

WND

Merger clearance for acquisition of KWW Kotkowski Wierzbicki Węgrzyn sp.j. by Farmak

Integrites represented Farmak

WND

Merger clearance for acquisition of one of the companies of Nova Poshta Group by private individuals

Integrites represented Nova Poshta

WND

Merger clearance for acquisition through Palmyra Sp. z o.o., via the tender offer of up to 100% in Ferro S.A. by IK Investment Partners

Dentons represented IK Investment Partners

WND

Merger clearance for acquisition by Wielton SA of shares in Fruehauf, France’s leading trailer brand

Dentons represented Wielton SA

26

www.ukrainianlawfirms.com


Practice Areas and Industries Review Administrative Disputes Agribusiness Alternative Dispute Resolution Amicable Debt Collection Anti-Corruption Antitrust Assets Tracing Aviation Banking & Finance Banking Disputes Bankruptcy Business Crime Business Protection Commercial Law Competition Investigations Complex International Transactions Compliance Corporate Disputes Corporate Law

Counterfeiting and Piracy Criminal Process Cross-Border Debt Restructuring Customs Law Data Protection Debt Restructuring Due Diligence E-Commerce Energy Energy Efficiency Enforcement of Foreign Awards Family Trusts FMCG Foreign Trade Government Relations Human Rights International Arbitration International Finance International Tax Investments IT Law Labor & Employment

Land Litigation Maritime Law Mediation Medicine & Healthcare Mergers & Acquisitions Natural Resources Patents Petrochemicals Pharmaceuticals Private Clients / Wealth Management Private Equity Privatization Property Rights Real Estate Sanctions Sports Law Tax Tax Controversy Telecommunications Trade Remedies Trademarks Transfer Pricing Transportation Unfair Competition


Administrative Disputes

Appealing Decisions of Controlling Bodies: Frequent Cases Marina German Managing Partner, BLISS Law Firm

D

espite the previous moratorium on inspections in Ukraine and a still valid moratorium on tax inspections, many business entities interact with state-controlling bodies anyway. As a result, they have to defend their legal rights and interests by appealing against the unlawful decisions of such bodies via both administrative and judicial procedures. BLISS law firm carried out a practical examination and found that, unfortunately, the activities of Ukrainian controlling bodies are not always based on current legislation and approved rules and procedures. Accordingly, when trying to take a decision not in favor of business entities, controlling bodies support themselves through artificially discovered grounds and do not take the trouble to refer to legislative provisions. Therefore, in 2015 the firm’s lawyers dealt with numerous administrative disputes, appealed against decisions of the Tax Inspectorate, Customs Service, the Financial Inspection, the Executive Service, Architectural and Building Inspection and the State Emergency Service. Analyzing some specific categories of disputes with state bodies, attention should be paid to the bases of decisions to which such bodies refer to, especially, over the last year. As practice shows, in the field of inspection of tax and duty payments and usage of budget funds, the controlling bodies frequently insist on the unreality of economic transactions, which leads to the unlawful formation of a tax credit by a taxpayer, improper use of budget funds, etc. In this case, the revenue bodies usually insist that the economic agent fails to pro-

28

www.ukrainianlawfirms.com

vide sufficient documents. In this regard, you should note that the mentioned documents are usually not compulsory to be provided or, furthermore, this body had not requested them at all earlier. For example, when fulfilling a sale contract, the parties completed all the necessary documents: invoices, tax invoices, acts of acceptance of goods, bills. At the same time, the tax inspection insists that the agent does not provide it with “other” documents (quality certificates, technical passports). In that case, you should note that in order to prove the reality of economic activity of sale, the abovementioned primary documents are enough. The participants of economic relationships of such kind are not obliged by law to complete any other documents. By the way, in practice no other documents are completed either. Besides that, confirmation of the quality of goods, ascertainment of its conformity or non-conformity to standards and technical conditions has no impact on the lawfulness of determination of a the taxpayer’s liabilities and cannot be evidence to declare a transaction invalid. As to execution of service contracts and contracts of work, things are different. Certainly, some more types of documents can be given, including plans and activity reports. However, in this case the character and complexity of economic activity should be taken into consideration while determining the necessity of such additional documents. For example, in one case the tax inspection stated that a plan and reports should be executed while fulfilling the agreement on placement of advertisements on the billboards. And in another case — while fulfilling the agreement on packaging of goods for transportation. However, in both these cases, it is quite logical to insist on the simple nature of such operations and to prove that they do not require partial execution or advanced planning, so that the writing of a plan or report is inappropriate. Another quasi argument to which the revenue services, including inspectors of the financial inspection, refer to while determining the so-called unreality of a transaction is unreality of transaction on a chain of counterparties. In this regard, an exhaustive explanation was given by the High Admin-

istrative court of Ukraine in the Letter of 2 June 2011 No.742/11/13-11. Thus, “invalidation (including insignificance) of legal actions, concluded on the chain of previous intermediary agents through the chain of which the movement of goods and services, supposed to be acquired by the last taxpayer in this chain, was declared is not an obligatory factor to determine the money liability by the controlling body. At the same time, relations between participants of the previous chain of goods and services have no direct impact on analysis of the reality of economic transaction, executed between the last taxpayer in the chain of delivery and his direct counterparty”. The controlling bodies frequently come to the conclusion about the unreality of an operation, based on the absence of bill of lading. But in response to this argument we can always mention item 2 of the List of documents needed for cargo transportation by vehicle transport in inland traffic, according to which “the presence of a bill of lading is not obligatory for the driver of an entity or a private entrepreneur who executes such cargo transportation for his own needs, and the presence of an invoice or another document confirming the ownership of cargo is enough”. Besides, the Ministry of Infrastructure of Ukraine holds the same opinion, as stated in the Letter of 28 May 2014 No. 5615/25/1014 regarding filling in a bill of lading when carrying out cargo transportation by vehicle transport. To confirm the fact of good transportation by one’s own transport, it would be reasonable to provide documents confirming the ownership of a business entity or its employees (drivers, managers, etc.) of transport by which such kind of goods can be practically transported (taking into account its size, weight, special requirements to explosive, chemical agents, food products, etc.). In addition, controlling bodies frequently ignore the explanations of business entities, even provided in writing. When appealing against a decision, emphasis should be put on such facts as well as on inconsistency in the arguments of the controlling body. Moreover, it is also important to pay attention to the amount of any penalty by the


PROfile tax inspection — 25% or 50% of the sum of a tax debt — because a bigger penalty could only be applied if during last 1,096 days the penalty sanctions were applied to this taxpayer. Usually, the tax inspection cannot prove issuing a tax decision earlier or simply refer to a decision that has already been cancelled. Another group of widespread administrative disputes are disputes with the Customs Service. Taking into account the wide corruption experience of customs authorities in Ukraine and its practical impunity, the liberty of their actions in making unlawful decisions is understandable. For example, when in the process of customs clearance of goods many economic agents face the amendment of its customs value on the basis of decision of the customs authority. But mostly such decisions can be declared illegal by judicial procedure and, as a result, cancelled. It is well-known that according to the general rule set by the Customs Code of Ukraine, the customs value of goods should be determined according to the first method — the agreement price (contract price), that is, the price, fixed by an economic agent at their discretion. When applying the second method of determining the customs value of goods — based on the agreement price on similar goods — the customs authority could refer to previous delivery of such kinds of goods made both by this economic agent or other agents earlier. However, in this case you can always mention the position of the High Administrative Court of Ukraine in this respect, stated in the decision of 20 January 2015 in Case No.K/800/22586/14: “Formally, a lower level of customs value of goods, imported by the plaintiff in relation to customs value of another clearance could not be treated as under-estimation of customs value by the plaintiff,

www.ukrainianlawfirms.com

and is not an obstacle to apply the first method of determining the customs value, and could not be sufficient basis to deny the customs clearance of goods, based on the first method of determining its customs value”. Thus, if the economic agent provides all documents required for determining the customs value of goods for customs clearance by the Customs Code of Ukraine, the customs body has no grounds to require additional documents and to deny determining the value according to the first method. Such actions of the customs body can be considered legal only if it could prove that the documents of an economic agent do not contain information which would be enough for determining the value or that they contain some significant contradictions. Similarly, much non-compliance with legislation and simple logical assumptions could be found in decisions of other controlling bodies. Frequently, they make such decisions lacking the appropriate evidence base. For example, in one case the architectural and building inspection insisted on breach of state-building norms, based merely on the opinion of its inspector, not attaching any certificates or conclusions of experts to the decision. In another case, the State Emergency Service unreasonably insisted on conducting an inspection, claiming breach of fire safety without furnishing any proof. And there are numerous cases like this that can be mentioned. Certainly, each dispute with a state body is individual and requires careful examination of all the circumstances in the case. Nevertheless, there is general logic, basic principles to follow when appealing against any unlawful decisions and which can be learnt on the basis of practical experience and repeated participation in administrative disputes protecting the interests of business entities.

BLISS Address: 60 Karla Marksa Ave., Office 501, Dnеpropetrovsk, 49000, Ukraine, Tel: +380 56 735 0593, +38 056 785 0846, +38 096 430 3037 E-mail: info@bliss.com.ua Web-site: www.legal-bliss.com

B

LISS is a well-known multi-practice law firm in Ukraine offering a wide range of services to its clients. We provide legal advice and representation in the areas of: — Corporate law, — Mergers and Acquisitions, — Contract law, — Tax law, — Intellectual law, — Labor law, — Real Estate, — Family law, — Litigation and International Arbitration. Since its establishment in 2008, BLISS has been repeatedly chosen as a legal advisor by many leading companies in the region. Our credibility among clients has been earned by an individual approach, including a comprehensive study of problems and working out unconventional solutions. BLISS is leaded by Marina German, an attorney with broad practical experience, a member of the Ukrainian Advocates’ Association and the Ukrainian Bar Association. All the firm’s members are continually improving their professional skills by attending seminars, conferences and courses. Our mission is to help clients build a strong successful business and reach their goals in the most comfortable and easy way. BLISS law firm has recently advised some major companies in Ukraine on multi-million disputes regarding debt collection, accrual of additional tax, cancellation of registration as a taxpayer and appealing against other decisions of the revenue services. Besides, BLISS has brought complete legal support to clients in their deals on wholesale trade, various services and works and in cases regarding land rent, invalidation of contracts, corporate matters, etc. We are pleading some private cases on divorce, termination of contracts, invalidation of PoA, recognition of ownership, etc. At the same time, BLISS is now working on the registration of over 50 trademarks on applications made by both private and legal entities. BLISS law firm is situated in the heart of Dnepropetrovsk. Nevertheless, we provide legal assistance for business all over Ukraine regardless of a particular company’s location.

29


Agribusiness

Ukrainian Agriculture: What to Watch for When Entering the Field Mykola Orlov Managing Partner, Law Offices of OMP

D

espite a considerable degree of uncertainty surrounding its future, Ukrainian agriculture still excites the interest of both domestic and foreign investors. Newcomers are ready to pay handsomely for an entry ticket. Unfortunately, they often forget that, in the absence of a considerable degree of care, their investment might turn into a gamble with odds strongly against them. The industry abounds in legal traps and practical pitfalls. It often takes a lot of field study and expertise to identify them and minimize their effect. With ongoing legislative changes and rollercoaster reforms, the risks mutate and vary in their intensity year on year. Below are the highlights of 2015 which rolled over into the new year.

Land as the Battle Field

Agriculture is almost always about land, often about lots of it. In Ukraine, this means land lease and community relations. With the average plot of arable land around 2 ha, agribusiness has to deal with hundreds and sometimes thousands of individual land owners. This relationship is a lasting one into the bargain, with the average term of a land lease agreement being 5 to 10 years. Land Lease Agreements. Buying land in Ukraine is, first and foremost, buying land lease agreements. It is all about the quality of these agreements and the extent to which they have been honored by both the landlords and tenants. Land leases may have various flaws and weaknesses, below are the few of them which are most common today: — authentic signatures: rather often people collecting land for farm owners or

30

www.ukrainianlawfirms.com

investors tend to have land lease agreements signed by their representatives and not by the actual landlords. This gives an unhappy landlord grounds to claim that he or she has nothing to do with the particular agreement. Ukrainian courts readily uphold such claims; — period of lease: the term of a lease is a sensitive issue. Many landlords refuse to sign long-term land leases for fear of not being able to sell their plots once the ban on the sale of agricultural land is lifted. Unfortunately, many sellers of land leases try to downplay this issue. Their ingenuity ranges from downright “correction” of the period of lease in land lease agreements to belated registration of the agreements with the claim that the period of lease should be counted from the date of state registration. Neither of these strategies finds sympathy with Ukrainian courts; — unilateral termination: an evergrowing number of land lease agreements contain the right of landlords for early termination of leases. Usually, this right kicks in after a certain lock-up period — on average after the first three years. This is the market response to the 2015 law which set the minimum period of lease for arable land at 7 years; and — signed, not registered: Ukraine has undergone several changes in land lease registration procedures. One of the undisputed outcomes of these was the considerable slow-down in the registration of land lease agreements and, subsequently, land lease rights. Care should be taken to check that the land lease agreements/land lease rights have been properly registered. In the absence of state registration the land use might be of short duration when challenged by the tenant with the proper registration. Care should be taken with land lease agreements which have less than 2 years of lease on them. Such agreements would require prompt, if not immediate, prolongation or re-signing. One year might not be enough for the prolongation of land leases with a hundred or more landlords. Land Contiguity. Alongside land lease agreements, the second important issue is the location of leased land plots and presence of any interrupting landholdings of

other tenants. As a practical matter, it is extremely difficult to have all the land plots on each field leased by the same tenant. Some landlords would be missing; others dead and there would always be those not willing to lease their land. It is important, however, to understand the percentage of land plots not controlled by the respective company. The location of such land plots might also prove crucial. Any uncontrolled land plot might turn out to be a problem. Its landlord or tenant might raise a valid claim to free access for both people and machinery at any time. This would naturally require a field road. It might be possible to swap land plots with one such interrupting landlord or tenant and move it to the side of the field. The more such neighbors you have the slimmer are the chances of any such settlement. Having more than one third of land plots in a field leased by a competitor usually results in an informal agreement as to which particular fields each of the companies would farm. Clearly, any misunderstanding might easily spark a stand-off, with both parties effectively blocking the farming on all of the shared fields. It is all about people. With hundreds and thousands of individual landowners, an important part of agribusiness is bound to be liaison with locals and their communities. No matter how watertight land lease agreements are, hostilities with landowners prove both costly and time-consuming. If the worst comes to the worst, it is close to impossible to win a war against the grassroots. Not surprisingly, dissatisfied landlords and their communities play an increasingly important role in the competition between agribusinesses. The previous year witnessed spectacular failures of several companies to win the hearts and minds of their local neighbors. On a number of occasions, this resulted in the shutdown of their facilities. Even worse than that, a great deal of land was lost to competitors as a result of poor work with the communities. While the grievances of landlords and their neighborhoods might vary, certain misbehavior by agricompanies almost al-


PROfile ways causes their extreme dissatisfaction, if not unrest: — failure to pay land rent: one of the recent surveys conducted in several regions of Ukraine demonstrates that even big agribusinesses at times forget to honor their monetary obligations to landowners. Such violation is recognized by Ukrainian courts as sufficient grounds for unilateral termination of land lease agreements; — failure to farm the leased land: it does not take a Nobel Prize winner to figure out that idle land does not earn income with which to pay due rent on the land. Furthermore, the absence of tillage is viewed by many as being detrimental to the quality of soil. What is more, it may cause the farm land to be cluttered with weeds and shrubs. Deterioration of the quality of leased land might be used by landlords as legal grounds for unilateral termination of land lease agreements, which is recognized by Ukrainian courts; and — nasty smells: absence of proper air and water filters, animal farms appear to be quite a nuisance to local communities. Unfortunately, the fact that they almost invariably occupy the locations used for animal breeding for decades if not centuries does not score highly with their neighbors, who have already been successful in closing such farms down on several occasions. Each and every agribusiness is free to decide how to develop their relationship with local communities. What should be borne in mind, however, is that the ultimate battle lies ahead. After lifting of statutory prohibition on the sale of agricultural land (expected in 2017), loyalty or, at the very least, the neutrality of landlords, will be priceless. An important part of the preacquisition due diligence is enquiry into the good standing of the target company with the local communities. Failing that, an investor might experience both erosion of the land bank and sabotage of basic operations from the friendly locals. While it is difficult to estimate the market value of such good will, its absence should definitely be reflected in the purchase price or post-acquisition obligations of the seller. For example, the sellers might undertake to renew the land lease agreements with less than three years before the expiry date. www.ukrainianlawfirms.com

Multi-Collar Crime Scene

Ukrainian agribusiness has long been fraught with crime. It all seems to have started in the communist egalitarian past when collective farms provided ample opportunity for their employees to “re-distribute” collective property which had no obvious owner. Millions of villagers were born and bred with the penchant for petty theft. Interestingly enough, the soviet state appeared to pay little attention to these frolics of the rural population. The tide started turning after the collapse of the soviet regime and emergence of private farm owners. However, petty theft was soon to be complemented with whitecollar ravage. The industry seems to be well-suited for misappropriation. The scale of it is limited only by the turnover of the particular farm. Agrichemicals, pesticides, seeds, diesel and other supplies are often written off without actual use in the farm work. To make the matters worse, many suppliers and off-takers run shadow motivation schemes targeting the management of agricompanies. Various commissions, kickbacks and facilitation payments are readily available, if not openly advertised. The above malaise should be taken into account in several ways. The starting point would usually be proper accounting and controlling. Of equal importance is the introduction of various standards prescribing per hectare use of supplies for various crops. Unfortunately, no software or GPS monitoring would be sufficient or even decisive without proper physical stock-taking and on-site supervision. For example, of the actual application of agrochemicals. Furthermore, the computer-age agribusiness in Ukraine still requires a considerable security force. Nowadays, the focus is not only on security guards, but also on IT experts, (community) liaison officers and controllers of various types. Importantly, any acquisition of agribusiness should be accompanied with a careful and comprehensive stock-take of all of its assets. The nature of the business makes it close to impossible to determine the stocks within several months and, depending on the season, even weeks of the handover. Any subse-

OMP Address: 9 Tarasivska Street, 4th Floor, Kiev, 01033, Ukraine Tel.: +380 44 391 3001 Fax: +380 44 391 3002 E-mail: office@omp.ua Web-site: www.omp.ua

L

aw Offices of OMP is well known on the CIS legal market and as the most dynamic full service Law Firm on the Ukrainian legal market with particular industry focus in a pharm business, agriculture, construction and development. The firm’s practices also include the following fields: M&A, corporate law, taxation tax audit securities, dispute resolution — litigation and arbitration, etc.

quent debate not backed up by the stock take documents signed by both parties might well be lost by the party claiming compensation.

Losing Tax Battle

Ukrainian agribusiness has long been a tax haven for its investors. The absence of both corporate income tax and VAT provided a considerable financial boost to the industry, supporting it in the cash-strapped economy. These happy tax-free days are almost over. Neither the IMF nor the Government is ready to put up with these unique tax privileges. VAT exemption is being phased in the course of 2016 and corporate income tax is quite likely to be imposed from 2017. While it is doubtful that the tax changes will ruin the business, they should certainly be factored in. One of the important consequences of crawling taxation is the need to re-educate the accounting and finance staff of agricompanies. Following decades of light tax accounting, often done by hand and in a slip-shod manner, they seem to be somewhat out of touch with the complex bookkeeping and tax accounting rules enjoyed by the rest of the economy. Present-day tax privileges are conditional upon agribusiness meeting certain requirements. The main one of these is that 75% of its revenues should come from the sale of its own produce, which is the produce grown or bred on its own or leased land. Unfortunately, this requirement has not always been observed by the farming companies. This is partly the fault of the delayed state registration of land leases which made it difficult for the farms to prove that they were the lawful tenants of more than 75% of the land managed by them. If the fiscal authorities are successful in proving the violation of the above rule, they can re-assess the tax liabilities of the audited company for as much as three calendar/fiscal years. Thus, care should be taken to check the proper use of tax privileges by any farms chosen for investment.

31


Alternative Dispute Resolution

Alternative Dispute Resolution in Ukraine Dmytro Golopapa Partner, TCM Group Ukraine. Dmytro Golopapa is named among the best lawyers in the practice of International Law and Foreign Economic Activity according to results of the Ukrainian Legal Ranking made by Legal Newspaper that were published in the Kyiv Post Legal Quarterly in 2015. He practices in such fields of law as international commercial arbitration and litigation, enforcement of foreign arbitral awards and judgments, debt collection and portfolio management

Sergii Melnyk Counsel, TCM Group Ukraine. His areas of expertise include international arbitration and litigation, recognition and enforcement of arbitral awards, international trade law, international commercial law and procedure, international contract law, and bankruptcy

Maksym Kononenko Associate, TCM Group Ukraine. His practice areas include alternative resolution of international commercial disputes, international commercial debt collection, restructuring and mediation, recognition of foreign judgments and arbitral awards, bankruptcy

Oleksii Grachov Associate, TCM Group Ukraine. Oleksii Grachov is a well-qualified young lawyer who has recently started his practice in the area of international commercial arbitration and litigation, recognition and enforcement of foreign arbitral awards and judgments, bankruptcy

A

t present, many Ukrainian enterprises and foreign companies doing business in Ukraine prefer to resolve their commercial disputes with foreign contractors through negotiations, mediation and arbitration instead of litigating their differences in state courts. Indeed, such unprecedented popularity of alternative dispute resolution can be explained by the flexibility of the process and

32

www.ukrainianlawfirms.com

by the relative speediness of proceedings, when compared to “conventional” litigation. Often, both Ukrainian and foreign businesses resort to professional negotiators who represent them in out-of-court settlements with their business partners. This format enables the parties to significantly cut costs, as there is no need to pay court fees or hire expensive litigation lawyers. Alternatively, companies refer their commercial disputes to impartial mediators,

assisting parties with reaching a compromise solution satisfactory for both business partners. This option allows companies to restore and preserve fruitful business relationship, damaged by the commercial dispute. Finally, companies can initiate arbitration proceedings against their counterparties, if other means of dispute resolution proved to be not effective. Business partners can agree on arbitration beforehand, while negotiating their contract, or after a dispute has already arisen. It is worth noting that Ukraine is becoming a more and more attractive seat of arbitration for foreign and domestic companies. Since 2012, the number of cases administered by the major arbitration institution in Ukraine, the International Commercial Arbitration Court at the Ukrainian CCI (ICAC), has tripled from 306 to 922 cases. The majority of foreign parties are residents of the EU, China and the CIS States. However, more and more claims are filed from other states, including the US, Canada and India. Such success can be explained by much lower arbitration fees, charged by the ICAC, compared to fees of internationally recognized arbitral institutions, such as the ICC in Paris, the LCIA in London or the VIAC in Vienna. Moreover, the recommended list of arbitrators, administered by the ICAC enables the specific needs of parties to be satisfied regarding nationality of arbitrators, their experience in particular sectors of the economy, languages spoken, and other qualifications needed to conduct arbitration effectively.

Basics of Legal Regulation of the Field

The conduct of commercial arbitration in Ukraine at national level is regulated by the On International Commercial Arbitration Act of Ukraine. The activities of the ICAC are governed by the ICAC’s Arbitration Rules. Similarly to rules of other arbitral institutions, the ICAC’s Arbitration Rules establish a comprehensive framework for effective conduct of arbitration with a seat in Kiev. The Rules complement the Arbitration Act with more detailed regulation of such issues as language of arbitration, form and content of statement of claim, appointment, challenge and replacement of arbitrators, conduct of hearings, participation of third parties, etc.


PROfile Key Issues and Latest Trends

Overall, Ukrainian legislation regulating the conduct of arbitration resembles the laws of other arbitration-friendly states. However, foreign companies are advised to consider certain national differences prior to initiation of arbitral proceedings in Ukraine. The most relevant issues are examined below. Pathological Arbitration Clauses It is important to note that Ukrainian courts often take a more formalistic approach in their assessment of arbitration clauses than, for example, French or British courts. In many jurisdictions, clauses that direct parties to arbitrate in a nonexistent arbitral institution, (e.g., the Vienna Court of International Arbitration instead of Vienna International Arbitral Centre), can be often “cured” by local courts. The main argument of local courts in such instances is that the overall intention of the parties was to refer their disputes to arbitration instead of litigation. Ukrainian courts can, on the other hand, find such clauses to be pathological and deny arbitration. In order to ensure effective recourse to arbitration in Ukraine it is, therefore, crucial for foreign companies to include in their contracts enforceable arbitration clauses, containing all essential elements, such as name of an arbitral institution, scope of disputes, covered by the arbitration clause, applicable law, etc. Non-signatories In many common law jurisdictions, as well as in certain civil law states, strongly favoring arbitration (e.g., Switzerland), courts readily extend arbitration agreements to parties that did not sign them (non-signatories) if there is compelling evidence that those parties actively participated in the negotiation of a contract or its execution. Ukrainian courts are, when asked for assistance, often reluctant to accept parties to arbitration without their express consent and refuse requests to extend arbitration agreements to non-signatories. Foreign businesses should, therefore, insist on the express inclusion in arbitration clauses of all their counterparties. www.ukrainianlawfirms.com

Arbitrability While Ukrainian legislation does not provide an express list of nonarbitrable disputes, it is possible to conclude that the following disputes are generally excluded from the arbitration framework: disputes related to public procurement; disputes between companies and shareholders; disputes regarding invalidation of acts of state. Even if an arbitral tribunal finds jurisdiction to adjudicate a non-arbitrable dispute, an award can be subsequently annulled or refused to be recognized by Ukrainian courts. Provision of Evidence In the course of litigation or domestic arbitration in many common law jurisdictions, one party can request another party to provide documentary evidence that can afterwards be used against the latter. By contrast, civil law jurisdictions, including CIS states, are usually not familiar with this concept. Ukrainian legislation neither prohibits nor promotes requests for document production by parties. Moreover, Ukrainian courts also have full discretion to refuse document production requests. While assessing the prospects of potential arbitration with a seat in Ukraine, foreign companies are, therefore, advised to take into account the risks that access to some key evidence in possession of another party may be refused by a tribunal or Ukrainian courts.

Conclusion

Currently, more and more companies, both foreign and domestic, are choosing Ukraine as a seat for commercial arbitrations. This positive tendency can be attributed to relatively low arbitration fees, high level of professionalism of arbitrators and efficient administration of arbitration proceedings by the ICAC. However, despite the overall pro-arbitration approach taken by Ukrainian courts, foreign businesses should bear in mind certain peculiarities in the conduct of arbitrations in Ukraine. First, courts are reluctant to accept non-signatories in arbitration proceedings. Second, it is important to ascertain that the subject matter of a dispute is arbitrable under Ukrainian legislation. Finally, Ukrainian courts do not usually satisfy requests made by parties for broad production of documents.

TCM Group Ukraine Address: 10A Vozdvyzhenska Street, Kiev, 04071, Ukraine Tel.: +38 044 228 1338 E-mail: info@tcm.com.ua Web-site: www.tcm.com.ua

T

CM Group Ukraine is a Ukrainian office of TCM Group International Ltd., which is a unique alliance of 35 law offices and 110 agencies, practicing international commercial dispute resolution in a total of 145

countries. TCM Group International was established in 1987, when a small group of globally minded credit management law firms and debt collection agencies, primarily located in the Pacific Rim, banded together to combat the rising tide of outstanding receivables and collection costs in international trade. While creating a one-stop shop for international companies, organizations, and individuals in need of global credit management solutions, international commercial dispute resolution and international commercial debt recovery services, TCM’s founding members aimed to give their clients access to the combined experience and expertise of a cross-border, cross-jurisdictional network. Over that time, the Group has acquired a first-class record in enhancing the cash flow for the vast majority of its clients by delivering sound credit management services and, above all, the successful recovery of international accounts receivables and delinquent debts, both amicably and through court settlement. With over 25 years of experience in global credit management and debt recovery, the offices of TCM Group International have developed an understanding of complex legislative, cultural and logistical challenges their clients face in recovering outstanding receivables across multiple boarders, languages, cultures, time zones, and currencies. Since 2014, TCM Group International has been represented in Ukraine through its office in Kiev, providing Ukrainian clients with a unique opportunity to access its offices worldwide. At the same time, TCM Group Ukraine represents all foreign offices of TCM Group International in international dispute resolution in Ukraine, building on the Group’s knowledge and expertise in the following areas: international commercial litigation and arbitration, negotiations and mediations, international commercial debt collection, recognition and enforcement of foreign judgments and arbitral awards, and bankruptcy proceedings. TCM Group offices: Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Netherlands, Norway, Poland, Russian Federation, South Africa, South Korea, Sweden, Switzerland, Ukraine, UAE, United States of America.

33


Amicable Debt Collection

International Debt Recovery: Ukrainian Perspective Denys Kopii Partner, TCM Group Ukraine. Denys Kopii is named among the best lawyers in the practice of International Commercial Arbitration and Mediation according to results of the Ukrainian Legal Ranking made by «Legal Newspaper» that were published in Kyiv Post Legal Quarterly in 2015. He practices in such fields of law, as international commercial debt collection, restructuring and mediation, litigation and arbitration, recognition and enforcement of foreign judgments and arbitral awards, bankruptcy

Iaroslav Tsyba Senior Associate, TCM Group Ukraine. Iaroslav Tsyba’s areas of expertise include international commercial debt collection, restructuring and mediation, recognition of foreign judgments and arbitral awards, bankruptcy

Denys Bortnyk Senior Associate, TCM Group Ukraine. Denys Bortnyk practices in such spheres of law as international commercial debt collection, alternative resolution of international commercial disputes, debt restructuring, contract law, international litigation and arbitration, bankruptcy

Roman Semenets Senior Associate, TCM Group Ukraine. Roman Semenets is a wellqualified young lawyer who has just started his practice in the area of international commercial dispute resolution. Practices: international commercial debt collection, alternative dispute resolution (mediation, arbitration), international litigation, bankruptcy

I

t is an established fact that court proceedings tend to be excessively lengthy and expensive. On the other hand, amicable dispute resolution through negotiations and mediation has proven to be quicker and significantly cheaper. Moreover, years of practice in many jurisdictions have shown that the probability of actual payment is higher for alternative dispute resolution compared to traditional litigation. The main reason for such success is

34

www.ukrainianlawfirms.com

that parties are usually more willing to comply with a mutually agreed solution than with a court judgement imposed on a losing party. Resolution of commercial disputes and recovery of debts is a very specific area of law, requiring developed communication skills, deep knowledge of applicable legislation, asset tracing skills and other relevant qualifications. Companies do not usually possess the expertise required to perform these tasks on their own in a cost-efficient manner. There-

fore, a separate service sector of professional debt collection has evolved in order to assist businesses with restructuring of outstanding debts. Notably, debt collection, involving a foreign element, requires additional skills from law experts in comparison to collection of debts within a single jurisdiction. Often, different applicable laws should be taken into account in parallel with relevant international legislative acts. Moreover, cultural differences in various countries play an important role. Finally, experts should have a working knowledge of languages spoken by clients and debtors. All of that sets a very high threshold for lawyers to be regarded as international experts in this field. Perhaps the most efficient way to reach debtors in the majority of countries is to form a network of agencies in each jurisdiction, with qualified lawyers representing clients in accordance with national legislation. Unfortunately, not every debt collection agency conducts its professional services in a lawful way. In jurisdictions with relatively weak abidance to legal rules, such agencies often exploit the weaknesses of their systems, threatening or even harming debtors. So-called mild abusive techniques include repetitive calls, especially at night; use of automatic messaging systems, overloading debtors’ email boxes and phones with numerous requests to pay debt; reaching third parties, such as employers, neighbors, etc. The more distressful practices, often identified as crimes, include threats of bodily harm or death, robberies, thefts of vehicles and other prohibited activities. The mentioned actions, conducted by criminals, presenting themselves as authorized collection agents, create an extremely negative impression of society in relation to all professionals working in the debt restructuring sector. In order to restrict any unlawful practices in this field, governments have invoked numerous legislative acts regulating debt collection at national and international levels.

Regulation Abroad

The following acts were issued in the European Union: the European Enforcement Order (EEO); the European Order for Payment (EOP); the European Small Claims Procedure (ESCP); the Unfair Commercial Practices (UCP). These acts establish a uniform legal framework among all EU Members


PROfile with respect to regulation of amicable dispute resolution and treatment of abusive practices, applied by certain actors. At national level many states have invoked laws and regulations dealing with this issue in greater detail. For instance, in the United Kingdom, all collection agencies must comply with requirements set out by the Office of Fair Trading (OFT). Despite being not a law as such, the OFT requirements have de facto mandatory power in England over collection agencies.

Regulation in Ukraine

As of today, no specific legislation regulating the activities of collection agencies in Ukraine exists. Notably, several draft laws were submitted to the Ukrainian Parliament to restrict abusive practices of collectors applied against natural persons. However, actions of collection agencies, involved in corporate debt restructuring are currently regulated by general norms of civil procedure. In addition to legislative acts, certain collection companies or groups of companies have developed codes of ethics providing useful guidance and best practices to collection agencies in Ukraine. These codes establish general rules of debt restructuring to be complied with, such as limited hours for making calls; limited number of calls per debtor; provision of sufficient details to a debtor regarding the nature of a claim; position of a client and expected outcome; rules for visiting debtor’s premises; maintenance of confidentiality regarding the outstanding debt vis-à-vis third parties, etc. While having no binding nature as such, codes of ethics essentially perform the function of legislation and are generally applied by big collection agencies. According to Ukrainian legislation, collection agencies can be regarded as representatives or agents of a local or foreign company, assisting this company with recovery of an outstanding debt through lawful means. Such means usually include negotiations with a debtor with respect to full or partial re-payment of a debt, mediation services, aimed at reaching a mutually acceptable solution for both the client and the debtor, and representation of the client in litigation or arbitration proceedings when no compromise was reached between the parties. www.ukrainianlawfirms.com

In order to obtain the status of authorized representatives, legal experts require clients to provide duly signed and stamped powers of attorney that authorize agencies to perform variety of legal actions on behalf of clients. In contrast to some other states, Ukrainian authorities require official documents, including powers of attorney to be stamped. Non-fulfillment of this formal condition can be a valid cause, for example, for courts to refuse a claim, submitted by an agent on behalf of a client. As practice shows, the majority of claims are settled during the pre-arbitration or pre-litigation stages. Often, payment schedules are designed, in order to allow debtors to fulfill their contractual obligations without significant financial burdens for their businesses. Both clients and debtors understand that amicable dispute resolution allows them to avoid significant arbitration-related and litigationrelated fees and counsel expenses. For instance, a company from Ukraine purchased a large quantity of goods from a Chinese supplier. After the delivery was made, the Ukrainian buyer discovered that the quality of the goods was unsatisfactory. The Chinese seller eventually refused to substitute the goods or to return the money. The buyer referred the dispute to TCM Group Ukraine for amicable debt collection. As a result of complex negotiations with the debtor conducted by dispute settlement lawyers, the Chinese company acknowledged the debt and provided the Ukrainian counterparty with a guarantee letter. Subsequently, the debt was paid in full and the parties have restored their business relationship. By way of conclusion, amicable dispute resolution has several key advantages when compared to litigation in state courts. This procedure is, on average, much cheaper, takes less time and allows the parties to the dispute to restore their interrupted business cooperation. While this type of dispute resolution becomes more and more popular in Ukraine, no detailed regulation has so far been developed at national level. This lack of mandatory rules opens the door to abuses by dishonest practitioners, which in turn damages the reputation of law-abiding agencies. The government is, therefore, called to introduce relevant reforms that would prevent any abusive practices.

TCM Group Ukraine Address: 10A Vozdvyzhenska Street, Kiev, 04071, Ukraine Tel.: +38 044 228 1338 E-mail: info@tcm.com.ua Web-site: www.tcm.com.ua

T

CM Group Ukraine is a Ukrainian office of TCM Group International Ltd., which is a unique alliance of 35 law offices and 110 agencies, practicing international commercial dispute resolution in a total of 145

countries. TCM Group International was established in 1987, when a small group of globally minded credit management law firms and debt collection agencies, primarily located in the Pacific Rim, banded together to combat the rising tide of outstanding receivables and collection costs in international trade. While creating a one-stop shop for international companies, organizations, and individuals in need of global credit management solutions, international commercial dispute resolution and international commercial debt recovery services, TCM’s founding members aimed to give their clients access to the combined experience and expertise of a cross-border, cross-jurisdictional network. Over that time, the Group has acquired a first-class record in enhancing the cash flow for the vast majority of its clients by delivering sound credit management services and, above all, the successful recovery of international accounts receivables and delinquent debts, both amicably and through court settlement. With over 25 years of experience in global credit management and debt recovery, the offices of TCM Group International have developed an understanding of complex legislative, cultural and logistical challenges their clients face in recovering outstanding receivables across multiple boarders, languages, cultures, time zones, and currencies. Since 2014, TCM Group International has been represented in Ukraine through its office in Kiev, providing Ukrainian clients with a unique opportunity to access its offices worldwide. At the same time, TCM Group Ukraine represents all foreign offices of TCM Group International in international dispute resolution in Ukraine, building on the Group’s knowledge and expertise in the following areas: international commercial litigation and arbitration, negotiations and mediations, international commercial debt collection, recognition and enforcement of foreign judgments and arbitral awards, and bankruptcy proceedings. TCM Group offices: Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Netherlands, Norway, Poland, Russian Federation, South Africa, South Korea, Sweden, Switzerland, Ukraine, UAE, United States of America.

35


Anti-Corruption

Anti-Corruption Enforcement in 2016 Volodymyr Monastyrskyy Partner, Dentons

Igor Svitlyk Associate, Dentons

register and screen the income declarations of public officials, is still a long way from being completed. Apart from overseeing the public sector, the Agency is vested with quite wide powers to monitor compliance with anti-corruption law by private companies. Taking into account that some requirements for businesses are rather explicit, it is worth considering the reassessment of existing processes, regardless of whether or not the company has an extensive compliance policy. Below we give an overview of such key requirements and suggest some recommendations to be employed in order to comply with the law.

General Requirements of Private Sector

While the chapter of the Act establishing requirements for the private sector focuses mainly on the companies participating in public procurement, there is still a set of rules to be followed by any business, even if it is not involved in state tenders.

I

n October 2014 Ukraine received its new anti-corruption law, the On Corruption Prevention Act of Ukraine (the Act), which appeared to be stricter in certain aspects if we compare it with the law it replaced. In particular, the Act contains a separate chapter specifically stipulating a number of requirements with which businesses should comply. In response to such statutory requirements, some private companies decided to introduce new compliance procedures, or to update their existing procedures. Such actions were taken in anticipation that 2015 would become the year when Ukraine would finally see some real enforcement of anticorruption law. However, 2015 instead became the year of protracted establishment of new anti-corruption agencies. The joint efforts of civil activists, foreign partners, some conscientious officials and the professional community have finally resulted in the more or less transparent establishment of the National Anti-Corruption Bureau (the Bureau) and election of the anti-corruption prosecutor. Meanwhile, the establishment of the National Corruption Prevention Agency (the Agency), which, among other activities, will develop and implement anti-corruption policy, maintains a corruption offenders

36

www.ukrainianlawfirms.com

(i) Necessary and Reasonable Measures The Act states that any private company should develop and apply in practice certain measures, which are necessary and reasonable to prevent corruption in the company’s activities. As the Act is not clearly specific, it leaves businesses to wonder what exactly should be done. While some explanations and clarifications may appear once the Agency becomes operational, at the moment it is difficult to speculate how strictly the Agency will enforce compliance with this requirement. Would the introduction of anti-corruption clauses into agreements with employees and vendors be enough? Or perhaps companies should put more effort into it and perform regular training so all concerned are kept on the right track? Obviously, there is no onesize-fits-all approach, but here are some factors that may be taken into consideration. For example, in case the company deals with regulatory submissions, the first thing to think about is the gifts policy. Some officials of the regulatory authorities are accustomed to courtesy gifts and may unfavorably treat those who do not support this practice. However, an updated law says that in case the person gives a gift to an official, who subsequently adopts the formal decision in favor of such person, such decision

is deemed conflictual and should be invalidated. It is not clear whether this limitation would cover decisions taken in favor of a company employing the gift giver, but considering that there is a probability that it would, businesses should ensure no gifts are given to such officials. The employment or contracting of former officials is another risk practice that needs to be rethought. The law has clear limitations, which may be put simply as the 1+1 rule: if the official controlled, oversaw or engaged in decision-making process towards the future employer within one year of his or her termination from the state body, then at least one year should pass before such person may be legitimately employed or contracted. The approach to handle this risk is quite intuitive — the company should establish a clear process to carry out background checks to ensure the above rule is strictly followed. These are just a few examples, but the pattern is obvious — business processes should be critically reassessed to reveal potential risk zones and take adequate measures to tackle the risk of non-compliance with the above requirement. (ii) Assessment of Corruption Risks The law provides for the obligation of the director and shareholders to perform regular assessment of the corruption risks in the company’s activities and to apply adequate measures. Again, the Act does not shed light on the frequency of such assessments. In our view, once a year seems a reasonable approach until enforcement practice and/or formal clarification proves otherwise. (iii) Anti-bribery, Conflict of Interests and Reporting Obligations for Employees The Act establishes several direct obligations for the officers and other employees of companies, in particular they have to: — Refrain from committing or engaging in corruption offences related to the company’s activities; — Refrain from activity which may be considered as readiness to commit a corruption offence; — Report immediately any incitement to commit a corruption offence, commitment of corruption offence by another employee, or when a real or potential conflict


PROfile of interests occurs, to the director, shareholder(s) or corporate compliance officer. As we can see, while a person is allowed some discretion when choosing to whom he/she should report, the reporting should be made immediately. Importantly, an employee should report not only the conflict of interests that actually occurred but potential conflicts as well. Interestingly, the Act does not require companies to implement the above obligations for employees at corporate level. However, such implementation, for example in labor contracts, seems like a reasonable approach, especially for companies that have not yet established profound compliance procedures, but which are willing to comply with the requirement explained in subsection (i) above. In our view, the above three requirements constitute the minimum threshold to mark compliance by the company with the respective chapter of the Act. However, if the company is engaged in public procurement with the value of the contract exceeding UAH 20 million, the minimum turns into a slightly longer list, which requires much greater effort to ensure compliance with it.

Requirements for Companies Engaged in Public Procurement

In addition to the above requirements, which apply to any private entity, tender participants should satisfy the following obligations. (i) Compliance Program The company should have a compliance program, which has to be discussed with the company’s employees prior to its approval. While the Act establishes a recommended list of measures to be reflected in the program, the businesses have full discretion when it comes to the program’s content. Well, almost full discretion, as the Act requires that the program contains the procedure for appointing the person responsible for the program’s implementation (the Compliance Officer). It should be noted that the Act introduces a flexible approach to the naming of the compliance program by defining it as a set of rules, standards and procedures for corruption www.ukrainianlawfirms.com

prevention and counteraction. Thus, there is no need to rename the existing document to meet the title stipulated in the Act — companies are free to use any title and to regulate compliance procedures through several documents. The compliance program must be made available to employees on a continual basis. As the Act does not direct the methods by which the program can be made available, as a practical example, a hard copy of it can be placed on the wall in the office, or the soft copy can be uploaded onto the intranet. Importantly, labor contracts and internal labor rules should contain provisions obliging an employee to adhere to the compliance program. (ii) Compliance Officer The company participating in the public procurement should also appoint a Compliance Officer. The Act does not establish specific requirements to the title of the position. What really matters is the function assigned to the employee — implementation of the compliance program. As mentioned above, the Compliance Officer should be appointed according to the procedure foreseen in the compliance program. The appointment can be made by a corporate order issued by the director or — if the increased independence is a goal — through the decision of shareholders. Notably, the Compliance Officer may be dismissed only subject to prior approval by the Agency. Thus, until the Agency becomes operational, any dismissal of an appointed Compliance Officer may be questioned. Furthermore, it is not clear from the Act whether the dismissal of the Compliance Officer of the company which halted its participation in public procurement should, nevertheless, require the involvement of the Agency. In addition, termination of the Compliance Officer for any reason, including by mutual consent, should be reported to the Agency within two working days and followed by immediate submission of the new candidate. In our view, hiring a Compliance Officer may take weeks if not months, and for this obvious reason it seems doubtful that the Agency would strictly watch the immediate submission of the new candidate.

Dentons Address: 49-A Volodymyrska Street, Kiev, 01001, Ukraine Tel.: +380 44 494 4774 Fax: +380 44 494 1991 E-mail: tetiana.babinska@dentons.com Web-site: www.dentons.com

D

entons is the world’s first polycentric global law firm. A top 20 firm on the Acritas 2015 Global Elite Brand Index, the firm is committed to challenging the status quo in delivering consistent and uncompromising quality and value in new and inventive ways. Driven to provide clients a competitive edge, and connected to the communities where its clients want to do business, Dentons knows that understanding local cultures is crucial to successfully completing a deal, resolving a dispute or solving a business challenge. Now the world’s largest law firm, Dentons’ global team builds agile, tailored solutions to meet the local, national and global needs of private and public clients of any size in more than 125 locations serving 50-plus countries. www.dentons.com. Dentons’ long-term commitment to Ukraine is unsurpassed among international law firms. We have been active in Ukraine since 1988, and the firm officially opened the Kiev office in 1992. Dentons’ Ukrainian practice encompasses the full range of legal services across a diverse range of industries. With our strong global capabilities, we are well-equipped to assist you with an extensive variety of cross-border issues. Our international experience and in-depth knowledge of Ukrainian legislation, as well as our client-tailored approach, enable us to provide you with innovative, seamless legal solutions of the highest quality.

The bottom Line

Businesses would have to comply with the above key requirements of the Act, but it is still to be seen whether the Agency will enforce them in a proactive manner. As discussed above, the Agency has quite wide powers ranging from requesting information in order to verify compliance with the law, to imposing fines on companies failing to take the necessary measures. And while the amounts of fines are rather modest, we believe that no company, especially a listed one, would like to wear the label of “fined for corruption”. This should be one of the drivers for companies to make timely adjustments in line with the Act.

37


Antitrust

When Distribution Triggers Cartel Risks Timur Bondaryev Managing and Founding Partner, Attorney-at-law, Arzinger

A

cartel is traditionally considered to be the most serious breach of competition and is, thus, punished by competition authorities with maximum severity. A cartel implies a certain agreement of competitors, which weakens or eliminates competition between them in a certain market. This, in turn, means that the market switches to the “manual control” of several players, who decide among themselves what the price, range, offer, etc., would be. This affects primarily the consumer and may have a negative impact on other or potential market players that do not have enough market power to resist cartelists. Under Ukrainian law cartels, i.e. anticompetitive collusions between competitors, are clearly prohibited by Article 6 of the On the Protection of Economic Competition Act of Ukraine. At the same time, relevant domestic regulation provides for exemption with regard to agreements between the seller and the buyer, which are described as “vertical agreements” in antitrust (Article 8 of the Act). Indeed, distribution relations, due to which goods actually find their way to the consumer, are normally not relations between competitors, while their participants ideally pursue a common goal, which is beneficial for consumers. Following this logic, antitrust regulation does not establish any absolute bans on vertical practices, referring at the same time to the effects, i.e. consequences, of such actions.

Why care about cartel-like consequences of supply chains?

First of all, goods should make their way to a consumer through a variety of distribution channels and finally appear on the market, which is most often competitive, and its price is set depending on the competitive

38

www.ukrainianlawfirms.com

pressure of other goods. Thus, the weaker the competitive pressure, the higher the price paid by the consumer, which results in higher profits for all or individual members of the distribution system. In other words, competing manufacturers and/or trading entities may be interested in raising barriers for such competitive pressure. The competitors, however, do not enter into any direct communication, but choose their common service providers as a “means of communication” to make the information exchange look quite reasonable and natural. Therefore, we can deal with a classical cartel involving persons who are not the direct “beneficiaries” of such a conspiracy, but get their indirect benefit from the absence of effective competition. On the other hand, it is impossible to suspect any and all distribution channels of having an intersection with competitors, firstly because supporting a cartel requires the mutual willingness of competitors that have a lot of weight on the market, which is not always or hardly ever true; and secondly because the market is susceptible to the stability of anti-competitive agreements, which is also not a common case. Thus, to understand and explain why a particular distribution system functions the way it does is quite a challenging task. For consultants it is sometimes difficult to assure the antitrust authorities that a particular vertical practice (e.g. setting of the resale price, reporting system, etc.) is justified by rational considerations rather than by anticompetitive intents, which is mostly advantageous for consumers. At the same time, the competition authorities need to react in time to untypical changes in the market and assess the nature of such changes comprehensively, with the appropriate degree of commercial understanding so as not to destroy a well-functioning competitive structure.

Where look for

anticompetitive effect of vertical arrengements?

If we take national practice, i.e. approaches that have been applied by the Antimonopoly Committee of Ukraine in a number of investigated or pending cases, we can single out the following areas, which should always be kept in mind by the relevant stakeholders of the distribution market.

Firstly, it is the system of discounts, bonuses and other payments and their linkage to the main subject of the relationship. Secondly, it is the system of information about the sales, range and pricing circulated between the parties to vertical relationships as well as contiguity, the integration of the distribution system in a competitive environment. Thirdly, it is the participation in trade associations and overall information background of the market. The evaluation of the above areas is only the initial stage and does not provide any definite “yes” or “no” answers, but will rather propose such wording as “acceptable, where such and such factors are not established” or “unacceptable, due to the totality of particular factors. In this context, it is needless to insist on the importance of economic analysis of the effects of a particular practice. Referring to application practice, the first to remember is the retailers case, which represents a radical outcome in the activities of the previous composition of the Antimonopoly Committee and an encouraging statement of the judiciary on the application of the European standard of proof in cartel matters. The merits of the case were quite similar to the recent Bundeskartellamt case on vertical concerted actions resulting in anticompetitive price setting1, though the Ukrainian antitrust authority has chosen to follow the cartel scenario instead. The Antimonopoly Committee of Ukraine, after more than 3 years of investigation, several public hearings and recommendations, fined major retail market players around UAH 203.6 million (about USD 9.65 million). This is the second biggest antitrust fine in Ukrainian history, following the raw timber bid rigging case, where the fine was in the range of UAH 419 million (EUR 41 million) in 2012. The investigation on the retail food market was initiated in May 2012 and concerned the biggest retail chains operating in the City of Kiev under the well-known local brand names of Silpo, Fora, Furshet, Velyka Kyshenya, Karavan, ATB, Novus, EKO Market, Bimarket, Perekrestok as well as international players like Billa, METRO and Auchan. The Committee concluded that the concerted practices of the mentioned undertakings shaped disproportionate pressure on producers and exercising of buying power resulted in higher consumer prices. As a fo-


PROfile cal point for collusion due to the AMCU’s allegations, an independent intermediary, namely market research company AC Nielsen Ukraine LLC, was identified. The AMCU found that marketing information collected on an individual basis by AC Nielsen Ukraine LLC facilitated the collusion, as the exchange of respective strategic information increased transparency on the retail food market. In particular, the Committee claimed that the information exchanged was current and extremely detailed in terms of sales volumes, numbers of transactions in different segments, change in sales volumes and number of stores. The Committee qualified two separate collusive practices: 1) cartel on exchange of information; and 2) the similar acting or omissions regarding setting the conditions of supply agreements (i.e. parallel conduct without due justification with the objective market circumstances, thus implying tacit collusion). In the AMCU scenario the retail chains applied similar conditions to different suppliers, which were obliged to bear additional costs for the provision of services by retailers to consumers which consequently led to ill-founded resale prices. In the meantime, as claimed by the AMCU, the retailers were not able to substantiate the calculation mechanism for the trade mark-up in the absence of the expenses for service provisions. The respective practices generated super-profits for the retail chains, placed suppliers at a significant competitive disadvantage and

http://www.bundeskartellamt.de/ SharedDocs/Meldung/EN/Pressemitteilungen/2015/18_06_2015_Vertikalfall. html?nn=3591568

1

www.ukrainianlawfirms.com

significantly raised market entry barriers. The decision is currently going through the Ukrainian courts and there are several judgments on the claims of some retailers, indicating that the AMCU was too fast with its conclusions and failed to prove collusion or to find out the market conditions that contributed to maintenance of the cartel. Of course, the mentioned judgments are a breakthrough and a triumph of economic logic, which we cannot but rejoice at. However, we would also welcome some fundamental “work on the bugs”, both on the part of the Committee’s current composition and of the retail chains. First of all, it would be worth agreeing on a formalized and procedurally acceptable manner for submission of economic evidence. Next, it is important to hear the Committee’s confirmation that it will be guided by the approaches used by the European Commission (although it follows anyhow from the content of international obligations to the European Union). Finally, we would recommend the parties to the proceedings, which came out victorious in the relevant case, pay special attention to the development of Antitrust Compliance integrated in business processes. The idea is that such a policy and its implementation practices, which are purely individual and authentic, would be able to quickly and efficiently convince the AMCU of the economic feasibility of the uniform practices in question.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

39


PROfile

Assets Tracing

Assets Tracing and Enforcement of a Foreign Judgment Volodymyr Bogatyr Senior Partner, BOGATYR & PARTNERS. Ph.D., Honorary Lawyer of Ukraine. Expertise: Litigation, Dispute Resolution, Corporate Fraud Investigation, White Collar Criminal Defense, Law Enforcement Intelligence, Global Litigation and Enforcement, Transnational Litigation and Foreign Judgments, Internal Investigations, Government Investigation, Government Relations, Constitutional Law, Elections, Lobbying, Offshore and Fiduciary Management, Intellectual Property and Trademarks

Soteris Pittas Managing Partner, SOTERIS PITTAS & CO L.L.C. Expertise: International Trade Law, Trusts and Equity Banking and Finance, Corporate and Commercial Law (local and international), Stock Exchange, Capital Markets, M&A, Commercial and Criminal Litigation, Arbitration, International Tax Planning, Insurance Law, Admiralty, European Law

T

he success of any litigation and arbitration case depends mostly on the capability of the plaintiff to trace and locate sufficient assets of the defendant’s debtor to block and freeze the same as security for the satisfaction of any court decision or arbitral award to be issued in the main court or arbitral proceedings. The legal teams of Bogatyr & Partners and SOTERIS PITTAS & Co LLC use the services of their corporate investigators and forensic specialists to trace and identify hidden assets around the world.

On the Recognition and Enforcement of a Foreign Judgment

A judgment that has become final is enforceable throughout the country where it has been issued. But to enforce it in another country, a special procedure is employed that includes the recognition of this foreign judgment by virtue of a relevant order by a competent court of the country where such enforcement is requested. Apart from judgments of foreign courts, foreign arbitral awards may also be enforced. For a foreign judgment or arbitral award to be recognized and enforced in Ukraine, the appropriate application needs to be filed. Courts consider applications for recognition and enforcement of foreign judgments on the basis

40

www.ukrainianlawfirms.com

of international treaties on mutual legal assistance or on the principle of reciprocity. Pursuant to Clause 1, Article 390 of the Civil Procedural Code of Ukraine (CPC), an enforceable foreign judgment is recognized in Ukraine if its recognition is warranted by international treaties ratified by the Verkhovna Rada of Ukraine, or on the principle of reciprocity. Pursuant to Part 2, Article 390 of the CPC of Ukraine, if the recognition and enforcement of a foreign judgment depends on the principle of reciprocity, this principle is deemed active, unless proven otherwise. In addition, the principle of reciprocity (ad hoc) is also applicable on the grounds that the judgments of Ukrainian courts are recognized and enforced in another country. If such reciprocity is questioned, an answer should be sought from the Ministry of Foreign Affairs of Ukraine. Ukraine is a party to a number of international treaties that govern international arbitration tribunals, allowing foreign trade disputes to be resolved through arbitration. A good example is the UN Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 10 June 1958 (the New York Convention), which came into force for Ukraine on 8 January 1961. This Convention was adopted with reservations regarding its application, meaning that Ukraine applies the Convention to recognize and enforce judgments issued in another signatory state.

BOGATYR & PARTNERS Address: 32/34 Shovkovychna Street, Office 24, Kiev, 01024, Ukraine Tel.: +380 44 363 7722 E-mail: volodymyr@bogatyr.kiev.ua Web-site: www.bogatyr.com

B

OGATYR & PARTNERS is a full-service boutique law firm based in the heart of Kiev, Ukraine. The firm has particular focus and experience in business crime, fraud, asset tracing & recovery, commercial litigation in Ukraine and internationally and legal assistance in challenging economic sanctions. The firm’s senior partner Volodymyr Bogatyr is a specialist in cross-border disputes and works closely with a range of legal advisors and investigators from the United States, the United Kingdom, Cyprus, Switzerland, France, Austria, Lichtenstein and other jurisdictions. In 2015 BOGATYR & PARTNERS successfully represented international financial institution in a USD 72 million debt recovery dispute. The team has also successfully acted for a Dutchowned leading Ukrainian bank in its USD 44 million loan agreement dispute. Volodymyr Bogatyr acted for a private client in a complex cross border fraud matter involving tracing assets in Canada and Switzerland, obtaining a freezing injunction and recovering USD 70 million via Cyprus courts.

Pursuant to Clause 12 of Resolution No. 12 of the Plenary Meeting of the Supreme Court of Ukraine On the Court Practice of Considering Motions for Recognition and Enforcement of Foreign Judgments and Arbitral Awards and Cancellation of International Commercial Arbitral Awards in Ukraine of 24 December 1999, courts consider motions for recognition and enforcement of foreign judgments within the scope delimited by it and may not judge such judicial decisions on merits or amend them. In filing a motion, the issue of confirmation of the movant’s powers deserves special notice. The Shevchenkivskyi District Court of Kiev dismissed without prejudice a motion filed by a representative of Italy-Ukraine Gas s.p.a. in Case No. 761/38433/15-Ц and seeking recognition of the award issued by the Arbitration Institute of the Stockholm Chamber of Commerce, of 19 December 2012, in Arbitration Case No. V007/2008 based on the claim


PROfile lodged by Italy-Ukraine Gas s.p.a. against NJSC Naftogaz of Ukraine on the grounds that the Italian notary only verified the authenticity of the principal’s signature, not his powers. The Court also noted that the case materials included only the certificate of registration of Italy-Ukraine Gas s.p.a. and the translation of its content evidenced that the principal was the chairman of the board of directors in the company. However, according to the said extract, the company’s interests should be represented by the chairman of the administrative council rather than the chairman of the board of directors. Additionally, as stated in the “Officials” section of the said certificate, the principal is a board member and concurrently chairman of the board of directors, incumbent until the approval of the financial statements of 31 December 2013. Nonetheless, the court had not received any evidence that he was such an official when the case was heard. In another Case, No. 1511/2458/2012, the Illichivsk City Court of Odessa Region, in considering a motion for recognition of several arbitral awards of the Federation of Oils, Seeds and Fats Associations (FOSFA), found that some of the awards issued by the FOSFA were annulled by the High Court of Justice of England citing the lack of jurisdiction of the arbitration body. This, however, was no obstacle to granting permission for enforcing these awards. The Illichivsk City Court of Odessa Region explained its judgment by the fact that the principle of reciprocity was not present in the given case, which fact served as grounds for its rejection to recognize the judgment of the High Court of Justice of England. Given that the procedural rules of the countries signatories of the New York Convention differ, the procedure for recognizing a foreign judgment is different in practice. Ukraine is not a European Union member, therefore its mechanism of recognition and enforcement of foreign judgments does not include elements of EU legislation. Court judgments issued in states that are not EU members are recognized and enforced in accordance with Law No. 121(1)/2000. Cyprus is a party to various bilateral agreements on the recognition and enforcement of foreign judgments with countries like Ukraine, China, Belarus, Georgia, Egypt, Russia, etc. Also, Cyprus is a member of variwww.ukrainianlawfirms.com

ous multilateral conventions relating to the same. The types of enforceable judgments and orders are usually set out in those agreements. Ukraine and Cyprus are in the Agreement on Legal Assistance in Civil Matters under which the following judgments issued on the territory of the other Contracting Party are recognized and enforced: a) judgments in civil cases, including family cases; b) judgments in criminal cases in the part related to damages. Regarding the procedure for the recognition and enforcement of foreign judgments in Ukraine, it can be is possible to conclude that if a court Ukraine is not trying a case based on a dispute between the same parties, regarding the same subject matter, and on the same grounds; the established deadline for submitting a foreign judgment for recognition in Ukraine is not exceeded; a motion seeking cancellation of a given arbitral award is not allowed; the subject of the dispute is referable to courts under the laws of Ukraine; the recognition of the said judgment does not threaten the interests of Ukraine; and there is no relevant agreement with the country where the judgment was issued, such a foreign judgment may be enforced in Ukraine following the principle of reciprocity.

Discovery Orders

Cyprus has become an international business centre thanks to the existence of a wide network of double taxation treaties, common law legal system, the secure financial and political environment, etc, and to date more than 250,000 Cypriot companies have been established, the majority of which hold and own valuable assets in, inter alia, Russia and Ukraine. Due to the above, Cyprus is a unique forum for the freezing of assets which are indirectly or beneficially owned by persons residing in CIS countries and, more specifically, Russia and Ukraine. The adoption of the common law legal system empowers Cypriot courts to issue so-called “Chabra freezing injunctions” (i.e. which are injunctions blocking assets, prima facie beneficially owned by the debtor/ defendant, but are held and legally registered in the name of a third person). In addition, Cyprus courts are empowered to grant discovery orders (i.e. Norwich pharmacal type, Bankers

SOTERIS PITTAS & CO LLC Address: Chrysanthou Mylona 10, Magnum House, Limassol, 3030, Cyprus Tel.: +357 25 028460 Fax: +357 25 028461 Web-site: www.pittaslegal.com

S

OTERIS PITTAS & CO LLC is a boutique law firm, focusing on areas of law related to business activity and dedicated to providing clients with outstanding highly-personalized legal presentation. The lawyers and associates of the firm can provide, with their combined skills-set and knowledge, comprehensive legal solutions according to the clients’ particular business needs, requirements and objectives. The firm is committed to representing clients at all stages of disputes, including negotiation, mediation, arbitration, and litigation, in order to secure just compensation and legal justification. The firm’s lawyers have an extensive history of representing both corporate and individual clients in commercial and corporate litigation and handling a wide range of commercial litigation, including breach of contracts, fraud and misrepresentation, partnership and shareholders disputes, corporate dissolutions, shareholder’s rights and derivative actions, construction disputes, commercial assets recovery, or “collection” cases, etc. Although the firm is proud of its aggressive legal handling and very pleased with friendly “boutique” approach to clients lawyers strive to make the clients problems their problems by giving them utmost attention.

Trust type, etc.) in order to assist a claimant to plead his case, to prove his case, to identify other wrongdoers and to trace the assets of a defendant. Such discovery orders can be applied in the context of substantive civil proceedings pending before Cyprus courts, or in the context of special discovery actions for the purpose of obtaining information and evidence to be used in pending proceedings in Cyprus or abroad, or proceedings to be filed in Cyprus or abroad (i.e. both court and arbitral proceedings). The discovery action can be filed against service providers who administer the Cypriot or overseas companies by providing nominee and trustee services, or against local banks in which the relevant companies keep bank accounts. In the context of such discovery actions, applicants may request the court to issue an ex parte gagging order, blocking the discovery defendant from alerting his clients or any other person about the pending proceedings. Through the use of the mechanism of discovery orders, a claimant (i.e. victim of a wrongdoing, a creditor, etc.) may be able to build his case by collecting evidence to plead and prove his claim and to secure his claim by tracing the defendant’s assets.

Conclusion

The legal teams of Bogatyr & Partners and SOTERIS PITTAS & Co LLC have huge experience in carrying out forensic investigations and in handling discovery actions, for the tracing of assets of debtors or wrongdoers and collection of valuable evidence needed for the successful outcome of a court and arbitration case.

41


Aviation

Aviation Law in Ukraine. Legal Trends and Key Issues Oleg Bondar Managing Partner, ECOVIS Bondar & Bondar

It should be noted that our State has made progress, to varying extents, regarding the regulation of the above-mentioned aspects of aviation operations. The following is a brief description of the current state of Ukrainian aviation legislation and of the most pressing issues it currently faces.

Market Access and Related Issues

I

t won’t be an exaggeration to say that the Common Aviation Area Agreement between the European Union and Ukraine is now the white paper of Ukrainian aviation. This is the document that contains goals and objectives which Ukraine should achieve in the next decade to establish an adequate legal framework for aviation. It does not matter that this Agreement has not come into force yet or even been signed. It systematizes the key regulatory principles and consists of references to those European statutory provisions that must be directly incorporated into the Ukrainian legal framework. One of the major principles of the Agreement is the adoption by Ukraine of a whole raft of European Union legislation pertaining to civil aviation, including that related to flight safety, passenger protection, air carrier’s liability, environmental protection, competition, government assistance, etc. Strictly speaking, the main legislative act regulating Ukrainian aviation at the present moment, the Air Code 2011, is also the result of efforts exerted by Ukraine to adjust national legislation to European standards. Adoption of this Code was a step taken by Ukraine and the European Union towards the implementation of the Common Aviation Area Agreement. The Common Aviation Area Agreement singles out a number of key units of aviation legislation with regard to regulatory functions: — Air traffic management; — Flight safety; — Environment; — Social aspects; — Access to markets and related matters; — Consumer protection; — Reservation computer systems.

42

www.ukrainianlawfirms.com

The so-called “economic set of norms” that deal with issues of air carrier licensing, granting and revoking traffic rights, airport operations (including the issue of slot allocation, access to ground handling and airport charges). This sphere of regulation is the one with the biggest number of pressing issues for Ukrainian aviation. It is these issues that are constantly accompanied by corruption scandals, and the legislation on these matters is more often subject to influence by lobbyists. Licensing The European Parliament and Council adopted Regulation (EC) No. 1008/2008 setting out the main conditions for, and procedure of, granting operating licenses to EU air carriers. Ukraine does not currently have a unified legislative act aggregating all economic requirements put forward to air carriers for granting an operating license. The license provisions, adopted by the Ukrainian Transport Ministry back in 2001, provide only for the air carrier to be registered in Ukraine and to have a valid air operator certificate. Several norms, that in their essence are license provisions, can be found in the Air Code of Ukraine and in the air carrier certification rules. Those norms more or less duplicate the norms provided for by Regulation (EC) No.  1008/2008, excluding the following key issues, that as of today are still not regulated in Ukraine, namely: — the air carrier has to be under substantial ownership/effective control of Ukraine/ Ukrainian national; and — the main occupation of the air carrier is to operate air services and/or repair and maintenance of aircraft. The Procedure of Granting Traffic Rights This is by far one of the most highly charged issues in Ukrainian civil aviation.

Within the last couple of decades the regulatory authorities have adopted new rules on granting traffic rights five times. The most recent Aviation Rules for granting and revoking traffic rights No. 686 of 13 November, 2014, that were adopted by the State Aviation Service of Ukraine, are in their essence to be seen as rather revolutionary. Virtually a mathematic evaluation algorithm has been introduced to decide upon the applications of air carriers, which naturally effectively decreased the discretionary powers of officials in the decisionmaking process and in so doing lessened the component element of such powers, namely corruption pressures. These Rules have consistently mirrored government policy in the aviation sphere. The fundamental principle of this policy is definitely the maximization of the transit potential of Ukraine inter alia by developing Borispol Airport into a hub, the priority support of the national network of air carriers and expanding domestic air traffic. Airport Operations State regulation of this sphere has to aim primarily at restriction of market dominance in airports and the establishment of a balance of convenience between the airport, ground-handling companies, air carriers and passengers. The issue of slot allocation in Ukraine is regulated by the Rules for allocation of flight departure and arrival hour zones at international airports of Ukraine, approved by the Order of the Ministry of Transport of Ukraine No.  645 of 16 July 2004. However, this document is in many respect obsolete and does not correspond to the aims that where initially assumed for it by legislators. Today, the airports still have many opportunities to discriminate against air carriers. The European procedure of slot allocation is based on Council Regulation (EEC) No.  95/93 of 18 January  1993 on common rules for the allocation of slots at Community airports, the Regulation (EC) No. 793/2004 of 21 April 2004, the ICAO Circular 283AT/119-2001 Regulatory Implications of the Allocation of Flight Departure and Arrival Slots at International Airports. The level of regulation in respect of issues of the ground handling services market access is even worse. The fragmentary regu-


PROfile lations are included in several articles of the Air Code of Ukraine (Articles 77, 78, 80), as well as into the Rules of airport certification, approved by the Oder of the State Aviation Service of Ukraine No. 407 of 13 June 2006. Today, access to the ground handling services market is practically and legally dependent upon the airport. This, of course, disfigures the competition and puts the airport into a dominant position. In the EU Council Directive No.  96/67/EC of 15 October 1996 on access to the ground handling market at Community airports is applied. However, it should be noted that this document sets out the basic principles of market access, but does not provide for strict regulation of these relationships. Many of the issues remain at the discretion of the airports or aviation authority officials. In the Ukrainian realities such freedom of actions could result in hollowing-out of the whole essence of regulation. The rules of access to the ground handling market have to be very precise and regulate the application procedure in detail, as well as establish transparent decisionmaking criteria, provide for a strict mechanism for implementation and liability of the airport for violation of rules.

Consumer Protection

The liability of an air carrier to a passenger for air incidents is based on the provisions contained in the Montreal Convention which became effective for Ukraine as of 6 May 2009. National legislation — the Air Code of Ukraine, the Passenger and Baggage Carriage Rules — also contain provisions which regulate in detail the liability of air carriers for flight delays, flight cancellation, both for reasonable excuses, and for reasons not releasing from responsibility. It should also be noted that pertaining to certain issues Ukrainian legislation regulates areas of aviation business in too much detail. For instance, the Passenger and Baggage Carriage Rules, approved by the Order of the Ukrainian Transport Ministry No.735 of 30 November 2012, still contain a requirement for the minimum free baggage allowance. As a result, a baggage transportation cost is automatically included into an air carrier tariff even if a pas-

www.ukrainianlawfirms.com

senger travels without any baggage. The legitimacy of this provision gives rise to reasonable doubt because, in fact, it causes discrimination against a certain category of passengers. Besides that, it is an apparent rudiment, because, for instance, low-cost airlines cannot comply with this provision a priori. One of the key principles of consumer rights regulation in the European Union is that the State should not set any service standards for air carriers, however the passengers should be provided with minimum guarantees for protection of their rights. Such guarantees are also fulfilled through stringent requirements applied to information about services rendered by air carriers (see Regulation (EC) No. 80/2009 of the European Parliament and of the Council of 14 January 2009 on a Code of Conduct for Computerised Reservation Systems, Council Directive 90/314/EEC of 13 June 1990).

Computer Reservation Systems

Ukrainian legislation is familiar with the term “automated reservation systems” (see for instance, Article 98 of AC or the Passenger and Baggage Carriage Rules). However, there is no precise definition of this term, and lawmakers do not regulate the operations of automated reservation systems. Nowadays, automated reservation systems are an integral part of any aviation market and the major air carriage sales channel. More importantly, with regard to the amount of generated income and capitalization, the main global distribution systems (GDS) can be compared with or even significantly outmatch lots of air carriers. Dominance of global distribution systems gives rise to disputes related to discrimination and violation of competition laws. In particular, such practice is being actively generated in Europe and North America. Regulation (EC) No 80/2009 of the European Parliament and of the Council of 14 January 2009 on a Code of Conduct for computerised reservation systems gives a basis in regulation of operations of global distribution systems. It is apparent that Ukraine must plug this gap as soon as possible by relying upon the statutory provisions of European legislation.

ECOVIS Bondar & Bondar Address: 3 Rognedinskaya Street, Office 10, Kiev, 01004, Ukraine Tel./Fax: +380 44 537 0910 E-mail: kyiv-law@ecovis.com Web-site: www.ecovis.ua

E

COVIS Bondar & Bondar is a boutique fullservice law company, member of ECOVIS International, a leading global consulting firm operating in over 50 countries around the world. Tailored solutions, high quality, focus on details, promptness, responsiveness, flexibility, out-of-the-box thinking, practical approach to resolving clients issues, cost and time effectiveness — these are the principles that guide us in delivering our legal services. Among our strengths are: Market Knowledge We have been operating in Ukraine since 1998 and know the Ukrainian market and people in it. We have long-established and continuous working relations with the Ukrainian state authorities. International Network As a member of ECOVIS International, we have permanent access to the international and interdisciplinary knowledge in different jurisdictions, which ensures that our clients receive the most realistic and balanced advice on cross-border and local matters. Our professionals Our lawyers are highly qualified in diverse areas of law and possess an excellent knowledge of Ukrainian legislation and international legal standards in the provision of legal services. ECOVIS Bondar & Bondar is a recognized law firm in Ukraine and its partners are named among leading lawyers in their respective practice areas according to international and Ukrainian legal directories. ECOVIS Bondar & Bondar focuses its practice on Corporate & Commercial Law, Mergers & Acquisitions, Antimonopoly & Competition Law, Litigation & International Arbitration, Labor Law and Tax. The company represents clients in diverse economic sectors, including aviation and transportation, insurance, energy, sport, real estate, banking and finance.

43


Banking & Finance

Ukrainian Post-Crisis Banking System: Ways of Solving Operational Issues Oleh Beketov Partner, Head of International Litigation Department, ETERNA LAW

Alexey Kovryzhenko Counsel, ETERNA LAW

M

anagement of distressed assets remains one of the major issues in the operation of the banking system of Ukraine in this postcrisis period. To overcome the consequences of the crisis on the Ukrainian financial market, it is very important to enhance corporate risk management in the banking sector by adopting both national experience and best international practices of distressed assets management so as to restore successful debt financing. Nearly all financial institutions have suffered from the post-crisis syndrome known as mass loan default. This is primarily due to insufficient legal mechanisms regulating property preservation, which often results in the lack of the debtor’s liquid assets before a court issues a debt collection order. Unfortunately, a variety of substantial gaps still remain in Ukrainian legislation that are often misused by unfair debtors in quasilegal schemes to avoid debt returns and responsibility for such failure to repay debt. In particular, the rights of creditors within the bankruptcy procedure are significantly limited, whereas the concept of surety re-

44

www.ukrainianlawfirms.com

mains ineffective. Besides, banks are always at risk of losing mortgaged property as a consequence of unauthorized construction, and the procedure of debt collection from inherited property remains unregulated. Legislative gaps allow for the alienation of the debtors’ property without prior consent of the mortgagee, as well as suspension of a mortgage by a court order despite the debtor having an outstanding debt with the creditor. Thorough analysis of the On Renewal of the Debtor’s Solvency or Declaring it Bankrupt Act of Ukraine and case law related to bankruptcy cases allows us to conclude the following. There are a number of abuses in bankruptcy proceedings, with the fundamental principles of law being disregarded when applying legislation, as well as encouraging illegal actions by unfair debtors. Thus, courts often misuse their right and interpret current legislation quite vaguely and arbitrarily, terminating bankruptcy proceedings in case of partial repayment of the creditors’ indisputable claims. The amendments made by legislators to the Civil Code of Ukraine on 4 November 2012 have become crucial in protecting the rights of creditors. The amendments include, among others, the obligation of a court to attach the debtor’s mortgaged property in case the loan agreement or the mortgage agreement is recognized by a court as invalid. This gives the creditors additional means of influencing unfair debtors. Such innovations should ensure the creditor that the debtor would not be able to avoid its obligations under any circumstance. However, according to the explanations provided by the Higher Commercial Court in its letter of information as of 27 December 2012, such amendments shall only be applied to those legal relations that arose after 4 November 2011. Therefore, the legislator’s purpose was neutralized by law-enforcement practice, with the creditor being exposed to the risk that an unfair debtor would utilise the loan facility, a loan agreement would be recognized as invalid and the mortgaged property would be alienated in favour of third persons. Considering the above, we affirm that a wide range of key remedies and instruments exist that the debtor in Ukraine may choose

at its own discretion to avoid civil responsibility. These include, firstly, the termination of the co-debtors’ liability for the violation of borrowers’ obligations due to the incomplete and unclear definitions of the relevant civil law provisions governing surety relationships. Secondly, the concept of public encumbrance over the debtors’ property in case of the recognition of the mortgage agreement as invalid shall also be applied to the debtor’s bankruptcy proceedings. Thirdly, parties to bankruptcy proceedings might exercise influence on their creditors, namely, deprive a pledged creditor of its control over the method and price of sale of collateral, whereby such creditor would have no right to identify any further bankruptcy proceedings. Besides, the current downsides are that case law appears to inure to the benefit of unfair debtors whose debts are written off from a bank’s reserves, and the termination of mortgage relationships due to the liquidation of property guarantors. Despite the above-mentioned legislation issues, the banks themselves should reconsider their own approach to the origin of distressed assets. Banks should conduct a detailed economic analysis prior to any debt restructuring by exploring, inter alia, whether they can access and comprehend a client’s business, any potential prospects for business development, concern of business owners in the development of their business, the availability of a long-term business plan and real liquid collateral to fully or still excessively offset a bank’s credit risks. Positive foreign experience of dealing with distressed assets should also be taken into account. Loan debt restructuring has proved to be the most efficient and successful method of all, which includes, inter alia, loan extension, change of loan currency, review of a loan repayment scheme, granting a repayment holiday, etc. At the same time, the German and Swedish experience of establishing so-called banks of distressed assets is valuable too. In practical terms, such a bank is normally a company (usually public entity) that manages distressed assets. The basic principle of such banks is to divide distressed assets of a bank into “good” and the “bad” assets with subsequent purchase of “bad” assets. Distressed


PROfile assets banks helped insolvent banks to restore their financial position through the sale of their distressed assets at the negotiated price. The advantages of such an approach are that a bank is fully involved in the distribution of loan portfolio income, improving identification, evaluation and regulation of loan portfolio risks, etc. The debt collection business functions in full in Ukraine these days. However, it has nothing to do with the international approach to the creation of distressed assets of banks. The former are private enterprises aimed primarily receiving personal benefits rather than leveraging an insolvent bank’s balance sheet. Unfortunately, all of the abovementioned issues undermine the banking system, forcing Ukrainian banks to limit the amount of loans that they extend to the real economy sector and write off non-performing loans out of bank reserves to improve the quality of the assets amid an economic recession. Such losses are likely to outweigh direct losses originating from outstanding debts. One of the ways to overcome such a problem could be adoption of Draft No. 2286-а On Amending Some Ukrainian Legislative Acts to Regain

www.ukrainianlawfirms.com

Trust between Borrowers and Creditors, which is currently under consideration by the Ukrainian Parliament. The Draft is intended to enhance bankruptcy proceedings and protection of the creditors’ rights within the proceedings. The Draft, therefore, will allow for minimization of the use of controlled bankruptcy schemes and the sale of debtor’s property at understated prices to the parties involved, create favourable conditions to ensure the transparency and competitiveness of the sale of property at the highest possible price, ensure additional protection of the creditors’ property rights under surety agreement and in the case of succession, root out dubious schemes of unauthorised construction preventing the withdrawal of the mortgaged property that was constructed or reconstructed without proper authorization. Implementation of efficient schemes of loan repayment within the Ukrainian banking system will facilitate the restoration and growth of loans to be extended to the real economy sector and add to reducing the cost of loan resources. Thus, the enactment of Draft No.2286-а is of strategic importance both for banks and for Ukraine’s economy in general.

ETERNA LAW Address: Sophia Business Center, 6 Rylskiy Lane, Kiev, 01601, Ukraine Tel.: +380 44 490 7001 Fax: +380 44 490 7002 E-mail: office@eterna.law Web-site: www.eterna.law

E

TERNA LAW is a European full-cycle law firm possessing strong expertise in the CIS region. Founded in 2002 in the Ukrainian capital Kiev, the firm grew rapidly and currently employs over 100 professionals and 5 active offices (Kiev, Moscow, Almaty, Riga, Dusseldorf). We are continually named among the leaders of the market for quality, responsiveness and reliability of service as well as for the depth of our expertise. We are a dynamic, client-oriented and solutionfocused firm whose team of energetic, foreign-educated young professionals provides concise and practical legal advice in a cost effective manner, while not compromising on quality. ETERNA LAW has an extensive history and experience in the CIS region. We understand these diverse markets, which demand international experience from a law firm in unison with knowledge of local business realities and the legal environment. Thus, we consistently act in some of the most high-profile matters in the CIS for a broad range of clients, such as international financial institutions and corporations across various industry sectors, government entities, non-governmental organizations, etc. Being a full service law firm, our counsel is able to cover any aspect of doing business. Our principal areas of focus are dispute resolution, corporate, M&A, tax, international finance, compliance, regulatory enforcement, public private partnership, intellectual property, capital markets, human rights, insolvency, construction, real estate acquisitions, oil and gas, transport and infrastructure.

45


Banking Disputes

Tension Factor in the Banking Sector Dmitriy Abramenko Counsel, Trusted Advisors

Daria Korotchenko Associate, Trusted Advisors

I

n the aftermath of the global financial crisis and the more recent national crisis in the Ukrainian financial system caused by military activities and depreciation of the national currency, banks and other financial institutions are in decline. That is why they need now, more than ever, to be changed and developed. However, today banks are in a submarginal condition not only due to external factors and the political situation in the country, but also due to mistakes by individuals. Speaking about the crisis in Ukraine’s banking sector and factors that led to such a situation on the market, we would like to highlight some common mistakes. Firstly, there are many problems related to bank loans. For more than 10 years in Ukraine the practice has existed of providing loans without proper evidence of credit standing. It means that a debtor, who is not financially capable to pay for the loan, still obtains it using formal grounds and personal connections. As a result, in such a situation a bank is trying to return money but discovers the debtor does not have enough property or assets to satisfy such claims. The above example proves the fact that such procedural rules lead to colossal damages in the banking sector and may cause a banking failure.

46

www.ukrainianlawfirms.com

A banking failure event always leads down to the second problem — returning private deposits. This procedure is far from perfect too, since only 30% of bank depositors receive their money back. This statistic prevents future pumping of funds into the banking sector and as a result leads to a severe crisis. Therefore, it is necessary to note dissatisfaction in the results of work (activity) of the Deposit Insurance Fund, which has no opportunity due to the poor procedure process, to collect debts while a bank is in temporary administration. Furthermore, the Verkhovna Rada of Ukraine tried to aggravate the crisis in the banking sphere and in economic life in general by approving legislative proposals on restructuring obligations under loans received in foreign currency. Fortunately, the President of Ukraine vetoed this legislative proposal. Thus, banks in Ukraine, like in others countries, are the most significant financial institutions in the sphere of monetary policy, payment and account service. It is commonly known that the banking sphere is related to high risk and with the insolvency of one of the major banks, for example such as Delta Bank, may provoke a chain reaction or domino effect of insolvency in other large banks and then cause a systematic financial crisis. So as to avoid such a situation, our state should go to the maximum to resolve such a failing condition by using resources and facilities of all branches of government: legislative, executive, judicial. Nowadays, unfortunately, the most effective activity may be noted in the “fourth estate”, the mass media. It is only using this resource that the state gets to know about the problematic situation in the banking sphere. However, today we are going to focus on the judicial branch of government, its authority, and legislative changes in its activity, which help, using its own methods, to get out of the bank crisis. Firstly, the recognition of many banks being insolvent provoked a huge number of disputes between debtors, creditors, guarantors and the Deposit Insurance Fund. In such a difficult situation litigation practice should call upon the arrangement of legal trends regarding many important issues — mortgage property, the legal basis for termination of obligations between creditors and debtors of a bank, that are in the process of liquidation and other issues.

Nevertheless, in practice, the judicial system is not effective for both debtors/bank depositors and banks for length of legal proceedings and a zero result at the stage of enforcement proceeding. Two of these problems are on the path to be solved. Unsatisfactory activity on the part of the Enforcement Service of Ukraine (Bailiffs Service) can be corrected by the announced reform of introducing a private enforcement system. The judicial system is reformed by modification of the Code of Civil Procedure and the Code of the Economic Procedure. In March 2015 the On ensuring the Right to a Fair Trial Act of Ukraine came into legal force which, in the opinion of experts, is continuing the tendency of judicial precedent implementation in Ukrainian judicial procedure. This Law prescribes that a conclusion of Supreme Court in application of legislative provisions are binding for courts of all judicial instances. The list of judgments, which has a negative and positive impact on the banking system, as made by the Supreme Court of Ukraine, are set out below. Judgment of 2 September 2015/ Case 6-856cc15 The Supreme Court has forbidden arbitral tribunals to deal with disputes on collecting funds for consumer loans, despite the existence of the arbitration clause in the main contract. Thus, the Supreme Court took the side of consumers because arbitration courts work, in most cases, closely with banking institutions. At the same time, they decide in favor of the party concerned (bank). Judgment of 9 September 2015/ Case 6-939cc15 The Court concluded that termination of a loan agreement shall not entail the termination of the mortgage agreement, signed in ensuring fulfillment of obligations under it, as such obligations are terminated by proper implementation. Thus, the mortgage has become a fulfillment of the commitments for the implementation of the court decision, which in principle contradicts the very essence of the mortgage. Judgment of 16 September 2015/ Case 6-43cc15 The court has decided on the issue of the coincidence of the debtor and the credi-


PROfile tor in one person. It was stipulated that contractual relations between the parties could not lead to the termination of obligations pursuant to Article 606 of the Civil Code of Ukraine and the application of this article does not depend on their will. Article 606 of the Civil Code of Ukraine shall apply only if the transfer of the rights and obligations of the debtor to the creditor or the creditor to the debtor are in the same obligation. Judgment of 23 September 2015/ Case 6-446cc15 According to this judgment, the court determined that the partial performance by the guarantor under the loan contract does not cause the transfer to it of a creditor’s rights under this contract to the full implementation of the debtor’s obligations. It is definitely not good news for guarantors, as it puts them in a worse position than debtors. Judgment of 23 September 2015/ Case 6-979cc15 The conclusion of this judgement states that the absence of the notification of the debtor about changing the creditor does not release the debtor from its obligations, both toward to the primary and the new creditor, and appears as the only basis for recognition of performance of the obligation before the primary creditor for its implementation. Judgment of 4 November 2015/ Case 6-1120cc15 Before deciding on its merits, the judge obliged to carry out and define the initial sale price of subject of the mortgage on the basis of the procedure, prescribed by Article 38 of the On Mortgage Act of Ukraine. This procedure stipulates that the sale price should be fixed under the agreement between the mortgagor and mortgagee, or in accordance with the valuation of the property, and may not be lower than the standard price for such type of property. Judgment of 21 October 2015/ Case 6-831cc15 The court prescribed that disputes between banks and debtors about obligations under agreements in foreign currency are public cases and they cannot be considered by a court of arbitration. www.ukrainianlawfirms.com

Judgment of 21 October 2015/ Case 6-1161cc15 Increasing the rate of interest under a loan agreement without notice to the guarantor leads to termination of the guarantee contract. According to court opinion, such action results in an unfounded increase in liability under the loan agreement on the part of the guarantee. Judgment of 7 October 2015/ Case 6-222cc15 Refusal to repay a debt from a creditor in the form of requiring the subject of the mortgage under public tendering leads to termination of the mortgage agreement. Such conduct violates the principle of equal rights and duties of the creditor and debtor and, as a result, artificially increases the debt under the loan agreement. It must be noted that all these judgments are intended to improve the situation in banking disputes, by removing differential enforcement in judicial system, reducing the time of actual court proceedings, reduce the number of appeal complaints, even if such provisions could be described as infringements of the rights of debtors and creditors equally.

Conclusions

In summing up, the banking sector of Ukraine has found itself in an extremely difficult situation, and there is no surprise here. Many banks are forced to seek out funds from other larger lending institutions at high interest rates. Many banks, unable to compete, are leaving the market or are being sold off along with their licenses at a reduced price. A lot of them are already under temporary administration of the National Bank of Ukraine. The majority of banks in this situation have become involved in obvious fraudulent activities. This is all caused by the redistribution of the banking sector and military activities in Eastern Ukraine, corruption, lower exports and capital outflows. Despite the fact that the past few years have created a controversial situation for resolving the disputes related to provision of banking services, the overall resolution of disputes in this area not only requires legislation to achieve a common compromise between the interests of all parties to the respective relations. There is also great demand to systematize all the legal trends that affect the overall economic situation.

Trusted Advisors Address: 40/85 Saksahanskoho Street, 5th Floor, Kiev, 01033, Ukraine Tel./Fax: +380 44 359 0664 E-mail: info@trustedadvisors.com.ua Web-site: www.trustedadvisors.com.ua

T

rusted Advisors is a Ukrainian full circle dispute resolution law firm, which was founded in 2014. The main emphasis of the firm is on corporate disputes, banking disputes (recovery of bad debts, enforcement proceedings and bankruptcy), commercial disputes, and the protection of clients in courts of general jurisdiction as well as in foreign courts and international arbitration tribunals. Trusted Advisors provides legal services to corporate, industrial, financial companies in a wide range of highprofile transactions, regulatory matters, and litigation and controversial issues. The firm’s clients range from a variety of small, entrepreneurial companies to large foreign and Ukrainian companies. The Trusted Advisors’ team consists of qualified professionals with vast experience in a wide range of legal matters, deep knowledge and understanding of the litigation process in Ukraine and overseas. Building on the foundations of its long heritage enables the firm to attract the most talented people and continue to deliver this level of innovation for its clients. The firm’s commitment to help its clients deliver their global strategies has seen Trusted Advisors build a truly competent Ukrainian law firm. It has also developed strong relationship ties with international law firms in countries where it does not have a presence. As a result, Trusted Advisors can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. In 2015 Trusted Advisors reached Bronze League of Top 50 Leading Law Firms in Ukraine based on analysis of key performance indicators of the legal market carried out by Yuridicheskaya Practika Publishing. Managing partner: Ivan Mishchenko Number of partners: 4 Number of counsels: 1 Number of associates: 10 Languages: Ukrainian, Russian, English, French

47


Bankruptcy

Bankruptcy Julian Khorunzhyi Partner, Law Firm Ario

T

he year 2015 brought no major positive changes for participants of the restructuring and bankruptcy market: the economic crisis was not overcome, and reforms were not implemented. The global banking crisis is another negative factor that may also be added. The banking crisis has caused over 70 banks to leave the market, which certainly affected clients and created new challenges for them. As a positive factor of the last year, we can regard a more active role of the Supreme Court of Ukraine in maintaining judicial practice, but we cannot say there is enough integrity in this field.

Banks Go Bankrupt

Bank bankruptcy is the trend of 2015-16. At the same time, both systemic and “small” banks are going bankrupt. Over 70 banks have been recognized insolvent. The Deposit Guarantee Fund (DGF), which used to be an unobtrusive government institution a few years ago, now plays a prominent role in restructuring and bankruptcy. The estimated value of insolvent banks is UAH 80-90 billion, and their book value is about UAH 400 billion. Bank debtors are most likely to suffer from bank collapses. They have to choose between buying out their rights of claim from banks (it is no use hoping for sizeable discounts from the DGF if a pledged or mortgaged property is liquid) and admitting buyback of their debts by “questionable” factoring companies. As a rule, debts are bought out by totally unknown factoring companies. As a matter of fact, debtors have no alternative but to buy out their own debts. This requires bearing considerable expenses paid for by companies’ own sources. Hence, companies face a working capital deficit which they have almost nothing to cover with. Attracting loans for debt buybacks

48

www.ukrainianlawfirms.com

and working capital replenishment is an extremely difficult task, given the economic crisis conditions in Ukraine. Attracting funds from abroad is not simple either, since foreign investors are not in a hurry to invest in Ukraine due to the unfavourable local investment climate. Therefore, imperfection of the existing mechanisms in the DGF and mass involvement of stakeholders in the issue have negative consequences for the country, because the funds are being withdrawn from the real sector of the economy and get into population’s hands as deposits guaranteed by the government, thus increasing inflationary risks. Furthermore, mass buybacks by debtors via their factoring companies has resulted in a drastic decrease of the stock value of newly-established factoring companies, which have fallen in price from USD 20,000-25,000 to USD 7,000-8,000, not to mention other negative effects. For law firms, it would be interesting to cooperate with problem banks as to the collection of liabilities. So far, cooperation with the DGF has been unattractive for outsourced lawyers, and this is not their fault. First of all, insolvent banks are unable to pay. Secondly, law firms are interested in the success fee. However, when less than 50% of the debt is collected, the success fee amounts to UAH 0. Taking into consideration that debt securities lose value, it is often next to impossible to achieve a 50% collection. Thirdly, there are numerous examples when a law firm spent a year on debt collection litigations, but, as it approached a legal outcome, the DGF decided to sell the rights of claim under a relevant loan agreement. Consequently, the legal assistance contract was terminated. Such situations have made problem banks unattractive for the legal services market. Moreover, it has become popular to file claims against the NBU on acknowledgement of NBU resolutions invalid, particularly resolutions on rating banks as insolvent or on acknowledgement of illegality of NBU inaction that has caused acknowledgment of one or another bank insolvent. However, it is too early to speak of judicial practice and consequences of these decisions, for such decisions have not been considered by the higher court of instance yet.

Bankruptcy Field

From the regulatory point of view, in 2015 bankruptcy saw repeated attempts to amend the On Renewal of Debtor’s Solvency

or its Acknowledgement as Bankrupt Act of Ukraine. The Draft was submitted to the Verkhovna Rada of Ukraine several times, but was not adopted even in the first reading. The last version of the draft law is currently being reviewed by Parliament under No.3163. According to its resolution, the Committee on Economic Policy does not recommend adoption in the first reading, though it advises inclusion of certain provisions of this document in Draft No. 3132 which is currently being prepared for its second reading. Authors of Draft No.3163 are mostly focused on improving Ukraine’s position in the Doing Business rating. Numerous provisions of the Draft are non-systemic, estranged from Ukrainian realities and may cause more harm than benefit, even for Ukraine’s position in the said rating. In particular, the Justice Ministry still does not disclose the register of companies against which bankruptcy proceedings have been initiated. Creditors not recognised by the court acquire the right to select a bankruptcy commissioner once proceedings are initiated. Appointment of bankruptcy commissioners instead of introducing improvements causes substantial complications. A new corruptive and totally unnecessary element is introduced at the legislative level: conferment of bankruptcy commissioner specialisation levels by the Justice Ministry. Proposals on improving the reorganisation procedure have been disregarded, and so the procedure on implementation still remains an exception to the rule. Nearly the biggest issue is that remuneration of bankruptcy commissioners is still unofficial and hidden and this will further aggravate the condition of both creditors and the debtor. There is also the issue of “draconian” powers appropriated by the Justice Ministry for itself in the field of supervision of bankruptcy commissioner activities, including almost unlimited authority in initiating inspections of bankruptcy commissioners and setting grounds for annulment of their certificates. This is actual usurpation of power by the Ministry in the field of insolvency. To counterbalance the aforementioned Draft, the Verkhovna Rada of Ukraine Committee on Economic Policy elaborated and submitted for consideration by Parliament Draft No. 3132 On Amendments to Certain Acts of Ukraine regarding the Enhancement of Bankruptcy Efficiency, which was developed with the community’s involvement, and the Com-


PROfile mittee is recommending its adoption in the first reading. This Draft eliminates a number of mistakes in the basic Act and is aimed at terminating major schemes currently used for unlawful withdrawal of debtors’ assets. The most significant amendment is legalisation of remunerations of bankruptcy commissioners: it is proposed to pay such remuneration in an ad hoc manner, in a differentiated amount of 3% to 5% of the sums of creditor claims that are settled. For the sake of this provision only, the Draft may be totally adopted, because for a long time the lack of a bankruptcy commissioner’s salary has been precisely one of the biggest corruptive elements of the bankruptcy procedure. Moreover, the Draft is being prepared for its second reading. Within the framework of such preparation, amendments are developed on improving procedures on selling a bankrupt’s property. The amendments are aimed at ensuring full publicity of the auction process and introducing a new auction model. It is proposed to introduce electronic auctions based on the principles of the electronic public procurement system. As for the Act’s practical implementation, 2015 was noted for the beginning of the SCU practices enhancement. Thus, the SCU finished with the impossibility of appealing against certain decisions under the cassation procedure. However, the bankruptcy field faced problems similar to those in other fields, such as SCU contrary legal opinions on the same issues. The lack of integrity in judicial practice does not favour strengthening the principle of the definiteness of law and makes it risky for external investors to participate in bankruptcy procedures.

Regarding Enforcement Proceedings

No improvements took place in this field in 2015. Issues in the field of enforcement of court decisions are similar to those in other practices. This relates to the efficiency of operations of the State Enforcement Service (Bailiffs) and SE SETAM, as well as to legal opinions of higher court instances. Nonetheless, there is hope that the reform started in enforcewww.ukrainianlawfirms.com

ment proceedings last year will be completed soon. The Judicial Reform Council under the President of Ukraine prepared Drafts No. 2506а On Organs and Persons Ensuring Enforcement of Court Decisions and Decisions of Other Authorities” and No. 2507а On Enforcement Proceedings. Both documents have already been submitted for review by Parliament. These Draft Acts were determined by the President as urgent for the priority review by the Verkhovna Rada of Ukraine and adopted by the Rada in the first reading on 8 October 2015. The Drafts propose to change enforcement proceedings radically, eliminate bureaucratic barriers, improve the procedure for enforcement of court decisions and sale of seized property, render most of the actions of bailiffs automatic, introduce the Unified Public Register of Debtors, and abate corruptive elements. The overwhelming majority of experts have supported adoption of a mixed decision enforcement system, including introduction of the private bailiff institution. An essential provision is setting adequate remuneration for private bailiffs and bonus payments to state bailiffs for the actual implementation of court decisions. The reform will significantly enhance the level of protection of property claimants that have been waiting for the execution of relevant court decisions for years now. It should be admitted that the said reform will aggravate the state of individual debtors. This relates especially to problem mortgages. Considerable issues in this area do exist and are criticised. However, despite suggestions made to reject the reform, it has focused on the necessity to adopt certain mechanisms for legal protection of individual debtors. Such protection mechanism, similar to that in “civilised” countries, means legal procedures on restructuring the debts of individuals or acknowledgement of individuals as bankrupt. A relevant Draft (No.2353а) was registered with the Verkhovna Rada of Ukraine by Ukrainian MPs. Ukraine has a chance to implement complex reform in the enforcement of court decisions, which within the framework of the judicial reform already under way will contribute to resolving numerous issues on the efficiency of legal procedure.

Law Firm Ario Address: 7 Panasa Myrnogo Street, Office 2, Kiev, 01011, Ukraine Tel.: +380 44 537 2290 Fax: +380 44 280 2846 E-mail: office@ario.law Web-site: www.ario.law

L

aw firm Ario was established in 2010, and prior to 2016 was known as Ario Capital Group. Partners Julian Khorunzhyi and Alexei Voronko began their professional careers with bankruptcy and insolvency, which is now the firm’s principal field of activity. Sergey Kirichenko, together with other partners, are the co-founders of the Association of Anti-crisis Management — one of the first profile organizations acting in Ukraine. Today, just like before, Ario provides legal services on commercial, tax, banking and corporate law, litigation, bankruptcy and enforcement proceedings. In 2015 the Ario team was updated with new members, and a number of practices have been significantly strengthened and expanded, namely criminal practice, government relations and business protection. One more partner, Yevhen Hrushovets, joined Ario. Yevhen is a well-known successful lawyer who specializes in criminal practice. Yevhen became part of Ario together with his team of lawyers. Two advisors also joined the Ario team: Vladyslav Gryshchenko and Yevhen Rokytsky. Gryshchenko worked in the Prosecutor’s Office for almost 20 years, including several years in the Prosecutor-General’s Office. As Ario’s advisor, Vladyslav specializes in criminal practice. For the past six years Yevhen Rokytsky worked at World Band Group and is still the head of the International Security Coordination Council (EU) and the International Consortium Coordinator for Economic Security (EU). Yevhen Rokytsky manages the GR-practice in the Ario team. In a short period of time Ario has been able to achieve noticeable results and gain peer recognition. Ario has been a general partner of the Bar Association of Ukraine since July 2014. Julian Khorunzhyi (No.3 in Leading individuals of bankruptcy by Ukrainian Law Firms 2015.A Handbook for Foreign Clients), as head of the company and professional in the field of insolvency, headed the Coordinating Council of self-regulating organizations of insolvency practitioners, which brings together leading specialized self-regulatory and non-government organizations to introduce common rules and approaches to bankruptcy proceedings in Ukraine. The recognition of Ario’s team in 2015 was also associated with successful defense of the State of Ukraine’s interests in a case regarding the bankruptcy of Ukrburshtyn — one of the largest legal amber miners in Ukraine. Ario undertook unprecedented defense of the public interest — and saved a strategically important company from bankruptcy and clearance under the control of offshore jurisdictions. In 2015 the Ario Capital Group joined the Bronze League of Top 50 law firms in Ukraine on the basis of analysis of key performance indicators of the legal market carried out by Yuridicheskaya Practika Publishing.

49


Business Crime

Innovations for Special Confiscation Bogdan Bilenko Senior Associate, Antika Law Firm

O

n 28 February 2016 the On Changes to the Criminal and Criminal Procedural Codes of Ukraine concerning Carrying Out of the Recommendations Contained in the Sixth Report of the European Commission on Ukraine’s Implementation the Action Plan to Liberalize EU Visa Regime for Ukraine Regarding Improving Procedures for Seizure and Institute of Special Confiscation Act of Ukraine No.1019-VIII came into force. In this regard it should be noted that such a measure of criminal law as special confiscation is relatively new for Ukrainian legislation. It appeared in the Criminal Code in December 2013 and originally was applied to a small, clearlydefined list of criminal offenses: trafficking, terrorism, drug trafficking, money laundering, corruption-related crimes and so on. The Act of 18 February 2016 No.1019-VIII significantly expanded the list of cases for applying special confiscation. From now on it may be applied to any criminal offense committed intentionally and for which imprisonment or a fine of more than 3,000 non-taxable minimum incomes of citizens is provided. In addition, the new version of Article 96-1 of the Criminal Code of Ukraine (Special confiscation) identified a number of criminal offenses with punishment of less severity, in which case special confiscation can also be applied: crimes under part one of Article 150 and Article 154 (Child slavery and forcing into carnal knowledge), parts two and three of Article 159-1 (Breach of the order of financing of political parties), part one of Article 190 (Fraud), Article 192 (Causing property damage by fraud or breach of trust), part one of Articles 204 (Illegal manufacture, possession, sale or transportation with intent to sell excisable goods), 209-1 (Wilful violation of the law on prevention of legalization (laundering) of pro-

50

www.ukrainianlawfirms.com

ceeds from crime or terrorist financing), 210 (Misuse of public funds), part one and part two of Articles 212, Article 212-1 (Evasion of taxes and social security tax for obligatory state social insurance), part one of Articles 222 (Financial fraud), 229 (Illegal use of a trademark for goods and services, trade name), 239-1 (Illegal appropriation of land surface), 239-2 (Illegal appropriation of water fund lands in big amount), part two of Article 244 (Violation of the law on the continental shelf of Ukraine), part one of Articles 248 (Illegal hunting), 249 (Illegal fisheries or animal trading or any other sea hunting industry), parts one and two of Article 300 (Import, manufacture or distribution of works that promote violence, cruelty, and discrimination), part one of Articles 301 (Import, manufacture, sale and distribution of pornographic materials), Article 302 (Establishing or maintaining brothels), Articles 310, 311, 313, 318, 319 (Operations involving narcotic drugs), Articles 362, 363, part one of Article 363-1, (Unauthorized actions with information processed in computer networks, inappropriate use of computer networks, computer networks operation obstruction), 364-1 (Abuse of power by an official of a legal entity of any type), 365-2 (Abuse of power by persons providing public services) of the Criminal Code. Thus, due to the expansion of special confiscation on a wide range of penal offenses, business entities and business representatives are, in case of getting within eyesight of law-enforcement agencies, now also at risk of special confiscation being applied. In this connection no less an important innovation is introduction of a new order regarding the use of special confiscation in respect of third parties (persons who have not committed a criminal offense, but who are owners of property that is subject to special confiscation). Prior to the recent changes in this part of the Criminal Code, the property of third parties could be seized in the procedure of the special confiscation only if: (1) corrupt assets were received or acquired by a third party from a suspect, accused person, convicted person for free or in exchange for an amount significantly below market value; (2) the third party knew or should have known that the purpose of transfer of the property is to avoid confiscation or special confiscation. Now, in accordance with part 4 of Article 96-2 of the Criminal Code of Ukraine, money,

valuables, including funds held on bank accounts or deposited in banks or other financial institutions, other property are subject to special confiscation from a third party if he or she acquired such property from a suspect, accused person, person prosecuted for committing a socially dangerous act at an age from which no criminal responsibility is provided, or in a state of insanity or other person for free, at the market price or at a price higher or lower than the market value, and knew or should have known, that such property meets any of the criteria mentioned in paragraphs 1-4 of this Article. Thus, the new version of Article 96-2 of the Criminal Code of Ukraine significantly expanded the applicability of special confiscation to third parties. While earlier cases of special confiscation to third parties were more or less specific (obviously undervalued the value of property or transfer of property to prevent seizure), but now, regardless of the assessment of property, it will be subject to special confiscation if the purchaser of the property could or had to guess that this property: (a) was obtained by the purchaser as a result of the offense and/or is an income from such property; (b) was destined or used for inducement of a person to commit a crime, financing and/or material support of the crime or reward for having it done; (c) was the subject of a crime, except one that has to be returned to the owner (rightful owner), and when it is not determined — becomes the property of the state; (d) was found, produced, adapted or used as a tool or instrument of a crime, except one that has to be returned to the owner (rightful owner), who did not know and could not know about their illegal use. Thus, now the presence of a fictitious purpose of property transfer (as before) is not a prerequisite for the use of special confiscation. Consequently, the new order of special confiscation of property from third parties will, to a much greater extent than before, depend on the subjective assessment of the case circumstances by representatives of the law-enforcement and judicial authorities (i.e. on the evaluation whether the new property owner could or could not know about the unlawful origin of the property or its illegal use by the previous owner), which is a direct threat to the speculation and abuse of powers in deciding the matter. According to paragraph 2 of part 4 of Article 96-2 of the Criminal Code of Ukraine,


PROfile the circumstances of acquiring controversial property which is subject to special confiscation by a third party should be established in the courts on the basis of sufficient evidence. Thus, in accordance with parts 2 and 3 of Article 96-1 of the Criminal Code of Ukraine, special confiscation is applied by virtue of a judgment of conviction; judicial decision of absolute discharge; judicial decision of involuntary treatment; judicial decision of the application of compulsory educational measures. In cases when the object of special confiscation is property withdrawn from civil circulation, it can be applied on the basis of: judicial decision of terminating the criminal proceedings on other grounds than absolute discharge; judicial decision settled by the ninth part of Article 100 of the Criminal Procedure Code of Ukraine, at the request of the investigator or prosecutor if criminal proceedings are closed by them. Consequently, these provisions of the law are aimed at guaranteeing a possibility to a bona fide purchaser of property to prove in court the absence of grounds for removal of his property in the order of special confiscation. However, until the issue is resolved in essence, the property of a third party may remain under arrest for a long time during the pre-trial investigation in criminal proceedings. Under part 1 of Article 170 of the Criminal Procedure Code of Ukraine, the seizure is temporary, till cancellation in the order established in the Code, deprivation of the right by a decision of an investigating judge or a court of law on alienation, disposal and/or use of property for which there is a set of grounds or reasonable suspicion to believe that it is evidence of a crime, subject to special confiscation from the suspect, accused, convicted, third party, confiscation from the legal entity, for ensuring civil action, the recovery from the legal entity of unduly received benefits, possible confiscation of property. However, Article 170 of the Criminal Procedure Code of Ukraine was supplemented with a new third part, according to which protection of evidence for arrest is imposed on the property of any individual or legal entity if there are sufficient grounds to believe that it meets the criteria set out in Article 98 of the Code (is an instrument of a criminal offense, keeps tracks of it or contains other information that can be used as evidence, www.ukrainianlawfirms.com

items that were the object of criminal illegal activities, money, valuables and other items acquired by criminal means or illegally obtained by a legal entity as a result of a criminal offense). According to this new approach the scope of persons whose property may be seized is, in effect, expanded. This once again makes property owners depend directly on the subjective decisions of law-enforcement officials who will, at their discretion, decide on the number of persons whose property may be seized. The Act of Ukraine of 18 February 2016 No.1019-VIII supplemented the Criminal Procedure Code of Ukraine with a new Article 64-2, whereby the third party in respect of whose property the issue of arrest (third person) is decided is a party to the criminal proceedings. The status of a third party in criminal proceedings shall be obtained by any individual or legal entity upon recourse of the prosecutor to the court with a request for the arrest of its property. A third person has rights and obligations under the Criminal Procedure Code of Ukraine for the suspect, in the part related to the seizure. The representative of a third party — legal entity may be a lawyer, head of legal entity or employee of a legal person per procuration. In accordance with Articles 64-2 and 174 of the Criminal Code of Ukraine the third person, using the rights of the suspect, the accused may appeal against the seizure of their property to the investigating judge — during pre-trial investigation or trial — during the proceedings. In case of refusal to cancel the arrest, it will continue to be in force until the final decision in the criminal proceedings. Thus, changes in the criminal law of Ukraine on the grounds and procedure of special confiscation, on the one hand, formalize participation in this process of property owners who are participants in criminal proceedings will be able to use relevant procedural rights and protect their interests more effectively. On the other hand, the lack of a clear definition of grounds for use of special confiscation of property of third parties puts bona fide purchasers of property in a very risky position, since the current version of the law the issue on use of special confiscation will depend solely on the court’s subjective assessment of circumstances of the disputed property acquisition.

ANTIKA Address: 12 Khreschatyk Street, 2nd Floor, Kiev, 01001, Ukraine Tel.: +38 044 390 0920 Fax: +38 044 390 0921 E-mail: office@antikalaw.com.ua Web-site: www.antikalaw.com.ua

A

ntika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise. The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings. Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice. Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work. The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project. Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market. The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine. The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

51


Business Protection

Key Risks of a Criminal Nature for Owners and Top Managers of Companies Denys Bugay Attorney-at-Law, Partner, VB Partners

A

ctive reform of the law-enforcement sector and the liberal atmosphere in the country has led to a reduction in pressure on business by lawenforcement agencies compared with previous years. The Prosecutor’s Office has lost the function of general supervision. Previously, that function was a powerful lever of corruption and means of putting pressure on business. In most cases, the general supervision function was used to create barriers to legitimize the activity of legal entities. The bankruptcy of a large number of banks was a significant factor for increased activity on the patr of the investigating authorities. The condition of insolvent banks assets, their transactions, proper use of refinancing funds issued by the National Bank came under the scrutiny of law-enforcement bodies. Some debtors of insolvent banks were trying to get away from their commitments, taking advantage of the situation. In such cases, legal methods were not always used and that triggered a series of criminal investigations. Against the background of reduction in direct abuses, we note an increase in professionalism of Ukrainian investigators majoring in the field of economic crimes. What should owners and top management of business companies pay attention to avoid the risks of criminal investigations while exercising their legitimate entrepreneurial activity? Here, I will mention the most common mistakes made by owners and managers of companies.

52

www.ukrainianlawfirms.com

Execution of Сontracts and other Transactions in Violation of the Law

When concluding a transaction, even a minor violation of the law can be interpreted by the investigator as an intention to commit a crime (e.g. theft, misappropriation). It should be noted that such a situation may occur in two cases. The first case: when one of the parties to the contract has declared, acting not always in good faith, that a crime has been committed as a result of such a transaction. The second case: the damage has been caused to the State. Often, law-enforcement officers commence an inquiry and active investigations before confirmation that real damage was caused. As a rule, they do not examine the causal link between the breach of such legislation and the damage. They use expertise as proof for damages. This happens the most in cases where “the State”, as represented by a state-owned enterprise, is a party to the contract. Also, such a situation is possible in disputes with banks. For example, during execution of a loan agreement, the bank informally “turns a blind eye” on the borrower’s minor violations in provision of the pledge. But the formally permitted violations will become grounds for the bank’s criminal prosecution of the borrower if the borrower has stopped repaying the loan.

Failure to Comply with Corporate Procedures. Actions Beyond One’s Competence

The tradition of doing business in Ukraine does not provide much attention to issues of corporate decision-making needed to complete transactions. Often, management decisions are made “on trust”, with the subsequent execution of appropriate corporate documents, and sometimes even without it. Such features of business practices are quite common, and by themselves, they do not entail any negative consequences as long as a conflict situation does not arise. As described above, such a risk is realized if a person, interested in the revision of the contract, has appeared. Typically, such a person is a

party to the transaction, which has decided to “settle”, that is to review, the contentious relationship with the help of criminal procedural methods. In this case, it comes to taking management decisions (to make a deal) without proper authorization. This fact, by itself, is not a crime, but the investigating authorities in this country tend to consider such action as a constituting element of theft or misappropriation. The most dangerous by their consequences for the top management of the company, is the case where the conflict “the owner — top manager” is present. In such situation, the owner (shareholder) may deny any verbal permission and argue that all the actions of management have been carried out without the owner’s will. One should treat with great care to execute a decision to make a deal or other corporate decision “post factum”. Modern tools of forensic examinations allow determining the time of signing of a document and stamping of a seal on it within a period of a few days. Such actions as putting down “past” dates on documents could be qualified as a forgery. In this case, we do not recommend that you try to pretend that the documents were signed six months or a year ago, but use the instrument of post-approval — a situation where the higher governing body of the company (General Meeting or Supervisory Board) confirms the management decision which had been adopted earlier.

Transactions With the State

It should be noted that according to existing law-enforcement practice, even honest business with the “state” has an extremely high risk of criminal prosecution. In the opinion of Ukrainian law— enforcement agencies, all transactions involving the public interest are corrupted and unlawful. The State Financial Inspectorate, whose main function is to check the effectiveness of use of state resources and assets, actively “accompanies” investigators in such cases. Often ill-founded conclusions of the Inspectorate provide the start to criminal investiga-


PROfile tions; they are, according to the opinion of investigation officers, irrefutable proof of illegal actions. Investigations regarding actions of government officials and management of public companies beat as a boomerang by their counterparties, private companies. If you do not want to give up doing business with public companies, you have to pay the maximum attention to the legal purity of such transactions, and you have to set aside costs for lawyers and other legal costs in the future price of the transaction.

Dealing with Fictitious Companies

We should distinguish between two types of companies which are fictitious. The first type is a so-called “classical” fictitious company. Companies which are established in order to ensure tax evasion, in other words –“tax holes”. Using the “services” of such a company is fraught with not only tax consequences, but also criminal ones. The electronic accounting systems of the tax service make it possible to see transactions with such companies online. Therefore, summons for questioning by the results of work with such company is merely a matter of time. The second kind is more “complex”. The business of the company and deal itself are real, but the form of such a business of your partner is fictitious. In Ukraine, the practice still exists of registering a company in the name of the real owner’s relatives or appointment of a person who does

www.ukrainianlawfirms.com

not actually manage, to be a formal director. The reasons for this registration are various, beginning from traditions and unwillingness to “show” the real owner to attempt to avoid corruption charges, if the owner is part of the authorities. And again, in spite of the reality of this business, such a company can also be classified as fictitious. How can you avoid the risk of being accused of working with such a company? How not to take the risk of inferiority of the “shape” of your contractor’s business? You should demand higher clearance of transactions with your business partners. To achieve a director’s personal involvement in a deal rather than through representatives. Furthermore, to obtain written consent to a deal/transaction given by the owner of the company or the Supervisory Board (if any). The purpose of such actions is to prove that the decision on the deal is made by the director, as well as the existence of the business purpose for such a deal/transaction and its economic feasibility. Summing up the last few years, we highlight the following trends in the WCC: — Pressure/impact on business by law-enforcement agencies has declined. The level of professionalism of criminal investigations in the field of economic crimes has increased; — Reforms of law-enforcement agencies do not provide their own results. The practice of unlawful interference on the part of law-enforcement agencies in business remains.

VB PARTNERS Address: Bashnya No. 5 Business Center, 22 Rybalska Street, Porch 13, Kiev, 01011, Ukraine Tel.: +380 44 581 1633 Fax: +380 44 581 1533 E-mail: office@vbpartners.ua Web-site: www.vbpartners.ua

U

krainian Law firm VB PARTNERS was founded in 2005 and since then we have won the reputation of highly-qualified specialists in various areas of law. The company provides comprehensive legal assistance and business consulting services to national and foreign investors all over Ukraine. There are eleven highly qualified lawyers in our team. Six of them are attorneys-at-law. VB PARTNERS is considerably good at banking, retail, real estate and construction, media, tobacco, alcohol, metallurgy sectors. Company provides effective and accurate legal advice regarding: — Full legal assistance to foreign investors on the territory of Ukraine; — Legal representation at state authorities; — Disputes with the state regarding taxation, antimonopoly and customs legislation; — Judicial defense of corporate rights and investments; — Legal representation in criminal cases on economic crimes, etc. In the last 3 years VB PARTNERS has been in the TOP 50 of the best domestic law firms in Ukraine. The company’s partners are consistently found on the list of leading specialists of the country’s legal market by the most authoritative international and Ukrainian market reviews. Confidentiality compliance, trustworthiness and immediate response to the challenges and demands of clients constitute an integral part of the company’s operating philosophy. Our company cooperates with law firms of CIS countries and Europe, which enables effective and quick resolution of the problems encountered by clients regardless of their origin. It makes us proud to be called an effective and dynamic law firm.

53


Commercial Law

Legislative Innovations Related to Business Creation and Development in Ukraine Nikolay Ochkolda Managing Partner, Attorney-at-Law, Legitimus Law Company

Vladimir Kucheryaviy Attorney-at-Law, Legitimus Law Company

T

his article analyzes amendments to Ukrainian legislation related to business creation and development. The pros and cons of these innovations are shown and practical advice on establishing efficient business is given. Since 1 January 2016 Ukraine has had its legislation relating to state registration and business operations fundamentally changed with the procedure of submission of documents simplified and fully functional access provided to all currently accessible Unified State Registers. Furthermore, a number of new legislative acts have been introduced and the unified system for business operations and information exchange is being created. Currently, the simplification of the state registration procedure has been legislated regarding new business entities and amendments to data on existing ones, which has resulted in an applicant and members of the legal entity not being obliged to go to a notary officer for execution of appropriate documents when carrying out state registration of amendments to the statutory documents of the legal entity as well as being able to register business when submitting documents

54

www.ukrainianlawfirms.com

in electronic format, which can certainly be considered a positive step. At the same time, these simplifications can lead to certain manipulations and fraud on the part of unscrupulous partners or even raiders. Furthermore, the importance for everyone of disclosure and accessibility of information on ultimate beneficial owners is also worth mentioning. Knowing the name of the legal entity, the information on the ultimate beneficial owners of the legal entity can be easily obtained, which gives an opportunity to get information on a direct counterparty owner. Liabilities and particularities related to submission of information on the ultimate beneficial owner to the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organizations (hereinafter referred to as the State Register) are provided by the On Amendments to Certain Legislative Acts of Ukraine Regarding Identification of Ultimate Beneficial Parties of Legal Entities and Public Persons Act of Ukraine of 14 October 2014 and the On Prevention and Counteraction to Legalization (laundering) of the Proceeds of Crime, to Financing of Terrorism and Proliferation of Weapons of Mass Destruction Act of Ukraine of 14 October 2014. However, though these legislative innovations have been implemented since the end of 2014 in Ukraine, a number of drawbacks failed to be eliminated by lawmakers. Particular attention should be drawn to the fact that apart from administrative liability for non-submission of information on ultimate beneficial owners of a legal entity, criminal legislation of Ukraine, namely Article 2051 of the Criminal Code of Ukraine, provides for the applicant to be liable for knowingly giving false information to the state registrar. A significant number of Ukrainian residents are known to command the services of nominee shareholders, directors, etc., when engaging foreign companies into their business entities. This is due both to existing legislative limitations on free foreign investment for acquisition of corporate rights of foreign business entities and the owners’ intention to make information on their ownership confidential.

Besides, it should be borne in mind that such services are commanded by a great number of business entities, particularly in Ukraine. Thus, it can lead to a situation when a person who is a foreign resident will be identified in the State Register as an ultimate beneficial owner of a number of enterprises, a fact which in itself can attract the attention of regulatory agencies. Furthermore, attention should be paid to the limitations provided by the competitive legislation of Ukraine. For example, to the requirements for getting permission for merger clearance. The engaging of one and the same person by several business groups may simply result in their being interconnected by control relations with any agreement demanding merger clearance permission or leading to violation of competitive legislation. There are other legislative innovations related to business management, which are worth bringing to your notice. For instance, the reduction of the quorum needed for holding general meetings of members of limited liability companies and general meetings of shareholders of joint-stock companies has become one of the most important legislative innovations for business owners and, particularly, foreign investors. Formerly, the meetings of members/shareholders could take a decision only with a quorum total of 60% of the votes. Currently, meetings are claimed to be legitimate with members/shareholders being present and having more than 50% of votes in total. Thus, a significant problem faced previously by investors has been solved. Namely, when a majority shareholder with less than 60% of voting shares could not ipso facto control business operations because the absence of minority shareholders deprived him/her of the opportunity to take decision on the change of management of the company or other important decisions, which require the convening and holding of a meeting of members/shareholders. In addition to the above-mentioned amendments, implementation of derivative action, introduction of liability of officials of joint-stock companies in case of infliction of damage to the companies by their misconduct, setting of the clear regulation of related-party transactions, which, in its turn, will protect the rights of shareholders, should all be noted. This means that now a shareholder


PROfile can enforce the director of the Ukrainian company to recover the damage if it is judicially proved to have been caused by his/her misconduct. The issue of implementation of the concept of sharing/corporate dealings between members/shareholders of companies to the legislation of Ukraine still remains pending and controversial. Unfortunately, we have not witnessed any legislative changes, but there might be hope this year on this issue. The sharing dealing will enable members to determine the main activities of the company, specific aspects of its management, the liabilities to be applied to the violators of the sharing dealing terms and conditions, an opportunity for protection of parties’ interests in case of nonfulfillment of obligations by the member, mechanism of dealing with no-win situations as well as other issues to be willingly discussed by the parties. The fact that the above-mentioned issue is not regulated in Ukraine leads to attempts by business owners to regulate their relations abroad using legal mechanisms available there on the basis of holding companies. At the same time, when creating business with foreign holding companies engaged, a attention should be paid to the particularities of Ukrainian legislation, namely identification of ultimate beneficial owners of legal entities. Actually, it is not an innovation, neither in Ukraine, nor in the world, as, for example, in the USA the new Incorporation Transparency and Law Enforcement Assistance Act has been under consideration since August 2013, while in Great Britain the idea of creation of a publicly accessible register containing information on beneficial owners of companies has been discussed since June 2014, having been adopted only at the end of 2015 with the aim of it starting to function only in April 2016. Besides, in comparison to the Ukrainian State Register, the British Register is not open. Only upon a grounded request from the authorized person or agency is the information provided.

www.ukrainianlawfirms.com

As Ukraine joining the automation information exchange system is inevitable, the regulatory agencies and banking institutions will have the chance to automatically exchange information on legal entities and their owners, which can possibly lead to regulatory agencies carrying out checks of information on the ultimate beneficial owners of legal entities provided in the State Register. That’s why, when providing such information to the State Register now, applicants have to take these facts into account so as to avoid possible liability in future. It should be mentioned that current Ukrainian legislation does not provide for cases of identification of ultimate beneficial owners of Ukrainian companies, the parent companies of which are public companies. That is, ones which have their outstanding shares on stock exchanges, as well as for cases of Ukrainian companies enlisting entities which have forms of incorporation not covered by Ukrainian legislation. For instance, trusts, foundations, partnerships which are traditional for case law, which are very popular and efficient tools in international structuring. It should also be remembered that there are still countries where bearer shares are not abolished, which makes it impossible to identify the ultimate beneficial owner of such companies. In spite of all the positive implementations, a number of issues remain, which require a more thorough analysis and legislative regulation. That’s why the engagement of foreign entities into business structuring and regulation of relations between partners abroad are still a high priority for both the Ukrainian business community and foreign investors. Therefore, when engaging foreign companies in business structuring, first of all, current trends of development of this type of relations and their legislative regulation should be taken into account, and the business entity should be adapted to the new circumstances in the world and legal changes, as this is first and foremost a condition for business to feel secure and successful.

Legitimus Law Company Address: 49A Volodymyrska Street, Suite 149, Kiev, 01001, Ukraine Tel.: +380 44 585 8256/57/58 Fax: +380 44 585 8256/57/58 E-mail: legitimus@legitimus.com.ua Web-site: www.legitimus.com.ua

T

he Legitimus Law Company was established by combining the efforts of advocates and lawyers possessing long-term experience of successful work on Ukraine’s legal and advisory services, particularly in real estate, legal land relations and optimization of investment and company taxation. Legitimus Law Company is established based on three principles: knowledge, reliability, trust. Knowledge. Combination of high potential of professional advocates and lawyers with international standards and advocacy acquired by company employees after getting an education and long-term successful practice/reliability. Consolidation of the company’s professionals and their practical abilities with the skills and energy held by the company’s young generation of employees whose dynamic growth in professional and economic aspects are enabled by the company’s structure. Trust. Adherence to moral and ethical values and implementation of international standards of advocacy in Ukraine. Goal. The Legitimus Law Company operates as one team in which everyone realizes personal potential for achieving the common objective. We understand the business of our clients, and detect and resolve their problems vigorously and in a timely manner whilst remaining in constant contact with the client. Having oriented ourselves on the bottom line, we set a goal and achieve it consistently. We protect our client by combining initiative and Ukrainian “quick wit” with international standards of advocacy. Experience. The Legitimus Law Company’s advocates are highlyqualified specialists in the field of Ukrainian and international law who practiced considerably in various state and private companies. Regardless of what form of cooperation you choose, the services will be rendered by highly— qualified specialists. Thorough knowledge of various branches of law, supplemented with significant experience of work, will enable the most complicated issues to be resolved. We offer a full spectrum of legal services for Ukrainian and foreign legal entities and the resolution of a wide range of legal issues for individuals too. Main Areas of Practice: Real Estate and Land; Litigation and Arbitration; Taxation; Corporate Law; International Trade/ Foreign Investment; Intellectual Property.

55


Competition Investigations

Reforms in Ukrainian Competition Law Antonina Yaholnyk Founding Partner, CLACIS

Anastasiia Zeleniuk Attorney, CLACIS

T

he last year has shown a great deal of changes in the competition law of Ukraine. The article will analyze some of such changes as well as touch upon other areas, which require reform. One of the first steps taken was the adoption of the On Amendments to the Acts of Ukraine On Ensuring the Transparent Activity of the Antimonopoly Committee of Ukraine of 12 November (hereinafter — the On Transparency Act), introducing a number of amendments to the key laws governing antimonopoly issues in Ukraine. The main purpose of this On Transparency Act is to ensure legal certainty and predictability of decisions of the AMCU, as well as to promote anti-corruption efforts. According to the On Transparency Act, from 3 March the AMCU is under an obligation to publish non-confidential versions of its decisions during 10 days since the adoption of the decision. The other novelties relate to determining confidential data in filings. According to the latest changes to the On Antimonopoly Committee of Ukraine Act introduced by the On Transparency Act, the notifying parties shall clearly mark confidential data in submissions. If data is not clearly marked as confidential it is presumed that it may be subject to disclosure. In order to safeguard protection of

56

www.ukrainianlawfirms.com

confidential data it is worth clearly marking such data and substantiate to the authority why disclosure of such data may negatively impact client’s interest. The On Transparency Act also provides for the duty of the AMCU to hold consultations with the notifying parties in order to discuss reasons for using the information as confidential and the possibility of disclosure of such information or to provide non-confidential versions of the documents. This reform is aimed at ensuring transparency and sustainability of approaches of the antitrust authority to interpretation of competition law, especially in the part of such challenging issues as market definitions and market shares. The changes envisaged by the new Act are certainly very important as it provides greater transparency of decisions taken by the authority. The next step taken is the adoption of the On Amendments to the Act of Ukraine On Protection of economic competition Act (on increasing merger control thresholds, hereinafter — the Act ). These changes have already been adopted and are to become effective on 18th of May 2016. The new Act deals with financial merger control thresholds, as well as with merger control and concerted action procedures. According to the Act, a merger control requirement arises in cases where parties to a respective transaction (even foreign-to-foreign) meet the following thresholds: — the aggregate asset value or the aggregate sales volume of the participating undertakings (including their related by control entities/persons and calculated on worldwide basis) exceed the Hryvnya equivalent of EUR 30 million, and — the aggregate assets value or the aggregate sales volume on the territory of Ukraine exceed the Hryvnya equivalent of EUR 4 million for each of at least two participants to a concentration (including their related by control entities/persons); or — the aggregate asset value or the aggregate sales volume of the target or at least one founder of a joint venture (including its related by control entities/persons) on the territory of Ukraine exceeds the Hryvnya equivalent of EUR 8 million, and — the aggregate sales volume of at least one other participant to a concentration (including its related by control entities/persons and calculated on the worldwide basis)

exceeds the Hryvnya equivalent of EUR 150 million. Moreover, the Act increases filing fee, namely: — for the merger control filing — up to UAH 20,400 (approximately EUR 700); — for the preliminary conclusions on concentration — up to 14,960 (approximately EUR 500); — for the concerted action application — up to 10,200 (approximately EUR 330); — for the preliminary conclusions on concerted actions — up to UAH 4,760 (approximately EUR 170); — for the conclusions on the qualification of the notified actions — up to UAH 5,440 (approximately EUR 200). Moreover, the Act introduces expedited 25 calendar days review for those merger control applications, which do not lead to/ result in appreciable effect on competition in Ukraine, namely in cases when: — only one participant to a concentration is active in Ukraine; or — combined market share of the concentration participants at the same product market does not exceed 15%, or — Individual or combined market shares of the concentration participants do not exceed 20% at the markets, on which products, without purchase or sale of which, activities of other participant of concentration are impossible, are sold. Furthermore, the Act provides for a number of novelties in the existing merger control and concerted actions review procedures aimed at raising the predictability thereof. Thus, the regulator introduces pre-filing consultations in respect of the possibility of the expedited review, as well as of the customization of information/documents required for a review of a particular application. Such consultations can also be held during the initial 15 calendar days review of a merger control/ concerted action application. Unfortunately, the Act does not regulate this matter any further, hence issues related to the legal status and consequences of such consultations, as well as procedural rules for such consultations are left open, which gives a room for interpretation and provides for the legal uncertainty. Hopefully such matters will be resolved by the amendments to the Regulation on Concentration to be expected. Further, the Act makes a number of clarifications related to the phase II review


PROfile of merger control and concerted action procedures. Particularly, the Act provides that the phase II review may apply only in cases where a notified concentration/concerted action raises significant competition law concerns and hence gives grounds for the prohibition thereof. And so the Act removes the necessity of complex and profound research or investigation from the scope of grounds for the phase II review. This rule will hopefully allow avoiding lengthy proceedings in regular merger control matters. The Act also amends phase II of the review procedure with the possibility for notifying parties to undertake obligations/commitments in respect of notified concentration/ concerted actions in cases where the authority discovers grounds for prohibition of a concentration/concerted actions. Unfortunately, the Act does not regulate this provision any further on how the procedure shall look. Hopefully such matters will be regulated by the amended Regulation on Concentration. It should be also noted that the Act requires obligatory submission of information on ultimate beneficiaries of the participants to the notified concentration or concerted actions. If the applicant fails to provide such information, the AMCU will refuse to review the application for obtaining approval for concentration or concerted actions. More novelties are to be introduced by the Draft Act On Calculation of Penalties for Breach of Antitrust Legislation and Improvement of Court Appeal Procedure against Decisions of

www.ukrainianlawfirms.com

AMCU (now pending second re-read). This Draft Act provides for adoption of legally-binding Methods of calculation of penalties for competition law infringements instead of current newly adopted fine calculation Guidelines, which are advisory in nature. Introduction of the abovementioned Methods will establish clear criteria for mitigating and aggravating factors and thereby decrease the possibility of discriminative approach when calculating fines for the same violations and will ensure transparency in calculation approaches. The above-mentioned Draft Act also introduces amendments to the procedure of court appeal against the decisions of Antimonopoly Committee of Ukraine. Under current legislation, Ukrainian courts cannot review fines imposed by the AMCU. According to the Draft Act, entities will be able to appeal against fines imposed by AMCU to courts, but it will remain impossible to change fines by means of judicial procedure. As a result of court proceedings, a court may either affirm or invalidate and remand the decision of AMCU. That means that the AMCU retains its exclusive right to calculate and impose fines for breach of antitrust legislation, while a court appeal against decisions of AMCU still remains inefficient. The market is also anticipating greater certainty in respect of other matters: possible limitation of terms for review of cases over breach of antitrust legislation, assessment of joint ventures, assessment of vertical and horizontal concerted actions, and many other areas.

CLACIS Address: Sophia Business Center, 6 Rylskiy Lane, 2 Floor, Kiev, 01601, Ukraine Tel.: +380 44 490 7001 Fax: +380 44 490 7002 E-mail: yaholnyk@clacis.com Web-site: www.clacis.com

C

LACIS is a leading competition law advisory, which focuses on matters concerning competition law in Ukraine, Russia and Kazakhstan. The services include all aspects of competition law such as investigations, audits, infringement cases, leniency, merger control approvals, competition law legal due diligence, antitrust litigation, distribution and contract related antitrust issues, public procurement, as well as compliance issues. The team of professionals of recognized competence together with the regional coverage makes CLACIS a unique law firm. Well-known as a “one-stop-shop”, CLACIS offers its clients high-quality advice on competition law matters in a number of jurisdictions with international capacity through relationships with independent law firms. We regularly advise international companies on the regional level (such as MasterCard, The Timken Company, Interbrew and others) on competition law issues, arising in the region. Such multi-jurisdictional expertise in antitrust matters within the region is unique on the market. Antonina Yaholnyk, founding partner and CLACIS have been highly recognized by such international and local legal directories such as Chambers Europe, Legal 500, Best Lawyers and ULF. Being one of the leading individuals in the field of antitrust & competition, Antonina Yaholnyk has almost 20 years of legal practice of which over 10 years of experience handling antitrust and compliance matters. She also headed Baker & McKenzie’s Competition & Compliance Law Practice Groups. Antonina Yaholnyk holds LL.M. degree from the University of Cambridge (UK), Master’s degree International Law and Economics from the World Trade Institute (Switzerland). Mrs Yaholnyk chaired the European Business Association’s Competition Committee in 2011-2012. She is a member of Noncommercial Partnership “Supporting Competition in the CIS Countries”. Mrs. Yaholnyk was elected as a Member of Council of Competition Law Committee at the Ukrainian Bar Association in 2016. Our lawyers — a team of dedicated professionals in antitrust and antitrust litigation — are graduates of leading local and foreign universities with professional experience in international law firms in Ukraine, Russia and Kazakhstan, such as Baker & McKenzie, Deloitte and others.

57


Complex International Transactions

Complex M&A Transactions Galyna Zagorodniuk Partner, Head of Competition Practice, DLA Piper Ukraine

(the EC) which saw significant competitive threats to Airbus. Sometimes the transaction in a particular country is only cleared subject to certain conditions. Moreover, the parties should decide whether they wish to proceed with a transaction if they are to commit on those conditions.

Merger Control Reform

Dmytro Tkachenko Senior Associate , DLA Piper Ukraine

M

&A transactions, and in particular complex crossborder transactions, can be implemented in various forms. These can be acquisitions, establishment of joint ventures, mergers and demergers, etc. While the majority of transactions are rather typical, some could be absolutely non-standard and extravagant. In fact, the parties have freedom to do whatever they wish, provided this complies with laws, including various merger control requirements, of the countries involved and affected. When planning exactly what and how would be implemented, the parties should keep in mind that sometimes not only do they have to analyze the direct legislative provisions measuring implementation of transactions. They should also assess the indirect considerations. In this article we would like to discuss exactly these indirect and not necessarily evident from first glance considerations. Transactions are subject to merger control in various countries, including Ukraine. Multiple reviews of international M&A are likely. And while the same transaction could be cleared in one country, it may be prohibited in another. For example, the merger between two major US airspace manufacturers, Boeing and McDonnell Douglas, was approved in the US but was nearly blocked by the European Commission

58

www.ukrainianlawfirms.com

Ukrainian and multinational companies have been advocating changes to Ukrainian merger control for years. The reason was that due to the very low notification thresholds too many transactions that were highly unlikely to have any adverse effect on competition in Ukraine were subject to mandatory pre-completion merger clearance due to the form-over-substance approach. Therefore, the merger control reform, recently adopted and effective since 18 May 2016, stipulating, inter alia, significant increase of financial thresholds and some other changes, was greatly welcomed by business. As a result of merger reform a significant number of both domestic and cross-border transactions would fall beyond the scope of Ukrainian merger control. This means that the caseload of the Antimonopoly Committee of Ukraine (the AMCU) would drop substantially. Accordingly, the AMCU which will now deal with dozen of applications instead of one thousand of them, the AMCU would be able to allocate additional resources to conduct a more thorough assessment. The long-awaited changes to the notification thresholds are coupled with development of the concept of antitrust remedies. Whilst reviewing a merger the AMCU must initially determine whether the merger is likely to result in monopolization or substantially limit competition. If that is the case, the AMCU may prohibit the merger or approve it subject to conditions. Such conditions, referred to as remedies, are aimed at mitigating the negative effect of the merger and ensure that a transaction would not limit competition on the market. Merger control reform also provides that the remedies undertaken by parties must be proportional to risks. According to the new procedure, the AMCU and the parties may hold consultations in order to agree on the necessary remedies. Despite Ukrainian law containing provisions on remedies for many years, they were rarely applied in practice. However, recent changes and circumstances described above could change this and business should be ready.

Remedies: What is This? As stated above, remedies are commitments taken by the parties to a transaction, which mitigate the negative effect on competition. At the same time, competition authorities monitor how these commitments are complied with by the parties after the transaction’s implementation. Remedies are usually categorized as either structural or behavioral. To give an example of structural remedies: one retail chain acquires another, the competition authority requested that the purchaser is prohibited from purchasing other retails shops in the particular region over the next 5 years. So structural remedies are generally one-off measures that are designed to increase competition by changing the structure of the market. They usually involve either a ban on acquiring additional companies or assets or divestiture of certain assets to a third party. Behavioral remedies are generally ongoing measures that are designed to regulate or constrain the behavior of parties in a market. For example, in the above acquisition of a retail chain, a request was made to maintain retail prices in a certain region at a level not higher than average in the country for 3 years. Behavioral remedies usually require ongoing monitoring by the authorities. They may include a restriction on entities to enter intolong term contracts, a commitment to invest in additional capacities, commitments that cap the mark-ups, etc. It should be said that there are a number of other types of remedies. For example, access commitments. These can be remedies to give access to a critical technology or infrastructure.

Remedies in Practice

To give you an understanding of how remedies are applied in the EU, between 2004 and 2012 the EC cleared 147 mergers subject to commitments. In UTC/Goodrich, the business of Goodrich in aircraft electrical power generation and distribution was divested. The package included offering a competing engine supplier, Rolls-Royce, an option to acquire one of Goodrich’s R&D projects, which was a type of structural remedy. Besides, in recent years the EC has cleared several airline mergers on the basis of slot release remedies, which is a type of access remedy. In 2014 the AMCU approved two transactions in Ukraine subject to conditions. The AMCU considered the merger case of two companies registered outside of Ukraine


PROfile which sell detergents and softeners for fabrics (conditioners) on the Ukrainian market. It was determined that the parties have a significant share on the market of softeners for fabrics (conditioners), therefore the merger was approved subject to remedies. Another transaction which was approved by the AMCU subject to conditions was acquisition of joint control over Goodman Fielder Limited by First Pacific Company Limited and Wilmar International Limited. The AMCU identified that First Pacific and Wilmar Group have a considerable share of the refined palm oil (stearin) market and that the transaction may have a certain negative effect on competition in Ukraine. The AMCU determined that

www.ukrainianlawfirms.com

the negative effect could be avoided subject to the parties committing themselves not to implement any concerted actions on the refined palm oil (stearin) market. The parties voluntarily agreed to undertake the relevant commitments.

***

We assume that as a result of merger control reform, more cases of remedies application would appear in Ukraine. Analyzing the experience in other countries where remedies have already been applied for some time now, parties planning transactions in Ukraine should take into account that they could face such remedies in future and, therefore, assess the effect of their actions more profoundly.

DLA Piper Address: 77A Chervonoarmiyska Street, Kiev, 03150, Ukraine Tel./Fax: +380 44 490 9575, 490 9577 E-mail: ukraine@dlapiper.com Web-site: www.dlapiper.com

D

LA Piper is a global law firm with a presence in more than 30 countries throughout the Americas, Asia Pacific, Europe and the Middle East, and provides a broad range of legal services to local, regional and international clients. Areas of practice in Ukraine The firm’s Kiev office specializes in the following fields: — Corporate and M&A: set up and termination of businesses, corporate governance, M&A, including due diligence, corporate restructuring and reorganization; corporate investigations and compliance and legal support of day-to-day operations. — Competition law and regulatory: permits for concentrations; for concerted practices, leniency program advice; advice on protection from unfair competition, compliance advice and audits, obtaining of preliminary conclusions from the AMCU; abuse of dominant position; advice on commercial agreements and trade practices, natural monopolies and public procurement; support during investigations by the AMCU, as well as competition litigation. — Finance and Projects: M&A and regulatory work in the banking and finance sector, asset, debt and capital markets transactions, structured finance, project finance, real estate finance, aviation finance, debt restructuring projects, infrastructure and PPP projects, litigation in debt and insolvency-related matters. — Real estate and construction: acquisition/sale and lease transactions for real estate and land; registration of associated rights; establishment of business presence, expansion and structuring of retail business, construction and planning matters, industrial and infrastructure projects, real estate due diligence, structuring of real estate transactions and construction investment projects, real estate contracts, mortgage lending and environmental issues. — Tax: corporate tax, VAT and customs, tax driven restructurings (domestic and international), as well as M&A transactions from the tax perspective, tax due diligences, reviews of tax profiles of entities, tax controversy, litigation and transfer pricing. — IP and Technology: registration and protection of IP in Ukraine and overseas, IP portfolio management, IP due diligence, structuring of IP ownership and commercialization of IP, unfair competition issues, parallel import and counterfeits, licensing and assignment agreements, IT outsourcing, internet, e-commerce, domain names and telecommunications, data protection, software and hardware, technology transfer. — Labor: employment contracts, personnel policies, employment law audits and due diligence reviews data protection, employee rights, employment-related tax issues, termination matters, employment litigation.

59


Compliance

Corporate Internal Anti-Corruption Investigations in Ukraine Alesya Pavlynska Senior Associate, Arzinger

Kateryna Gupalo Attorney-at-law, Partner, Arzinger

Mariia Baranovych Attorney-at-law, Senior Associate, Arzinger

vides for a wide range of legal developments, including a number of limitations and requirements for private companies and their employees. For instance, this Act stipulates certain limitations related to gifts and engaging employees that have been employed in the public sector. Besides, the Act contains requirements for developing an anti-corruption compliance policy, as well as appointing a compliance officer of a company. Moreover, the new legislation guarantees protection of whistleblowers. Ukraine has also established the State Register of Corruption Offenders which contains public information regarding individuals, who were brought to criminal, administrative, disciplinary or civil liability for corruption offences, as well as legal entities, against which the measures of criminal character for corruption offences were applied. The aforesaid Register of Corruption Offenders is designed to prevent officials and legal entities, which have already committed corruption offenses, from participating in public procurement. Besides, this Register may be used by private companies for internal business-related purposes. Recent developments in anti-corruption regulation in Ukraine are supposed to have a significant impact on corrupt business practices both in public and private sectors.

Internal Anti-Corruption Investigations

Recent Developments in Anti-Corruption Regulation in Ukraine

In 2015 Ukraine slightly improved its Corruption Perceptions Index ranking, having jumped 1 point so that our country scored 27 points out of 100 on the 2015 Corruption Perceptions Index reported by Transparency International. This improvement was caused by a number of recent developments in anticorruption regulations in Ukraine aimed inter alia at establishing independent institutions to fight corruption. In particular, on 26 April 2015 the new On Corruption Prevention Act of Ukraine of 14 October 2014 came into force. This Act pro-

60

www.ukrainianlawfirms.com

Internal anti-corruption investigations are a vital part of a security program in companies as they are aimed at the elimination of corruption risks. Such investigations in the Ukrainian offices of international companies may be caused by ongoing FCPA and/or UK Bribery related investigations, or indications of a potential corruption offence detected by a company. Internal investigations can be conducted in a number of different ways, taking into account the needs of a certain company. However, in any case such corporate investigations shall be in line with current legislation of Ukraine regulating personal data protection issues, employment, etc. In particular, internal investigations may raise a number of issues, including the following: — collecting documents and evidence (personnel files, access to e-mail records,

telephone records, building entrance/exit records, appointment calendars, etc.), — video and audio recording (including covert video surveillance, conducting witness interviews with video or audio recording devices), — taking preemptive disciplinary or other actions against the individuals responsible, — voluntary disclosure of the contents and results of internal investigation to the local government law-enforcement authorities, — multi-jurisdictional disclosure (including requirements for mandatory disclosure obligations in a number of jurisdictions: where a company is based, where the corruption offence took place and where relevant employees are located), etc.

Workplace Privacy and Employee Monitoring in Ukraine

Unfortunately, Ukrainian labor legislation still doesn’t envisage clear rules regarding employee monitoring with the help of technical equipment. However, the Draft Labor Code, which is being considered by the Ukrainian Parliament and was supported in the first reading on 5 November 2015, introduces the right of an employer to monitor the employees fulfilling their labor duties, subject to a preliminary warning (para. 1 Article 30)1. It must be underlined though that the business practice of monitoring employees is already widely used in Ukraine. However, the means applied are not always legitimate. In order to find a fair balance between the right to workplace privacy (including the constitutional right to the privacy of correspondence and telephone talks) and the employer’s control requirements, the employer must legitimize the procedures by: — Elaborating internal documentation formalizing employee monitoring, and — Informing employees about such procedures and gathering their consents (if necessary), including the respective clauses in labor agreements. At the same time, one must differentiate between such types of monitoring as video and telephone monitoring, monitoring of email, voice and postal mail, as well as computers and GPS. http://w1.c1.rada.gov.ua/pls/zweb2/ webproc4_1?pf3511=53221

1


PROfile Furthermore, personal data protection rules must also be considered depending on the type and purpose of monitoring, and reflected in labor agreements and internal labor documentation, with special attention paid to “sensitive data” requiring special protection. It must be stressed however, that the employee monitoring issues give rise to disputes throughout Europe, with the recent Judgment of the European Court of Human Rights2 (dealing with protection of privacy with regard to employees’ Internet communications) serving as an excellent example.

Criminal Proceedings Issues

Corruption offences are punishable under Ukrainian criminal law. Accordingly, suspicions regarding employees’ involvement in corrupt practices may be accompanied not only by FCPA and/or UK Bribery related investigations, but also by criminal investigations conducted by Ukrainian lawenforcement agencies. When investigating criminal offences, Ukrainian law-enforcement agencies normally withdraw documents for processing and seize servers to obtain access inter alia to employees’ electronic correspondence. They also conduct interrogations. This means that if the original documents as well as servers, employees’ portable computers etc. are seized by Ukrainian law-enforcement agencies, the relevant data may become inaccessible for the company for internal investigations. On the other hand, law-enforcement agencies have enough power and authority to obtain the fullest access to the files and information, regarding which a company encounters the above-described access problems. In particular, we refer to personal correspondence, telephone calls, information that employees, as witnesses, are obliged to disclose to law-enforcement authorities. At the same time, all the data, documents and other forms of proof obtained by law-enforcement agencies in the course of investigations are protected by pre-trial investigation secrecy. At the pre-trial investigation Case of BĂRBULESCU v. ROMANIA, No.61496/08, ECHR 2016, Judgment of 12 January 2016 under the link http://hudoc.echr.coe.int/eng?i=001-159906#{“ite mid”:[“001-159906”]}

2

www.ukrainianlawfirms.com

stage a company may not seek access to all evidence collected by law-enforcement agencies. Decisions on the disclosure of particular information obtained in the course of investigations shall be made by investigators and/or prosecutors, if they believe that it will help to ascertain the objective truth in the relevant investigation.

Grounds for Dismissal

Strange as it may seem to any foreign investor, non-flexible and employee-friendly Ukrainian labor legislation doesn’t provide for simple and effective means for dismissal or temporary suspension of employees of private companies on the ground of the “corrupt behavior” only, unless within a criminal procedure or following certain specific cases envisaged by the On Corruption Prevention Act of Ukraine. The mere suspicion, accompanied by as much seemingly unchallengeable evidence as the case might be, doesn’t provide grounds for immediate dismissal without notice. Moreover, any decisive (but illegitimate) steps on the part of the employer may result in reinstatement of employment with payment for forced absence and moral damages to such employee pursuant to a court decision.

Our Recommendations

In order to mitigate the risk of corruption in private companies in Ukraine, as well as to ensure effective internal anti-corruption investigations, we would recommend that companies: — develop or adjust anti-corruption compliance policy in accordance with current anti-corruption regulation in Ukraine; — appoint a compliance officer within the company (taking into account the requirements and limitations set out by the On Corruption Prevention Act of Ukraine for taking up the position of compliance officer); — develop a transparent internal regulatory framework (including data protection and employment surveillance issues), a consistent implementation policy and an effective enforcement strategy; — ensure the safety of backup copies of documents and data in case of their seizure by law-enforcement agencies.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

61


Corporate Disputes

Derivative Claim in Disputes on Recovery of Damages Inflicted upon a Company by its Officer

he issue of “a derivative claim”, i.e. the right of a participant (a shareholder) to file a claim in the interests of a company to recover damages, is especially acute in the light of recent changes to legislation taking effect on 1 May 2016. Introduction of the said legal instrument into current Ukrainian legislation should result in improving the investment climate in Ukraine. However, a number of incompatible things with the position of the judicial branch as well as the failure to clearly state the legal mechanism for its application will significantly complicate its implementation and negatively affect the activities of companies in general.

novations are introduced in legislative acts of Ukraine (the Commercial Procedural Code of Ukraine, the Commercial Code of Ukraine, etc.). Indeed, the most interesting innovation is vesting a participant (a shareholder) of a company holding a total of 10% or more of the authorized capital (ordinary shares) of this company with the right to start legal action in the interests of this company to recover damages inflicted by an officer thereof. In its essence, the given claim is indirect (derivative), since the protection of a company’s interests as a result of filing such a claim is made indirectly, but at the initiative of a participant (shareholder), and the company becomes a beneficiary in the given court case. Furthermore, one of the peculiarities of the said innovation is that, irrespective of the initiator of a derivative claim, the company in the interests of which the claim is filed will be deemed a plaintiff in the case on recovery of damages inflicted by its officer. The participant (shareholder) who files the claim will be deemed a representative of the company. Moreover, disputes on recovery of damages inflicted upon a company by its officer are considered by the commercial court at the venue of a legal entity. Besides, the newly-adopted law establishes that in cases on recovery of damages inflicted upon a company by its officer the following documents shall be made available to the general public on the official website of the Supreme Commercial Court of Ukraine: orders to institute court proceedings, information on announcing the adjournment of a court session, applications of participants (shareholders) to appoint representatives to the plaintiff. The given procedural documents must be available so that a potential participant of the procedure could join consideration of the case.

Basic Legal Regulation and Key Provisions

Key Incompatibilities of Legal Innovations

Viktor BARSUK Senior Partner, FCLEX

Andriy NIKITIN Partner, FCLEX

T

In 2015 the Verhovna Rada of Ukraine adopted the On Making Changes to Certain Legislative Acts of Ukraine concerning Protection of Investors Rights Act of Ukraine (taking effect on 1 May 2016), under which a number of in-

62

www.ukrainianlawfirms.com

It is known that a person seeks remedy to protect his violated or contested right and interests protected by law. For this reason, the filing of a derivative claim by a representative (shareholder)

means that the right and/or interest to be protected must be common and equivalent for both a participant (shareholder of the company) who has initiated the claim and the company itself, in whose interest the claim is filed. Despite the fact that at present valid Ukrainian legislation does not set out or govern the notion of a derivative claim, the judicial branch has provided respective legal conclusions regarding its existence and implementations. Firstly, the Constitutional Court of Ukraine adopted a decision in a case based on the constitutional petition of 50 Ukrainian MPs regarding the official interpretation of some provisions of part one of Article 1 of the Civil Code of Ukraine (case on interest protected by law) of 1 December 2004 No.18рп/2004 (case No. 1-10/2004 ). On the basis of analysis of the given decision, it is necessary to differentiate between the interests of a shareholder and the interests of the company itself. The court correctly emphasized that the legitimate interest of a company is not just a combination of legal interests of its shareholders. Individual interests of the latter, as a rule, differ by inconsistancy, and often by their conflicting nature, since they are directed at searching and using or making ways and means to satisfy needs different in both scope and sense, and which are different by motives in such desires and intentions. The interests in a shareholder holding one share and the interests of a majority shareholder, and the strategic interests of a joint stock company in general cannot be the same. Furthermore, in its Ruling No. 13 of 24 October 2008 On Practice of Considering Corporate Disputes the Plenum of the Supreme Court of Ukraine expressly pointed out that shareholders (participants) of a company do not have the right to apply to a court for protection of interests and rights of other shareholders (participants) of the company and of the company itself beyond the relations of representation or to substantiate their claims by violation of the rights of other shareholders (participants) of the company.


PROfile Thus, applying to court with a derivative claim is possible only within the framework of legal relations of representation which, as a rule, results from the adoption of a respective decision by respective officers and/or other management bodies regarding representation of interests of the company in courts. Though judicial law-making sets out the impossibility to file a derivative claim beyond relations of representation, legal innovations change the procedural order of initiating and considering cases on recovery of damages inflicted upon the company by its officer without stating the peculiarities as for representation. In turn, the conditions and the order in which the possibility to file a derivative claim being introduced in effective legislation are not perfect and will have a negative influence on a company’s activity. In particular, legislators provided that a derivative claim may be filed by a participant (a shareholder) of a company holding a total of 10% or more of the authorized capital (ordinary shares) of this company. As mentioned above, the interests of participants (shareholders) of a company are different and are sometimes conflicting, which gives rise to a high risk of simultaneous filing of conflicting claims by many participants (shareholders) of the company, which can lead to the activity of the company in question being blocked. In addition, another no less negative circumstance, which may result in blocking the company’s activity, is the possibility by a participant (shareholder) of abuse of the right to a derivative claim.

www.ukrainianlawfirms.com

Moreover, the newly-adopted On Making Changes to Certain Legislative Acts concerning Protection of Rights of Investors Act of Ukraine establishes the norm that, in disputes on recovery of damages inflicted upon the company by its office, waiving the claim, reducing the amount of claims, changing subject or the ground of the claim, conclusion of an amicable agreement waving a cassation claim or a claim of appeal is only possible upon the written consent of all representatives of the company. Based on the above-mentioned and on the fact of a conflict of interests between participants (shareholders) of a company, the exercise of the stated procedural rights of a party to a court case envisaged in the newlyadopted law is complicated because obtaining the written consent of all representatives of the company is no easy task. In fact, in some circumstances it will not be possible, which in practice can cause a number of contradictions (namely contesting the validity of the written consent, impossibility to obtain written consent, evasion from providing written consent, etc.).

Conclusions

Improving the investment climate in Ukraine is one of the priorities at this stage of the state’s development. However, achieving this aim by introducing such a legal instrument as a “derivative claim” may have a negative influence on a company’s activity. For this reason, it is considered to be too early to introduce the given innovations in Ukraine and it is advisable that their coming into effect be suspended until the general level of corporate culture increases.

FCLEX Address: 14D Bekhterivsky Lane, Kiev, 04053, Ukraine, Tel./Fax.: +380 44 238 6420 E-mail: inform@fclex.com Web-site: www.fclex.com

F

CLEX is one of the leading law firms in Ukraine to advise clients (the largest local and international companies) in core practice areas. Established in 2002, the firm enjoys a reputation of professional legal practitioners possessing the most challenging legal experience and a deep specialization in the fields of debt restructuring (bankruptcy), tax law & tax disputes, finance and banking, corporate and M&A, as well as in the resolution of complex court and arbitration disputes. The team at the FCLEX law firm consists of 42 lawyers, including six partners and four counsels. Many of them have been working in the company for over 10 years. FCLEX lawyers conduct comprehensive support of client projects: from the moment a task is received to complete implementation of the solutions in favor of the client. In 2015 we firmly established ourselves as a leading law firm in such practice areas as litigation and bad debt disputes. In particular, FCLEX won a prestigious Legal Award, “The best law firm in work with distressed assets”. We were also finalists (TOP 5 law firms) in the “Best Law Firm in Litigation in 2015” nomination. FCLEX was included to the TOP-18 leading law firms in Ukraine in 2015 according to the results of the annual TOP-50 Leading Law Firms of Ukraine research. Ten of the disputes supervised by FCLEX lawyers entered the TOP-50 largest litigations in Ukraine in 2015 according to the Yuridicheskaya Practika Weekly. FCLEX was recommended as one of the leading Ukrainian firms in Banking & Finance and Dispute Resolution by Legal 500 2015 and recognized in Energy and Infrastructure, Banking and Finance and M&A by IFLR 1000 2016. The reliability and professionalism of our specialists and flexibility and exclusive approach to each case is in demand among our major customers. FCLEX serves leading companies, industry leaders, included in the Top 10 in their relevant sectors. In particular, FCLEX customers are representatives of the financial sector, mining, metallurgy and natural resources, engineering, real estate, construction, pharmaceutical and healthcare, chemicals and energy, transport infrastructure, etc. The following leading companies are among the firm’s clients: Azovmash, National Bank of Ukraine, Concorde Capital, AIS Group, Vernum Bank, TrustBank, Ukrainian Business Group, RwS Bank, Mriya agroholding, Ferrexpo AG, NEST Corporation, ACME-Color, AutoKraz, Arterium Corp, Finance & Credit Bank, Terra Bank, NorYards AS, Transitional Bank Cristalbank, SOTA Cinema Group, etc.

63


Corporate Law

Business Registration Innovations Ernest Gramatskiy President, Gramatskiy & Partners Attorneys at Law

I

t is known that the main condition of business activity in Ukraine is its legitimacy. In its turn, one of the main procedures which confirm the legality of existence of subjects of business is business registration. It is a responsible process which demands necessary knowledge of legislation regarding the formation of new subjects of business. It should be noted that regulations regarding the formation of an enterprise are quite often amended. Therefore, registration of subjects of business in Ukraine demands professional approach, especially recently, due to the updating of legislation in this sphere. As of 13 December 2015 the Act of Ukraine On Amendment to the Act of Ukraine on State Registration of Legal Entities and Individual Entrepreneurs and of some other Legislative Acts of Ukraine regarding Decentralization of Authorities of State Registration of Legal Entities and Individual Entrepreneurs and Public Organizations as of 26 November 2015 No. 835-VIII except for a number of provisions (hereinafter — the Act). The purpose of the Act is to provide the conditions for development of business and public organizations, competition stimulation, reduction of administrative duty and level of corruption. New legislation united diverse initiatives: as those which already successfully proved themselves in practice, so as innovations which were demanded for a long time by the business environment and adoption of which can considerably facilitate business operation conditions in Ukraine. What will change in the field of state registration of business?

New Vertical of Subjects of Business Registration

Extending the list of subjects of business registration is one of the main innovations

64

www.ukrainianlawfirms.com

of the Act. According to the new legislation, apart from the Ministry of Justice of Ukraine and its territorial bodies, the authorities in the sphere of state registration of legal entities and individual entrepreneurs and public organizations will be granted to local authorities, local public administrations, notaries and accredited subjects. The Cabinet of Ministers of Ukraine still has to determine the procedure of accreditation and monitoring of compliance to the requirements of accreditation. It should be noted that institutions of justice reserve the function of state registration of political parties, trade and creative unions, organizations of employers, separate divisions of foreign organizations, arbitration courts, public associations and their insignia. By offering the specified initiative legislator provided transfer of part of services “for outsourcing” regarding state registration that will enable a rise in the quality of registration services, simplify access to the registration procedures, demonopolize the authority of state registrars. The Act determines that notaries are vested with the powers of state registrars. And as notaries already have experience of carrying out registration functions and they have the necessary resource base, acquisition of new powers by them will not create certain collisions in the sphere of administrative services provision regarding registration of subjects of business. But so far the question regarding access for notaries to the Unified State Register and to the provisions of the contract and the registrar’s technical administrator is still open. Also, according to Part 3 of Article 5 of the Act, the accredited subjects (legal entities of public law) who will carry out the functions of front offices (administrative services center) are vested with the powers of state registrars. It’s worth paying attention to the fact that the Act does not define the legal status of the accredited subjects, conditions of their contract with other subjects of state registration or with the notary regarding their powers. It should also be noted that for the start of work of new system of subjects of registration of legal entities and natural persons — entrepreneurs and public organizations transition period is necessary within which all disagreements should be eliminated and also develop and adopt relevant regulations as a

basis for the further activity of new subjects of registration.

Business. It Must be Easy

New legislation considerably simplified the procedure for opening a business. Unlike many countries, primary registration of subjects of business in Ukraine is free of charge. The Act determines accurate and clear procedures, the list of documents mandatory for state registration is considerably reduced, as well as the term of its implementation — within 24 hours of receipt of registration documents (Article 26 of the Act). Introduction by legislators of the exterritoriality principle is noteworthy, according to which registration actions will be carried out by subjects of state registration irrespective of the place of registration of the applicant throughout the Ukraine which will, in turn, improve the conditions of managing a business. The introduction into law-enforcement practice in Ukraine of the Unified State Register (hereinafter — USR) which united the Unified State Register of Legal Entities and Individual Entrepreneurs, Unified License Register, Register of permit documents, Unified Register of Public Organizations and Register of Public Associations, Unified Register of Enterprises regarding which the proceeding of bankruptcy is initiated, is a continuation of European tendencies of easy opening of a business. In its turn, the procedure of the USR’s functioning is determined by the Ministry of Justice of Ukraine. USR will simplify and unify registration procedure and will actually transfer the process of state registration to the on-line mode. In so doing, the status of consideration of such documents can be monitored in real time, and electronic interdepartmental cooperation between registrars and other government bodies will also be adjusted. Subjects of business are automatically registered with the Pension fund, State Fiscal Service and State Statistics Service. From now on, each subject of a business will have their own personal office which will contain all information regarding the subject on an electronic services portal. Information held on paper will soon become rare documents. For example, an extract will be provided only in electronic format without being signed and sealed by the registrar.


PROfile It should be noted that startup enterprises will feel Law innovations as after submission of documents to the subject of state registration they will not have any constituent document, even the second copy of the Articles of Association, whose existence is not provided by legislation. We will pay attention to the following innovations in the sphere of business registration: from now on the duty of annual representation of confirmation of data on a legal entity is cancelled (registration card on form No.6); the requirement of providing annual financial reporting in registration departments is cancelled; the form of registration cards is changed. The procedure for suspension of consideration of documents of subjects of business has been entered, which is the next innovation in the registration procedure. The exhaustive list of grounds for suspension of consideration of submitted documents is provided in Article 27 of the Act. Legislators also determined the term for correction of mistakes by the applicant and submission of missing documents; it is 15 calendar days. Attempt of the legislator to avoid abuse of rights which are granted to the subjects of state registration is the development of regulations forbidding the carrying out of registration actions regarding themselves, their relatives or legal entities, the founder or participant of which is such person or with which he is in labor relations.

Simplification of Business Registration or Additional Opportunity for Raiding

The danger of raider encroachments is that raiders try to give their criminal attack a “legal” form. As a result, a robbery, in reality with extreme violence, resulting in the capture of property or an enterprise achieves the status of an economic or corporate conflict. Raiding virtually always gains steam at the time of changes influencing the national economy that in turn, assumes changes the legislative base. Adoption of the Act On Simplification of Business Registration is, in

www.ukrainianlawfirms.com

general, a progressive step towards business structures. However, at the same time, use of some of its regulations can entail negative consequences which will promote a rise in the number of raider attacks as introduction of new data by state registrars and issue of new documents of a legal entity gives grounds, and the opportunity, for raiders to seize control and the property of an enterprise. It is worth paying attention to the fact that the specifics of the regulations contained in the Law which grant notaries the right to carry out state registration according to the principle of exterritoriality can create favorable circumstances for registration of amendments on the legal entity which contradict each other that afterwards can lead to an increase in the number of raider attacks. Also, from now on anyone can examine the authorized documents of a legal entity using the portal of electronic services. However, such innovation is not favorable for everyone. A negative surprise can appear if once at the next entrance to a personal office, founders of legal entity “will not recognize” their Articles of Association, will not find themselves among the founders (participants) and will establish that the company belongs to other persons. It should be noted that the more accurate and transparent the description of the corporate rights and duties of all subjects of business activity, rules of registration of amendments of corporate rights in state registration service, the lower the chances that raiders will have to receive forged documents on corporate rights. As a conclusion, it should be noted that legislators are introducing European rules for carrying out business registration in Ukraine. Only time will tell how it will work, but for now the new version of the Law on state registration is, undoubtedly, a step forward on the path to reforming the registration procedure of enterprises and creates opportunities for Ukraine to become a leader of the rating of Doing business in the criterion of how easy it is to open a business.

Gramatskiy & Partners Address: 16 Mikhaylivska Street, Office 7, Kiev, 01001, Ukraine Tel./Fax: +380 44 5811551 E-mail : office@gramatskiy.com.ua Web-site: www.gramatskiy.com.ua

G

ramatskiy & Partners is known as a trustworthy law firm, which has been successful in provision of legal assistance to its clients in various areas of law since its foundation. Gramatskiy & Partners is recognized as one of the leading law firms in Ukraine introducing high standards of legal services and performing exceptional proficiency. From the moment of its foundation in 1998, Gramatskiy & Partners has acknowledged business legal practice as its own professional vocation and a mission of its serving to the public. The unique experience of a vast legal practice allows the firm to advise today more than a hundred of Ukrainian and foreign companies providing complex aid and assistance in legal matters, combining classic legal practice traditions with modern international standards of the legal services market. Being a universal law firm, Gramatskiy & Partners has made its name in a capacity of a qualified provider of a comprehensive legal service. Combination of scrupulous approach and customer-centered orientation in terms of rendering legal assistance enables the firm to individualize a wide range of its services for business of every certain client. For more than 17 years Gramatskiy & Partners has been successfully developing its practice in the field of business (commercial) law, foreign economic activity, and the practice of international private law. The pride of the firm is its staff — a team of professionals who had stood at the outset of the firm and have worked their way up from its foundation on the local and foreign legal service market and who continue working for the benefit of the firm and its respected clients. The firm’s experts provide tailor-made advice on many different practice areas, including commercial, corporate, tax, foreign economic activity and foreign investments, copyright, mass media, labor, securities and stock market, disputes resolution, mediation, insolvency. Furthermore, many of the firm’s clients have been successfully represented before public authorities and courts in civil, commercial, administrative and criminal cases. Pragmatism and practical orientation are among distinctive features evinced by Gramatskiy & Partners in all the projects it was involved in; the firm bears responsibility for every memorandum and for every legal opinion, presented to the client. Gramatskiy & Partners structures and describes every legal procedure, as if the firm itself were to implement it in practice. In addition Gramatskiy & Partners pays special attention to the issues of confidentiality of the projects in which it assists because the law firm realizes the importance of information secrecy for the clients.

65


Counterfeiting & Piracy

Preventing and Combating Online Counterfeiting Alexander Pakharenko Partner, Attorney-at-Law, Ukrainian Patent and Trademark Attorney, Pakharenko & Partners. Mr. Pakharenko provides a full range of services in the field of intellectual property, including the receipt, management and protection of intellectual property rights both through administrative (before competent authorities) and judicial proceedings. He is a leading expert in Ukraine in anti-counterfeiting and anti-piracy issues.

O

ne can hardly imagine everyday life without the Internet. Modern people use the World Wide Web for getting information, communication, making money, shopping, entertainment. The Internet is a virtual reality with endless possibilities. Unhappily, these possibilities are often exploited by various rogues and IP thieves who sell fake goods through online shops. Consumers are attracted to such e-commerce websites due to low prices, round-the-clock availability and direct delivery. Studies carried out in April 2015 by the EU Observatory on Infringements of Intellectual Property Rights under the Office for Harmonization in the Internal Market (OHIM) in collaboration with Europol, proved that counterfeiting becomes very profitable business that exists due to the permanently high consumer demand for cheap products and the low cost of producing and distributing of fakes, while infringers are not deterred by severe punishment for this type of crime. Some websites selling fakes may be of such a high quality that they can even compete with the right holders’ websites. Infringers may operate in several countries at once, evading capture, and may launch new websites after taking down the old ones overnight without losing their customer base.

The Scale of the Problem and its Consequences

Counterfeit goods are not only damaging the reputation of counterfeited brands but, first and foremost, they may pose a serious threat to consumers’ life and health in case of low-quality medicines, cosmetic products, toys, spare parts for cars and aircrafts, agricultural chemicals, etc. Counterfeiting also has a negative impact on economies by depriving them of billions of Euros of potential

66

www.ukrainianlawfirms.com

tax revenues and attributing to growing corruption and crime, lack of fair competition in the market and reducing employment. By generating profits for organized crime groups this illegal business has already become an integral part of a huge criminal industry and may only be compared to arms and drug trafficking. From March 2015 to February 2016 the EU Observatory on Infringements of Intellectual Property Rights under OHIM held a series of studies into sectors known to be vulnerable to intellectual property rights infringements which confirmed that the Internet is the main tool for distributing counterfeits and the disappointing results of the studies can be seen in the table below. Lost revenues translate into many lost jobs in each sector as legitimate manufacturers sell less than they would have done in the absence of counterfeiting and, therefore, employ fewer people. Thus, illegal trade in counterfeits online poses threat not only to the economic interests of manufacturers of original products but also to the global economy which is based upon the protection of IP rights.

Employing Global Approach

Since counterfeiting and piracy is a global problem and the Internet has no borders, it should be addressed on an international level via the consolidated efforts of all countries by tracking supply chains and payment schemes, disrupting illegal production, improving the system of legal prosecution for dismantling illicit networks, raising consumer awareness on intellectual property rights and possible consequences of buying fake goods. IP rights will work most effectively where they are respected by potential consumers and where legitimate consumer interests in access to those rights are respected by rights holders. For this very reason there is a need to improve the legal framework and ensure that there is an effective infrastructure which allows rights holders to enforce their rights where they are infringed, but within which rights holders understand the role they must play in providing appropriate routes for consumers to access their IP legally.

Ukrainian Realities

For the time being the fight against counterfeiting in Ukraine is carried out directly by manufacturing companies (right holders) who protect their brands and by state authorities aiming to protect consumers from fake, low-quality goods. However, to increase the effectiveness of anti-counterfeiting efforts in the Internet it is necessary to introduce a number of legislative changes and strengthen law-enforcement activities in this sphere. One of the priority legislative measures is providing notaries with the power to secure

Annual revenue loss of legitimate EU manufacturers Industrial sector vulnerable to counterfeiting from the sale of counterfeits, EUR billion

Annual cost of counterfeiting for the economies of EUmember states from loss in taxes, social contributions and VAT

Perfumes, cosmetics, other personal care products (such as sunburn protection creams, shampoos, etc.)

4.7

1.7

Clothes, shoes and accessories (like ties, scarves, belts and gloves)

26

8

Sports equipment (like footballs, sports helmets, tennis rackets, skis, gym equipment and skateboards)

0.5

0.15

Toys and games (dolls, action figures, stuffed animals, board games, toy musical instruments, model trains and puzzles)

1.4

0.37

Jewellery, watches, handbags and luggage

3.5

1.1


PROfile evidence obtained from the Internet by certifying web-pages containing information on the infringement of IP rights. Moreover, a hosting provider’s obligation to notify a website owner about the right holder’s complaint on the activity of the website and report to a right holder about the forwarding of his complaint should also be formalized in legislation. These two legislative innovations would allow a right holder (or his representative) to promptly perpetuate an offence and obtain documentary proof of illegal activity on the Internet. Strengthening the capacity of competent law-enforcement officials can be achieved by vesting the responsibility of fighting online counterfeiting on a specific department of the National Police. One of the mechanisms for implementing this initiative may be establishing a single central authority as a point of contact for all right holders concerned, which designates the territorial bodies to carry out further actions within administrative/criminal proceedings and coordinates the activity of the said bodies. Furthermore, it is also essential to step up the administrative liability of persons involved in online sales (i.e. of counterfeit goods) without their registration as an economic entity under the established procedure (according to Article 164 of the Administrative Procedure Code of Ukraine).

Consumer Rights Protection

There is an increasing need to restore the state authorities responsible for protecting consumer rights. The tough political situation in Ukraine, the moratorium on inspections of small and medium businesses and reforming the public authorities responsible for consumer rights protection resulted in a situation where Ukrainian consumers have in the last two years been restricted in their ability to protect their rights, particularly in the Internet. Now there is the hope that the situation will change for the better with the launch of the newlyestablished State Service of Ukraine on Food Safety and Consumer Rights Protection.

www.ukrainianlawfirms.com

It should be noted that the effective fight against the increasing amount of counterfeits in the Internet is possible only via joint efforts of all stakeholders involved such as manufacturers, non-government organizations and public authorities, and broadening cooperation between market participants in ensuring economic security. A set of tools has already been developed by our European colleagues to block the possibilities of fraudulent use of the Internet. In particular, effective practices of consumer protection are proposed by the Canadian Anti-Fraud Centre (CAFC), that sets up a cooperation scheme between financial institutions (Bank, Visa, MasterCard, etc.), trademark owners, public authorities and consumers. All Canadian citizens (residing in Canada or abroad) and all foreign citizens that purchased counterfeit goods from a Canadian company may turn to the CAFC. The system has the following benefits: — consumers get their money back whenever counterfeiting has been proven; — counterfeiters forfeit the goods (which are destroyed to prevent resale), and fail to recoup production costs, mailing costs, etc.; — the trader’s bank account is closed by the bank (this takes 1-5 days) and the trader is banned from the Visa or MasterCard network; — Canadian financial institutions have a zero-tolerance policy towards sellers of counterfeit goods. — the competent authorities in the fight against counterfeiting provide the financial institutions with a notification of investigation and termination, along with a copy of a cease and desist order.

Awareness-raising Among Consumers

Another important element of combating counterfeiting is the sharing of knowledge between a wide audience. There is a need to change consumer’s attitude towards purchasing fake goods, build respect for intellectual property rights, shape rational model of behavior and raise public awareness on the consequences of purchasing counterfeit products.

PAKHARENKO & PARTNERS Address: Business Centre Olimpiysky, 72 Velyka Vasylkivska Street, Kiev, 03150, Ukraine Tel.: +380 44 593 9693 Fax: +380 44 451 4048 E-mail: pakharenko@pakharenko.com.ua Web-site: www.pakharenko.com

I

P and Law Firm Pakharenko & Partners was established in 1992 and has offices in Kiev and London. As a firm providing full IP service coverage we are keen on developing successful protection and enforcement strategies for our clients, covering the development of IP portfolio, acquisition of IPRs, commercialization of IPRs, enforcement and management of IPRs including patents (inventions and utility models), designs, trademarks and geographical indications, domain names, copyright and related rights, rights of plant breeders at both national and international level. The firm provides assistance to national and foreign clients in securing and enforcing their intellectual property rights in Ukraine and CIS countries. The company’s lawyers have been involved in anticounterfeiting and anti-piracy activities since the implementation of the relevant provisions on IPR enforcement in Ukrainian laws. Our staff also has expertise in pharmaceutical law, competition law, media law, corporate and commercial law, commercial litigation. We are able to service the needs of our clients around the world through our established network of associates. The special relationships developed by our company with many attorney firms in key foreign markets provide ongoing, substantial benefits to our internationally focused clients. Main practice areas: Intellectual Property Law, Anti-Counterfeiting and Anti-Piracy Operations and Legal Support, Media Law, Advertising Law, Competition Law, Pharmaceutical Law, Corporate Law, Customs Law, Commercial and IP Litigation. Membership in organization: The company and its members are actively involved in the operation of a number of national and international intellectual property associations, such as: AIPPI, INTA, FICPI, LES, MARQUES, PTMG, ECTA, ACG, IACC, ICC/CIB, ICC Ukraine, IBA, European Business Association (EBA), American Chamber of Commerce (ACC) in Ukraine, Ukrainian Patent Attorney’s Association (UPAA), Ukrainian Alliance Against Counterfeiting and Piracy (UAACP) which is a member of the GACG Network, CIOPORA.

67


Criminal Process

Review of Practice Areas: Criminal Proceedings Olga PROSYANYUK Managing Partner, AVER LEX Attorneys at law. Attorney, Candidate of Legal Sciences, Member of the Disciplinary Chamber of the Kiev City Qualification and Disciplinary Bar Commission of Ukraine, Member of the Ukrainian Bar Association Board. Key practice areas: Litigation, White-Collar Crime and Corporate Law

Vitaliy SERDYUK Partner, AVER LEX Attorneys at law. Attorney, board member of Ukrainian Tax Advisors Association, Coordinator of the Section of attorneys and lawyers of the Ukrainian Bar Association. Vitaliy is one of a small number of highly-qualified experts in criminal defense in the sphere of commercial and corporate activity, in the field of protection of the subjects of entrepreneurial activity and anti-raiding protection of business

A

ll changes to current Ukrainian legislation made in recent years are usually presented as approximation to European standards and measures for eradicating corruption, which make up an integral part of the European integration process. We are forced to admit that several amendments to criminal procedural legislation could potentially be used as an instrument for prosecuting «unwanted» persons, as well as putting pressure on business. In such circumstances, the work of the attorney actually turns into a fight with law-enforcement and the judiciary for the client’s freedom and business.

Amendments Related to Seizure of Property

One of the most controversial and, therefore, widely discussed issues, relates to the expansion of legal grounds for restricting the property rights of a person in the form of seizure in criminal proceedings. The first point, which cause concern among experts who practice in the field of criminal law, is the definition of the concept of the seizure of the property itself, providing: — First, the possibility to restrict not only the person’s right to alienate such property, but also the right to use and (or) dispose of such property;

68

www.ukrainianlawfirms.com

— Second, the wide and vague formulation that the property can be seized if «there are sufficient grounds to believe» that such property was used for committing an offense or obtained through the commission of such an offence. Thus it remains an open question as how the restriction of a person’s right to use the property (for example, on the rental conditions) contributes to the tasks of the criminal proceeding. In addition, a number of questions are also being raised by the provisions in which legislators prescribed the possibility of seizure of debit transactions, which in fact cannot be regarded as property, and thus — to be the subject of the arrest.

Implementation of Special Confiscation to Third Party

Another novelty we should pay attention to relates to the updating of the Institute of Special Confiscation (Part 4 of Article 962 of the Criminal Code of Ukraine), which provide the possibility to withdraw property from a third party if: — the property was purchased from the suspect (accused, convicted) for free or in exchange for an amount of money that is significantly lower than the market price; — such person knew or should have known that the aim of the suspect (accused, convicted) was to avoid confiscation (special confiscation).

On the one hand, legislators took measures to protect the rights of a bona fide purchaser, noting that special confiscation cannot be applied to the property of such a purchaser. On the other hand, it was missed that the person should be considered as a bona fide purchaser if he (she) purchased the property on the basis of a paid contract and did not (could not) know that the seller had no right to alienate such property (Part 1 Article 388 of the Civil Code of Ukraine) with no relation to the question if the price determined in such contract corresponds to market prices. In general, the implementation of market prices relates to issues of taxation and cannot be used as grounds for violating the property rights of the person without confirmation that such person was “engaged” in any illegal schemes. In fact, the burden of proof was shifted to the third party, who will be forced to prove that he (she) was not involved in any illegal schemes in order to preserve his (her) property. At the same time, no specification of how the deviation from the level of the market prices should be determined (“significantly” lower than the market) gives almost unlimited possibilities for abuse, even if such a third person will confirm, in the prescribed manner, his (her) ignorance of the seller’s motives. Such risks are especially relevant for socalled public criminal proceeding of a political nature. As practice shows, in these types of cases the aspiration of law-enforcement and the judiciary to satisfy the public’s request for any «results» of the investigation and punishment for the alleged perpetrators prevails over the principles of legality and the rule of law. In such circumstances, any «third party» that could even occasionally be involved in the relationship related to the property’s alienation may actually lose his (her) property as a result of being recognized as a participant of a “criminal scheme to conceal property from special confiscation”.

Special Pre-trial Investigation and Trial of Criminal Proceedings

In order to minimize the risk of abuse on the part of the law-enforcement authorities and courts, legislators prescribed an obligatory condition in the form of a preliminary announcement of such a person in an inter-


PROfile national and (or) interstate wanted list. Such condition was aimed at “disciplining” the investigating authorities and serving as a “deterrent” mechanism that, on the one hand, does not allow the application of this procedure on a mass scale and, on the other, to use the criminal proceedings for prosecuting “unwanted” persons. In practice, the absence of the person on the international and (or) interstate wanted list, confirmed with sufficient evidence does not prevent the investigating judge from sustaining the motion of the investigator (prosecutor) and giving permission to implement the procedure of special pre-trial investigation, in direct violation of the criminal procedural law. Moreover, there were several attempts to amend current criminal procedural legislation by submitting drafts of the Law of Ukraine, which prescribe elimination of the requirement that the issue of implementation of procedure of special pre-trial investigation can be considered only if the person was declared to be on an international (interstate) wanted list. In our opinion, such tendency is very dangerous. In fact, if such amendments were to be adopted, this could lead to a situation where the procedure of the special pre-trial investigation and trial would become a convenient mechanism for resolving business conflicts and give the “green light” for arbitrariness on the part of investigative bodies. In practice, the investigative judge quite often examines the motions of the investigator (prosecutor) formally without providing sufficient, proper analysis of the sufficiency of such motions. Given that, in this case, in order to start the procedure of special pre-trial investigation it would suffice only to qualify the person’s action in the written notice of suspicion in accordance with the list of “special” articles (Part 2 Article 2971 of the Criminal Procedural Code).

www.ukrainianlawfirms.com

Public Charges

Generally, the publicity of state authorities is an important part of a law-based state. Unfortunately, we have to admit that the wide publicity of the highest law-enforcement bodies of Ukraine does not confirm the effectiveness of their work and the achieved results in the fight against crime, but such publicity, in fact, substitutes the real performance of the obligations prescribed by legislation. Conducting real investigation of the announced circumstances starts after the investigation bodies position has been publicly disclosed. This, in turn, indicates that the announced charges had no legal (evidence-based) basis and were not supported by actual evidence collected in the course of the pre-trial investigation. Moreover, as recent practice shows, the investigative materials are formed selectively (in fact the investigating authorities take into account only that evidence which matches the announced official position). In such circumstances the lawyer acting in the interests of the person who was publicly charged is forced not only to conduct a parallel independent “investigation” to form the evidence of the defense, but to also provide legal assistance in a trial related to protecting the honor, dignity and (or) business reputation of a client. At the same time, the attorney should take into consideration the preliminary public opinion on the client’s guilt, formed by the actions of lawenforcement officials. In such circumstances, the lawyer is forced to resort to public options: to publish information about any illegal actions of the investigator, file a statement on the committing of a criminal offence under Part. 2 Article 387 of the Criminal Code of Ukraine in a form of disclosure of humiliating information of pre-trial investigation data, attract independent media, file complaints to international bodies, institutions (including, European Court of Human Rights).

AVER LEX Address: 2 Khrestovyi Alley, 5 Floor, Kiev, 01010, Ukraine Tel.: +380 44 300 1151 Fax: +380 44 300 1153 E-mail: info@averlex.com.ua Web-site: www.averlex.com

A

VER LEX is the only specialist leading law company in Ukraine whose main activity is providing legal defense in especially complicated criminal cases and corporate business security. In 2012 tow famous Ukrainian lawyers, Olga Prosyanyuk and Vitaliy Serdyuk, created a powerful team of professionals with a great deal of experience, broad range of knowledge, a constant desire to develop and a high level of responsibility and dedication. Today, the friendly AVER LEX team consists of 5 Partners and 25 specialists in the sphere of Criminal Law, Taxation and Litigation. Nowadays our specialists defend the interests of foreign and Ukrainian clients in many big resonant cases. Taking into account the common practice of law-enforcement bodies applying illegal methods of collecting proof and falsification of criminal proceedings, we are realizing more and more the importance of comprehensive participation in defense at strategic and tactical levels; which individual lawyers will find impossible to cope with. That is why from the very beginning of our activity, we decided to be the best in one thing rather than to be simply good in everything. The above is proven by both international and Ukrainian ratings. Besides, according to Legal Awards 2015 AVER LEX Attorneys at Law won the nomination “Law firm of the year in business defense” and was recognized as the best in Criminal Law by the international research publication Legal 500 EMEA 2015. All lawyers put the onus in their work of perfection of criminal practice, developing effective and active strategies of defense from illegal revisions by controlling and law-enforcement bodies in accordance with the specificity of a business, from their negative consequences, seizures by raiders, pressure from the law-enforcement bodies via stress searches, arrests or persecution, etc. Our clients can always count on unique strategic solutions, a real result, confidentiality and an individual approach to every person. That is why leading national companies, internal and foreign individual investors and well-known business and political figures trust the lawyers of our company. The reason is that we know the secret of long-lasting partnership relations! There is nothing impossible for us and we always know what we want! This is the motivation that moves us forward!

69


Cross-Border Debt Restructuring

A Remarkable Year of Restructuring. What Next? Glib Bondar Partner, Avellum

Artem Shyrkozhukhov Senior Associate, Avellum

W

hat happened in 2015 in the world of Ukrainian corporate finance was a reflection of larger scale events in and around Ukraine. In this article, we will share our view of the key events in 2015 in the area of corporate finance, highlight the most important legislative and regulatory developments in finance and, based on our experience, make a few suggestions for creditors and debtors on how to navigate through 2016.

Many Restructurings and Little New Money Finance

There is one word, which could succinctly describe 2015, “restructuring”. We can safely say that it was a record-breaking year in terms of the scale of restructuring. The pressures of the war, slump in the Ukrainian economy, hryvnia devaluation, shift in global markets and, in some cases, a host of other homegrown problems mounted. Even more resilient debtors found restructuring to be the only solution, sometimes after softer restructuring options of reprofiling/liability management exercises, refinancing or amendment of borrowing terms did not work. Last year was particularly characteristic because it was the year when the sovereign

70

www.ukrainianlawfirms.com

and quasi-sovereign entities completed the biggest chunks of their debt restructurings. Given many overlaps among public and private sector creditors, the success of commercial debt restructurings was largely dependent on the deal between Ukraine and its creditors. When they did, this gave investors a powerful signal and a general sense of direction in their dealings with local private sector debtors. At the same time, the new money financing and refinancing from private sector creditors all but dried up. Only international financial institutions, such as the EBRD and IFC, provided some new loans to Ukrainian borrowers, but on a smaller scale than before. New loans were also coming to Ukraine as part of the significant financial support from official creditors, including the EU, Canada and Japan. There were no new money issues of Eurobonds other than one issue by Ukraine supported by the US guarantee.

Key Issues

There were two distinct streams in 2015 debt restructurings: (1) the sovereign and quasi-sovereign debt restructurings and (2) other commercial debt restructurings. 1. Sovereign and Quasi-sovereign Debt Restructuring The strict targets of the IMF Extended Fund Facility required Ukraine to do the restructuring of its sovereign and sovereign guaranteed debt obligations. Together with the sovereign, the City of Kyiv, FinInPro (a special state finance vehicle for Euro 2012 projects), Oschadbank, Ukreximbank and Ukrzaliznytsia, as quasi-sovereign entities, had to do the same. By the end of the year, Ukraine, the City of Kyiv and the two state banks restructured around USD 18.1 billion of their respective debt obligations. This debt restructuring was unprecedented for Ukraine in scale and complexity. Finding compromise between the sovereign and its creditors required innovative solutions and approaches some of which would have been impossible without new legislation. The new laws introduced a new type of sovereign securities, the “state derivatives”, which are subject to special regulation and are somewhat similar to GDP-linked securities used in other sovereign debt restructurings. In addition, new legislative provisions were set up to discourage negative holdout strate-

gies by dissenting bondholders enabling the consenting bondholders to have priority visà-vis the dissenters. Though smaller in scale, the reprofiling exercises of state banks, restructuring of FinInPro’s and City of Kyiv’s Eurobonds had many challenges of their own with complex structuring and manoeuvring through macroeconomic challenges and inflexibilities of Ukrainian law: — The FinInPro deal involved an exchange of sovereign guaranteed Eurobonds into sovereign notes and state derivatives as well as new rules to resolve certain tax issues following such exchange. — The City of Kyiv deal involved conversion of municipal debt into sovereign debt. The fact that the original borrowings were structured through loan participation notes and underlying cross-border loans made structuring more nuanced and complex. — Reprofiling of state banks’ debt included extending maturities, increasing the coupon, modifying repayment schedule and, in the case of Oschadbank, an optional exchange mechanism, unique for Ukrainian Eurobond deals. 2. Commercial Debt Restructurings Last year saw a surge in liability management exercises by some of the biggest names on the market, including Ferrexpo, DTEK, PrivatBank and Avangard. A notable feature of these deals was that most of them did not go down the familiar consensual paths of consent solicitations, exchange offers or tender offers. We saw a growing trend of resorting to previously untested routes on the Ukrainian market, such as the English court-approved scheme of arrangement. The scheme of arrangement is a particularly attractive tool to deal with dissenting creditors who otherwise may not agree to the terms of the proposed deal. The successful course of debt restructurings depends on finding right solutions from Ukrainian law perspective. Ukrainian currency control requirements are often particularly challenging especially when creditors may agree to ease certain terms (eg, maturity extension) in return for a coupon increase, partial prepayment or other forms of immediate cash-out. These options have always been a problem in light of the long-standing maximum interest rate limitations, which still remains unchanged. The highest limit is


PROfile 11% per annum for 3-year and longer loans in major foreign currencies (eg, US dollars, Euro). In light of huge pressures on hryvnia, the National Bank of Ukraine (NBU) introduced back in 2014 the so-called “temporary” measures which are still effective and, among other things, prohibit prepayments under cross-border loan agreements and payments under individual licences for suretyships. In 2015, the currency control restrictions became even stricter. Starting from August 2015, the NBU made it impossible to change lenders and/or borrowers under cross-border loan agreements. For some time, these restrictions blocked any restructuring efforts involving assignments or similar mechanisms. In the wake of 2016, the latter restriction was replaced with the new cross-border loan registration procedure involving additional scrutiny from the servicing bank and the NBU. It is already apparent that this procedure will require additional time and efforts to comply with. There are also some unique issues for specific debtors. In particular, the situation in the areas of Donetsk and Luhansk regions affected by military conflict makes restructuring of companies with their assets there especially problematic. For example, any kind of enforcement actions in these areas under loans, suretyships, security documents so far remain out of sight. Any actions which need to be undertaken by entities located in these areas often face legal, logistical and security issues.

Several Points to Bear in Mind

From debtors’ perspective: It is of paramount importance to understand that co-operation is much better than war. It is a very common thinking among Ukrainian borrowers that if rough times come, there are no friends and it seems to be an all-or-nothing game. However, when a business faces a prospect of insolvency, interests of reasonable borrowers and lenders should align. They need to take all measures in good faith to ensure that business restores solvency and lenders can then get their money back. It is important that borrowers do not play hide-and-seek, but proactively approach lenders about their problems and timely respond to creditors’ requests. Borrowers should come up with their suggestions for a clear and realiswww.ukrainianlawfirms.com

tic plan of recovery and work out some viable solutions with their creditors. Last but not least, despite problems, borrowers must do all in their power to have the trust of their creditors. Losing trust will not only make the restructuring process difficult, but also can derail prospects for the company to tap the financial market in the future. From creditors’ perspective: First and foremost, creditors need to make sure that all the finance documents are in order. Ironically, some creditors find themselves without a package of original documentation. It is also important to monitor events in Ukraine and in a particular business they financed. Once there is evidence that Ukrainian business starts wobbling, experienced financial and legal advisors should be hired immediately to get hold of the situation and ensure prompt reactions. There is no guarantee that some dishonost debtors will not start dissipating cash and other assets from the company leaving creditors with an empty shell. Therefore, creditors need to be prepared to take bold steps, including attachment of assets and other asset protection instruments. Avoiding taking the company into bankruptcy is a more preferable as it increases chances of recovery for unsecured creditors. However, creditors need also to be ready that consensual restructuring may fail at any moment and they will need to make sure that their claims are recognised in bankruptcy. This will involve timely crystallisation and submission of claims, maintaining contact with asset managers, active participation in bankruptcy proceedings, etc. Given that there are several highprofile debt restructurings, some of which started back in 2014 or 2015, still pending, 2016 will almost certainly continue to be the year of restructurings. Hopefully, these deals will be completed later this year and the scale of restructurings will likely start going down. At the same time, there is a small room for hope that new money finance may come back later in the year. This is still with many “if’s”, including maintenance of fragile peace, political stability, dynamics of reforms, but, at the end of the day, both creditors and debtors will need to get back to the ordinary course business with Ukrainian companies needing money to invest and creditors getting a return on their money.

Avellum Address: 38 Volodymyrska Street, Kyiv, 01030, Ukraine Tel.: +380 44 591 3355 Fax: +380 44 591 3355 E-mail: info@avellum.com Web-site: www.avellum.com

A

vellum is a leading Ukrainian full service law firm with a special focus on finance, M&A, and dispute resolution. The firm covers capital markets, competition, corporate/M&A, dispute resolution, employment, banking and finance, energy and infrastructure, real estate, restructuring and insolvency, and tax. Avellum’s goal is to be the firm of choice for its clients with respect to their most significant business transactions. Its team is responsible, commerciallyminded, solution-orientated and cost-effective. The firm brings the most advanced Western legal techniques and practice, which, coupled with first-hand knowledge, broad industry experience, and unparalleled level of service, will help clients achieve the best results in their business endeavours. Avellum’s lawyers work seamlessly in integrated teams with premier US, UK and European law firms in the course of multijurisdictional transactions. The firm offers its clients highly individualised focus on their matters, and is relentless when it comes to observing deadlines. Avellum’s clients include international and domestic companies, governmental authorities, financial institutions, investment funds and investment banks seeking specialised legal advice and transactional skills from legal experts in the above practice areas. Avellum’s clients include Citybank, CNBM, Deutsche Bank, EBRD, Ferrexpo, ING Bank, Kernel, Lafarge, MHP, the Ministry of Finance of Ukraine, Nadezhda Group, Novartis, PrivatBank, Raiffeisen Bank International AG, Raiffeisen Bank Aval, UBS, UDP, Unicredit Group, and others. The firm’s employees received their education from top Ukrainian and Western universities. The team consists of 27 highly qualified attorneys, including three partners — Mykola Stetsenko, Glib Bondar, and Dmytro Marchukov, who are actively involved in every transaction. Avellum is recognised as one of the leading law firms in Ukraine by various international legal directories and Ukrainian legal editions such as Chambers & Partners, IFLR1000, Legal500, International Tax Review, Ukrainian Law Firms, and others.

71


РУБРИКАLaw Customs

Free Trade Area with EU: Changes in Customs Regulations Ivan Shynkarenko Partner, Ph.D. in Economics, WTS Tax Legal Consulting/ KM Partners

Oleksiy Korop Adviser, Ph.D. in Law, Attorney at Law, WTS Tax Legal Consulting/ KM Partners

S

tarting from 1 January 2016, Title IV Trade and Trade-Related Matters of the Association Agreement between the European Union and its Member States, of the One Part, and Ukraine, of the Other Part (Agreement) came into force. This Title provides for the gradual elimination of import and export duties and establishes a deep and comprehensive free trade area (DCFTA). This historical event deeply affects the overall regulatory framework in Ukraine and especially the customs sphere. In terms of customs, the Agreement will have long-term and immediate implications. As for the long-term, it provides the obligation for Ukraine to adapt its customs legislation according to the provisions of the EU listed in Annex XV. This would mean a serious step forward in harmonization of our customs legislation with EU rules, ensure the legal base for transferring to our soil the principles and best practices used in EU. As for immediate effect we should, first and foremost, mention the common provisions on elimination of customs duties. Detailed schedules on elimination of import duties for each code from the Ukrainian

72

www.ukrainianlawfirms.com

Classification of Goods for Foreign Economic Activity (hereinafter — Ukrainian Classification) are set out in Annex I-A to the Agreement. These schedules are asymmetric and, therefore, the duty rates in Ukraine and the EU are different. Starting from 2016, the EU will eliminate the customs duties on imports for Ukrainian goods, classified in more than 98% of the codes of the Ukrainian Classification. There are tariff quotas, established for some codes. Within such quotas, Ukrainian entities may import the goods to the EU without customs duty. For example, mushrooms, falling within the Ukrainian Customs Code 2003 10 (20-30), may be imported without any customs duty in a volume of up to 500 tons. These tariff quotas apply on a “first come, first served” basis. The schedule of elimination of import duties by Ukraine establishes the transitional period for many codes from the Ukrainian Classification. In addition, for certain customs codes from Groups 02 and 17 of the Ukrainian Classification (pork, poultry meat and sugar) Ukraine establishes tariff quotas as well. Part 2 of Article 29 of Title IV of the Agreement stipulates the successive gradual reduction of the base rate of import duties for each good. For example, the base rate of import duty for the code 2009 71 (apple juice) is set at 10% with a transitional period of 3 years. This rule should be interpreted in a way that in 2016 this rate should be 7.5%, in 2017 — 5%, in 2018 — 2.5%. Well, in practice other interpretations are also possible. We would consider the absence of clearly set rates in the Agreement as a potential disadvantage. Yet, in order to avoid controversies, the Ministry of Economic Development and Trade has published a list of import duties rates applicable to goods originating in the EU in 20161. Annex I-C to the Agreement provides for schedules of export duty elimination by Ukraine. Currently, Ukraine applies export duties for the following categories of goods: — live animals and leather materials; — certain types of oil seed crops; Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the One Part, and Ukraine, of the Other Part.

1

— scrap of alloyed ferrous and nonferrous metals; — scrap of ferrous metals. The Agreement provides for the successive reduction of export duties during the 10year period from the day when the Agreement comes into force. Yet, in some cases Ukraine would be able to apply additional export duties during the 15-year period in case the export volumes exceed the weight limit indicator stipulated for the respective year. The schedules of elimination of export and import duties in the Agreement are based on the Harmonised Commodity Description and Coding System of 2007. At the same time, current Ukrainian Customs Tariff is based on the Harmonised Commodity Description and Coding System of 2012. Therefore, there might be situations when the code, which an importer or exporter currently uses for customs clearance, is missing in the respective Schedule of the Agreement. In this case the transitional tables to the Ukrainian Classification of Commodities of 2007 and 2012 may be applied. These transitional tables were approved by the Order of the Ministry of Revenues and Duties of Ukraine No.54, of 22 January 20143. The Agreement provides for special provisions on tariff elimination for some categories of goods. Thus, separate Annexes to the Agreement provide for the successive elimination of tariff regulatory measures on importation into Ukraine of passenger cars and worn clothing. Also Annex I-A to the Agreement Tariff Schedule of Ukraine stipulates the application of 10% import duty rate with a transitional period of 7-10 years for many codes under tariff heading 8703 (passenger cars). In other words, the Agreement provides for successive reduction of the import duty rate. However, Ukraine ensured the possibility of protecting its internal market by imposing special additional duties. Such duty may be imposed by http://wts.ua/ua/publications/free-trade-areawith-eu-what-will-be-changed-starting-from-january-1-2016 3 Order of the Ministry of Revenues and Duties of Ukraine No. 54 as of 22 January 2014 On Approval of the Transitional Tables from Ukrainian Classification of Goods for Foreign Economic Activity of 2007 to Ukrainian Classification of Goods for Foreign Economic Activity of 2012 (Excerpt). 2


PROfile Ukraine during 15 years from the date the Agreement comes into force. The aggregate rate of the import and specific additional import duty for passenger cars shall not exceed 10%. Articles 44 and 45 of the Agreement establish the procedure and grounds for the imposition of additional import duty on passenger cars originating in the EU. Namely, Ukraine may impose such a special import duty if special indicators set in the Agreement are met. Such indicators are provided for each year following the 1st year of effect of the Agreement and for a period of 15 years. The Agreement does not provide for the possibility to impose the special additional duty during the first year of its effect. The indicators include the volumes of import of passenger cars from the EU (namely, 45,000 units annually) and market share (for instance, 20% in the second year of the Agreement’s effect). As for worn clothing, the Agreement establishes successive elimination of import duty rate annually by 1% point within 5 years except for the first year of the Agreement. During the first year, the rate of 5.3% is applied. According to the Agreement, the following reduction of the rate is applied to worn clothing that meet the value indicator, set out in the Agreement. In order to be eligible for the benefits of the Agreement, the goods should be deemed as originating in Ukraine or the EU, respectively. Protocol I Concerning the Definition of the Concept of Originating Products and Methods of Administrative Co-operation (hereinafter — Protocol of origin) establishes the rules that should be met by the goods to be deemed

originating in a contracting party as well as the ways in which the origin should be confirmed. In general, movement certificate EUR.1 confirms the origin according to the Protocol of origin. Starting from 2016, such certificates are to be issued in Ukraine by the customs offices, while earlier this was the function of the Chamber of Commerce of Ukraine. The procedure on the issuing of the above-mentioned certificates is provided in the Order of the Ministry of Finance of Ukraine No.1142 as of 18 November 20144. As for the EU, the procedure on the issuing of certificates by the competent authorities is provided in EU Council Regulation No.1207/2001 as of 1 June 2001. In addition to EUR.1 certificates, the Protocol of origin also establishes simplified ways on confirmation of origin. Namely, this is the declaration invoice, which is the special text on the document accompanying consignment put by the exporter. Such simplified confirmation of origin is allowed for consignments with a value below EUR 6,000 or for any consignments made by an “approved exporter”. The way to receive the status of “approved exporter” is stipulated in Article 23 of the Protocol of origin and is a novelty for Ukrainian customs law. To conclude, the DCFTA with EU is an outstanding event, which has serious influence over the customs legislation of Ukraine. Besides changes in the customs duties as such, the Agreement opens the door to more conceptual changes in relations between the customs authority and the business sector. We hope that the Ukrainian authorities will be up to the challenge and not miss this outstanding opportunity.

Order of the Ministry of Finance of Ukraine No.1142 as of 18 November 2014 On Approval of Procedure of Filling in and Issuing Customs Certificate EUR.1 According to the Association Agreement between the European Union and the European Atomic Energy Community and their Member States, of the One Part, and Ukraine, of the Other Part’.

4

www.ukrainianlawfirms.com

WTS Tax Legal Consulting/ KM Partners Address: 5 Pankivska Street, 5th Floor, Kiev, 01033, Ukraine Tel: +380 44 490 7197 E-mail: admin@wts.ua Web-site: www.wts.ua

W

TS Tax Legal Consulting/KM Partners is Ukrainian law firm specializing in tax, legal and consulting services, which has been working on the legal services market of Ukraine since 1999 and has a dual structure: WTS Tax Legal Consulting LLC as a consulting firm and KM Partners Attorneys at Law. The services related to protection in criminal proceedings on white-collar crimes are provided by KM Partners. WTS Tax Legal Consulting/KM Partners is a member of the WTS Alliance — a global network of selected consulting firms represented in about 100 countries worldwide. Our firm offers a wide range of services in different tax branches starting from customs and transfer pricing issues, assessment of potential risks and defining the areas of vulnerability to defend the clients’ interests in the disputes with customs authorities or appealing against the results of controlled transactions audit. The quality of our tax consulting services is well-known both in Ukraine and abroad: since 2005 the firm and its Senior Partner Alexander Minin have been constantly top-ranked in the tax practice category on the basis of the results of national and foreign ranking research, such as: The Legal 500, Сhambers Europe Clients’ Guide, International Law Office Client Choice Awards, Who is Who Legal, Tax Directors Handbook, Best Lawyers, Ukrainian Law Firms. A Handbook for Foreign Clients, and many others. The Company has qualified and experienced experts who specialize in corporate law, real estate and land issues, competition law, commercial and contract law, civil law, labor law and intellectual property law. Among main practices there is also dispute resolution in national courts, arbitration courts and through commercial arbitration. We provide integrated consulting services focused on the informative support of the management’s operational decision-making in the dynamic regulatory environment of Ukraine. Within this practice we support the development and implementation of innovative solutions that provide competitive advantages to our clients. The Company has long and successful cooperation with clients from various industries, including agriculture, fuel and energy complex, construction, transport and infrastructure, information technologies and telecommunications, trade and others.

73


Data Protection

Personal Data Protection in Ukraine Natalia Pakhomovska Partner, DLA Piper Ukraine

Natalia Kirichenko Senior Associate, DLA Piper Ukraine

P

ersonal data protection has become an important issue for the business environment in Ukraine since 2011 when legislation regulating personal data protection was introduced. Before that, personal data protection in Ukraine was governed only by the provisions of a fundamental general nature as provided in the Constitution of Ukraine, the Civil Code of Ukraine and some other legislative acts. In this article, we provide an overview of the key legislative regulations on personal data protection in Ukraine.

Legal Framework

The On Personal Data Protection Act of Ukraine, No.2297 VI of 1 June 2010 (the Data Protection Act), which came into effect as of 1 January 2011, constitutes the main legislative act regulating personal data protection in Ukraine. Following the adoption of the Data Protection Act, on 6 July 2010 the Ukrainian Parliament ratified the Convention for the Protection of Individuals with regard to Automatic Processing of Personal Data of 28 January 1981 and the Additional Protocol to the Convention Regarding Supervisory Authorities and Trans-border Data Flows of 8 November 2001. Furthermre, based on the practice of its application the Data Protection Act has been

74

www.ukrainianlawfirms.com

substantially amended, primarily, by virtue of the On Amendments to Certain Laws of Ukraine regarding Improvement of the Personal Data Protection System Act of 3 July 2013 No. 383-VII which has been in effect since 1 January 2014. As a result of numerous amendments introduced to the Data Protection Act it now essentially complies with the EU rules currently in effect. Following the adoption of the Data Protection Act, the subordinate legislation listed below has been specifically developed to implement the Data Protection Act, in particular: Procedure of Notification of the Ukrainian Parliament’s Commissioner for Human Rights on the Processing of Personal Data, which is of Particular Risk to the Rights and Freedoms of Personal Data Subjects, on the Structural Unit or Responsible Person that Organizes the Work Related to Protection of Personal Data during Processing thereof (the Notification Procedure); the Model Procedure of Processing of Personal Data (the Model Procedure); the Procedure of Control by the Ukrainian Parliament’s Commissioner for Human Rights over the Adherence to Personal Data Protection Legislation. Certain data protection issues of a general nature are regulated by the Constitution of Ukraine of 28 June 1996, the Civil Code of Ukraine of 16 January 2003, No 435 IV, the On Information Act of 2 October 1992, No 2657 XII, the On Protection of Information in the Information and Telecommunication Systems Act of Ukraine of 5 July 1994 No. 80/94 VR, the On Electronic Commerce Act of 3 September 2015, No 675-VIII and some other legislative acts.

Personal Data and Sensitive Personal Data

The Data Protection Act defines “personal data” as data or an aggregation of data on an individual who is or can be precisely identified. It should be mentioned that although the Data Protection Act does not differentiate the commonly used term “sensitive personal data”, it establishes that personal data with regard to racial or ethnic origin, political, religious or ideological convictions, participation in political parties and trade unions, accusation in criminal offences or conviction to criminal punishment, as well as data relating to health or sex life, biometric or genetic data, are generally prohibited for pro-

cessing. The processing of the listed data is allowed in case of an unambiguous consent from personal data subject or as per certain exemptions envisaged by the Data Protection Act (e.g. processing is performed for the reasons of protection of vital interest of individuals, healthcare purposes, in the course of criminal proceedings, for anti-terrorism purposes, etc.).

National Data Protection Authority

The Ukrainian Parliament’s Commissioner for Human Rights (Ombudsman) is the state authority in charge of controlling compliance with the legislation on data protection.

Collection & Processing

The provides for a requirement of obtaining the consent of personal data subjects for processing of their personal data, i.e. voluntary expression of will of the individual (subject to his/her awareness) to permit the processing of personal data for the determined purposes expressed in writing or in some other form, which allows the owner or processor of the personal data to draw a conclusion that consent has been granted. In the area of E-commerce, the consent on processing of personal data may be granted in the process of registration of data subjects in the system of the subject of E-commerce by ticking the respective box for giving consent on processing of their personal data for determined processing purposes, provided that such a system does not allow the processing of personal data prior to the ticking of the respective box by the data subject. The Data Protection Act provided for certain exceptions when personal data of individuals may be processed without consent. For example, legislative permission for processing of personal data, conclusion and execution of a transaction in favour of the personal data subject, protection of interests of the subject or owner of personal data. Pursuant to the Data Protection Act, personal data subjects shall, as a general rule, be informed at the moment of collection of their personal data of: the owner of their personal data; composition and content of their personal data being collected; their rights; purpose of their personal data collection; the persons to whom their personal data will be transferred.


PROfile The subjects of personal data relations are obliged to take appropriate technical and organisational measures to ensure the protection of personal data against unlawful processing including loss, unlawful or accidental elimination, as well as unauthorized access. The Model Procedure stipulates that the owners and processors of personal data shall take measures to maintain security of personal data on all stages of their processing including organisational and technical measures for the protection of personal data.

Notification

The owners are obliged to notify the Ombudsman about personal data processing, which is of a particular risk to the rights and freedoms of personal data subjects, within thirty working days of commencement of such processing. The Notification Procedure envisages a specific list of such data, and establishes the notification form and procedural formalities to be observed. Furthermore, the Notification Procedure obliges the owners and processors of personal data who process the personal data, which is of particular risk to the rights and freedoms of personal data subjects, to notify the Ombudsman on establishing a structural unit or appointing a person (data protection officer) responsible for the organisation of work related to the protection of personal data during the processing thereof.

Transfer

Any transfer of personal data shall be conducted on the basis of a data transfer and processing agreement between the parties to such transfer. Personal data cannot be transferred for the purpose different from the one, for which they have been collected. Personal data shall be transferred to foreign counterparties only on

www.ukrainianlawfirms.com

condition of ensuring an appropriate level of protection of personal data by the respective state of the transferee. Such states include the member states of the European Economic Area and signatories to the EC Convention on Automatic Processing of Personal Data. In the case of transfer of personal data to other countries, the data transfer and processing agreement between the parties to such transfer must stipulate that a proper level of protection of personal data (where a proper level may be construed as equivalent to that established by Ukrainian law) must be ensured by the recipient. According to the Data Protection Act personal data may be transferred outside of Ukraine based on one of the following grounds: — unambiguous consent of the personal data subject; — cross-border transfer is needed to enter into or perform a contract between the personal data owner and a third party in favour of the personal data subject; — necessity to protect the vital interests of the personal data subjects; — necessity to protect the public interest, establishment, fulfilment and enforcement of a legal requirement, or — appropriate guarantees of the personal data owner as regards the non-interference into the personal and family life of the personal data subject.

Enforcement

According to the Data Protection Act, the Ombudsman and Ukrainian courts are state authorities responsible for controlling compliance with legislation on protection of personal data. Violation of personal data protection legislation may result in civil, criminal and administrative liability.

DLA Piper Address: 77A Chervonoarmiyska Street, Kiev, 03150, Ukraine Tel./Fax: +380 44 490 9575, 490 9577 E-mail: ukraine@dlapiper.com Web-site: www.dlapiper.com

D

LA Piper is a global law firm with a presence in more than 30 countries throughout the Americas, Asia Pacific, Europe and the Middle East, and provides a broad range of legal services to local, regional and international clients. Areas of practice in Ukraine The firm’s Kiev office specializes in the following fields: — Corporate and M&A: set up and termination of businesses, corporate governance, M&A, including due diligence, corporate restructuring and reorganization; corporate investigations and compliance and legal support of day-to-day operations. — IP and Technology: registration and protection of IP in Ukraine and overseas, IP portfolio management, IP due diligence, structuring of IP ownership and commercialization of IP, unfair competition issues, parallel import and counterfeits, licensing and assignment agreements, IT outsourcing, internet, e-commerce, domain names and telecommunications, data protection, software and hardware, technology transfer. — Tax: corporate tax, VAT and customs, tax driven restructurings (domestic and international), as well as M&A transactions from the tax perspective, tax due diligences, reviews of tax profiles of entities, tax controversy, litigation and transfer pricing. — Finance and Projects: M&A and regulatory work in the banking and finance sector, asset, debt and capital markets transactions, structured finance, project finance, real estate finance, aviation finance, debt restructuring projects, infrastructure and PPP projects, litigation in debt and insolvency-related matters. — Real estate and construction: acquisition/sale and lease transactions for real estate and land; registration of associated rights; establishment of business presence, expansion and structuring of retail business, construction and planning matters, industrial and infrastructure projects, real estate due diligence, structuring of real estate transactions and construction investment projects, real estate contracts, mortgage lending and environmental issues. — Competition law and regulatory: permits for concentrations; for concerted practices, leniency program advice; advice on protection from unfair competition, compliance advice and audits, obtaining of preliminary conclusions from the AMCU; abuse of dominant position; advice on commercial agreements and trade practices, natural monopolies and public procurement; support during investigations by the AMCU, as well as competition litigation. — Labor: employment contracts, personnel policies, employment law audits and due diligence reviews data protection, employee rights, employment-related tax issues, termination matters, employment litigation.

75


Debt Restructuring

Debt Restructuring Sergey Boyarchukov Managing Partner, Law Offices Alekseev, Boyarchukov and Partners. Sergey Boyarchukov was born in Vinnitsa in 1976. He graduated from the Law Faculty at the Taras Shevchenko Kyiv National University in 1997. He worked at JSC Kievenergo from 1995, where he built his career from chief lawyer to director of the legal department. Then he held the office of head of the legal department of Energorynok SE. In 2003 Sergey Boyarchukov and Sergey Alekseev established the XXI Century attorneys association, which specialised in litigation. In 2005 the partners established the Law Offices Alekseev, Boyarchukov and Partners. Attorney-at-law, insolvency practitioner of the 5th category, member of the Ukrainian Bar Association, the Ukrainian National Bar Association and the International Bar Association and member of the Board and Ethics and Professional Activity Commission of the All-Ukrainian Self-Regulating Association of Arbitration Managers Association of Crisis Management. He is a recognised expert in the area of bankruptcy and debt restructuring, banking and financial law and judicial dispute resolution.

A

lmost three years have already passed since the redrafted On Restoring the Debtor’s Solvency or Declaring Its Bankruptcy Act of Ukraine (the Bankruptcy Act) came into force, and now its provisions of concern which materially restrict a lender’s rights and pose a threat for prospective investors, are very obvious. The main and very controversial provision which the banks had tried to oppose before the Act came into effect (unfortunately, with no success) is restricting the rights of so-called secured lenders. That is, the claims of lenders which are secured with the debtor’s or guarantor’s property. They have been fully deprived of a casting vote and been granted only an advisory vote. In other words, all they can do is to give advice, which is taken into account by hardly anyone. Secured lenders have been fully excluded from participating in representative bodies deciding on the future of the company, judicial proceedings and other aspects. Furthermore, when the liquidation procedure commences, a secured lender is not given a full scope of capabilities for influence over selection of the way in which the property is sold. In this case, it has to wait until the liquidator tries to sell the asset package. Although Article 42 of the Act stipulates that the collateral of the secured lender is not included in the liquidation estate, and the liquidation estate shall be sold to cover all financial claims of the lender, this is actually done another way. The liquidator puts up all the bankrupt’s property as the asset package for sale in order to cover and discharge claims of all lenders, including unsecured, post-bankruptcy and secured ones.

76

www.ukrainianlawfirms.com

And the claims of a secured lender may be discharged only after the second or third bidding. It is supplemented with the manipulations of insolvency practitioners designated for reducing the cost of the assets, the general market environment (and in the majority of bankruptcy cases, amounts from 2006 are stipulated) and the letter of the Supreme Economic Court of Ukraine (No.01-06/606/2013 of 28.03.2013) which states that the property may be sold for the nominal sum of UAH 1 if there is no demand for it. It is obvious that secured lenders, i.e. banks in the main, often find themselves in an unfavourable position. In so doing, the Act opens up vast possibilities for the bankruptcy of state enterprises and their sale on the cheap. This tendency is not new, but it has recently been catching the eye. We have lately been facing a situation when the assets of enterprises which cost billions of Hryvnias underwent bankruptcy proceeding due to a debt of UAH 3 million. The existing legal framework offers no efficient ways to fight such cases. Bankruptcy proceeding provides for the sale of an asset package which costs billions, but nobody needs it at that price. And during the year which is designated for sale of the property there is a legal opportunity to sell one nominal “gatehouse” and discharge the minimum debt stipulated in the bankruptcy case. Meanwhile, the current debt of the company which is discharged in the first instance is accrued by the enterprise. As a result, the property of the state enterprise is sold at a cheap rate, and shadow privatisation takes place. Nevertheless, it is legal, as the insolvency practitioner has only one year for the liquidation proceedings, and the

low price of the property sold may always be explained by the war, crisis, market and the decline of the Hryvnia. There is an applied method which may be used by secured lenders today to have impact on bankruptcy proceedings. It is not always applicable, but it is quite efficient. It is a regulation which has been taken from the old law to the new one and stipulates that a secured lender may lodge claims in the part which is not collateral. Bankruptcy proceedings often include loans received before 2007. And the current value of the collateral is substantially lower than that on the date of execution of the mortgage agreement. Therefore, something that used to cost, say USD 500, and was pledged for the sum of USD 100, costs just USD 50 now. So the lender has a nominal USD  50 left, which are not covered by the collateral, and this uncovered amount enables the lender to enjoy the rights of an ordinary lender, have one’s finger on the pulse and control the mortgaged property. Moreover, interest on the loan shall be taken into account. If the lending legal relations have already existed for many years, the interest has accrued in such an amount that, even if the property has not gone down in value much, the debt to the bank is substantially higher than the value cost of the collateral. Of course, a debtor and its lenders may achieve consent, but such cases are very rare. Once again, due to the imperfections of the Bankruptcy Act which, for instance, provides for such a procedure as prejudicial recovery, but gives few opportunities for its implementation. And these issues of concern are of a purely technical nature. Also, in practice there have been cases of an amicable agreement following commencement of bankruptcy proceedings. In fact, this deal is also stipulated by the law. But I have rarely encountered amicable agreements in our country because of the low level of legal culture. One of the complications faced by the debtor and the lenders wishing to reach consent is that in the overwhelming majority of bankruptcy cases there is such a lender as tax authorities. In practice, an amicable agreement may not be approved until the tax authorities grant their consent. And they may not sign such consent as the discounting mechanism is not stipulated in the laws on tax debts. And when all lenders agree to get less now, the tax authorities simply may not do this. This is where the attempts to reach consent end.


PROfile The Draft Act On Amending a Number of Legislative Acts of Ukraine, including the current version of the Bankruptcy Act, was registered. One more is being developed with the participation of lawyers of our company. The main purpose of the amendments is to recover the casting vote of the secured lender. That is, recover the right to participate in the

general meeting of lenders, in the lenders’ committee so that a secured lender will be able to take active part in deciding on the debtor’s future and selecting the proceedings: financial rehabilitation, liquidation or amicable agreement. The banking and legal communities have lots of questions as to the current version of the Bankruptcy Act. We hope they will be answered.

Alekseev, Boyarchukov and Partners Address: 11 Shota Rustaveli Street, 3rd Floor, Kiev, 01001, Ukraine, Tel.:+380 44 235 8877, 537 1828 Fax: +380 44 235 88 27 E-mail: office@abp.kiev.ua Web-site: www.abp.kiev.ua

A

lekseev, Boyarchukov and Partners is one of the leading law offices in Ukraine. It is known as one of the most successful law firms with broad practical experience in representing clients in questions of bankruptcy and debt restructuring, corporate management, litigation and settlement of disputes in courts of arbitration. The history of the firm back in 2000. Sergey Alekseev and Sergey Boyarchukov decided to create their own firm after they had successfully prevented the merger of JSB Energobank, where they were working at the time. In 2003 the partners established XXI Century attorney’s association, which specialized in litigation. In 2005 Sergey Alekseev and Sergey Boyarchukov founded Law Offices Alekseev, Boyarchukov and Partners, which specializes in questions of bankruptcy and debt restructuring, corporate management, litigation and settlement of disputes in courts of arbitration. In November 2014 Sergey Alekseev left the company as he was elected to the Ukrainian Parliament of the 8th convocation as a people’s deputy, leaving management to his partner, Sergey Boyarchukov. Today Law Offices Alekseev, Boyarchukov and Partners is a team of more than 30 lawyers who work in the areas of banking, financial, tax, corporate, competition, antitrust, labor, land and criminal law. The company offers innovative legal solutions to Ukrainian and international companies, banking and financial institutions, government agencies and individuals. Strong professional experience and deep understanding of Ukrainian business environment enables Alekseev, Boyarchukov and Partners to offer its clients the most effective solutions for their businesses within the shortest period of time.

www.ukrainianlawfirms.com

77


Due Diligence

Legal Due Diligence in Ukraine Igor Dykunskyy, LL.M. Partner, DLF attorneys-at-law. Following his successful graduation from the University of Augsburg (Germany), Igor has been advising international commercial enterprises in Ukraine for over ten years. He has managed a significant number of M&A transactions, guided numerous clients through the due diligence process, merger applications and the subsequent structuring of the transactions, advised clients on labour, agriculture and renewable energy law matters as well as in relation to assertion and enforcement of creditors’ claims.

Andrii Zharikov, LL.M. Associate, DLF attorneys-at-law. Andrii has extensive experience performing due diligence of entities, providing consultative services on matters of the operational activity of companies and their corporate restructuring. He also has a strong interest in, and frequently advises clients on, various matters of banking and finance, trade, labor law and alternative dispute resolution. Andrii graduated from the University of Essex (the United Kingdom), where he earned a distinction in his studies of international trade law.

L

egal due diligence is defined as the process of investigation carried out usually by a law firm on behalf of a potential investor or a party contemplating a business transaction (such as a corporate acquisition or merger, financial loan, or purchase of securities) for the purpose of providing information with which to evaluate the advantages and risks involved. Legal due diligence is a crucial prerequisite to any transaction. Despite being quite a demanding process, due diligence can be proceeded with more efficiently if all parties involved understand the reasons for such procedure and the manner in which it is usually conducted.

Benefits of Due Diligence

The benefits of due diligence include a better understanding of the state of affairs of the target company or business, the identification of risks of the contemplated transaction, and proper valuation of the target company or business. Performance of due diligence can reveal any hidden risks and remedy them prior to conclusion of the transaction or, in the event of severe legal risks being identified, to postpone or abandon the deal.

Timeframe and Other Procedural Aspects of Due Diligence

The timeframe of due diligence may vary from several days in minor deals to several

78

www.ukrainianlawfirms.com

months in complex cross-border M&A transactions. Also, it helps significantly when a virtual room is created and all the required documents are uploaded and can be accessed from any location rather than an on-site check of hard copies. Nevertheless, an opportunity to visit a head office or manufacturing facilities of the target company should not be neglected and be used to the fullest extent possible, especially at the commencement of the due diligence process. In order to carefully identify all possible risks, an examination of the documents provided may not be sufficient. In our practice, it is considered necessary to conduct interviews with the owners and key management staff as well as, in certain cases, to contact state authorities and banks and counterparties, if permitted. Another key factor is to conclude a confidentiality and non-disclosure agreement between the seller and the potential investor, which results in the former being more likely to disclose to the latter valuable commercial and corporate information for the purposes of due diligence.

Due Diligence in Ukraine

With regard to the due diligence of Ukrainian companies, it is worth noting some of the most typical issues which can arise following examination of the target company’s documents. Furthermore, a scrupulous approach for any interested party would be to

conduct a preliminary investigation of the target company’s state of affairs through a proper check upon access to open registers in Ukraine, which could confirm, inter alia, the existence and corporate management of the target company, any encumbrances over its assets, any past and current court disputes, the presence of any tax debt owed to state authorities, inclusion in any “blacklist” of traders by the Ministry of Economic Development and Trade of Ukraine, financial standing and other related information (applicable to joint-stock companies only), commencement of insolvency proceedings, etc.

Corporate Issues

Corporate issues can vary from minor risks — such as inadequate formalization of the minutes of general meetings or lack of provisions or their conflict with certain mandatory provisions required by Ukrainian law in the charter of the target company (especially in relation to some obligatory thresholds of corporate governance, including convocation of a quorum for the general meeting of shareholders, decision-making procedures, etc.), which could easily be remedied by re-convocation of such general meetings or amendment(s) to the charter — to more serious risks. The latter could include failure to properly formalize the title to shares by previous shareholders of the target company. Even some minor defects or non-compliance in the acquisition or passing of title may lead to the invalidation of the respective sale and purchase agreement(s) as well as invalidation of all subsequent title transfers, leading to a chain of bilateral restitutions and recognition of plaintiff’s title to shares in a claim by an interested party. For example, in limited liability companies, the proper transfer of title to shares should be accompanied, inter alia, by an application to withdraw from the composition of participants, spousal consent and preemption rights waiver of other participants regarding the sale. One should also take into consideration the restrictions in the Civil Code of Ukraine pursuant to which (i) a company may not be the sole shareholder of more than one Ukrainian limited liability company; and (ii) a limited liability company or a joint stock company with only one shareholder may not be the sole shareholder of another limited liability company or a joint stock company. Theoretically, there is a risk that non-compliance with these


PROfile may lead to a judicial invalidation (at the claim of an interested party) of the acquisition(s) of shares in the noncompliant company or companies.

Land and Real Estate

Pursuant to Ukrainian law, land lease agreements must contain several mandatory terms. The absence of only one of the essential terms of lease of land could serve as the basis for declaring the land lease agreement null and void. There is an established court practice invalidating lease agreements lacking essential terms or having defective essential terms, as provided by applicable legislation. However, we are also aware of judgments regarding the claims based on the argument of absence of essential lease term(s) which found lease agreements valid. We note that until February 2015 the agreement on lease of land had to contain eleven mandatory terms and five additions. Following the respective amendments, only three mandatory terms remained. However, despite these changes in legislation, the Model Land Lease Agreement approved by the Cabinet of Ministers of Ukraine still contains the old extended list of essential terms. Therefore, until the Model Land Lease Agreement is amended in line with current legislation, we recommend specifying all essential terms, as provided in the Model Land Lease Agreement, as failing to include them might result in the invalidation of the agreement.

Loans

The parties to an M&A transaction often neglect the fact that many loan agreements contain a change of control provision which constitutes an adverse event, entitling the bank (or other lender) to accelerate repayment of a loan in case of any changes in the shareholding structure of the target company, its affiliated companies and/ or its sureties/property sureties. At the same time, the target company is often obliged to notify the bank (or other lender) regarding changes in its shareholding structure following the occurrence of such changes. Failure to comply with these obligations constitutes a breach of obligations and the bank (or other lender) may be entitled to impose fines on the target company or, in some cases, declare its technical default, which would further lead to enforcement of cross-default provisions in other effective loan agreements, if

www.ukrainianlawfirms.com

present, previously concluded by the target company.

Violation of Antimonopoly Legislation

Any failure to obtain approval from the Antimonopoly Committee of Ukraine (if required) may result in the imposition of a penalty on the respective founders (shareholders) in an amount of up to 5% of their respective groups’ income (turnover) in the year immediately preceding the year in which the penalty is imposed. There is a five-year statute of limitations applicable to any Antimonopoly Committee of Ukraine investigation which could result in the imposition of a fine. The statute of limitations starts to run from the date when the AMCU becomes aware of any violation. In addition, the failure to obtain the AMCU approval may lead to invalidation of the target company’s establishment in a claim by an interested party.

Labor Relations

In Ukraine many companies often aim to “minimize” their tax obligations by paying unofficial salaries (so called “under-the-table salaries”) to their employees. While this practice is common and well-known in Ukraine, foreign investors are often reluctant to conclude an M&A transaction while such a scheme is functioning within the target company, as such practice, if known to the state authorities, would lead to severe monetary sanctions. At the same time, the potential foreign investor may use this fact as the basis for bargaining a better price. Nevertheless, we recommend including a respective warranty clause in the M&A agreement under which the seller is required to cover all tax liabilities arising from the use of any “under-the-table salaries” scheme.

DLF

attorneys-at-law Address: Torus Business Centre, 17d Hlybochytska Street, Kiev, 04050, Ukraine Tel.: +380 44 384 2454 Fax: +380 44 384 2455 Email: info@DLF.ua Web-site: www.DLF.ua

D

LF attorneys-at-law is a Ukrainian law firm that provides consultancy services to mainly English and German-speaking clients on various matters regarding doing business in Ukraine. We have vast expertise in corporate, M&A, insolvency, antitrust, labour, competition, IP, renewable energy, agriculture, real estate and tax law as well as litigation and dispute resolution. Our core customers are SMEs from various fields. We offer them tailor-made and economically viable solutions. We are also a reliable business partner for a number of listed corporations and their subsidiaries in Ukraine. We represent our clients in a wide range of industries: IT, engineering, management consulting, agriculture, life sciences and healthcare, renewable energy, foodstuffs, pharmaceuticals and chemicals as well as home appliances. Our team is multilingual and led by two partners, Igor Dykunskyy, LL.M. and Andriy Navrotskiy, LL.M. Most of our lawyers graduated from a Ukrainian law university and successfully continued their studies abroad, particularly in England and Germany. Our experts are held in high esteem in professional circles thanks to their expertise on the special features of doing business in Ukraine. Our attorneys understand not only the needs of our clients, but also their business philosophy and the specific needs of their respective business models. Legal and tax advice is a business relationship built on trust, and this is a significant advantage for our clients. We work closely with various business associations in Ukraine and regularly publish our articles in local and international legal and business journals. Furthermore, we are recommended by a number of foreign embassies in Ukraine.

Other Risks

Other risks involve the absence or expiry of certain necessary licences and permits for business activities, significant influence of related parties on the target company, poor quality of financial information, legal defects in contracts with clients and suppliers, pending material disputes involving the target company and its assets, violation of the process of privatization of assets, breach(es) of intellectual property rights, etc.

79


E-Commerce

E-Commerce in Ukraine: Novelties in Legal Regulation Oleg Pantiia Counsel, ECOVIS Bondar & Bondar

Basics of E-Commerce Legal Regulation

With the development of the infrastructure of communication networks in Ukraine the penetration of tools offered by the Internet, into society and private and public relationships is growing. According to estimates made by local researchers in 2013 the number of Internet users came to 39.51% of the country’s population, approximately 18 million people. The development of mobile platforms and wireless data transmission technologies is expected to increase the number of this audience. Thus in 2016, despite the tragic events of the last two years, Ukraine shall have at least 18 million potential clients who either already used the advantages of E-commerce or are ready to use it. Within the last few years Ukrainian society and the State have been seeking ways to facilitate the implementation and development of electronic technologies into different spheres. A number of legislative acts were adopted to regulate the spheres of e-governance, public procurement, distrained property auctions, online business registration, access to public registers and other information. The development of such systems is carried out both by the State and independent volunteers’ projects (for instance, the project ProZorro — a pilot electronic public procurement system, which was implemented by volunteers financed by non-governmental organizations, including international organizations, and which is expected to be accepted by the State as the basis for handling public procurements). Moving in this direction, on 3 September 2015 the Ukrainian Parliament adopted the On Electronic Commerce Act of Ukraine, which is absolutely new to Ukraine. We cannot say that the new Act was passed in the

80

www.ukrainianlawfirms.com

complete absence of legislation on E-Commerce. Both prior to and after the adoption of this Act, the participants of the E-Commerce were subjects to the Civil and Commercial Codes of Ukraine, On Electronic Documents and Electronic Document Control, On Electronic Digital Signature, On Consumer Protection, On Payment Systems and Money Transfer in Ukraine and other Acts of Ukraine. However, E-Commerce businesses were forced to adapt or mimicry in the face of the rules which were designed without the consideration of E-Commerce realities and were mostly based on two basic forms in civil law transaction: oral and written. The new Act was drafted with the essential participation of market players and, to a great extent, it reflects existing Ukrainian best practice and uses the forms that business has already chosen for the sale of goods and the rendering of services with the use of information and communication systems. Thus, the On Electronic Commerce Act of Ukraine has become the fundamental piece of legislation that rendered to business transparent “rules of the game” that have been adapted to its particularities. The Act neither forces them to change their existing business models nor restricts them in implementing new business models. The Act is of a rather general nature and its provisions may be further developed. Nevertheless, it is an important step in the legal regulation of E-Commerce in Ukraine.

The Definition of the Contract The key provision of the new Act is the definition of an electronic transaction and an electronic contract that was established at the level of the law and is equal to the provisions of the Civil Code of Ukraine. In particular, an e-transaction is defined as an action of a person focused on the acquisition, modification or termination of civil rights or obligations, conducted with the use of information and communication systems. The e-contract is defined as an agreement of two or more parties executed with the use of electronic means.

— The Seller — a person who sells goods, performs works or provides services using electronic and communication systems; — The Buyer — any person who orders the goods, works or services; — The Supplier of the services of intermediate character — a person who provides data transmission and/or data storage services and assigns network identifier services. Taking in account Ukrainian legislation, which means that a person who sells goods, performs works or provides services using the information and communication systems should, as a general rule, be an individual or legal entity registered as an entrepreneur in accordance with Ukrainian laws. Nevertheless, individuals who are not entrepreneurs may apply the On Electronic Commerce Act to relations between them, provided that they have previously agreed to that. The buyer shall bear no obligation to define his status. The Act grants special attention to the provider of services of an intermediate character and distinguishes him from the seller. Such service provider may be an Internet services provider, registrar of domain names, owner of a website hosting private property sale adverts, the owner of online stores, which is the only venue to host sale of goods for the other businesses (a common form in Ukraine) and others. Such a provider is not a party to the contract of sale of goods, works or services of the other vendor and on the basis of Article 9 of the On Electronic Commerce Act is released from liability for its quality if he did not initiate the transmission of data and does not choose its recipient and cannot change the content of the contract. Thus, the Internet provider, the registrar of domain names, etc, do not bear any liability for the actions of the Internet-user or the owner of the site. The owner of the website for private adverts shall not bear responsibility for the quality of goods supplied by the person who placed an advert on a website, etc. Foreign participants of the E-commerce market must comply with the provisions of this Act if they sell goods, perform works or render services on the territory of Ukraine.

Participants of the Relations in the Field of E-Commerce The Act has defined the following parties of the transactions in the field of E-Commerce:

Execution of Contract. Its Form and Notices The On Electronic Commerce Act has established the order of execution of e-contracts, namely the latter are deemed to be

Key Provisions of the Law


PROfile executed by means of exchange of electronic offer to make a contract and electronic notice on acceptance of such an offer. The Act prescribes the amount of information which must be exchanged by the contracting parties. The contract shall be signed by the parties by means of: — Electronic Digital Signature; — Electronic Signature in the form of a single identifier (typically generated by the sale-of-goods system); — Analogue of a handwritten signature (facsimile reproduction of the signature, another analogue of a handwritten signature — the least common form in Ukraine). Under the new Act, an E-Contract executed in accordance with the established rules is deemed to be equal to a contract executed in writing. This provision is important for Ukraine, where the written form of contract prevails. Another positive feature is that the Act practically approved the methods of execution of e-transactions that had been applied by business prior to enactment of the Act. Nevertheless, some sections of civil law transactions were excluded from the subject of the On Electronic Commerce Act. In particular, the systems of electronic money and payments remain under the regulation of the National Bank of Ukraine. Public procurement, transactions on real estate, rent of real estate for three years or more, as well as any other transaction that should be certified by a notary or registered by the state, matrimonial contracts, transactions in gambling and some other transactions should not be executed in e-form.

What Protection/ Remedies are Available in the Particular Area?

The On Electronic Commerce Act does not provide for any special or particular means of remedies for the parties of e-transactions. Thus, these remedies are applied under the general rules that exist for all parties to civil relations. Section 3 Article 6 of the On Electronic Commerce Act allows the parties to design their own rules of ethics in this sphere. Moreover, using the provisions of the On Arbitration Courts Act allows one to define the order of dispute resolution between the parwww.ukrainianlawfirms.com

ties by means of arbitration. However, such form of dispute resolution is not very commonly used in Ukraine. Another way to seek remedy is for the customer to defend his rights, as infringed by the entrepreneur, by filing an application to the State Customer’s Rights Protection Service in an administrative procedure. However, the main way to seek remedy is to file a claim to state courts in an ordinary judicial procedure. Until a few years ago the judicial system of Ukraine was unable to provide good-quality dispute resolution in E-commerce cases or in those related to Internet technologies. In the main courts did not perceive the essence of relations between the parties of a dispute or the technological particularities of E-Commerce. A separate problem is proof through the use of evidence in a dispute arising from relationships established with the use of electronic means. Neither courts nor the parties of the disputes were ready to use electronic evidence. Now the courts are increasingly demonstrating familiarity with the peculiarities of this category of disputes and taking into consideration evidence which had not been accepted in civil dispute earlier. The essential novelty is that the On Electronic Commerce Act equates the electronic document (notice) associated with an electronic transaction with written evidence in court when considering an issue between the parties of an e-transaction.

Current Legal Trends in the Sector

The On Electronic Commerce Act does not govern issues of electronic and other payment systems whose goal is the maintenance of payments for goods, works, services, etc. However, without reliable operation of E-commerce such systems are not possible. Ukraine has sought in recent years to create the conditions for the development of its own electronic payment systems. But the global players of electronic money and payments market were still partly restricted from doing business in Ukraine. In order to get rid of this obstacle the National Bank of Ukraine, beginning from July 2015, initiated the amendment of its own regulations and requirements on the payment systems in Ukraine. Yet these measures were

ECOVIS Bondar & Bondar Address: 3 Rognedinskaya Street, Office 10, Kiev, 01004, Ukraine Tel./Fax: +380 44 537 0910 E-mail: kyiv-law@ecovis.com Web-site: www.ecovis.ua

E

COVIS Bondar & Bondar is a boutique fullservice law company, member of ECOVIS International, a leading global consulting firm operating in over 50 countries around the world. Tailored solutions, high quality, focus on details, promptness, responsiveness, flexibility, out-of-the-box thinking, practical approach to resolving clients issues, cost and time effectiveness — these are the principles that guide us in delivering our legal services. Among our strengths are: Market Knowledge We have been operating in Ukraine since 1998 and know the Ukrainian market and people in it. We have long-established and continuous working relations with the Ukrainian state authorities. International Network As a member of ECOVIS International, we have permanent access to the international and interdisciplinary knowledge in different jurisdictions, which ensures that our clients receive the most realistic and balanced advice on cross-border and local matters. Our professionals Our lawyers are highly qualified in diverse areas of law and possess an excellent knowledge of Ukrainian legislation and international legal standards in the provision of legal services. ECOVIS Bondar & Bondar is a recognized law firm in Ukraine and its partners are named among leading lawyers in their respective practice areas according to the international and Ukrainian legal directories. ECOVIS Bondar & Bondar focuses its practice on Corporate & Commercial Law, Mergers & Acquisitions, Antimonopoly & Competition Law, Litigation & International Arbitration, Labor Law and Tax. The company represents clients in diverse economic sectors, including aviation and transportation, insurance, energy, sport, real estate, banking and finance.

unsuccessful. Further negotiations with PayPal and the facilitation of entry of other payment systems to the market could significantly revive E-commerce in Ukraine.

Summary

The local E-Commerce market in Ukraine is, to some extent, formed and regulated by the State. The new On Electronic Commerce Act enables entrepreneurs to preserve existing business models and to apply new ones, including those accepted in international business practice. The main driver of the further development of Ukrainian E-Commerce is the launch of international electronic payment systems like PayPal in the country.

81


Energy

Legislative Developments in Ukrainian Energy Law in 2015 Bate C. Toms Managing Partner, B.C.Toms & Co. Legal education: Yale Law School (J.D., 1975); Magdalene College, Cambridge University (Law Tripos I; 1972-1973). Mr. Toms is admitted to legal practice in the District of Columbia and Virginia, USA, and in France.Chairman, British Ukrainian Chamber of Commerce

Natalia VIETOSHKINA Associate, B.C.Toms & Co. Legal education: Kyiv National Economic University (Commercial and International Law, Master’s Degree, 2008), Ukrainian Bar Association (Certificate of advocate, 2010)

The New Law Reducing Gas Royalty Rates

On 1 January 2016, Act No. 909-VIII of 24 December 2015, On Introducing Changes to the Tax Code of Ukraine and Some Other Legislative Acts of Ukraine to Ensure the Balance of Budgetary Contributions in the Year 2016 (hereinafter — the Budgetary Contributions Act) came into force, which, among the other things, greatly reduced the applicable natural gas production rental fee (“royalty”) rates from the uneconomically high levels that they had been raised to during the previous year. In particular, for the extraction from deposits that lie entirely or partly at depth of up to 5,000 meters, the royalty rate has been decreased from 55 to 29%1 and for deposits that lie entirely at a depth of more than 5,000 meters the rate was lowered 28 to 14%. The Budgetary Contributions Act has also cancelled the requirement to make rental fee payments in advance and has changed the basic tax reporting period for subsoil use fees from quarterly to monthly. There is also a two-year royalty tax relief period for new wells. Reducing the royalty rates for natural gas production in the Budgetary Contributions Act has reversed the increase in fees made in August 2014 that previously caused a fall in doPercentage of value of extracted minerals per 1,000 m3.

1

82

www.ukrainianlawfirms.com

mestic gas production and made investors rethink investing in Ukraine. This increase also effectively obliged an important oil and gas company to initiate a major arbitration in the Permanent Court of Arbitration in The Hague under the Energy Charter Treaty to contest the higher rates. Presumably, the world decrease in oil prices, a desire to reduce Ukraine’s dependence on Russian gas and closer ties with the EU, as shown by Ukrainian legislation adopted to reflect the EU’s Third Energy Package, influenced Ukraine’s decision to reduce the royalty to make it more commercially acceptable. In order to attract investment, Ukrainian policy needs to consistently reflect international standards and be better implemented in practice.

Developments in Renewable Energy

Another issue, which should be of interest to many investors, is the recently conducted reform of the “green” tariffs, which encourages investment in renewable energy projects in Ukraine. On 16 July 2015, Act No. 514-VIII, of 4 June 2015, On Introducing Changes to Certain Laws of Ukraine on Ensuring Competitive Conditions for the Production of Electric Energy from Alternative Energy Sources, came into force. This Act’s changes included the following: (1) cancellation of the local content requirement and replacing this with the introduction of the following premiums to increase the “green” tariff where the equipment used is of Ukrainian origin: (i) If 30% of the equipment is of Ukrainian origin, the tariff is increased 5%., and (ii) if 50% is Ukrainian, then the increase is 10%. (2) The green tariff will be protected against further devaluation of the Ukrainian currency by fixing the minimal amount of the “green” tariff in euro, with quarterly indexation until 2030. (3) The calculation of the “green” tariff has been adjusted and unified so that it will

be the same for all types of alternative energy sources, and the “green” tariff has also been extended to include power generated from geothermal energy sources, finally officially recognizing geothermal as an alternative energy. (4) On the other hand, 100%. of the costs of the connection to the grid for power sources producing energy from such alternative energy will now have to be financed by the investor. These generally favorable changes in Ukrainian legislation for alternative energy can be attributable primarily to the desire to decrease Ukraine’s dependency on foreign gas and become energy self-sufficient. In addition, Ukraine is following the European trend to develop “green” and clean energy. Finally, many are looking for alternatives not based on nuclear power in view of the Chornobyl nuclear disaster in 1986 in Ukraine.

Increase in Tariffs for the General Population

In 2015, the National Commission on State Regulation in the Sphere of Energy and Communal Services (hereinafter — the National Commission), the state regulatory body setting tariffs for energy and communal services, adopted Resolution No. 220 of 26 February 2015, On Establishing Tariffs for Electricity for the Population, which resulted in an average 45.2%. increase in tariffs for residential individuals. This measure has been explained by the National Commission as being necessary in order to balance the energy market, because it has been functioning on the basis of “crosssubsidies”, whereby commercial electricity customers (both entities and private entrepreneurs) were paying up to 26% more in order to cover the short fall between the low fixed energy prices for the general population and the higher real market cost that had to be paid by the state.2 At the same time, Section 2 of Chapter XII of the Parliamentary Parties’ Coalition Agreement foresaw the creation of market prices for electricity, and the gradual elimination of cross-subsidies by making prices more even for all, while introducing narrowly-tailored subsidies to the most vulnerable groups in the population to enable See Letter of the National Commission on State Regulation in the Sphere of Energy and Communal Services No. 2726/17.2/61-15 of 24 March 2015, paragraphs 22-25.

2


PROfile them to be able to afford the higher prices.3 The National Commission also increased the tariffs for gas for the general population, justifying this as being required by Ukraine’s agreement with the IMF.

Adjustments for the Ukrainian Energy Sector Due to the Conflict in Eastern Ukraine

There have been two sets of measures adopted by the Ukrainian government to address the complicated internal situation in Ukraine connected with antiterrorist operations in the east of the country and the occupation of Crimea, as follows: (a) Special Electricity Regime for the Territory on which Antiterrorist Operations are Conducted Act No. 284-VIII of 7 April 2015, On Amendments to the Electricity Law on the Regulation of Relations in the Electricity Sector on the Territory of an Antiterrorist Operation empowered the Cabinet of Ministers of Ukraine to establish details for the regulation

3

of the legal, economic and organizational relations connected with the sale of electricity on the Wholesale Electricity Market of Ukraine in territories where the Ukrainian public authorities temporarily do not provide full electric power. This Act specially regulates relations connected with the production, transmission, distribution, supply, purchase, sale and usage of electricity in these areas. The Government of Ukraine is also authorized to define the list of those areas where the Ukrainian public authorities temporarily do not provide full electric power. (b) Temporary Extraordinary Measures Related to the Situation in Crimea On 21 December 2015, the Ministry of Energy and the Coal Industry of Ukraine issued Order 828, On Adoption of Temporary Extraordinary Measures in the Electricity Market”, on the plan for the implementation of measures to reduce power consumption in order to normalize the energy supply, which has been interrupted due to the energy blockade of occupied Crimea.

B. C. Toms & Co Address: 18/1 Prorizna Street, Suite 1, Kiev, 01001, Ukraine Tel.: +380 44 490 6000, 278 1000 E-mail: kyiv@bctoms.net Web-site: www.bctoms.net

B.

C. Toms & Co is a multinational law firm of Ukrainian and Western lawyers specializing in Ukrainian law. It was the first Western law firm to open a Kiev office, having focused its practice on Ukraine at its independence in 1991. The firm has handled, for example, the land leasing for many of Ukraine’s largest agricultural and oil and gas projects, as well as acquisitions of land for commercial property developments. We also handled the legal work for the first, and the most, IPOs to raise funding for Ukrainian companies, as well as the first true project financing in Ukraine. Based on our over 25 years of experience in Ukraine, we can provide, with our legal advice, practical commercial advice on how to establish and develop a business in Ukraine. The firm has recruited and trained its Ukrainian lawyers from students at Ukraine’s leading law schools, most of whom have also studied at UK and US law schools as Chevening, Pinchuk, Fulbright and Muskie fellowships. Based on the firm’s practical experience, it has written numerous articles on Ukrainian law, including the legal section of the book Doing Business in Ukraine. The principal practice areas of B. C. Toms & Co include real estate and land development, energy, natural resources, agriculture, banking and finance, M&A, environmental, labor, bankruptcy and administrative law. The firm also has a successful litigation and arbitration practice, having successfully handled many of Ukraine’s most important cases, including in all Ukrainian courts and before the Permanent Court of Arbitration in The Hague. The firm regularly advises on Ukrainian tax law, including from a multinational tax planning perspective. B. C. Toms & Co has prepared a wide variety of documentation for clients, including Ukrainian law share purchase agreements, asset purchase agreements, joint venture agreements, construction contracts, project financing documentation, production sharing and oil and gas license agreements, airport investment and management agreements, hotel management agreements, private placement agreements, real estate acquisition agreements, loan agreements, leases and agency, distribution, franchise and licensing contracts.

Supra note, paragraph 29.

www.ukrainianlawfirms.com

83


Energy Efficiency

Energy Efficiency: Implementation of EU Standards in Ukraine Alexander Burtovoy Partner, Antika Law Firm, Member of the Public Council of the State Agency on Energy Efficiency and Energy Saving of Ukraine

T

here are good reasons to talk about amendments to the legislation of Ukraine in the field of energetics and energy efficiency in terms of analysis of the extent to which Ukraine has completed the execution of its obligations under international agreements. In accordance with the provisions of the Association Agreement between Ukraine and the European Union, the European Atomic Energy Community and their Member States, Ukraine pledged to bring domestic legislation to the acquits of the EU, inter alia in the sphere of energy and energy efficiency. The parties to the Agreement have agreed to continue and strengthen existing cooperation in the energy sector in order to increase energy efficiency. Article 338 of the Agreement settled areas of cooperation, including the implementation of energy strategies and policies; the procurement of energy efficiency and energy saving; the cooperation within the European and international standards bodies in the energy sector, etc. As for specific actions that must be taken, according to the provisions of Directive 2006/32/EC, one of the priority objectives of the state is to achieve energy savings of 9% of the total public index for the ninth year of application of the Directive. In particular, energy distributors or retail energy sales companies should reach 1.5% of energy savings per annum by implementing energy efficiency measures. Our state has committed itself to adopt a number of legal and strategic documents. For example, to develop and adopt a national energy efficiency action plan, and to implement a building certification and product labeling system, etc.

84

www.ukrainianlawfirms.com

In addition, Ukraine has to fulfil obligations as a member of the Energy Community. The Treaty establishing the Energy Community, which Ukraine joined in February 2011, creates a legal framework within which Ukraine ratified the relevant EU legislation provisions to ensure the conditions for increasing investments, improving energy security and energy efficiency, as well as improving the competitive environment as a key economic factor. In pursuance of international commitments in Ukraine the National Energy Efficiency Action Plan through 2020 was developed and the Cabinet of Ministers of Ukraine approved a plan on implementing the provisions of the Association Agreement. To date, several legal documents have been adopted; under consideration by the Verkhovna Rada of Ukraine there is a series of draft laws that will ensure the implementation of standards of EU legislation in Ukraine. For example, the Draft Acts On Energy Efficiency of Buildings, On Energy Efficiency, on the introduction of unbundling in the field of thermal energy and so on. Attention should be specifically drawn to acts already adopted. First of all, a set of acts on ESCO market establishment in the public sector. The set consists of two interconnected Acts: the On Introduction of New Investment Opportunities, Ensuring the Rights and Legal Interests of Business Entities to Conduct LargeScale Modernization Act of Ukraine, No.327-VIII and the On Amendments to the Budget Code of Ukraine on the Introduction of New Investment Opportunities, Ensuring the Rights and Legal Interests of Business Entities to Conduct LargeScale Modernization Act of Ukraine No. 328-Viii. The main purpose of the acts is to attract private investment to improve energy efficiency of state and municipal property (schools, kindergartens, hospitals, etc.). A peculiarity of the model to attract private capital in the public sector is the conclusion of a particular type of contract, which provides the start of the payments under the contract with a private company only after real energy savings have been made due to the introduction of energy efficiency measures. Act No.327-VIII defines the notions of energy services and energy performance contract, settles the essential terms of the contract, the

conditions and procedures for procurement of energy services, etc. An energy performance contract is defined as an agreement, the subject of which is energy performance. That is, achieving energy savings as a result of the implementation of energy-efficiency measures. In pursuance of the provisions of the law, on 21 October 2015 the Cabinet of Ministers of Ukraine approved the Standard energy performance contract, which consists of the main text and seven annexes. With regard to Act No. 328-VIII, it introduces a new concept of “long-term obligation for energy services”. This Act provides the right to take a long-term obligation for energy services to managers of budgetary funds, who belong to the operational management of the buildings. The Ministry of Finance of Ukraine also made changes to the budget classification of services that can be purchased with budget funds. New government regulations and standards have been adopted in the area of design and construction. In particular, changes were applied to the State construction norms (DBN) V.2.6.-31:2006 “Thermal insulation of buildings”, which bring the standards essentially closer to EU requirements. The classification of buildings is being implemented according to their energy efficiency grading from A to F, where A is the highest class and F is the lowest. In the project assignment the energy efficiency class of the building must not be less than class C. New standards for maximum heating costs for residential and public buildings are being set. On 1 January 2016, the new State Standard BA-2.2.12:2015 “Energy efficiency of buildings. The method of the energy consumption calculating for heating, cooling, ventilation, lighting and hot water” came into effect. Attention should be drawn to the electricity market, where significant changes took place in the regulation of alternative energy. On 4 June 2015 the Verkhovna Rada adopted the On Amendments to Some Laws of Ukraine regarding the Maintenance of Competitive Conditions for Production of Electricity from Alternative Energy Sources Act of Ukraine (No.2010-d), which significantly changes the rules of “green” tariff application and may boost the development of electricity production from renewable energy sources. The Act amends the Acts On Alterna-


PROfile tive Fuels, On Electric Power Industry and On the basis of Ukrainian Electricity Market Functioning. Green tariff is a traditional name for an electricity tariff which is used for power plants that use wind, solar, biogas and biomass. This rate is higher than the rate applicable to energy producers based on traditional energy sources. There are power plants to which the “green” tariff is not applicable. These include hydroelectric, blast-furnace gas and coke gas power stations. The green tariff is measured by a special rate, and is set for each alternative source separately. The tariff rate depends on the time the power station was put into operation. The green tariff is set considering the local component (origin of source), which is regulated and approved at the legislative level. The law stipulates that the “green” tariff is set by the National Commission, which carries out state regulation in the areas of energy and utility services. The innovation has increased the available installed capacity to 30 kW. Previously, the maximum capacity for a private solar power was 10 kW. The “green” tariff for electric power facilities put into operation before 31 December 2024, and private households, contracts for the sale of electrical energy of which are concluded before 31 December 2024, should not be less than the fixed minimum rate of the “green” tariff. This minimum rate is converted into national currency at the average official exchange rate of the National Bank of Ukraine for the last 30 calendar days preceding the date of the last quarter meeting of the National Commission, which carries out state regulation in the areas of energy and utilities. Also, the rule of “local content” is abolished; instead, a “green” tariff extra charge is introduced, when the domestic equipment is used in the amount of 5% (localization of 30%) or 10% (localization of 50%) as a stimulating factor. Thus, now it is possible to use solar panels of any manufacturer, not only Ukrainian, as it used to be. For all types of renewable energy sources, with the exception of solar energy and energy produced from biogas and biomass, the rates of “green” tariff stay on the same level as in the current Act On Amendments to the On Electric Power Industry Act of Ukraine on the Stimulation of Electricity Production from Alternative Sources of Energy as of 20 November 2012, No.5485-VI. According to the Act, www.ukrainianlawfirms.com

from 1 July 2015 the “green” tariff is reduced for industrial solar power plants to a level of 0.17 Euros/kWh. For solar power stations built in 2016 the “green” tariff will be EUR 0.16, in 20172019 — EUR 0.15. This figure is double the average European rate, therefore, the solar energy market will retain its relevance in Ukraine. In addition, the law temporarily (until 1 January 2017) reduces the “green” tariff for solar power stations of over 10 MW, which were commissioned before 1 July 2015. The Act also allows households to install not only solar but also wind power plants with a capacity of up to 30 kW with the sale of surplus electricity to the network. Connecting to networks does not require the project to be included in the 10-year development plan of the United Energy System of Ukraine. The subsidies on compensation for new connections costs are eliminated as being ineffective. As for industrial generation, the “green” tariff rate is still pegged to the Euro. The “local component”, as mentioned previously, is cancelled. Yet, if Ukrainian equipment is used during the construction of solar power station, the “green” tariff extra rate is charged. In the event of the facility being built with a local component of 30% to 50%, the rate is increased from 5% to 10%, respectively. As mentioned above, the state gives significant encouragement to the commercial production of alternative source electricity by applying special tariff conditions. According to the On Amendments to the Act of Ukraine on Electric Power Industry Act of Ukraine No. 1220/VI on stimulation of the use of alternative energy sources, the green tariff rate for legal entities is prescribed on electricity, produced by renewable energy sources, by multiplying the current retail electricity prices by a factor of: 4.8 — for the energy of solar radiation of electric power surface facilities; 4.6 — for the energy of solar radiation of electric power facilities installed on the roofs of houses and buildings, with a capacity of more than 100 kW; 4.4 — for the energy of solar radiation of electric power facilities installed on the roofs of houses and buildings, with a capacity of not more than 100 kW and on facades. The “green” tariff is prescribed for the period prior to 1 January 2030 for all business entities producing electricity from renewable energy sources.

ANTIKA Address: 12 Khreschatyk Street, 2nd Floor, Kiev, 01001, Ukraine Tel.: +38 044 390 0920 Fax: +38 044 390 0921 E-mail: office@antikalaw.com.ua Web-site: www.antikalaw.com.ua

A

ntika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise. The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings. Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice. Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work. The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project. Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market. The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine. The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

85


Enforcement of Foreign Awards

Enforcement in Ukraine of Interim Orders Issued by Foreign Courts and Arbitral Tribunals Dmytro Marchukov Partner, Avellum

Serhii Uvarov Senior Associate, Avellum

Oksana Varakina Associate, Avellum

sets that are the subjects of such legal battles, are located in Ukraine. In order for interim orders to be effective in Ukraine they need to be recognized and enforced here. This is especially important taking into account that to date Ukrainian procedural law does not provide Ukrainian courts with the powers to grant interim measures in support of foreign judicial or arbitral proceedings. Thus, recognizing foreign interim orders in Ukraine is, in fact, the only mechanism to obtain effective interim relief in Ukrainian jurisdiction in support of foreign proceedings. For this reason, it is not surprising that Ukrainian courts have seen more applications recently for recognition of freezing orders issued by foreign courts and interim reliefs granted by arbitral tribunals. Taking into account the lack of relevant experience of Ukrainian courts, enforcement of foreign judgments and awards has never been a piece of cake in Ukraine. Where recognition and enforcement of interim reliefs are concerned, specific knowledge of potential pitfalls becomes even more important.

Enforcement of interim measures granted by courts

I

n the past few years Ukrainian clients have developed an appetite for solving their disputes abroad. Litigation and arbitration sagas involving Ukrainian parties or related to Ukrainian assets often spread across many jurisdictions. In many such sagas various interim reliefs were granted by courts and tribunals. It is well known that interim reliefs are of great importance to maintain the status quo, prevent bad faith parties from dissipation of assets, etc. Very often, however, respondents, their owners or directors, or the ultimate as-

86

www.ukrainianlawfirms.com

Ukrainian courts will recognize and enforce a foreign judgment (i) provided that there is an effective international treaty on recognition and enforcement of judgements between Ukraine and the state where the judgment was rendered; or (ii) on foot of reciprocity. Unfortunately, Ukraine has not concluded international treaties on mutual recognition of judgments with the majority of jurisdictions where Ukrainian businesses get used to resolving their disputes (UK, US, most off-shore jurisdictions, etc.). Just several years ago an idea to have judgments originating from such jurisdictions recognized and enforced in Ukraine based on the principle of reciprocity sounded courageous, to say the least. First, there has been controversy on how reciprocity should be determined. Some courts took an extremely conservative approach — widely criticized by practitioners — that

no reciprocity exists if at least once recognition and enforcement of the Ukrainian judgment in that state was rejected. However, the practice has, to some extent, developed over recent years. The latest jurisprudence seems to confirm that in order to prove reciprocity between Ukraine and the other state, one only need to show that Ukrainian judgments may be recognized in that state. In particular, in several cases the courts found that reciprocity between Ukraine and the UK does exist. Ukrainian law does not provide for specific rules for recognition and enforcement of interim measures. For example, injunctions or freezing orders, granted by foreign courts. However, the Civil Procedure Code of Ukraine defines a foreign judgement broadly and judicial interim orders fall within the plain text of such definition. Court practice also confirms that interim orders issued by foreign courts may be recognized in Ukraine, at least as a matter of principle. In particular, on 5 August 2013, the Holosiivskyi District Court of Kyiv recognized the worldwide freezing order issued by the High Court of Justice in London the BTA Bank v. Abliazov et al. In another recent case, the Kyiv-Svyatoshynskyi District Court of Kyiv Region in its decision of 25 March 2015 (upheld by the Kyiv Region Appellate Court on 30 June 2015) also implicitly confirmed the enforceability of freezing orders issued by foreign courts. However, if the court finds that reciprocity exists, and confirms that the interim order of a foreign court can be recognized in Ukraine as a matter of principle, it can still refuse to enforce it based on a number of grounds set out by law. One such ground, which is particularly important for interim orders, is lack of proper notification. This means that orders issued ex parte are hardly enforceable in Ukraine. Furthermore, even if the debtor was aware of the proceedings at the foreign court, failure to comply with all formalities and mandatory procedures may impede recognition of the order in Ukraine. In this context, it is worth noting that under Ukrainian procedural law, the burden is on the applicant to provide evidence and to


PROfile prove that the process was properly served on the parties who did not participate in the proceedings. A vivid example of how strict the approach of Ukrainian courts is can be found in the VAB Bank v. Maksimov et al. Both Kyiv-Svyatoshynskyi District Court of Kyiv Region and the Appellate Court of Kyiv Region refused to recognize the English court order based on alleged lack of evidence that the respondents were properly notified of the proceedings at the High Court of Justice. The courts found that in the absence of an agreement on legal assistance between Ukraine and the United Kingdom, which would stipulate the procedure of notification of the parties to a dispute, the English court should have relied on the provisions of the Hague Convention on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters of 1965. Thus, in the courts’ opinion, only a letter of request, instruction of the Ministry of Justice of Ukraine and postal notification of the relevant person could be proper evidence of the process being served on such a person. As described above, proper notification may be a cornerstone for the application to enforce a foreign interim order in Ukraine. For this reason a party seeking interim relief against its debtor should ensure his proper notification in compliance with the provisions of valid international treaties, irrespective of how burdensome they may be.

Enforcement of Interim Measures Granted by Arbitral Tribunals

Foreign arbitral awards are recognized and enforced by Ukrainian courts under the Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958 (the New York Convention). The New York Convention is silent on whether interim reliefs granted by arbitral tribunals or decisions of emergency arbitrators fall within the scope of the Convention. Neither does Ukrainian law shed more light on the issue.

www.ukrainianlawfirms.com

In 2015 a Ukrainian court, for the first time ever, considered an application for recognition and enforcement of the decision of an emergency arbitrator rendered under the Rules of the Arbitration Institute of the Stockholm Chamber of Commerce (JKX Oil et al. v. Ukraine). On 8 June 2015 the Pecherskyi District Court of Kyiv upheld the application for recognition and enforcement of the decision. However, on 17 September 2015 the Kyiv City Appellate Court reversed the order of the Pecherskyi District Court of Kyiv based on public policy considerations. The High Specialized Court on Civil and Criminal matters declared the decision of the Kyiv City Appellate Court as not-substantiated and remitted the case back to the appellate court. Although there is no final decision in the case yet, it is encouraging that all the court instances acted on the assumption that emergency decisions fall within the scope of the New York Convention. The courts implicitly confirmed the enforceability of emergency arbitrators’ awards in Ukraine as a matter of principle. The issue of proper notification within the arbitration proceedings is less complicated than that within foreign court proceedings. The party seeking enforcement does not bear the burden of proof as to due notification of the debtor. Instead, the Supreme Court of Ukraine confirmed, in its order of 23 April 2014, that under the New York Convention it is the party opposing enforcement, not the applicant, who should raise this defense and provide the necessary evidence. By way of conclusion, Ukrainian court practice related to enforcement of foreign interim reliefs has developed in the past few years. Recent jurisprudence confirms the enforceability of judicial interim orders as well as interim measures issued by arbitral tribunals. However, Ukrainian courts still remain formalistic on many issues, and the parties (as well as their legal advisors) should be mindful of such pitfalls.

Avellum Address: 38 Volodymyrska Street, Kyiv, 01030, Ukraine Tel.: +380 44 591 3355 Fax: +380 44 591 3355 E-mail: info@avellum.com Web-site: www.avellum.com

A

vellum is a leading Ukrainian full service law firm with a special focus on finance, M&A, and dispute resolution. The firm covers capital markets, competition, corporate/M&A, dispute resolution, employment, banking and finance, energy and infrastructure, real estate, restructuring and insolvency, and tax. Avellum’s goal is to be the firm of choice for its clients with respect to their most significant business transactions. Its team is responsible, commerciallyminded, solution-orientated and cost-effective. The firm brings the most advanced Western legal techniques and practice, which, coupled with first-hand knowledge, broad industry experience, and unparalleled level of service, will help clients achieve the best results in their business endeavours. Avellum’s lawyers work seamlessly in integrated teams with premier US, UK and European law firms in the course of multijurisdictional transactions. The firm offers its clients highly individualised focus on their matters, and is relentless when it comes to observing deadlines. Avellum’s clients include international and domestic companies, governmental authorities, financial institutions, investment funds and investment banks seeking specialised legal advice and transactional skills from legal experts in the above practice areas. Avellum’s clients include Citybank, CNBM, Deutsche Bank, EBRD, Ferrexpo, ING Bank, Kernel, Lafarge, MHP, the Ministry of Finance of Ukraine, Nadezhda Group, Novartis, PrivatBank, Raiffeisen Bank International AG, Raiffeisen Bank Aval, UBS, UDP, Unicredit Group, and others. The firm’s employees received their education from top Ukrainian and Western universities. The team consists of 27 highly qualified attorneys, including three partners — Mykola Stetsenko, Glib Bondar, and Dmytro Marchukov, who are actively involved in every transaction. Avellum is recognised as one of the leading law firms in Ukraine by various international legal directories and Ukrainian legal editions such as Chambers & Partners, IFLR1000, Legal500, International Tax Review, Ukrainian Law Firms, and others.

87


Family Trusts

Recognition of Foreign Trusts in Ukraine and Use of Trust Structures by Wealthy Ukrainians Vladyslav Kuvichkin Senior Associate, Advocate, Moris Group

T

he international tax planning of Ukrainian business is rather straightforward due to a degree of inexperience among Ukrainian tax and other interested authorities in relation to the application of international tax concepts and practice. It is common practice for Ukrainian business to use holding, trading, financing or licensing companies registered in countries with appropriate tax treaties which enabled a high level of confidentiality through the nominee relationship arrangement and efficient tax planning for foreign structures. However, the OECD’s BEPS (anti-tax avoidance) and CRS (automatic exchange of information) trends lead to transparency and push offshore business owners to take all required measures to assure transparency of their structure. For example, subject to new changes in Ukrainian legislation all Ukrainian legal entities and banks are required to disclose publicly information about their ultimate beneficial owner (UBO). Earlier, wealth planning was not very popular among wealthy Ukrainian families because most concepts and instruments were quite complex and unknown. Also, traditionally, confidentiality and asset protection based on using offshore jurisdictions were simple and inexpensive. However, the beneficiary owners of business structures are getting older and interest in succession planning and using trusts is rising among Ukrainian high-net-worth individuals (HNWIs). In Russia this trend started a couple of years ago and is now very popular among HNWIs.

88

www.ukrainianlawfirms.com

Notwithstanding that foreign trusts are used by Ukrainians in practice, analysis of the legal consequences of such practice has received little attention from legal practitioners. For example, it is a real life scenario when upon the death of Ukrainian businessman, his widow and children bring a lawsuit against the child of his first marriage in a Ukrainian court and claim that the setting up of the offshore trust with such child as the sole beneficiary violates the forced heirship provisions of Ukrainian civil law.1 This is no easy case for a Ukrainian judge because Ukraine has not ratified the Hague Convention on the Law Applicable to Trusts and on their Recognition of 1 July 1985 (the Hague Convention).2 So, the Common Law concept of a “trust” does not exist formally in Ukrainian legislation. Also, there is no judicial practice of the Supreme Court of Ukraine how courts would resolve such cases regarding trusts.

The Possibility of Recognition of Foreign Trusts in Ukraine

Ukrainian civil law only has the concept of “estate administration”3 which is often (erroneously) translated into English as “trust”. However, this concept and Anglo-Saxon common law trusts have differing natures and are used for different practical purposes. For example, an estate administrator cannot dispose of the estate without the owner’s consent and this agreement automatically terminates with the owner’s death. So, these provisions of Ukrainian civil law effectively prevent the setupping of a testamentary trust involving assets located in Ukraine under domestic law. In accordance with the provisions of the Act of Ukraine On Private International Law (the Act), the determining of the term “trust” can be made by Ukrainian courts and legal practitioners on the basis of foreign law.4 Article 1241 of the Civil Code of Ukraine. 2 Convention of 1 July 1985 on the Law Applicable to Trusts and on their Recognition, available at http://www.hcch.net/index_ en.php?act=conventions.pdf&cid=59. 3 Article 1029 of the Civil Code of Ukraine 4 Articles 2, 4 and 8 of the Act On Private International Law. 1

Taking into account the different definitions of the “trust” amongst the various jurisdictions, the concept in Article 2 of the Hague Convention is the most appropriate. Thus, a trust has the following characteristics: the assets constitute a separate fund and are not a part of the trustee’s own estate; title to the trust assets stands in the name of the trustee or in the name of another person on behalf of the trustee; the trustee has the power and the duty, in respect of which he is accountable, to manage, employ or dispose of the assets in accordance with the terms of the trust and the special duties imposed upon him by law. In addition, the Act allows for the application of foreign law to the relations with the participation of Ukrainian persons complicated by a foreign element5, provided that its application does not contradict the so-called “mandatory norms” of Ukrainian legislation6 or public order in Ukraine7. Consequently, despite the absence of the concept of “trust” under applicable laws of Ukraine, a foreign trust where the trustee or the beneficiary or the assets are located outside of Ukraine as a legal “relation complicated by a foreign element”, shall be subject to the choice-of-law rules of the Act and can be recognized in Ukraine.8

Forced Heirship Provisions as Mandatory Rules

The provisions of Article 14 para 1 of the Act may effectively impede the recognition of foreign trusts in Ukraine when the conditions of such trust would interfere with the mandatory rules of Ukrainian legislation. In this case, Ukrainian courts should determine on a case-by-case basis whether certain provisions shall be considered to be “mandatory”. For example, Ukrainian civil law states9 that some categories of heirs-at-law have the right to Articles 2 and 4 of the Act On Private International Law. 6 Article 14 of the Act On Private International Law. 7 Article 12 of the Act On Private International Law. 8 Articles 2, 4 and 27 of the Act On Private International Law. 9 Article 1241 of the Civil Code of Ukraine. 5


PROfile succession irrespective of the will. Such mandatory heirs inherit half of the shares in the decedent’s estate that would have belonged to them in case of by-law succession. So, it is most likely that these forced heirship provisions will be recognized as “mandatory” rules and Ukrainian courts would refuse to apply the foreign law governing the trust and conclude that the share of the assets received by the beneficiary of the trust which corresponds to the mandatory share of mandatory heirs still constitutes part of the testator’s estate. Consequently, the beneficiary may be required to return to the mandatory heirs the respective parts of these assets or to repay them its value.

Family Agreement and Spousal Consent

Ukrainian family law10 provides that spouses, a child’s parents, other family members and relatives whose relations are governed by the Family Code of Ukraine may regulate relations between them upon agreement unless this is not inconsistent with the provisions of Ukrainian laws and morals in society. If the executor of the trust is married and lives with his/her spouse in Ukraine and the assets which he/she intends to transfer to a trust have been acquired during the marriage, Ukrainian family law requires notarized spousal consent for alienation of family assets in certain cases.11 Since any transfer of assets into a trust shall be viewed as their “alienation”, these rules may serve as grounds for challenging these transfers in such cases where the spouse was not aware of the creation of a trust.

Public Order of Ukraine

Under the Act a provision of foreign law shall not be applied when the consequences of its application would openly contradict the fundamentals of public order of Ukraine. In such case the respective provisions of Ukrainian law shall be applied if necessary.12 Decree No.12 of 24 December 1999 of the Plenum of the Supreme Court of Ukraine specifies Article 9 para 1 of the Family Code of Ukraine. Article 65 of the Family Code of Ukraine. 12 Article 12 Part 1 of the Act On Private International Law. 10

11

www.ukrainianlawfirms.com

that public order should be understood as the legal order of the state, the determining principles and basis, as being fundamentals of the existing state order, and connected with its independence, integrity, inviolability, main constitutional rights, freedoms, guarantees, etc. Thus, the refusal to apply a provision of foreign law cannot be justified solely by the differences of their respective legal systems. So, the absence of the concept of “trust” in Ukrainian legislation should not be used to refuse their recognition on the basis of the public order clause.

Conclusion

In summing up, trusts may be recognized by Ukrainian courts in case of a possible dispute but the appropriate case law in respect of trusts is absent. So, direct contribution of Ukrainian assets to a foreign trust, especially if the change of ownership requires state registration, may be prone to attack. It is recommended to transfer such assets to a trust via an intermediate holding company registered in the countries with appropriate tax treaties. It may also cause problems in Ukrainian courts with avoiding forced heirship provisions as mandatory rules. In this case, prior to the creation of a trust all the members of a family and mandatory heirs have to compile a written and notarized family agreement and consent to the setting up of such a trust and the legal waiving of their right to file a claim with a court based on the above forced heirship provisions in future after the death of the executor. Structuring business assets using trusts with a clear UBO can help Ukrainian business to become more transparent for an IPO or other corporate restructuring or seek funding from Western financial institutions where a standard part of the compliance is the confirmation of legal ownership, as evidenced by adequate legal documentation. Where assets are held personally by Ukrainian HNWIs, on the death of the relevant individual, forced heirship provisions as they apply in Ukraine will dictate the devolution of the assets. Where assets consist of shares in an underlying business this may create succession and management issues for businesses that have been built over a lifetime. Thus, a

MORIS GROUP Address: 8b Moskovska Street, Kiev, 01010, Ukraine Tel./Fax: +380 44 359 0305 E-mail: info@moris.com.ua Web-site: www.moris.com.ua

M

ORIS GROUP is a team of experienced professionals recognized as being among the leaders of the legal services market of Ukraine since 2004. At present the company unites more than 30 attorneys-at-law and lawyers, experts in the area of law who provide qualified services in the Ukrainian and International law and form one of the most experienced and efficient teams among Ukrainian law companies whose key working principles are decency, honesty, conscientiousness and responsibility. MORIS GROUP is known for handling comprehensive support to its regular clients from the agrarian, building, energy sectors. Also MORIS GROUP is an experienced national player engaged in diverse plant projects, including biogas, heat energy, energy-saving, environment protection, and has a well-established litigation offering. The principal practice areas include: judicial practice, tax law and administrative justice, corporate law and M&A, competition and financial law, investment project support, private clients/private wealth managment. MORIS GROUP is a reliable partner, protecting business interests and taking care of its clients’ success, whose trust is the best recommendation and a convincing benefit of the company on the legal services market. We are proud of our professional achievements over more than a decade of practice. However, despite the experience we have gained, we keep working strenuously and improving our excellence in a comprehensive way. The recipe for success of MORIS GROUP is an efficient combination of competence, long-term experience and keen understanding of industrial peculiarities of our clients’ business, which is brightly confirmed with the numbers of successful projects and resolved disputes.

properly settled trust structure may help to protect the interest of the heirs and allow for a business to continue without unnecessary disruption because it is not formal succession but merely changes the person who controls the underlying companies and does not require wills. Furthermore, such a structure may help to protect assets from potential creditors and avoid inheritance tax. A trust would also be an answer to potential Ukrainian anti-tax avoidance rules similar to current Russian CFC rules.

89


FMCG

Fast Moving Consumer Goods Iryna Kalnytska Senior Associate, Tax & Business Law Practice, GOLAW. Iryna Kalnytska focuses on international tax planning and structuring, currency regulation; counsels on customs law, export and import operations, real estate law, including lease relationships

T

he companies involved in the Fast Moving Consumer Goods (FMCG) industry are of the most famous brand names that we come across every single day. These FMCG companies are identified by their ability to give the consumer those products that are highly demanded, while also developing a relationship with them that involves trust and loyalty. One of the peculiarities of the industry is diversity and dynamics that lead to the emergence of new regulations and requirements on a monthly basis. Lots of them overlapping cause much confusion and ambiguity for manufacturers subsequently. That’s why a successful retailer should bear in mind a large number of issues upon running the business: corporate, tax, customs, competition, IP, regulations, consumer rights protection, etc.

Customs Procedures/ Customs Value/Related Persons

The first and the foremost problematic area for a manufacturer intending to enter a Ukrainian market is the customs procedure for imported goods. Customs value is a key element in the business activities of a FMCG company. The importer or its authorized representative determines the customs value of goods during the declaration process. However, customs authorities quite often do not agree with the customs value determined by the importer and make a decision on adjustment of the declared customs value. In such a case any negative effect on customs value will immediately be reflected either on financial results of the company or on the price of goods sold. Both consequences involve certain business risks: company’s competition on the market, cash flow gaps, additional tax liabilities, etc.

90

www.ukrainianlawfirms.com

Disputes regarding adjustment of the declared customs value are one of the most common in the customs sphere in Ukraine. In order to mitigate the risks of negative consequences of customs value adjustment we recommend using the following advice. The first recommendation is to follow exactly what the Customs Code specifies, step by step, notwithstanding any explanations of customs officers or their requests. If part 2 of Article 53 of the Customs Code of Ukraine envisages an exhaustive list of documents confirming the declared customs value, these particular documents must be filed to the customs office, no more and no less. There are two exceptions envisaged by the Customs Code of Ukraine where the company is required to file additional documents for the purposes of customs value confirmation: (a) if the already filed documents contain discrepancies or may be deemed as counterfeit; or (b) if the importer and supplier are related persons and the customs authorities have reasonable grounds to believe that such relationship affects the declared customs value. In both cases the Customs Code provides a detailed and exhaustive list of documents that must be filed to the customs office. A company, however, has the right to file any other additional documents at its own discretion and the customs office is obliged to accept and review such documents. Another problem that an importer may face is determination of the custom value of the goods and use of a particular method for determining such value. The Customs Code of Ukraine stipulates an exhaustive list of methods, which must be used to determine customs value. They are: 1) basic method — customs value of goods is determined according to the price of goods stipulated in the contract; 2) accessory methods: a) according to the price of identical goods; b) according to the price of similar goods; c) subtraction

of costs method; d) adding of costs method; e) reserve method. It is important to note that each subsequent method can be applied only in cases when the previous method cannot be used. Customs authorities often quite often use accessory methods, instead of basic method, to determine customs value without any reasoning. If customs authorities make a decision on adjustment of the declared customs value, such decision must be issued in writing and contain, inter alia, an explanation of the reasons why the declared customs value cannot be accepted and information available to customs office giving reasons to challenge the declared customs value; The customer has the right to appeal against abovementioned decision justifying the position with the absence of contradictions in the documents submitted to the customs office, sufficiency of information stipulated in such documents and absence of reasonable doubt to demand additional documents from the customer. In such types of disputes the importer may rely on the position of the Supreme Court of Ukraine according to which the custom authorities have no right to use accessory methods instead of the basic one without sufficient reasoning and grounding (decision of 14 May 2013, case No. 21-130а13). Therefore, if the tax authorities do not provide any valid and sound reason for demanding additional documents from the importer or adjust a declared custom value of the goods due to the application of accessory method such decision may be successfully challenged by the importer in a court of law. In such types of disputes it is important to develop a strong legal theory from the very beginning. Hence, we recommend addressing these types of issues to professionals.

Customers’ Rights Protection/Regulations

Another issue that is highly important for FMCG companies is compliance with regulations regarding customers’ rights protection and quality control. Ukrainian law on protection of customers rights in the FMCG sector is very complicated. It contains different regulations and legal requirements for every single type of good and provides for strict sanctions in the event of violation of consumer rights. Therefore, compliance in this sphere should be a priority task for FMCG companies.


PROfile Non-compliance with established requirements is commonly revealed upon auditing of retail activities carried out by the Inspection for customers’ right protection (Inspection). In this article the most common issues treated as violation of regulations on customers’ rights and quality control will be considered. There are several major legislative acts that stipulate general requirements for business activities in the FMCG sector: On Customers’ Rights Protection Act of Ukraine, On General Safety of Non-food Products Act of Ukraine and On General Principles and Requirements to Safety and Quality of Food Products act of Ukraine. For instance, according to Article 4 of the On Customers’ Rights Protection Act customers shall, among other rights, have the right to receive necessary, complete, true and available information on products, their amount, quality, range and producer (contractor, seller). This right is concretized in Article 15 of the On Customers’ Rights Protection Act and considers provision of information about: name of the product, name or visual appearance of trade mark under which goods or services are sold; main features of the goods; price; content of harmful substances; date of production; expiry date, etc. The list provided is not complete and differs depending on the type of products. This information is usually brought to customers in supporting documents attached to the label on products, as well as on labeling or in another manner (in visually accessible manner), generally acceptable for certain types of products or in other areas of retail business. Information (description, price, materials, etc.) should be readable and comprehensi-

www.ukrainianlawfirms.com

ble. The proper labeling of products is always scrupulously inspected by the Inspection. Another essential requirement of FMCG customers right protection law should deal with is goods safety. Both food and non-food products should comply with basic safety requirement — no products should cause any harm to the health of a human being. In this area Inspection pays attention to facts as to whether the conformity assessment is carried out, whether the producer or retailer has all the required documents (e.g. conformity certificate), to the proper indication of the National conformity sign, the compliance of the goods with technical regulations or hygienic, sanitary rules, etc. If the Inspectorate has doubts about safety of a certain product, they will have right to examine samples of goods to be sure, even if all documents for this product are provided. Violation of safety requirement regulations causes producers and/or retailers huge negative consequences, right from temporary bans on the sale of goods to the withdrawal and destruction of goods, which are always supported with huge fines. To sum up everything mentioned above, retail trade and the FMCG sector are rather complicated businesses from the perspectives of legal and regulatory requirements. A large number of regulations should be taken into account and a variety of risks should be assessed and managed. Therefore, involvement of a legal advisor at the early stage of a dispute may be crucial in terms of further implications. Moreover, negative consequences can be mitigated if the company independently or with involvement of professional advisers audits its activities in view of compliance with applicable laws and regulations.

GOLAW Address: 19B Instytutska Street, Suite 29 Kiev, 01021, Ukraine Tel.: +380 44 581 1220 Fax: +380 44 581 1222 E-mail: info@golaw.ua Web-site: www.golaw.ua

W

ith 3 offices in Ukraine (Kiev, Lvov, Odessa) and a representation in Germany (Berlin), GOLAW is one of the leading and most capable teams of business legal advisors in Ukraine, combining international legal expertise and local knowhow to offer clients top-quality legal services. Since its establishment in 2003, the firm is oriented toward providing comprehensive support to local and international businesses in Ukraine and has grown steadily by providing clients with the right mix of legal expertise and strategic direction. The firm provides a broad range of business-related legal services to foreign and domestic clients in Ukraine. It strives to stay competitive by enhancing the services portfolio through implementation of innovative approaches to client service and provision of creative and practical solutions. The firm renders industry-tailored legal advice to serve all areas of business law and primarily focuses on corporate and commercial law. It also has strong credentials and client recognition for advice in mergers and acquisitions, corporate and debt restructuring, banking and finance, taxation, corporate and tax dispute resolution. GOLAW is proud to have developed a reputable and skillful team of criminal defense lawyers. The firm’s practice covers client representation through all aspects of criminal litigation and relevant enforcement actions. Preventive counseling in criminal matters of economic nature, white-collar crimes and corporate internal investigations make up the scope of well-managed services to handle response to fraud on behalf of corporate or individual clients. The firm’s lawyers can create added value to the clients’ transactions and litigation cases with both cutting edge expertise and solid industry experience. Thus, by sector, most of the work involves acting for clients investing in agriculture, energy and natural resources, real estate, media and technologies, aviation, food production and retail in Ukraine. The firm has also proven itself as a trusted advisor to international and local financial institutions, made up of banks and insurance companies. With a team of 35 dedicated lawyers, the firm is divided into practice and industry sector groups. This allows proper assembly of a project team for each assignment through a perfect combination of requisite skills and sector knowledge. Successful recruitment of the best legal talents, ongoing professional development and strong corporate culture encourage business focus and a team spirit, which finally bring the firm to smart leadership in the market.

91


Foreign Trade

Trade with the EU — Preferences and IP Rights Julia Semeniy Partner, Asters

confirmation of such origin of goods is movement certificate EUR 1. Rules and provisions regarding application of the preferential regime are described in Protocol I to the EU Association Agreement (the Protocol I).

Origination of Goods Concept

Tetiana Gryn Senior Associate, Asters

Preferential Trade with EU

In January 2016 the Title IV dedicated to Trade and Trade Related Matters of the EU Ukraine Association Agreement (the EU Association Agreement) came into force. As a result, the import / export of goods originating from EU member states and Ukraine could be performed under both preferential and non-preferential regimes. The preferential regime would allow import / export of goods with zero / reduced customs duty rate (or quotas for some specifically defined goods). In order to apply for the preferential duties and charges to import of goods / products (as well as customs restrictions or special requirements), the nationality of goods (Rules of origin) and the tariff classification must be determined.

Preferential Rules of Origin

If a company (e.g. a Ukrainian company) intends to import goods under a preferential regime into Ukraine from the EU, such goods should be exported from an EU state and need to originate in that state. The rules of origin explain whether goods may be considered originating from that state and, if yes, the preferential regime envisaged by the EU Association agreement would apply. The formal

92

www.ukrainianlawfirms.com

Under the EU Association Agreement, goods are considered as originating from the EU / Ukraine if: — the goods are wholly obtained in the EU / Ukraine. Wholly obtained goods are natural products and goods made entirely from them; — the goods have undergone sufficient working or processing in EU / Ukraine. Wholly obtained goods cannot contain imported non-originating elements (e.g. mineral products, vegetable products, live animals, fish, etc.). Article 5 of the Protocol I provides for an exhaustive list of cases where the goods are considered as wholly obtained for the purpose of the Rules of origin. Article 7 of the Protocol I provides for the list of working / processing operations which are viewed to be insufficient (minimal) and do not satisfy the Rules of origin. Annex II to the Protocol I of the EU Association Agreement establishes the minimum required set of operations or ingredients which would satisfy the Rules of origin. The information in Annex II to Protocol I is structured with reference to the tariff code of goods/products, so that an exporter/importer would be able to find the description of applicable technological operations and percentage of the particular ingredients which would satisfy the Rules of origin.

Proof of Origin. Movement certificate EUR 1

In order to apply for the preferential regime, the exporter of goods shall obtain movement certificate EUR 1. Movement certificates are issued by customs authorities of the exporting country based on written applications made by exporters. The procedure for issuance of a movement certificate in Ukraine is provided for by the Order of the Ministry of Finance of Ukraine On Approval of the Procedure of Issuance of a Movement Certificate EUR 1 by the Customs Offices in accordance with Association Agreement between Ukraine and Eu-

ropean Union, European Community and Their Member States No. 1142 of 18 November 2014 and the Letter of the State Fiscal Service of Ukraine On Recommendations on Issuance of Movement Certificate EUR 1 No.47656/7/9999-25-02-03-17 of 29 December 2015. In order to obtain a movement certificate, the exporter shall file: — the application, a specimen of which is defined in Annex III to the Protocol I; — the completed original of movement certificate EUR 1 and two copies; — documents substantiating the preferential origin of goods according to Protocol I, in case of the first supply of goods. The documents are considered by customs authorities and the decision (positive or negative) should be made within three days as of the date of the registration of the application with the customs office. The list of customs offices authorized to issue movement certificates is provided on the official website of the State Fiscal Service of Ukraine1. It should be noted that in certain exceptional cases (e.g. because of errors or involuntary omissions, or in cases when a movement certificate was not accepted by the customs authorities at the moment of importation due to technical reasons), movement certificate EUR 1 can be issued retrospectively. Such a certificate should be endorsed with the description “issued retrospectively”.

Invoice Declaration

In cases where the total value of declared goods does not exceed EUR 6,000 or exported goods are declared by the approved exporter, an invoice declaration — a document, which, in addition to movement certificate EUR 1, would substantiate the preferential origin of the declared goods, could be filed to a customs office. The exporter filing the invoice declaration should be ready to provide the customs office with all documents proving the origin of goods. Similarly to certificate of origin EUR 1, the invoice declaration may be filed at the moment of export of the goods or after their export. With reference to provisions of Article 22 of Protocol 1 and Article 16(1)(b) of this Protocol I, the procedure of completion and the form of the invoice declaration are provided by the Letter of the State Fiscal Service http://sfs.gov.ua/data/material/000/168/23172 7/12522955_1101718829862106_9075709893 780787798_n.jpg.

1


PROfile of Ukraine No. 47068/7/99-99-25-0203-17 of 24 December 2015.

Approved Exporter

A company that makes frequent shipments of goods under EU Association agreement may apply to customs office for the status of the approved exporter. Such company must offer to customs authorities all guarantees that are necessary to verify the originating status of goods. The status of the approved exporter is granted at sole discretion of the customs authorities. In such a case the customs authorities shall grant the exporter the customs authorization number which shall appear in the invoice declaration. If the exporter fails to provide the guarantees with respect to the originating status of the goods or makes incorrect use of the approved exporter status, such status may be withdrawn by the customs authorities.

Intellectual Property Rights

Apart from customs formalities, to benefit from cross-border trade it is advisable to ensure that the relevant intellectual property rights are duly protected not only in the country of origin but also in the destination country. This will also mitigate the risk of conflicts regarding infringement of intellectual property rights owned by others. Depending on the goods to be marketed, protection of different intellectual property rights such as trademarks, copyright, designs, technologies, etc. may be sought, and an appropriate protection strategy needs to be developed. However, trademark protection is usually the most important issue. Talking about the export of products from Ukraine to the EU, the first

www.ukrainianlawfirms.com

step may be investigation of the target market and search for registered objects to identify potential conflicts. It is worth noting that publicly available online databases now exist (such as TMView, DesignView, Global Brand Database, etc.) that can be used to carry out searches at no cost for various countries or territories. Then, the registration options shall be considered.

Registration Options

While it is still possible to register trademarks via the national route in each particular country, there are more cost-efficient and time-efficient options available, such as international registration under the Madrid system and a European Union trade mark that allow the filing of a single application to cover various countries. In an application filed under the Madrid system the applicant may designate member states of the Madrid Agreement Concerning the International Registration of Marks or the Protocol relating to that Agreement. After the international registration is processed by the WIPO International Bureau, the matter shall be considered by the patent offices of all designated countries in accordance with local rules. An EU trade mark application shall cover the entire territory of the EU and is only considered by the European Union Intellectual Property Office (earlier known as the Office for Harmonization in the Internal Market), although the “all or nothing” principle should be mentioned. That is, where an obstacle to registration exists in any EU member state, the registration shall not be granted. The situation is quite similar with registration of designs, where the Hague system for international registration of designs and EU design registration may be of use.

Asters Address: Leonardo Business Center, 19-21 Bohdana Khmelnytskoho Street, 14th Floor, Kiev, 01030, Ukraine Tel.: +380 44 230 6000 Fax: +380 44 230 6001 E-mail: info@asterslaw.com Web-site: www.asterslaw.com

A

sters is a full-service independent national law firm that has maintained a strong presence in Ukraine since 1995. The firm provides efficient transactional legal advice and represents clients on a broad spectrum of matters arising in the course of doing business in Ukraine. For five consecutive years Asters has been ranked No.1 Law Firm in Ukraine according to the Annual Top 50 Leading Law Firms of Ukraine 2011–2015 conducted by the Yuridicheskaya Practika Weekly. Asters was the winner of the 2015 and 2014 Law Firm of the Year: Ukraine and the CIS award by The Lawyer, Ukraine Law Firm of the Year 2014 award by Who’s Who Legal, Chambers Europe 2012 Client Service Law Firm of the Year award and a two-time holder of the International Law Office Client Choice Awards for Ukraine. Asters offers a full range of legal services and maintains a high reputation for its expertise in a wide array of practices, such as banking and finance, capital markets, corporate and M&A, competition and antitrust, dispute resolution, energy and resources, environment, family law, intellectual property, international trade, labor and employment, real estate, restructuring and insolvency, taxation, telecommunications, and white collar crime. Shell, Coca-Cola, Philip Morris, L’Oreal Ukraine, GlaxoSmithKline, The Boeing Company, Siemens AG, S.C. Johnson & Son, Nokia Corporation, Sopharma, General Electric Energy, Glencore International AG, Deer & Co, Kodak Health Group, ED & F Man, Marathon Oil, News Corp., Nissan Motor, Novartis AG, Telenor, Thyssen Krupp Elevator, as well as many other multinational corporations and major local companies are clients of Asters’ attorneys, who regularly handle a variety of complex matters and the largest transactions. Asters is an exclusive Ukrainian member of professional networks such as World Services Group, L2B Aviation, Biolegis and Legalink, and is a long-standing member, both at corporate and individual level, of numerous professional associations, chambers of commerce, business associations and international as well as local bar associations. Asters’ 120-strong staff offers clients a mix of deep local awareness and substantial international experience. Asters’ lawyers earned law degrees from the best European, Ukrainian and US law schools, including Yale, Harvard, Chicago, and California University. In 2015 Asters was recognized the best employer among law firms in Ukraine according to research by the Focus weekly. Asters’ corporate social responsibility strategy is aimed at making a valuable input to the development of Ukraine. In 2015 EBA-Asters Legal School, one of Asters’ CSR initiatives, was awarded the best CSR project on the Ukrainian legal market in accordance with the results of the National CSR Business Cases Contest.

93


Government Relations

Government Relations Andrii Kubko Ph.D. (Law), Partner, Salkom Law Firm

T

he legal framework of government relations is very broad and multi-faceted. At the same time, all statutes governing this area can be provisionally divided into several basic groups. The first group consists of statutes determining the status of government institutions and principles of their relations with private business. In particular, this group includes provisions that restrict the state’s interference with private interests, and establish the parity principle for state institutions and private parties in contractual and other civil relationships. Here the important role is played by the rules of Civil Code of 2003, as amended and, of course, by the Constitution of Ukraine. The second group combines statutory provisions that establish principles of state governance, approaches to the interaction between the governmental agencies and private persons in connection with business activity in general and its specific areas (industries). This group includes, for instance, provisions of the Commercial Code of Ukraine of 2003, On Foreign Economic Activity Act of Ukraine of 1991, On Foreign Investments Act of Ukraine of 1996, On Public Private Partnership Act of Ukraine of 2010, On Procurement Act of Ukraine of 2014, On State Registration of Legal Entities, Private Entrepreneurs and Public Associations Act of Ukraine of 2003, On Licensing in the Area of Commercial Activity Act of Ukraine of 2005, On Lease of State and Communal Property Act of Ukraine of 1999 (as amended). The third group of statutory provisions governs the matter of protection of a private party’s interests in its relations with state institutions. These legislative provisions establish mechanisms that can be employed by private parties to defend their interests in relationships with the state, and also remedies available to private parties and responsibility of the state. In addition to the above-mentioned acts and codes, procedural acts that

94

www.ukrainianlawfirms.com

establish procedures for adjudicating disputers in courts also serve as a source for this group. Provisions contained in the Code of Administrative Judicial Procedure of Ukraine of 2005 play a key role. Acts that establish mechanisms for international protection of private interests including interests of businesses and investors account for a significant share in this group. The Convention for Protection of Human Rights and Fundamental Freedoms offers private business an opportunity to seek protection against unlawful acts by the state in the European Court of Human Rights. Further guarantees of protection offered by this international institution are provided by the On Enforcement of Judgments and Application of Case Law of the European Court of Human Rights Act of Ukraine. Moreover, Ukraine is a party to a number of Bilateral Investment Treaties (BIT) with dozens of states. All these treaties provide, among other things, for an opportunity for foreign investors to seek protection of their interests in international arbitration institutions. Nowadays, the role of the state, its functions and a place in the life of the society are undergoing a process of rethinking. New approaches to the state’s powers, functioning of government bodies, interaction between the branches of the state power are being introduced. In parallel, the very system of government institutions is undergoing transformation. A new understanding of the interaction between central and local authorities in various areas such as governance, law-making, finances, security, etc., is shaping up. These circumstances have a direct influence on both the key trends in this area and the situation with the legislative control as well as legal and practical aspects of relations between private business and the state. It is worth focusing on the most important processes developing in this sphere. First of all, today we can talk about certain decentralisation of a number of functions of government control. In the area of publicprivate partnerships powers of the Cabinet of Ministers of Ukraine as the top government authority are getting more narrow while a certain portion of this agency’s powers are being transferred to ministries and other agencies that manage state-owned property. For instance, the On Changes and Amendments in Some Acts of Ukraine to Eliminate Regulatory Barriers to Support Development of Public-Private Partnerships and Stimulate Investments in Ukraine Draft Act of Ukraine (PPP Amendments

Act) provides that a decision to implement a PPP project involving state-owned property can be made by central executive authorities vested with the powers to manage such property. The Cabinet of Ministers of Ukraine can make such decisions in connection with PPP projects only if these authorities have not been appointed. Of course, this new approach taken by the legislator opens new opportunities for certain decentralisation of the implementation of PPP projects. This, in turn, has to promote the practical application of this mechanism of interaction between private business and government authorities. Secondly, the area of government relations is characterised by the state’s intent to deregulate certain aspects of this area. Recently, legislators even adopted a special Act — On Making Changes in Some Legislative Acts of Ukraine to Simplify Conditions for Doing Business (Deregulation) (Deregulation Act). This piece of legislation is aimed, among other things, at revoking certain administrative requirements (or barriers) in the sphere of private entrepreneurship. Such deregulation applies, first of all, to the use of real properties, parcels of agricultural land, and formalisation of civil contracts. Deregulation has also affected the functioning of a so-called licensing system that applies to a number of business activities. According to the Deregulation Act, changes are made to On Licensing System in the Area of Business Activities Act of Ukraine: the role of agencies and centres providing administrative services is heightened. The Cabinet of Ministers of Ukraine is vested with authority to decide which administrative services within the scope of the licensing system can be provided by centres of administrative services at the discretion of a commercial entity. Thirdly, the modern trend in regulation is that more broad guarantees of protection of rights and interests of private business and investors in their relations with the state are introduced. The majority of new rules concerns a financial component and is aimed at increasing the protection of the property interests of a private investor. The above-mentioned PPP Amendments Act introduced more options for government support to public-private partnerships. In addition to government guarantees and providing financing from state or local budgets, government support can also involve the purchase by the public partner of a certain quantity of goods or services from the private partner under a relevant contract, or by supplying to


PROfile the private partner goods or services necessary for implementing the PPP project. The legislative amendments introduce additional mechanisms aimed at protecting the financial interests of the business and mechanism for regulating the prices or tariffs of goods or services sold by the private partner. Legislators introduced the rule according to which in the event that the prices or tariffs which are subject to state control are not economically viable and no compensation is provided, the private partner can suspend performing its investment obligations under the PPP agreement. Some changes can be seen in the legislator’s approach to guarantees against a risk of changes in law, which is called “a stabilisation clause” in world practice. A stabilisation clause means that, according to a general rule, the law which was in effect when the investment was made would apply to the private investor if such law changes. The PPP Act already provided this guarantee. However, a stabilisation clause used to apply only to the changes in civil and commercial statutes. The PPP Amendments Act extends the guarantees contained in the stabilisation clause to all branches of law except for cases expressly provided for by the very PPP Amendments Act. The stabilisation clause does not apply to statues governing matters of defence, security, law enforcement, and environmental protection. The above PPP Amendments Act also extends the use of international arbitration as a mechanism for resolving disputes arising between state and private partners, and provides the possibility for such disputes to be resolved by arbitration institutions outside Ukraine. The act also limits so-called exclusive jurisdic-

www.ukrainianlawfirms.com

tion of Ukrainian courts. For instance, Ukrainian courts will not have exclusive jurisdiction over disputes that arise in connection with real property located in Ukraine, and such disputes can be submitted to foreign arbitration institutions as well. Extension of the application of international arbitration as a mechanism for resolving disputes between public and private parties takes place in certain specific areas of the publicprivate partnership. The PPP Amendments Act provided for the arbitrability of disputes arising in connection with concession agreements. According to the PPP Amendments Act, such disputes can be submitted to international arbitration not only when a party to the dispute is a foreign entity, but also when the dispute involves a Ukrainian company with foreign investments. Finally, there is another trend in the attempts of legislators to broaden the sphere of application of partnership relations between government authorities and private business within the framework of PPP and to ensure certain flexibility for both private parties (private partners, investors) and the state involved in a public-private partnership. The PPP Amendments Act introduces rules setting out a new composition of the parties to a PPP: subject to certain conditions, a private partner in a PPP can be either a winner of a competition (organised to select a private partner for a specific PPP project) or other legal entity established by the winner as a vehicle for participating in the PPP project. All these events provide a reason for saying with confidence that we will be able to see how relations between private business and the state will move to a whole new orbit even though such progress will be gradual.

SALKOM Address: 12 Khreschatyk Street, Kiev, 01001, Ukraine Tel.: +380 44 591 3100, 591 3101 Fax: +380 44 591 3115, 591 3107 E-mail: salkom@salkom.kiev.ua Web-site: www.salkom.ua

T

he Salkom Law Firm was founded in 1990. Salkom quickly built a reputation for honest and efficient counsel, and is now recognized as one of the leading providers of legal services in Ukraine. Year on year the firm is being rated by Ukrainian and foreign rating experts as one of the leaders on the legal services market in Ukraine. Famous international publications and guidebooks, such as The Legal 500 (Europe, Middle East & Africa), PLC Which Lawyer, Chambers Global recommend the Salkom Law Firm as one of Ukraine’s top law firms that practices successfully in the fields of antitrust law, contract law, corporate and commercial, securities, bankruptcy and insolvency, international trade, privatization, and litigation, including foreign courts and international commercial arbitration procedures. The Salkom Law Firm has extensive intellectual and professional potential, as it employs 39 highly-experienced lawyers. The firm’s employees speak English and other languages, which allow them to work efficiently with foreign clients. The firm’s clientele are foreign and domestic companies, both private and state-owned, engaged in various industries such as the automotive industry, banks, financial institutions and insurance companies, hotel business and leisure, publishing, investments, information technologies, shipbuilding, international trade, metallurgical industry, real estate, oil and gas, the food industry, natural and mineral resources, retail, agriculture, telecommunications and media, transport, chemical industry, power industry. The Salkom Law Firm enjoys longstanding cooperative relationships with international law and consulting firms in the United Kingdom, the USA, Russia, Austria, France, Cyprus, Italy, Australia, etc. Salkom is a member of European Business Association (EBA), British-Ukrainian Chamber of Commerce (BUCC), and American Chamber of Commerce (ACC) in Ukraine. The firm’s Partners are members of the International Bar Association. In 2013, the Salkom Law Firm and Squire Patton Boggs, an international law firm with 44 offices in 21 countries of the world, established the Squire Patton Boggs — Salkom International Association.

95


Human Rights

Limitation Period: What ECHR has to Say Ivan Lishchyna Partner, Trusted Advisors

O

ne of many problems, posed by the new members of the Convention who joined after 1989, was related to the mass privatisation launched by post-soviet states. The massive character of the privatisation inevitably led to numerous mistakes, which were often uncovered late, after the limitation period for bringing civil proceedings expired. Accordingly, whenever the courts found for the authorities in spite of the limitation, this created a problem under the Convention in the context of the right to a fair trial and the right to peaceful enjoyment of possessions. In the first case regarding this interference, Zhigalev v. Russia (No. 54891/00, 6 July 2006), the applicant, former head of a collective farm, arranged in 1992 to have all the land that belonged to the farm to be registered in his name disregarding the interests of the other five former employees of the farm. In 1999, i.e. around four years after the expiry of the 3-year limitation period, the prosecutor’s office brought proceedings against the decisions of the local authorities challenging the validity of the land certificate issued in the applicant’s name. The latter participated in the proceedings as a third person. Under Russian law, the limitation period may be invoked as a defence by the respondent and the applicant’s motion to this effect was rejected on the grounds that he was not a respondent in these proceedings. The court found for the prosecutor and declared the land certificate invalid. The applicant invoked Article 6 of the Convention (fair trial. A6) and Article 1 of Protocol 1 (right to property. P1-1). In dealing with P1-1 complaint, the Court relied on the apparent fairness of the proceedings in domestic courts, which, apart from the applicant’s inability to plead the expiry of a limita-

96

www.ukrainianlawfirms.com

tion period on account of his status as a third party, was not challenged by the applicant. The Court found no indication that the conclusions of the national judicial authorities were arbitrary or unreasonable and concluded that the applicant cannot, for the purposes of Article 1 of Protocol No.1, be deemed to have had “existing possessions” or a claim amounting to a “legitimate expectation” in the sense of the Court’s case law. The Court did not consider the non-application of the limitation period as a separate issue under P1-1. As to A6, the Court relied on its established case law that this Article extends only to a dispute over a “civil right” which can be said, at least on arguable grounds, to be recognised under domestic law. Based on this, the Court took the rather controversial view that as it had found the complaint under P1-1 to have no basis in law, the applicant had no recognisable “civil right” under A6, which, accordingly could not be applied. In the case of Dacia S.R.L. v. Moldova (No. 3052/04, 18 March 2008) the Court took a different approach. In 1999 a company purchased a hotel from the State at auction and ran if for the next four years. Following an application by the Prosecutor in 2003, after the expiry of the limitations period for civil actions (3 years) the Economic Court annulled the sale of the hotel on the grounds of procedural irregularities and ordered its return to the State and repayment of the 1999 purchase price to the applicant company. The limitation period was not applied because of a provision in the law exempting the claims of the authorities for the recovery of State property from the unlawful possession of private persons. As to P1-1 the Court had no problem in finding that the applicant had “possession” within the meaning of P1-1 (Para. 53). The Court also found that the applicant company had been forced to bear an individual and excessive burden, as the irregularities in the privatisation of the hotel had been formal in character or unsubstantiated and were not attributable to the applicant. The issue of the limitation period was mentioned in the context of P1-1 as grounds for finding a violation under A6. As to the latter, the Court considered the situation from the angles of “equality of arms” and “legal certainty”. The Court acknowledged the importance of the limitation period in the stability of civil relations, indicating that “the role played by limitation pe-

riods is of major importance when interpreted in the light of the Preamble to the Convention which, in its relevant part, declares the rule of law to be part of the common heritage of the Contracting States” (Para. 75). The Court further found that “no reasons were given in the present case for exempting State organisations … from the obligation to observe established limitation periods” (Para. 76). Moreover, the Court indicated in Para. 77 that the altering of a legal situation which has become final due to the application of a limitation period is incompatible with the principle of legal certainty. This position was developed further in Baroul Partner-A v. Moldova, (No. 39815/07, 16 July 2009). The case concerned the sale in 2000 of a 65.86% shareholding in a Stateowned quarry. In December 2006 the prosecutor’s office filed a civil action for the recovery of the shares on the ground that the initial price for them paid by the applicant was calculated erroneously. The applicant in defence referred to the expiry of the 3-year long limitation period. The domestic courts rejected this defence, finding that this period started to run only when the prosecutor’s office learned about the violations. The Court, as in the Dacia case, found Moldova guilty of violation of A6 and P1-1, but unlike in the Dacia case the question of the limitation period had a prominent position in P1-1 reasoning of the Court. The Court first considered the case from the standpoint of A6. It decided that the interpretation by domestic courts of the limitation period rule was incompatible with the principle of legal certainty and that there was nothing to prevent the Government, which had owned the shares before 2000, to learn earlier about the alleged insufficiency of the price (Para. 41). In the context of P1-1 the Court found that, in the circumstances of the case, it was unable to see any element of bad faith in the applicant’s conduct during the privatisation as opposed to that of the Government (Para. 50). The Court next found that “[f]or the Court, the reasons underpinning the finding of a breach [of A6] would, of themselves, ground a separate breach of [P1-1] of the Convention” (Para. 51). However, the subsequent practice of the Court demonstrated that the above position was subject to certain qualifications. Thus, in the Maksymenko and Gerasymenko v Ukraine case ([2013], ECHR 439,


PROfile 16 May 2013) the Court examined the following situation: in 1995 a title to a certain hostel was transferred to company S., which subsequently became insolvent. In 2004, the applicants jointly bought a hostel from the creditors of S. In 2006, the Court of Appeal declared at the prosecutor’s request that the hostel had been a state asset and should never have come into the possession of the insolvent company. It transferred the hostel to the local council without compensation to the applicants. As to the expiry of the 3-year limitation period (from 1995), the court found that the prosecutor had only learned about the situation in 2005. While finding the breach of P1-1 the Court relied heavily on the rule that the State cannot benefit from its wrongdoing where it had itself failed to put in place or adhere to its own procedures and on the fact that the Applicants did not obtain any compensation from the State for the expropriated property. The Court did not find the prosecutor’s consideration after the limitation period as grounds for the violation of P1-1, nor did it refer to either Dacia or Baroul Partner-A cases. The Court further found no violation of A6 in this case. The applicant’s reasoning was similar to that in the Baroul Partner-A case. However, the Court, in stark contrast to this case, agreed with Ukrainian courts that “[t]here is no evidence that the prosecutor was aware of the transactions in question before this complaint was submitted”. Finally, in the most recent case on the matter, of Bogdel v. Lithuania (No. 41248/06, 26 November 2013) the Court added a further layer of uncertainty to this issue. In this case, a plot of land was bought from the local municipality in 1995. The applicants ran a café on the land, which was close to a tourist attraction. Following a series of investigations by the State Audit Office launched in August 1999, the decisions of the municipal bodies granting the applicants ownership of the land were cancelled on the grounds that they were contrary to the legislation on the protection of cultural heritage, protected territories and territorial planning. The applicant appealed to the court and the municipal authorities counterclaimed, seeking the invalidation of the sale contract for the land. www.ukrainianlawfirms.com

The courts found for the authorities, indicating that the limitation period of 3 years was not breached as the authorities learned of the violations only when the State Audit Office had concluded that the land had been purchased in breach of legislation. What distinguishes this case, however, from the Maksymenko case was that the applicants were repaid the amount initially paid for the plot and that the municipality leased the land back to them for eighty-seven years, which allowed them to continue their business as before. As to P1-1, the Court found that the applicant did have possession of which they were deprived (para 55). However, it decided by a majority of 5:2 that the compensation (the payment of the initial price, plus an opportunity to lease the land for eightyseven years) was sufficient and rejected the complaint under this head. The Court did not distinguish this judgment from the judgment in Baroul Partner-A case and did not discuss the limitation period’s issue in the context of P1-1. As regards A6, the Court did mention in its reasoning in the Dacia case. However, it rejected the complaint on the ground that “on the basis of the submissions by the Government and, above all, the Court’s conclusion, it considers that the effect of [the discriminating application of limitation period to the public authorities’ claims as opposed to that of a private person] on the applicants was compatible with their ‘right to a court’ under the Convention” (Para. 81). The above argumentation was, in the author’s opinion, correctly criticised in the dissenting opinion of Judges Popović and Paulo Pinto de Albuquerque as being “tantamount to rewarding the negligence and inertia of the administration and punishing a bona fide private party”. As can be seen from the above, the Court has not yet found a balance in its views on the issue of exoneration of the Government for bringing proceedings for recovery of its former property outside the limitation period on the grounds that the particular body filing the suit learned of the situation late. The issue may well be worthy Grand Chamber material. In the meantime, applicants should take into account all possible eventualities of their complaints and hope for the better.

Trusted Advisors Address: 40/85 Saksahanskoho Street, 5th Floor, Kiev, 01033, Ukraine Tel./Fax: +380 44 359 0664 E-mail: info@trustedadvisors.com.ua Web-site: www.trustedadvisors.com.ua

T

rusted Advisors is a Ukrainian full circle dispute resolution law firm, which was founded in 2014. The main emphasis of the firm is on corporate disputes, banking disputes (recovery of bad debts, enforcement proceedings and bankruptcy), commercial disputes, and the protection of clients in courts of general jurisdiction as well as in foreign courts and international arbitration tribunals. Trusted Advisors provides legal services to corporate, industrial, financial companies in a wide range of highprofile transactions, regulatory matters, and litigation and controversial issues. The firm’s clients range from a variety of small, entrepreneurial companies to large foreign and Ukrainian companies. The Trusted Advisors’ team consists of qualified professionals with vast experience in a wide range of legal matters, deep knowledge and understanding of the litigation process in Ukraine and overseas. Building on the foundations of its long heritage enables the firm to attract the most talented people and continue to deliver this level of innovation for its clients. The firm’s commitment to help its clients deliver their global strategies has seen Trusted Advisors build a truly competent Ukrainian law firm. It has also developed strong relationship ties with international law firms in countries where it does not have a presence. As a result, Trusted Advisors can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. In 2015 Trusted Advisors reached Bronze League of Top 50 Leading Law Firms in Ukraine based on analysis of key performance indicators of the legal market carried out by Yuridicheskaya Practika Publishing. Managing partner: Ivan Mishchenko Number of partners: 4 Number of counsels: 1 Number of associates: 10 Languages: Ukrainian, Russian, English, French

97


International Arbitration

Third Party Funding in International Commercial Arbitration Olexander Droug Counsel, Sayenko Kharenko. Mr. Droug specializes in dispute resolution and restructuring with a special focus on arbitration and commercial litigation. He advises local and foreign clients on all stages of dispute resolution proceedings, including in complex multijurisdictional proceedings

Olesia Gontar Associate, Sayenko Kharenko. Ms. Gontar specializes in international commercial arbitration, including commodities arbitration. She has been involved in a number of proceedings, including multi-party and multi-contract arbitrations under the GAFTA, SCC, LCIA Rules, as well as ancillary proceedings in Cyprus and BVI

A

rbitration has always been promoted as one of the alternative mechanisms of dispute resolution providing parties with many advantages over litigation. At the same time, it is now commonly accepted that lower costs are no longer one of such advantages as arbitration has become increasingly expensive. Moreover, there are numerous examples when a prospective claimant, having previously agreed to arbitration, does not have adequate funds to cover all costs and expenses of the arbitration proceedings. In such cases, it is possible to seek a third party to cover participation in the costly arbitration proceedings. In some cases, engaging such third party funder becomes the only possible way for the prospective claimant to get access to justice.

What is Third Party Funding in Arbitration?

In general, third party funding is an instrument for the prospective claimant to obtain funds to cover the costs of arbitration in exchange for the share in the ultimately recovered sum. Initially, this tool was primarily used in litigation and was then expanded to arbitration.

98

www.ukrainianlawfirms.com

Third party funding is mostly used in rather complex cases with large amounts at stake in order to justify efforts in engagement of the funder, as well as risks assumed by the funder. Typically, third party funding in arbitration entails a complex relationship between the prospective claimant, its legal counsel and a funder based on the following contractual arrangements: (1) Funding Agreement, which is entered into by a prospective claimant as Funded Party and a commercial entity which funds participation of the claimant in the proceedings as Funder; (2) Engagement Letter, which is entered into by a prospective claimant and its legal counsel containing, inter alia, provision which allows payment of legal fees by a third party (this is crucial for further recovery of costs in the arbitration).

Terms of the Funding Agreement: What can be Expected?

Third party funding involves close cooperation of the funder, the funded party, as well as its legal counsel. All respective terms of such cooperation are contained in the Funding Agreement.

Financial Terms of Funding The distinctive feature of third party funding arrangements is that funders assume risks of adverse cost award or losing an action against the respondent. In other words, the funder in most cases cooperates on a “no win, no fee” basis in return of share in the ultimately recovered sum. The amount attributable to the funder usually varies from 10% to 50%. However, the amount of the “investment income” of the funder depends on the complexity of the dispute and risks assumed by the funder. In some cases, the claimant might also be encouraged to invest certain amount of own funds to cover initial costs of the proceedings to demonstrate that it is committed to the case and is confident in its position. Obligation to Cooperate The Funding Agreement pays particular attention to the obligations of the claimant in the course of arbitration proceedings given that a claimant’s strategic and tactical steps and decisions might significantly influence the outcome of the case. Typical Funding Agreement, therefore, would generally require the claimant to cooperate with the funder in the course of arbitration proceedings, as well as provide for the following specific obligations of the claimant: (a) provide material information and documentation in relation to the funded case; (b) attend meetings and telephone conferences in relation to the funded case; (c) provide true statements as to the facts of the dispute; (d) prepare witness statements; (e) appear at hearings; (f) bring to the attention of the funder all settlement offers, proposals or discussions with the respondent in relation to the funded case. Control over the Course of the Arbitration Proceedings Due to the funder’s exposure to serious financial risks, the funder is inclined to control to a large degree the most important decisions in the arbitration proceedings. The funder’s rights to “manage” the case would typically involve its participation in determining the overall strategy of case and in decision-making process with respect to the particular procedural steps, including in-


PROfile volvement of experts, additional legal counsel, conduct of investigations, etc. In fact, the funder would want to fully control utilization of money that it invested in the case. Termination of the Funder’s Obligations The funders may sometimes insist on the unilateral right to terminate the Funding Agreement at any stage of arbitration proceedings. At the same time, such a termination provision is not typical and usually the funders will be entitled to terminate the Funding Agreement upon breach by the claimants of their obligations under the Funding Agreement. The termination rights of the funder may be also limited in time to a certain stage of the arbitration proceedings.

Typical Procedure for Engaging The Funder

Engaging the funder into the arbitration case requires significant investment of time and efforts by both the claimant and its legal counsel. The relevant steps would typically involve: (a) searching and targeting the potential funders by the claimant, its legal counsel or professional broker; (b) reaching an agreement on the financial terms of funding between the claimant and the funder; (c) due diligence of the claim (assessment of its legal merits) by the funder; (d) evaluation of the likelihood of successful enforcement of the final arbitral award; (e) negotiating the terms and entering into the Funding Agreement. In practice, it is preferable to engage the funder through legal counsel, which could assist in the selection process, as well as negotiations with the funder taking into account the particular circumstances of the case and the claimant’s objectives.

Should the Third Party Funder’s Engagement be Disclosed?

One of the concerns of third party financing is whether participation of the funder should be disclosed to the arbitral tribunal and other parties to the dispute and to which extent. Although relations between the claimant and the funder are governed by the Funding Agreement, engagewww.ukrainianlawfirms.com

ment of the funder may be of particular concern in light of the potential conflict of interest due to the influence of the funder on the arbitration proceedings through the claimant and its legal counsel. The issue of confidentiality in respect of the third party funding is covered in the recently amended IBA Guidelines on Conflicts of Interest in International Arbitration (as amended by the Resolution of the IBA Council on 23 October 2014), which view third party funder as bearing the identity of the claimant and, consequently, require disclosure of the funder’s identity to the arbitral tribunal and other parties to the proceedings.

ATE Insurance

As an alternative to third party funding, a prospective claimant may also consider obtaining so-called After the Event Insurance (ATE Insurance) which is designed specifically to cover a party’s obligation to pay its opponent’s costs should the legal action prove unsuccessful. This instrument also involves a number of steps and measures, including due diligence of the claim and evaluation of the prospects of success. Unlike third party funding, ATE Insurance provides only limited protection to the claimant as it normally covers only the costs incurred by the opponent party, whereby all other costs should be borne by the claimant itself. However, ATE Insurance could still be pursued in case third party funding is not available for any reason.

Conclusions

The severe financial and political crisis in Ukraine put a burden on all businesses to cut costs and carefully evaluate all risks associated with resolving disputes, especially those that are subject to expensive arbitration proceedings outside Ukraine. Notwithstanding the crisis, new disputes arise constantly and require adequate approach to their management and resolution, including in terms of costs. These factors should only encourage Ukrainian businesses to consider third party funding as a practical instrument for the allocation of financial risks in international arbitration, as well as for securing protection of their interests in challenging environment. At first sight the third party funding might seem to be a simple tool.

Sayenko Kharenko Address: 10 Muzeyny Provulok, Kiev, 01001, Ukraine Tel.: +380 44 499 6000 Fax: +380 44 499 6250 E-mail: info@sk.ua Web-site: www.sk.ua

S

ayenko Kharenko is Ukraine’s leading law firm, with an internationally oriented full-service practice and a Ukrainian law representative office situated in London. In 2015, Sayenko Kharenko collected three national Law Firm of the Year awards, having been recognized Ukraine’s best team by IFLR European Awards, Who’s Who Legal Awards, and Chambers Europe Awards for Excellence. Sayenko Kharenko was also recognized one of the two best law firms in Ukraine in 2015 according to Top 50 Largest Deals Table published by Yuridicheskaya Practika Publishing. The firm is highly recommended in Ukraine by all major international guides, including Chambers Global, Chambers Europe, IFLR1000, and The Legal 500. About its International Arbitration Practice Sayenko Kharenko boasts a unique team of arbitration lawyers experienced in international commercial and investment arbitration. The team advises clients on all aspects of international arbitration, including the choice of arbitration forum, applicable law, advising on the risks and possible outcome of arbitration, representation in the course of arbitral proceedings before different international arbitration institutions all over the globe, enforcement of arbitral awards and other matters. Sayenko Kharenko’s arbitration lawyers have unprecedented insight into arbitration proceedings in Ukraine and abroad and have built on their experience of serving as party-appointed arbitrators, sole arbitrators, chairmen of the arbitral tribunal, and legal counsel to a party to arbitration. The team handled over 90 arbitrations under a variety of arbitration rules, covering all major spheres of international business, including relating to contractor agreements; international sales of goods; maintenance and construction of ships; agency and distribution contracts; joint venture agreements;oil & gas supply contracts; having represented clients in corporate, maritime and trade commodities international disputes.

However, third party funding, in fact, implicates a variety of complex and disputable issues such as confidentiality, identity of the claimant, conflict of interest, disclosure of the funder’s involvement in the proceedings, security for costs, as well as money laundering. In the end, all concerns associated with engagement of the third party funder into commercial arbitration depend substantively on the lex arbitri and law applicable to the merits of the dispute. Therefore, prior to resorting to third party funding, each prospective claimant should carefully consider not only commercial but also legal risks based on the applicable legal regimes.

99


International Finance

Cross Border Security and Local Insolvency Law Requirements Maksym Hlotov Associate, Baker & McKenzie, Kiev office

T

he global financial crisis which reached Ukraine in late 2008 still affects the Ukrainian banking sector. In these circumstances the reliability of security provided by a Ukrainian bank (the Bank) is crucial for a foreign creditor of the Bank. This article discusses to what extent Ukrainian insolvency proceedings commenced in relation to the Bank affect the enforceability of the English law governed security provided by the Bank in favor of the non-resident creditor with a particular focus on security provided to the operator (the Operator) of the international payment system (the IPS). In particular, this article focuses on what extent Ukrainian insolvency proceedings affect the application of cash collateral (the Charge) provided by the Bank in favour of the Operator of the IPS to secure its obligations towards the Operator and other IPS participants. The Charge is often provided in the form of the fixed charge governed by English law over the funds deposited on the Operator’s bank account which is held by the bank often located in England. The rules of the IPS often envisage that the Operator may terminate the Bank’s license (the License) if the Bank becomes subject to insolvency proceedings. In such circumstances the Operator may need to enforce the Charge to redeem the outstanding indebtedness of the Bank owed to the Operator or other IPS members. However, in practice the Operator faces difficulties in Ukraine upon such enforcement due to formal requirements of Ukrainian legislation applicable to an insolvent bank. Besides, the representative of the Deposit Guarantee Fund, appointed by the Deposit Guarantee

100

www.ukrainianlawfirms.com

Fund, to manage withdrawal of the Bank from the market, sometimes takes the position that the funds, which are subject to the Charge, must be returned to the Bank upon the commencement of the temporary administration regardless of the Operator’s rights under English law. Sometimes, the Operator also faces public pressure in case of such enforcement.

To What Extent do Insolvency Proceedings in Ukraine Affect Enforcement of the Charge by the Operator?

Under English law there are three ways in which the security can be affected by insolvency proceedings (such as liquidation or administration): (i) it may be invalidated, (ii) its enforcement may be prevented or (iii) these proceedings may give priority to other creditors over the assets which are the subject of the floating charge. Things become more complicated when a debtor, such as the Bank, is located outside of England and it becomes subject to insolvency proceedings in accordance with the laws of the respective foreign jurisdiction, such as Ukraine. Following the commencement of the financial crisis, the English Banking Act of 2009 (the Banking Act) was adopted. In particular, the Banking Act introduced the special resolution regime (SRR) for English banks which face liquidity problems. Essentially, SRR consists of three stabilisation options and two insolvency measures, i.e., “bank insolvency” and “bank administration” which are largely based on the insolvency and administration procedures of the Insolvency Act of 1986. Neither the “bank insolvency” nor the “bank administration” proceedings under the Banking Act seem to affect the enforceability of the Charge. On the contrary, the Banking Act refers to the authority of HM Treasury to pass regulations providing for enforcement of financial collateral arrangements despite winding-up of a bank. Under Ukrainian conflict of laws rules, enforcement of the Charge is carried out in accordance with English law, which applies to the Charge. However, there is a view that if the Bank becomes subject to Ukrainian insolvency proceedings, the Operator is arguably

required to comply with certain Ukrainian law formalities, which apply when the Bank becomes insolvent. In particular, when the Bank is put into “temporary administration”, the Operator’s enforcement rights may be viewed as curtailed, i.e., subject to limited exceptions, the moratorium is imposed on the enforcement of security. In addition, a representative of the Deposit Guarantee Fund is entitled to declare the contractual arrangements of the Bank, including the Charge, invalid, provided they meet certain criteria. At the same time, it may be argued that the funds subject to the Charge do not belong to the Bank because these were deposited to the Operator’s account and, therefore, are not subject to Ukrainian insolvency law formalities, which apply to the insolvent Bank. From the English law perspective there are two main applicable conflicts of legal principles which essentially create the conflict: (i) the proprietary effect of the Charge is a matter for English law, because this is the law which governs this security instrument; but (ii) the insolvency proceedings applicable to the Bank are conducted in accordance with Ukrainian law, which affects the rights of the Operator. From the English law perspective it is important to note that the Bank is set up outside of the EU and usually does not have any branches in the EU, therefore neither the EU Directive on the reorganisation and winding of a credit institution 2001/24/ EC (the Bank Insolvency Directive) nor the EU Directive establishing a framework for the recovery and resolution of credit institutions and investment firms 2014/59/EU (the Bank Resolution Directive) apply to resolving this conflict. Hence, the position is unclear. If the matter were to be resolved by an English court, it would apply general principles. However, it appears that there is no clear English law authority that establishes which principle should take priority. In this case an English court may apply the Bank Insolvency Directive and the Bank Resolution Directive by analogy to resolve the matter. Under the Bank Insolvency Directive, insolvency proceedings in relation to a bank in its home jurisdiction do not seem to affect


PROfile the right of the creditor to enforce the security, where the relevant asset is situated in a Member State other than the home state of the bank. Moreover, under the Bank Resolution Directive the resolution authority shall not restrict the ability of the secured creditor of a bank subject to resolution to enforce any security interest of systems or operators of systems designated for the purposes of Directive on the finality of settlement in payment and securities settlement systems 98/26/ EC, over assets pledged or provided by way of collateral by the institution under resolution. Given that the Operator may be viewed as such operator under the above directive, the Bank Resolution Directive provides express protection for the enforcement of the Charge established in its favour. On this basis, an English court may not give effect to a moratorium imposed in Ukraine or to the authority of the representative of the Deposit Guarantee Fund, because the relevant assets, i.e., the Bank’s funds subject to the Charge, are located in England and because EU legislation seems to provide express protection for such collateral arrangement. If the matter were to be resolved by a Ukrainian court, e.g., if the representative of the Deposit Guarantee Fund files a claim with a Ukrainian court to repatriate the funds which were subject to the Charge, it is likely that the Ukrainian court may take the

www.ukrainianlawfirms.com

side of the representative of the Deposit Guarantee Fund. Nevertheless, it appears that an English court would not recognise such an order of the Ukrainian court, because such an order or act for appropriation of a security could not be made by an English court or bank administrator or liquidator.

Concluding summary

Where security is in England and there are foreign insolvency proceedings, there is little English case law on the ability of the Operator to enforce the Charge without needing recourse for such proceedings. Given that the Bank is incorporated outside of the EU, the Operator may not rely on the protections offered under applicable EU directives. Therefore, the position is unclear. It may be argued, however, that EU directives should apply by analogy to fill the vacuum. To that end it appears that the enforcement of cross-border security is subject to a number of legal risks. Nevertheless, the Association Agreement between the European Union and its Member States and Ukraine provides for implementation of the Bank Insolvency Directive. Therefore, the implementing law may address this matter as well. Otherwise, such conflicts will continue to evolve and the attractiveness of such type of security may be further affected.

Baker & McKenzie Address: Renaissance Business Center, 24 Bulvarno-Kudriavska Street, Kiev, 01061, Ukraine Tel.: +380 44 590 0101 Fax: +380 44 590 0110 E-mail: kyiv@bakermckenzie.com Web-site: www.bakermckenzie.com/ukraine

F

ounded in 1949, Baker & McKenzie advises many of the world’s most dynamic and successful business organizations through 5,600 fee earners, including 4,250 locally-qualified lawyers and 5,300 professional staff in 77 offices located in 47 countries. It ensures our presence in virtually every important financial and commercial center worldwide. Baker & McKenzie was one of the first international law firms to open an office in Ukraine in 1992. Every year the Kiev office confirms its top positions in the leading international and national legal directories, namely Chambers Global, Chambers Europe, Legal500, IFLR1000, World Trademark Review 1000, International Tax Review, Ukrainian Law Firms, Ukrainian Legal Awards, etc. The Kiev office offers a full range of legal services and business solutions. The professional staff of the office presently consists of about 50 attorneys, including 10 partners. In close cooperation with our offices around the world, the Kiev office can help clients with all aspects of their business activities in Ukraine, including: — Antitrust & Competition — Banking & Finance — Corporate, including Mergers & Acquisitions and Securities — Compliance — Dispute Resolution — Employment — Energy, Mining and Infrastructure — Healthcare — Intellectual Property — IT and Communications — Private Equity and Venture Capital — Real Estate and Construction — Trade & Commerce — Tax and Customs — Wealth Management

101


International Tax

Application of EU State Aid Rules on Granting Tax Benefit Pavlo Khodakovsky Partner, Arzinger

Denys Siiushov Associate, Arzinger

T

he increasing pace of integration with the European Union followed by the coming into force of the EU-Ukraine Association Agreement, preconditions the gradual harmonization of Ukrainian laws with EU standards. One of the respective trends in this domain is the fight against tax evasion arising from the provision by Member States of the EU of so-called state aid in the form of illegal tax benefits (incentives). It is estimated that by making use of certain tax benefits inconsistent with the rules of EU states, some multinationals have underpaid more than a billion euros each to the respective budgets of EU states. In this respect it seems important to identify how EU state aid rules and existing trends could affect Ukrainian tax policies. Moreover, EU Commission’s investigations may force the restructuring of multinational companies’ businesses (including those with offices in Ukraine).

Regulation of State Aid in the EU

The definition of state aid is contained in the Treaty on the Functioning of the Europe-

102

www.ukrainianlawfirms.com

an Union (the Treaty), paragraph 1 of the Article 109 whereof establishes: “Save as otherwise provided in the Treaties, any aid granted by a Member State or through State resources in any form whatsoever which distorts or threatens to distort competition by favoring certain undertakings or the production of certain goods shall, in so far as it affects trade between Member States, be incompatible with the internal market”. Paragraph 3 of the said Article establishes that, among others, the following forms of state aid may be considered to be compatible with the internal market: “(b) aid to promote the execution of an important project of common European interest or to remedy a serious disturbance in the economy of a Member State; (c) aid to facilitate the development of certain economic activities or of certain economic areas, where such aid does not adversely affect trading conditions to an extent”. Furthermore, Article 110 of the Treaty expressly determines that no Member State shall impose, directly or indirectly, on the products of other Member States any internal taxation of any kind in excess of that imposed directly or indirectly on similar domestic products; no Member State shall impose on the products of other Member States any internal taxation of such a nature as to afford indirect protection to other products. The above provision prohibits a single type of state aid, namely, support to national companies/products. This type of aid is much more precise and could be identified much easier. In turn, certain types of fiscal state aid have for a long time not been identified either by the EU members (including the states which have introduced these tax benefits), or by the Commission. In view of this the role of the Commission is limited as the state aid regime is not designed as an instrument to deal with all tax benefits. Such tax benefits granted to certain taxpayers, namely, residents of respective states, are also subject to other anti-abuse rules, arising, for instance, from agreements on avoidance of double taxation. Importantly, the Commission has adopted numerous Regulations on application of Articles 107 — 108 of the Treaty with respect to identification of fiscal state aid. The Commission is actively involved in the identifica-

tion and elimination of illegal fiscal state aid, and recently a number of such investigations regarding multinationals have been completed.

When a Tax Benefit Distorts Competition in the EU

The Treaty does not identify all possible types of state aid, although practically tax benefits are often recognized as a fiscal type of state aid, which was noted by the CJEU in its decision (CJEU 173/73 of 2 July 1974, Italy v Commission) a few decades ago. In particular, the court determined that in order for state aid to be available all of the following four conditions have to be fulfilled: — Aid must be available; i.e. a financial advantage, such as a tax benefit. — Such aid must be granted by a EU Member State (or any lower level of government) or through state resources, in a manner attributable to that state. — Such aid should distort or threaten to distort competition and affect trade between EU Member States. — Such aid should favor certain undertakings or the production of certain goods; i.e. it needs to be «selective». With respect to fiscal state aid, it seems that any decision of the tax authorities deviating from general tax rules and aimed at creating a beneficial tax regime for certain categories of taxpayers/products/transactions, could be automatically regarded as state aid and is subject to comprehensive analysis for compliance with EU rules and for the absence of distortion of competition. Fiscal state aid may exist in two forms: (i) in the form of a beneficial tax regime or measure; (ii) in the form of an individual clarification or benefit granted to a particular taxpayer (for instance, in a tax ruling). A beneficial tax regime or measure could be substantiated by a number of reasons, the most common of which would probably be social need or the development of a certain industry, raising capital or assistance in the development of small businesses. However, any such reason must be duly substantiated and must lead to a clear economic effect. At the same time, such reason as attraction of highly mobile capital by letting it pay a small


PROfile portion of profits earned (e.g., excess profit regime in Belgium) could not be recognized as fully substantiated. There should be a real economic effect which should not only achieve the a rising of tax revenues in a granting state but also create added value. With respect to provision of beneficial tax rulings (so-called “sweetheart” deals), it should be noted that a clarification issued by the tax authorities must not contravene existing transfer-pricing rules and other anti-avoidance measures. Numerous initiatives have been adopted by the Council. The latest, the Council Directive (EU) 2015/2376 of 8 December 2015 amending Directive 2011/16/ EU as regards mandatory automatic exchange of information in the field of taxation, introduced automatic exchange of information mechanisms which, starting on 1 January 2017, will require EU Member States to exchange information automatically on advance cross-border tax rulings as well as advance pricing arrangements.

Compliance of Ukrainian Tax Laws with EU State Aid Rules

As of today, Ukraine is not covered by the rules of the EU on granting state aid and, therefore, any tax benefits (incentives) distorting competition may be circumvented only by applying anti-avoidance measures if any such measures could be applicable in a particular case. However, without deeply delving into the tax incentives granted by the Tax Code of Ukraine (especially as to VAT exempt transactions which under particular circumstances may also be regarded as state aid), a few provisions thereof could fall under the definition of state aid. In particular, one such provision is imposition of a 20% additional tax on Ukrainian residents receiving services for the production and/or distribution

www.ukrainianlawfirms.com

of advertising from non-residents of Ukraine (Article 141.4.6). Such provision could be recognized as incompatible with EU state aid rules as non-resident advertising entities are artificially forced out from the advertising market of Ukraine. On the other hand, this provision also contradicts the rules determined in most, if not all, agreements on the avoidance of double taxation. Hence, non-resident taxpayers already have a mechanism for circumventing the given provision of the Tax Code of Ukraine. The same applies to Article 140.5.5, where under Ukrainian law a resident company could deduct a royalty payable to a non-resident in the amount of income from royalty increased on 4% of income from the sale of products received in the previous reporting year. This provision could be regarded as distorting competition between resident and non-resident companies-owners of intellectual property rights, and is not equitable. The mechanism of non-application of this provision could be the same as stated above. Special attention should also be paid to the mechanism of advance transfer-pricing arrangements, which is rather new for the Ukrainian tax authorities. When this mechanism starts to be applied in full, the latest EU rules and findings must be taken into account and, preferably, introduced to the Tax Code of Ukraine. To conclude, EU tax rules are in the process of being amended and there is no common understanding between EU states on how the issues of granting fiscal state aid distorting competition should be addressed. This issue is currently not in focus in Ukraine, but that does not mean that in the coming years the harmonization of Ukrainian laws with EU rules on granting of state aid in the form of tax benefits (incentives) will not emerge.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

103


Investments

Investments Andriy Kolupaev Partner, Lexwell & Partners

Iryna Mospaniuk Associate, Lexwell & Partners

economic and organizational frameworks for the realization of public-private partnerships in Ukraine. Ukraine is a party to intergovernmental agreements on promotion and mutual protection of investments with more than 70 countries around the globe. On the territory of Ukraine, foreign investors enjoy the national regime of investment activity. That is, they are equal to those enjoyed by domestic investors, and are legally protected from non-repayable nationalization. Though these basic principles of investment activities incur no changes, there were a number of amendments made to legislation directly aimed at improving the investment climate in the country.

Corporate Issues

T

he events of the last few years significantly destabilized the economic system of Ukraine and led to its deep structural deformation. Given the continuing political unrest and the armed conflict in eastern Ukraine, economic instability caused the outflow of foreign investment due to lack of guarantees for investors and high political and economic risk. Ukraine is no longer able to provide social and economic development through its own financial resources and needs foreign capital inflows. Therefore, the formation of a favorable investment climate is one of the strategic challenges that Ukraine faces today, the implementation of which depends on the possibility to attain and support a growing economy and social development. The problem of increasing the investment attractiveness of the Ukrainian economy (including by establishing a proper legal framework) was in the spotlight for the whole previous year and certain changes were implemented to this end.

Legal Developments of Investments

Overall, the legal framework of foreign investment activity in Ukraine has not changed. Ukraine has legal regulation for investment and development of public-private partnership which meets international standards and practices. Thus, Ukrainian law provides for guarantees of investors and sets

104

www.ukrainianlawfirms.com

On 7 April 2015, the President of Ukraine signed the On Changes to Some Legislative Acts of Ukraine on Protection of Investors Act of Ukraine (the Investor Protection Act). This legal Act comes into force on 1 May 2016, except for some of its provisions, which shall take effect from the day following the day of its publication. By the Investor Protection Act, a number of new legal mechanisms, which may be used by foreign investors for effective defense of rights to their investments, were introduced. It is anticipated that the Investor Protection Act will increase the level of investors’ protection through: (i) introduction of a derivative suit (action) (the right of a minority shareholder to sue on a company’s behalf to recover damages), which regardless of being rather widespread in many jurisdictions was previously unknown to Ukrainian law; (ii) implementation of responsibility of company management for damages caused to a company due to unlawful actions by them;  (iii) providing that a claimant (a minority shareholder) has the right for compensation from a company of its expenses relating to a trial initiated against company management to recover damages caused to a company (within amounts actually received by a company); (iv)  introduction of the institution of “independent directors” who will represent the interests of minority shareholders in jointstock companies;(v)  the detailed regulation of non-arm’s length transaction so as to take into account the interests of all shareholders. The Investor Protection Act provides that a company shareholder(s) who collectively own 10% or more in a company’s share(s) may file on behalf of a company a claim with a court for damages caused to a company by its management. At the same time, a company will

be able to make claims for damages against its management itself. Thus, the Investor Protection Act stipulates that company management are responsible for the damage caused by their actions (or failure to take actions) if damages were caused by: (i) actions taken by a company official in excess or abuse of power; (ii) actions taken by a company official in violation of the procedure of prior approval or other decision-making procedures for such actions provided by company corporate documents; (iii) actions taken by a company official when prior approval was received or other decision-making procedures for such actions provided by company corporate documents were followed, but in order to get this approval and/or follow decision-making procedures a company official submitted false information; (iv) failure of a company official to take actions when he/she was required to do so in accordance with official duties; and (v) other willful acts taken by a company official. Disputes relating to recovery of damages from company management by either a company shareholder or a company itself will be subject to the jurisdiction of commercial courts. With regard to independent directors, pursuant to the Investor Protection Act a member of a company supervisory board of a joint stock company can either be a natural person, a shareholder of a company, or a shareholder representative, or an independent director. For public companies and companies where the state owns more than 50% of the company shares a minimum number of independent directors is provided by law. In terms of the Investor Protection Act, an independent director is an individual elected as a member of a supervisory board who: (i)  is not and, within the previous five years, has not been a person affiliated with the company shareholders, and/or a company or its subsidiary, and/or an official of a company or its subsidiary; (ii) does not receive and has not received in the past from the company or its subsidiary significant additional remuneration, other than payments received as an independent director; (iii)  has or had in the past no significant business relationship with the company or its subsidiary; (iv) is not and, within the previous three years, has not been an employee of a current or former independent auditor of the company or its subsidiary; (v) is not and was not a chairman or member of a board of another company affiliated with the company; and (vi)  is not an immediate relative of an executive or managing director of the company or other persons in the situations referred to in the Investor Protection Act.


PROfile Tax Issues

Since 1 January 2015 the income of non-residents on state and municipal securities has been taxed at a rate of 15%. Investors were extremely concerned about this tax on gains on government securities and noted that this rule had a significant negative influence on their decision to buy Ukrainian government securities. In this regard, the Ukrainian Parliament adopted the On Amending the Tax Code of Ukraine to Exempt from Taxation Non-Residents Income Earned on Government Bonds, Municipal Bonds or Loans Secured by State or Municipal Guarantees Act of Ukraine of 22 May 2015, whereby the said tax was abolished. This legal Act came into effect on 27 May 2015. Furthermore, Ukraine has extended an array of valid bilateral investment treaties to which it is a party. Thus, on 15 August 2015 the Ukrainian Parliament ratified the Convention between Government of Ukraine and Government of Ireland on Avoidance of Double Taxation and Prevention of Fiscal Evasion with Respect to Taxes on Income and Estate Value Increment and the Protocol thereto (these acts came into effect on 17 August 2015). Also, the Treaty between Ukraine and Japan for the Promotion and Protection of Investments was signed on 5 February 2015 in Kiev. The Ukrainian Parliament ratified it on 3 June 2015, and it came into effect on 26 November 2015. These treaties are aimed at

creating favorable conditions for further development of investment cooperation between the participating countries, and they will significantly mitigate the existing non-commercial risks relating to investing in Ukraine, promote the macroeconomic stability of the Ukrainian economy and help to increase foreign investment from the participating parties.

Summary

Ukraine is experiencing many challenges to handle from political instability, poverty and abuse of power. Responsible and sustainable businesses can play a role in boosting the country’s economy. The optimistic expectations in relation to potential investment inflow in 2015 relating to the planned privatization were not met, as the government failed to prepare the legal framework to secure a transparent and competitive sale process. Privatization of large-scale assets has been postponed to 2016. If the government fulfills its commitments, the investment, including M&A, the landscape in 2016 may be driven by large-scale deals in a number of industries. Despite all the challenges, the investment appetite for Ukraine remains strong, and it is anticipated that the government’s continued efforts to improve the investment climate and anti-corruption measures implemented in 2015 will have a positive impact on the country’s investment climate in 2016.

LEXWELL & PARTNERS Address: Sophia Business Centre, 5th Floor, 6 Rylsky Lane, Kiev, 01001, Ukraine Tel.: +380 44 228 6080 E-mail: lexwell@lexwell.com.ua Web-site: www.lexwell.com.ua

L

exwell & Partners is a full-service professional law firm dedicated to providing efficient, innovative and commercially driven legal solutions. The firm’s experience, outstanding team and language capacity have enabled it to deliver comprehensive corporate and commercial legal services to leading multinational and domestic companies. Lexwell&Partners is extremely experienced in mergers and acquisitions, investment, corporate, and litigation practices. Recognition Lexwell & Partners has earned an excellent reputation at the Ukrainian legal market among clients and peers. Professional level of lawyers of Lexwell & Partners as well as the projects in which the firm has been engaged is highly ranked in legal market researches by Ukrainian Law Firms, LexQuorum, The Legal 500, IFLR 1000, Kyiv Post, Yuridicheskaya Practika and the others. Since the moment of the firm foundation and years afterwards (2005–2015), the leading Ukrainian legal periodical, Yuridicheskaya Praktika (the Legal Practice), listed Lexwell & Partners among Top 5 Ukrainian Law Firms ranked by revenue per lawyer. In 2008 the firm took first place in the Ukraine’s largest M&A deal rating (USD 3 billion); in 2009 and 2012 — in the largest litigation case rating (USD 1 billion). 2 of top 10 cross-border M&A transactions in Ukraine in 2011-2013 published by the Forbes in 2013 have been handled by the lawyers of Lexwell & Partners. In 2014 the firm gained first place among the Ukrainian law firms by revenue per lawyer. The leading English-language publication, Kyiv Post, and a legal market guideline LexQuorum have recognized Andriy Kolupaev as one of the most recommended lawyers in Ukraine. Representative clients Lexwell & Partners advised a large number of the leading national and international companies, i.a., ABN Amro, AET, Amstar, ArcelorMittal, Bridgestone, Bunge, Cargill, Chicago Mercantile Exchange, CRH, DuPont, East Metals, Eurobank, Evraz, Honda Trading, ING, Interpipe, Intesa Sanpaolo, Pfizer, PHV (Calvin Klein and Tommy Hilfiger), Red Bull, Marubeni, Millhouse, Naftogaz Ukrainy, Schenker, Sojtz, Subaru, Sumitomo, Toyota, VS Energy. The firm and its lawyers also advised the Government of Ukraine, the Office of the President of Ukraine and Ministry of Justice of Ukraine.

www.ukrainianlawfirms.com

105


IT Law

IT Regulation in Ukraine: Society Instead of Government Artem Afian Managing Partner, Juscutum Attorneys Association. Artem is actively involved in developing innovative law practice areas (legal security for business and IT-law). Attorney-at-law, member of the World IT Lawyers Association (Zurich, Switzerland)

I

T is well on the way to becoming Ukraine’s national idea. The prestige of the IT profession and the number of IT educational volunteer projects indicate that the country is definitely going to strengthen its presence on the world map of IT professionals. The public is committed to making up for the brain drain through the extensive training of IT specialists. Not a month goes by that yet another Ukrainian startup or company producing an off the shelf product does not announce the raising of investment or winning of a tender. This news spreads across the country. IT has become the social lift against all the current negatives in the Ukrainian economy. With that in mind, the smartest and the brainiest are all out for IT. While the IT industry is rapidly developing, on the contrary, the efforts made by the state are still in their infancy. Politicians mention IT in their speeches, have meetings with IT companies management; still, these important undertakings have not evolved into regulations intended to encourage business development. The most substantial help from state authorities lies in as little interference as possible. In 2011-2012, a number acts were passed by the Ukrainian Parliament in support of the IT industry originally intended to introduce tax concessions for IT companies. Due to the specific features of the political process, the law that was actually introduced hardly matched the initial version and never caused any excitement among IT companies. Changes in tax legislation adopted in 2013 and 2014 weren’t actually the sought tax reform. However, they repealed all tax concessions, including those granted to IT. The key factor that makes Ukraine exception-

106

www.ukrainianlawfirms.com

ally attractive for the IT industry is the status of the self-employed and the applicable simplified tax regime. This has nothing to do with the special tax regime for IT companies. The issue is that the general tax terms for hiring self-employed contractors are favorable and allow the hiring of programmers and paying for their services with the general tax burden a little more than 5%. All the above, coupled with the quality of training and the quantity of professionals, is huge motivation for offshore programming development and outsourcing. There are companies in Ukraine currently hiring more than 5,000 programmers. However, Ukraine still lacks incentive mechanisms for product development companies and R&D centers, although these issues are discussed almost permanently in Parliament. Financial market restrictions imposed in 2014 intended to prevent economic shrinkages have not yet given visible feedback. However, they are reportedly regarded as the key factor of the economic collapse. In Ukraine, favorable conditions for payment systems are not established, which is a deterrent for e-commerce development. Rigid rules of e-money issuance introduced by state authorities and foreign currency obstacles stand in the way of the majority of payment systems commonly used within the world’s online trade system. In addition, the National Bank is cracking down on currency outflow and imposing excessively high rates for the mandatory sale of revenue in the form of foreign currency. On the one hand, these measures support the national currency; on the other hand, they turn the country into a kind of UAH reservation from the world market perspective. At the same time, there are pri-

vate volunteer initiatives intended to attract global IT companies into Ukraine. The most active one is negotiations with PayPal held by Ilya Kenningstein. The authorities are not determined to play the leading part in this process. Representatives of the National Bank meet with volunteers, listen to them and give consent to their initiatives. Then volunteers go to PayPal headquarters to carry on the negotiations. Financially independent entrepreneurs and community leaders represent Ukraine on the international business arena. Similarly, only private initiatives help to push forward such ideas as blockchain and use of open code software. Big companies render their best practices to state authorities with the aim of assisting in capacity building of the next-generation management system. A good example is the decision pushed forward by Dmytro Dubilet and Privatbank to render such open code systems to the state authorities. Widely known is the case of Ivan Yani, who helped to develop open registries and launched public information analysis electronic systems. Another example is Prozorro, an online procurement system developed by volunteers. Our company provided pro-bono legal support to this project. BankID and public e-services initiatives are also coming from enthusiasts at the moment. The state authorities decided not to take the lead in this process. They just pick proposals among those suggested and dryly express their gratitude. This explains the situation when IT initiatives are dotted across the country. Lately, Lvоv has become the center for innovations. Local authorities attract volunteers and demonstrate their openness towards innovation. Volunteers together with state officials who came to politics from business, are actively lobbying the idea of e-government implementation at the highest national level. Still, representatives of the bureaucratic machine express their disapproval with restraint. The decline in public contracts awarded to IT companies undermined the system integration market. Integrators who failed to break into the international market or firmly establish their positions within the private sector took the big heat. In fact, the system integration market is currently reloading. It is worth noting, however, that once again, the state


PROfile authorities expect the public to perform as a regulator. Private companies modify outdated standards at their own initiative and hand them over to the state authorities. Reform of law-enforcement is moving all too slow. At first, it did not sound meaningful enough, but the delay in implementing reform is actually a serious driver hindering business development and, in particular causing major problems within the IT sector. The thing is, corrupt lawenforcers used the searches to actually terrorize business. IT companies turn out to be extremely vulnerable, because seizures of computers during searches resulted in business activities grinding to a complete halt. Reform of law-enforcement has already resulted in the establishment of the national police patrol force. Yet, patrol officers have nothing to do with searches in IT companies; they are actually carried out by investigating detectives. However, in late 2015, Draft Act No.3719 was registered which sets out a number of measures to prevent unlawful searches. Most notably, there is a provision stipulating that in case investigators are interested in any piece of information they should copy it from computers instead of seizing the equipment. It is worth mentioning that state authorities welcomed this initiative. Our company, acting as an independent law firm, developed the said law draft. We never received any orders and nor were we involved in any lobbying. Many politicians spoke in favor of our legislative draft. With that in mind, we believe it is quite likely that the problem will be resolved as early as this year. Talking about the IT sector’s development, we cannot help to mention The Special 301 Report and copyright abuse that has, unfortunately, made Ukraine infamous around the globe. However, the root of the problem is not copyright infringements. Rather, the issue is about communication problems. Ukraine somehow does not seek to demonstrate its modest progress in procuring licensed software and computers with pre-installed software, whereby a few years

www.ukrainianlawfirms.com

ago tough statements were made against Ukraine regarding the use of counterfeit software by the state authorities. Team management setup and the problem of Internet piracy are still under discussion as legislative proposals. All the said problems actually exist, but neither their scale nor status allow us either to claim the situation has actually reached its critical point or nominate Ukraine as the No.1 copyright violator in the world. Rather, it looks like the state seeks to be awarded the title of the most passive one in dealing with the said issues. So far, the one and only actual effort to combat Internet piracy cannot but raise hackles. The new Draft No.3081 On Copyright Protection was passed in the first reading. However, no one actually expects its implementation to be efficient. The said legislative Draft fully ignores the preliminary work of associations and advisory teams. It has been obviously pushed through via lobbying and written in a hurry. Taking into account the low rate of Internet expansion and the size of the market, Ukraine cannot be regarded as the world’s leading Internet copyright infringer. Here there are no sites with traffic even compared to that of The Pirate Bay or Mega (the successor of the famous Megaupload). To resolve the problem of counterfeit content distribution, it is necessary to make legal content available. Otherwise, the anti-piracy campaign will instead become an anti-Internet one. The main factor preventing the development of legal services is the lack of customer purchasing power. As a result, this vicious circle confines the successful running of businesses. However, the lucky ones who break this circle will definitely prosper. In this sector, there are local players who will develop in line with economic growth. All in all, while our authorities mostly speak about IT, Ukrainians are actively developing it. What we need right now in order to fuel development of IT is for the nice words of politicians to, at least in part, be embodied in legislation.

Juscutum Address: 27A Taras Shevchenko Ave, Kiev, 01032, Ukraine, Tel.: +380 44 223 3847 E-mail: office@juscutum.com Web-site: www.juscutum.com

Who We Are Juscutum Attorneys Association is an agile law firm, which was designed to provide legal support to innovative businesses domestically and internationally. As a law firm with a full range of legal services we are adjusting the classical legal practices to the needs of clients. In 2011 we established a new one for Ukraine, IT &Media. We turned classical litigation practice into dispute & conflict resolution, white collar crime has very strong expertise in security matters. We are bringing new technologies to legal services. Juscutum Legal Alarm is the first legal app in Ukraine that provides a new clientlawyer communication level. Juscutum is a member of: — World IT lawyers, global alliance of member firms, specializing in IT law. — International Fiscal Association (IFA Ukraine). — U.S.-Ukraine Business Council (USUBC). Juscutum is ranked in TOP-50 Law Firms in Ukraine 2015 and in Intellectual Property according to Legal 500 2016 (EMEA). Represented in the Ukrainian Law Firms 2014, 2015: A Handbook for Foreign Clients (ULF 2014, 2015). The firm is named in the TOP 5 of law firms in media, telecommunications and intellectual property law as well as in white collar crime according to internal rankings for 2015. Juscutum also works as a legal representative of the Red Cross Society, participants of the Eurovision Song Contest and a number of Ukrainian museums, cinemas and theaters as a pro bono. The firm’s attorneys have top-tier law firms experience and offer the same level of service at more reasonable prices. Our clients The geography of our clients varies from Ukraine, Russia, Kazakhstan and Georgia to the USA, France, Switzerland, Denmark, the Netherlands. Among our key clients are: Diamond International, Ciklum, Miratech, ISM eCompany, DTEK, Hosting Ukraine, BMS Consulting, SportLife, MTI, ERC, TMM. Core practice areas IT & Media White-Collar Crime Tax law Corporate law Dispute & Conflicts Resolution International Business Administration

107


Labor & Employment

Labor Law of Ukraine: Results of 2015 and Prospects for 2016 Serhiy Silchenko Partner, ILF Candidate of Science (Law), docent, Head of the Committee on Labor Law UBA

U

krainian labor law is one of the few branches of the national legal system that still stick to the ways of the Soviet era. The current Labor Code of Ukraine was adopted on 10 December 1971. Over 120 amendments had been introduced to it by 2006. I’d like to point out that on 5 November 2015 the Ukrainian Parliament adopted the Draft of a new Labor Code in the first reading. The text is still in the works but it may become law by the end of 2016. Nevertheless, legal regulation of labor relations in Ukraine remains dynamic, as new laws are being adopted and new amendments introduced. So, what noteworthy changes did 2015 bring, and how did this affect relations between the employer and employee?

Hiring and Employer Accountability

On 28 December 2014 the On Amendments to Several Legislative Acts of Ukraine regarding the Reformation of Mandatory State Social Insurance and Legalization of Salary Fund Act of Ukraine was adopted, introducing a number of notable changes to the hiring procedure as well as raising employers’ accountability for violating labor law. — Now hiring requires an order to be issued by the employer. Before admitting a person to work the employer must notify in writing the local office of the State Fiscal Service of the concluded employment contract. — Registration of written employment contracts at the State Employment Service by individual employers is no longer required. Penalties against employers have been significantly increased:

108

www.ukrainianlawfirms.com

1. A fine of 30 minimum wages for each affected employee for: admitting a person to work without an employment contract, paying wages while withholding the unified social tax or registering an employee as a parttime worker while actually having him or her work full-time. 2. A fine of 10 minimum wages for each affected employee for violating minimum state guarantees for remuneration.

Internally Displaced Persons: the Rights of Employers and Employees

The ongoing conflict in Eastern Ukraine and the Anti-Terrorist Operation played a major role in the changes in labor law in 2015. On 5 March 2015 the On Amendments to Several Laws of Ukraine regarding the Reinforcement of Social Guarantees for Internally Displaced Persons Act of Ukraine was adopted. It was necessitated by the need to create favorable conditions for the social adaptation of citizens that were forced to relocate from Donbas to other regions of Ukraine due to the conflict there. The Act provides a number of economic measures that encourage employment of IDPs: — Employers that hire them are entitled to reimbursement of labor costs. This requires concluding a fixed-term contract for a minimum term of six months and then keeping the person employed for one more year upon expiry. — Employers that hire registered unemployed persons from among IDPs for a minimum term of 12 months are entitled to reimbursement of expenses for retraining and professional development of such persons. Reimbursement covers actual expenses for professional training but cannot be higher than 10 living wages for able-bodied persons in effect at the time the said expenses were incurred. It should be noted that such reimbursement was to be returned in case of the employee’s dismissal at the employer’s initiative or as a result of a settlement between parties before the term of guaranteed employment expired.

Status of Mobilized Employees

In 2015 guarantees for employees mobilized into the Armed Forces of Ukraine received special attention. In accordance with Article 119 of the Labor Code of Ukraine effective in 2014, employees mobilized for active military service during the special period for the term not exceeding one year retained their job and were to be paid their average wage. The state was supposed, in turn, to reimburse employers’ labor costs. However, in the absence of a clear legal procedure no such reimbursement was actually provided. The Act of Ukraine On Amendments to Several Legislative Acts of Ukraine regarding the Procedure for Performing Military Service and Social Guarantees for Citizens of Ukraine Performing Military Service during the Special Period of 15 January 2015 expanded the circle of persons that retained their job and average wage. It included volunteer soldiers who enlisted during martial law or a special period as well as persons that stayed in military service as volunteer soldiers after demobilization. The On Amendments to Several Legislative Acts of Ukraine regarding the Improvement of Certain Issues of Mobilization and Social Guarantees for Citizens of Ukraine that are to Be Discharged from Military Service during the Special Period or on Account of Demobilization of 18 March 2015 Act of Ukraine guaranteed the retention of job and average wage for military personnel that were wounded, declared missing in action or prisoners of war. The retention was to last for the whole period of recovery or of being MIA or a POW. Around the same time the Cabinet of Ministers of Ukraine issued Decree No.105 of 4 March 2015 That established the procedure for reimbursement of labor costs incurred by employers paying an average wage to mobilized employees. The On Amendments to Several Legislative Acts of Ukraine regarding Social Guarantees for Citizens of Ukraine that Perform Military Service during the Special Period of 14 May 2015 Act of Ukraine guaranteed the retention of the job and average wage to persons drafted into active military service. Moreover, the duration of retention was changed to last from the


PROfile time of the draft until the moment of actual demobilization. Finally, the On Amendments to Several Legislative Acts of Ukraine Act of Ukraine of 24 December 2015 denied employers the option of seeking reimbursement from the State Budget of Ukraine. In 2016 employers once again, like in 2014, have to incur additional expenses to support military personnel.

Anti-Discrimination Amendment and EU Law

An important step towards equality of citizens before labor law was taken with the adoption of the On Amendments to the Labor Code of Ukraine regarding the Harmonization of Legislation on Discrimination Prevention and Counteraction with European Union Law Act of Ukraine of 12 November 2015. An anti-discrimination amendment was introduced into the Labor Code, prohibiting discrimination in labor relations based on the following criteria: color of skin, gender, sexual orientation, ethnic, social and foreign background, age, health, disability, suspicion for or presence of HIV/AIDS, work unions membership, participation in strikes, going to or the intention of going to courts or other institutions to protect one’s rights or supporting other employees in the defense of their rights, other criteria not related to the nature of the work or the conditions of its fulfillment. Thus, labor law was brought into line with the guidelines given in Article 1 of European Union Directive 2000/78/ЕC.

Collective Agreements

In January 2016 a Bill was introduced to Parliament to amend the On Collective Contracts and Agreements Act of Ukraine. It is aimed at fulfilling Ukraine’s obligations in accordance with the Ukraine-European Union Association Agreement for 2014-2017. The main novelties of the bill are:

www.ukrainianlawfirms.com

— The parties of a collective contract get the option to suspend its effect for a certain term due to objective reasons (in case of economic recession, financial crisis, etc.), in accordance with the procedure provided by the contract or agreement or agreed upon by the parties. — The option is introduced to conduct collective negotiations involving individual employers with the aim of signing a collective contract.

Prospects for 2016

So, what’s in store for labor law in 2016? First of all, adoption of the new Labor Code. Companies should get efficient instruments for dealing with employees. What’s important is that the draft allows employers to manage labor relations with local normative acts, which will let foreign investors use clear and familiar guidelines for operating on the Ukrainian labor market. Furthermore, we should expect changes in labor disputes. Parliament has been considering various mediation bills for several years. Despite a few serious differences, all of them permit mediation as a means to settle labor disputes. This will significantly reduce negative consequences for businesses caused by lawsuits, since the mediator’s goal is to reconcile the parties and reach a compromise and not to fight someone’s case. Finally, labor relations will be more and more influenced by anticorruption measures, growing business transparency and observation of ethical norms. Of course, compliance programs and policies in Ukraine are mostly limited to companies with foreign investment. However, doing business with the United States and EU requires observing anti-corruption and anti-bribery legislation, which is why regulation of labor law will remain a major trend in the foreseeable future.

ILF Address: 22 Shovkovychna Street, Kiev, 01024, Ukraine Tel.: +380 44 390 7777 Fax: +380 44 253 4549 E-mail: referent-kiev@ilf-ua.com Web-site: www.ilf-ua.com

I

LF is the No.1 law firm in Eastern Ukraine whose core competences are in: public-private partnerships and privatization, corporate and investment consulting and dispute resolution. We have been working on the Ukrainian market since 1994 and are among the top 15 leading law firms. As a legal advisor for business, ILF helps clients to maintain control over the situation and be confident of the decision and their future. The ILF team includes more than 50 highly-qualified lawyers, attorneys, tax, investment, and business consultants, who are leading experts in industrial markets: agribusiness, information technologies, banking and finance, medicine and pharmacy, retail and alternative energy. We defend and are successful in complex, resonant, and controversial situations, when there is no easy solution and there is a threat to business, property or personal safety. Based on the client’s strategic priorities and international experience, we help our clients to enter new markets and to build strong relationships with foreign partners and investors. Since 2014 ILF has been an IPO-partner of the Warsaw Stock Exchange. Our offices are located in Kiev and Kharkov, also we have partner offices operating in the UK, Germany, Poland, France, the USA and Cyprus. We are result-oriented and do not operate for the account of the client, but for the client. This allows our clients to achieve their goals ahead of time.

109


Land

Ukrainian Land Law Developments in 2015 Bate C. Toms Managing Partner, B.C.Toms & Co. Legal education: Yale Law School (J.D., 1975); Magdalene College, Cambridge University (Law Tripos I; 1972-1973). Mr. Toms is admitted to legal practice in the District of Columbia and Virginia, USA, and in France.Chairman, British Ukrainian Chamber of Commerce

Kateryna Krakhmalova Of Сounsel, B.C.Toms & Co. Legal education: National University Kyiv-Mohyla Academy Law School (Bachelor, with Honors, 2007; Specialist, with Honors, 2009) and Central European University (LL.M., 2008)

T

he simplification of the relevant procedures for transactions with land, in particular by making information on agricultural land more open and accessible to the public, as we described in this publication last year, has continued. However, the moratorium on the sale and purchase of Ukrainian agricultural land has again been prolonged, thus “freezing” this issue for another year, with the prospect of further moratorium extensions.

The Moratorium

To prolong the moratorium, Act No. 767-VIII of 10 November 2015, On Introducing Changes to Chapter X, the Transitory Provisions of the Land Code of Ukraine on the Continuation of the Prohibition to Dispose of Agricultural Land, was adopted. It extended the moratorium on the sale of agricultural land in Ukraine until 1 January 2017. It also entrusted the Cabinet of Ministers of Ukraine with the task of drafting by 1 March 2016 a proposed law on the transfer of agricultural land, the adoption of which is a condition in the Ukrainian Land Code for lifting the moratorium. As a practical matter, ending the moratorium may also be tied to more progress being made on the current revision of the state land cadaster. As presently no new draft legislation has been proposed for the

110

www.ukrainianlawfirms.com

transfer of agricultural land, or for improvement of the state land cadaster, and the actual development of the state land cadaster seems unlikely to be sufficiently advanced by 1 January 2017, an additional moratorium extension is probable. Until agricultural land can again be sold, land leases remain the most common legal form for the commercial use of agricultural land. Such land leases can be for up to 50 years and must be for a minimum term of at least seven years.

Further Deregulation and Simplification of Leasing Procedures

(a) Fewer Mandatory Terms for Land Lease Agreements Act No. 191-VIII of 12 February 2015, On Introducing Changes to Certain Legislative Acts of Ukraine Regarding the Simplification of Conditions for Conducting Business (Deregulation) (the Deregulation Act), that entered into force on 5 April 2015, restated parts of Act No. 161-XIV of 6 October 1998, On the Land Lease, by reducing the number of mandatory terms for land lease agreements. The absence of any of the many such mandatory terms previously provided a legal basis for a land lease to be invalidated by a court. However, such problems continue because the officially recommended Model Land Lease Agreement was not modified to reflect these changes in law, so notaries still, in practice, require these no longer mandatory terms as a condition of their notarization of land leases. Hopefully, the Model Land Lease’s terms will be modified soon to reflect the Deregulation Act’s changes in law, so that these continuing problems will actually be eliminated in practice. In addition, the special requirements imposed in 2008 (the 2008 Requirements), that mandate that land leases must provide whether their land lease rights can be contributed to the capital of a company or pledged, has been repealed for the future. Unfortunately, this change was not properly

drafted to eliminate the illegality resulting from the 2008 Requirements for land leases executed between 2008 and 2015. Therefore, an estimated approximately 75% of current land leases (e.g. for agriculture and oil and gas, in particular) continue to violate the 2008 Requirements and can be cancelled at any time on this basis (this is an important point for due diligence that is often missed). (b) Open Access to Information on the Owners and Users of Land Plots On 6 October 2015, information about the owners and users of land plots in Ukraine became openly accessible to the public (before it was only possible to obtain information about the area and purpose of use of a particular land plot), as provided by Act No. 597-VIII of 14 July 2015, On Introducing Changes to Certain Legislative Acts of Ukraine to Increase Transparency in the Sphere of Property Relations and the Prevention of Corruption. There is now an electronic service1 to obtain information, that is available free of charge to properly identified users via the Public Cadaster Map at the internet link www.map.land.gov.ua (identification can be done either with an electronic digital signature or in some other approved way, such as by using a bank card to identify oneself). Information accessible through this electronic Public Cadaster Map includes (1) excerpts from the State Land Cadaster on a particular land plot and (2) excerpts about a land plot’s normative legal value. In addition, those persons and entities whose information has been searched for can use this electronic service to see who was searching and accessing it2. (c) Better State Registration of Rights Act No. 834-VIII of 26 November 2015, On the Introduction of Changes to the Act on the State Registration of Corporeal Rights to Immovable Property and Encumbrances Thereto and Certain Other Acts of Ukraine on the Decentralization of Powers on the State Registration of Corporeal Rights to Immovable Property and Encumbrances Thereto (which came into force on 13 December 2015 and is in the process of implementation), introduced, in particular, However, it is also possible to obtain this information in paper form from the state registrar or from a notary. 2 Introduced pursuant to the Cabinet of Ministers of Ukraine Resolution No. 782 of 30 September 2015, changing the Order On Managing the State Land Cadaster, as approved by CMU Resolution No. 1051 of 17 October 2012. 1


PROfile the following changes to improve the registration process for land, effective from 1 January 2016: (1) (i) the executive committees of village, town and city councils and the local state administrations received the right to conduct registrations; (ii) notaries received the power to register rights to land and encumbrances thereto generally (i.e. not just when they are also notarizing related documents, as was all that was permitted before); and (iii) banks will also be able to undertake such registration functions, subject to their accreditation with the Ministry of Justice; (2) it will now be possible to file administrative complaints with the Ministry of Justice of Ukraine on the actions and inactions of the registration authorities; and (3) liability is created for the failure of administrative authorities to conduct the state registration of rights to immovable property and encumbrances thereto within the specified five day time limit.

A Partial Solution to the “Dead Soul” Leases Problem — More Land Can Now Legally be Used

Previously, an estimated 1.5 to 2 million hectares of agricultural land in Ukraine belonged to the category of the so-called “dead souls’” land, being land plots where the owners have died and there are no recognized heirs. The authority of the relevant territorial community had an obligation to establish its ownership over such land plots by court proceedings. The procedure for such proceedings was quite complicated, with territorial communities often unable to establish their ownership in practice. In addition, while the fact that the land plot has no heirs was required to be established within six months from the owner’s death, the subsequent court proceedings establishing the territorial community’s right over the land could only be commenced after one year3, so there would be at least a six month legal vacuum, during which the land could not be legally disposed of or used. Other problems arose because such court proceedings

were supposed to take place in the jurisdiction of the deceased owner’s last residence, which could result in the very odd situation where a territorial community could become the owner of land not situated within its own territory. In response to this situation, Draft Act No. 3006 of 1 September 2015, On Introducing Changes to the Land Code of Ukraine and Other Legislative Acts of Ukraine Regarding the Legal Fate of Land Plots, the Owners of which Have Died, which has passed its first reading in Parliament and has been prepared for the second reading, will in its current form solve most of these problems with “dead soul” leases, and generally make their legal use possible. In particular, according to this Draft Act: (1) After six months from the death of a land plot’s owner, the local council of the territorial community of the place where the land plot is situated can lease it during an interim period, until either (i) the heir(s) shows up and completes the state registration of his, her or their ownership rights to this land plot, or (ii) a court decision recognizes this land as being a “dead soul” land plot; (2) If the owner of the land plot dies while a lease agreement is still in force, the land plot will be considered to be automatically prolonged, until either (i) the heir(s) completes the state registration of his, her or their ownership rights to this land plot, or (ii) a court decision recognizes the land as being a “dead soul” land plot; (3) An application to a court for recognition of a land plot as being “dead soul” land can be made not only by the local council of the territorial community, but also by any creditor of the deceased owner(s), and for agricultural land by the owners or users of any of the neighboring land plots; (4) If agricultural land is, by a court decision, recognized as being “dead soul” land, its ownership will be transferred to the territorial community in the location where the land is situated, which could then lease the land); and (5) A special database or register will be created containing information on all such “dead soul” land plots.

B. C. Toms & Co Address: 18/1 Prorizna Street, Suite 1, Kiev, 01001, Ukraine Tel.: +380 44 490 6000, 278 1000 E-mail: kyiv@bctoms.net Web-site: www.bctoms.net

B.

C. Toms & Co is a multinational law firm of Ukrainian and Western lawyers specializing in Ukrainian law. It was the first Western law firm to open a Kiev office, having focused its practice on Ukraine at its independence in 1991. The firm has handled, for example, the land leasing for many of Ukraine’s largest agricultural and oil and gas projects, as well as acquisitions of land for commercial property developments. We also handled the legal work for the first, and the most, IPOs to raise funding for Ukrainian companies, as well as the first true project financing in Ukraine. Based on our over 25 years of experience in Ukraine, we can provide, with our legal advice, practical commercial advice on how to establish and develop a business in Ukraine. The firm has recruited and trained its Ukrainian lawyers from students at Ukraine’s leading law schools, most of whom have also studied at UK and US law schools as Chevening, Pinchuk, Fulbright and Muskie fellowships. Based on the firm’s practical experience, it has written numerous articles on Ukrainian law, including the legal section of the book Doing Business in Ukraine. The principal practice areas of B. C. Toms & Co include real estate and land development, energy, natural resources, agriculture, banking and finance, M&A, environmental, labor, bankruptcy and administrative law. The firm also has a successful litigation and arbitration practice, having successfully handled many of Ukraine’s most important cases, including in all Ukrainian courts and before the Permanent Court of Arbitration in The Hague. The firm regularly advises on Ukrainian tax law, including from a multinational tax planning perspective. B. C. Toms & Co has prepared a wide variety of documentation for clients, including Ukrainian law share purchase agreements, asset purchase agreements, joint venture agreements, construction contracts, project financing documentation, production sharing and oil and gas license agreements, airport investment and management agreements, hotel management agreements, private placement agreements, real estate acquisition agreements, loan agreements, leases and agency, distribution, franchise and licensing contracts.

According to Section 2 of Article 1220, Section 1 of Article 1270 and Section 2 of Article 1277 of the Civil Code of Ukraine, No. 435-IV, of 16 January 2003.

3

www.ukrainianlawfirms.com

111


Litigation

General Overview of the Ukrainian Judicial System Andrey Kuznetsov Partner, Antika Law Firm

T

he principles of delivering justice are declared in the Constitution of Ukraine. The most important principles are: justice is carried out solely by courts; delegation of functions of the court as well as their assumption by other state bodies or state officials are inadmissible; extension of court jurisdiction over all legal relationships emerging in the state; judgments are binding over the entire territory of Ukraine. The judicial system of Ukraine consists of courts of general jurisdiction and the court of constitutional jurisdiction. The courts of general jurisdiction specialize in civil, criminal, commercial, administrative cases and cases on administrative offences. The courts of general jurisdiction are made up of general courts and specialized courts (commercial and administrative courts). The Supreme Court of Ukraine is the highest instance in the judicial system of courts of general jurisdiction. The Constitutional Court of Ukraine is the court of constitutional jurisdiction. Consideration of a particular case by the respective courts depends on the parties involved in a dispute and the case category. The procedure for dispute consideration is specified separately for each category of cases by the Civil Procedure Code of Ukraine (2004), the Commercial Procedure Code of Ukraine (2012), the Administrative Procedure Code of Ukraine (2005), the Code of Ukraine on Administrative Offences (1984), the Criminal Procedure Code of Ukraine (2012)) and On the Constitutional Court of Ukraine (1996), On Bankruptcy Proceedings Act of Ukraine (1992), the Tax Code (2010) and others). Commercial courts consider disputes arising between businesses. Hence, commercial courts have jurisdiction over the following cases: disputes arising from the conclusion, alteration, termination and performance of commercial contracts; bankruptcy; disputes

112

www.ukrainianlawfirms.com

regarding securities; disputes arising from corporate relationships (even if one of the parties is a private individual); disputes arising from land relationships; disputes on protection of economic competition and other cases, if such consideration does not lie directly within the jurisdiction of other courts or such consideration is not excluded from the jurisdiction of commercial courts by procedural law. For example, procedural law excluded from jurisdiction of commercial courts cases on privatization of the state residential fund, on pricing of products (goods), and also tariffs on services (conducting works), if these prices and tariffs cannot be fixed by parties according to the law, cases on approval of standards and technical terms, cases on public legal relations and within the competence of the Constitutional Court of Ukraine and administrative courts, other disputes within the jurisdiction of other state authorities in accordance with the laws and international agreements of Ukraine. Private individuals should appeal to administrative courts for protection of their violated rights if the rights of a private person or an entity have been violated by a subject of state authority during the exercising of authorized management functions. Administrative courts also consider cases when a subject of authority files a claim against an individual or an entity, if such dispute has a public and legal nature. Administrative cases include inter alia disputes with bodies of the State Tax Administration during a taxpayer’s appeal against tax notifications and decisions, disputes regarding assignment, calculation and payment of benefits, disputes against decisions, actions or inaction on the part of local councils regarding the granting of land plots to individuals or entities, disputes arising from legal relationships in connection with election procedures or referendums, etc. Procedural law sets certain restrictions on the settlement of disputes by administrative courts, and their settlement comes under the jurisdiction of other courts. Thus, administrative courts have no jurisdiction in: — public legal cases that come under the jurisdiction of the Constitutional Court of Ukraine; — cases that must be considered in the order of criminal proceedings; — cases on imposing administrative penalties; — cases on relationships that refer to the internal activity or exclusive competence of

a union of citizens according to the law or its charter (regulation). General courts consider all other cases where an individual is involved, as well as cases apart from those cases that fall within the jurisdiction of other courts. General courts consider disputes arising from civil, housing, land, family, labor relations, cases on establishment of legal facts, cases on recognition and enforcement of decisions of foreign courts, etc. The system of general courts is the most extensive (the courts are established in districts, city districts, and towns), and in this connection some cases within administrative jurisdiction are settled in general courts as administrative courts of first instance. This approach is considered justified as district administrative courts include districts and are usually situated in regional centers. The Constitutional Court of Ukraine is an independent body in the court system that is applied for ensuring compliance with laws and other normative acts of legislative and executive powers to the Constitution of Ukraine, protection of constitutional rights and freedoms of the person. The Constitutional Court of Ukraine adopts decisions and verifies whether laws and other legal acts of the Verkhovna Rada (Parliament) of Ukraine, the President of Ukraine, the Cabinet of Ministers of Ukraine, the Verkhovna Rada of the Autonomous Republic of Crimea, as well as international treaties are consistent with the Constitution of Ukraine, interprets the Constitution and the laws of Ukraine, etc. The laws of Ukraine, which define the powers of courts during their consideration of certain categories of cases or powers, often become the subject of consideration by the Constitutional Court of Ukraine. For example, the Constitutional Court of Ukraine has interpreted the Constitution and laws, according to which certain categories of social and land disputes should be considered by administrative courts, and the Supreme Court of Ukraine may not act as court of cassation, which resulted in a change by legislators of its powers. Interpretations were given of the laws on jurisdiction of cases, in which acts, actions or negligence of a prosecutor, investigator, investigative bodies regarding statements and reports concerning committed crimes or crimes being prepared are disputed. The system of courts of general jurisdiction has four instances. Local courts are courts of first instance and are the most numerous.


PROfile Courts of first instance decide on the merits of a case and, therefore, are entitled to establish factual circumstances of a case by examining evidence collected in the case in question according to their own inner convictions. Judgments of local courts usually enter into effect after expiry of the term for their appeal or after review by the court of appeal, if they are not canceled or not altered in accordance with the results of such a review. Courts of appeal are courts of second instance. The authority of courts of appeal depends on specific court specialization and categories of cases. According to the general rule courts of appeal review a case and are also vested with authority to examine evidence and accept further evidence, if such evidence was not submitted by a party to the court of first instance due to a reasonable excuse. A judgment made by the court of appeal enters into effect upon its proclamation. The respective higher courts are those of further instance, and they reconsider cases in cassation proceedings. The peculiarity of consideration of a case by the courts of cassation is that they only consider correct application of material and procedural law by lower level courts and are not authorized to collect new evidence or evaluate collected evidence in a case. If the court of cassation decides that there was not enough evidence collected by the courts regarding factual circumstances, the case is transferred to the local court for review on its merits. The court of cassation also gives binding instructions regarding what factual circumstances the court must find at a new trial. The decision of the court of cassation comes into force on its proclamation. The final and the highest instance in the system of courts of general jurisdiction is the Supreme Court of Ukraine. It is vested with the powers to review judgments in the order of exceptional proceedings. In particular, the Supreme Court of Ukraine reviews cases on civil, criminal, administrative and economic procedure, such as: — cases on unequal application by the court (courts) of cassation of material law in similar legal relationships in the order stipulated by procedural law; — cases where the violation of international obligations during consideration of a case by a Ukrainian court is determined by an international judicial institution, the jurisdiction of which is recognized by Ukraine. www.ukrainianlawfirms.com

Application for review of cassation courts cases should be brought to the Supreme Court of Ukraine within three months from the day the relevant resolution was passed. Within the framework of the judicial reform in Ukraine the On Securing the Right to Fair Trial Act of Ukraine was adopted on 12 February 2015. Particularly, the provisions of the Act are focused on increasing the status of the Supreme Court of Ukraine in the court system. Henceforth, the Supreme Court of Ukraine is empowered to reconsider the judgments of the cassation courts in case of unequal application of procedural law as well as their discrepancy with the conclusion on application of substantial law in similar legal relations given in the Decree of the Supreme Court of Ukraine. From now on, it is possible to file an application to reconsider judgments to the Supreme Court of Ukraine, and the issue of permitting a certain case to be reconsidered is directly solved by the Supreme Court of Ukraine. Based on the results of case reconsideration the Supreme Court of Ukraine, determining its unlawfulness, exercises the right to cancel it and to pass a new judgment, or uphold a judgment of the previous instance that was cancelled mistakenly. In some cases, the Supreme Court of Ukraine enjoys the right to send the case to the court that passed the judgment being appealed against. Currently, the acting procedural law of Ukraine stipulates that the judgments of the Supreme Court of Ukraine regarding the correct application of this or that rule of law are binding for all members of social relationships — not only for the parties but for all state bodies, including the judges who apply this rule. In addition to this, the court enjoys the right to distance from the legal opinion given in the conclusions of the Supreme Court of Ukraine with providing the respective reasons. The judicial reform process is currently being advanced in Ukraine aimed at improving the provisions of the Constitution of Ukraine. In particular, the requirements for appointment as a judge are increased, the inviolability of judges is limited; furthermore, the reform provides for the establishment of a sole body, independent from political influence and responsible for the appointment, career and dismissal of judges.

ANTIKA Address: 12 Khreschatyk Street, 2nd Floor, Kiev, 01001, Ukraine Tel.: +38 044 390 0920 Fax: +38 044 390 0921 E-mail: office@antikalaw.com.ua Web-site: www.antikalaw.com.ua

A

ntika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise. The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings. Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice. Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work. The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project. Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market. The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine. The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

113


Maritime Law

Brief Review of Maritime Law Arthur Nitsevych Partner, Interlegal law firm. LMAA supporting member, SCMA member, Chairman of the Nautical Institute of Ukraine, FNI

Nikolay Melnykov Partner, Interlegal law firm. LMAA supporting member, GMAA member, member of the Nautical Institute of Ukraine

Natalia Myroshnychenko Associate Partner, Interlegal law firm. AIJA member, President of WISTA Ukrainian

Artem Skorobogatov Associate Partner, Interlegal. Representative in FOSFA

U

kraine is a maritime state on the Black Sea and Azov Sea coasts, owning its own fleet, shipbuilding and ship repair facilities, 18 sea ports and 11 river ports on two rivers, the Dnieper and the Danube, which are open for navigation. Due to the Russian invasion of Crimea in 2014, four sea ports in Crimea have been declared by the Ukrainian state as officially closed for calls by vessels.

114

www.ukrainianlawfirms.com

Ukraine continues to be one of the world’s leading grain and sunflower oil exporters and generally is an important gate for the import and export of commodities and goods. The prospects of grain export in 2015 from Ukraine came to about 35 million tons. According to data from the last few years, 80% of cargo loaded from Black Sea region consists of grain products. Although the deadweight of the fleet under the Ukrainian flag has shrunk six-fold since then, a great number of shipping companies do business in Ukraine as operators, shipbrokers and charterers. Ukrrichflot and the Ukrainian Danube shipping company are among the major shipowners. Ukraine is also ranked as the 5th supplier of seafarers to the world fleet market, providing some 75,000 officers and ratings.

Main Features of Maritime Law

The real purpose of the entire commercial shipping industry and its regulatory and contractual framework is to make international trade possible, safe and efficient. About 90% of the world’s trade is moved on ships. These vessels are often owned by one party, managed by another party, then chartered and sub-chartered to additional actors. The shipowners and their home ports are spread across the world, creating a serious need for a predictable, uniform, and simple set of law rules that resolve disputes and make trade flow smoothly. In addition to appropriate substantive maritime law rules, it is important that the owners of vessels be subject to process in national courts to enable fair and convenient adjudication of disputes for all maritime players. When an international dispute comes out of a maritime contract or incident such as a collision or grounding, it is necessary to consider which law applies to the dispute; which tribunal has jurisdiction to resolve the dispute on merits; whether there is any time limit or whether the claimant can obtain security for the claim. Maritime Law has several basic features which are reflected in everyday practice within this area. One feature is its international nature, which pleads for international uniformity in maritime law. This necessity has been satisfied internationally by implementing a number of international conventions or agreed rules like the Hague-Visby Rules, which unify certain rules of law relating to Bills of Lading or the York-Antwerp Rules fixing the grounds for general average assessment. In some ju-

risdictions and particularly in Ukraine the provisions of such conventions are implemented in the local laws such as the Merchant Shipping Code or similar. The widespread use of standard form documents as the basis of most contracts of carriage (like GENCON, SIINACOMEX, NYPE or BPTIME3) also has the effect of unification. The second obvious feature of maritime law is that contracts for carriage of goods by sea fail to be performed in specific and often hazardous conditions in which it is practically impossible for one party to supervise over the other party’s work on a daily basis. This factor is the key instrument in developing the sea carrier’s general duties and legal grounds for them, including the duty to provide a seaworthy ship and not to deviate from the route stipulated by the charter party as well as other carrier’s duties connected with voyage by sea. The third notable feature which is affecting the nature and the practice of maritime law is that shipping regulated by such maritime law is directly dependent on other commercial activities. Contracts for the carriage of goods by sea are not made in commercial isolation. They are typically concluded so as to sell goods or to give effect to a previous sale. This means that contracts for sea carriage often reflect the direct interest of both sellers and buyers under a sales contract. Third parties may become involved in the carriage of goods in other ways. This leads to complex questions about who can sue and who can be sued. In the absence of a contract provision dealing with the particular problem, the main role in such cases plays the governing law of a carriage contract, which is English law, for the majority of sea carriage contract forms or local law as the law of the place of incident.

Use of Standard Forms of Contracts

The use of standard forms is a great point of maritime law practice. This use in itself constitutes an important feature of overseas trade. The biggest part of maritime law consists of settled interpretations of common clauses and agreements. Such interpretations are fixed in certain court decisions, as is usual for common law countries, or in particular provisions of legislation together with different kinds of resolutions/recommendations/ authorities orders in countries with a continental system of law like Ukraine. Parties in the shipping industry have engaged in charter arrangements for centu-


PROfile ries. Charter arrangements allow the parties to allocate the risks and costs of engaging in business by creating agreements that fit their particular needs. The vast majority of standard contracts developed by international associations, in particular, BIMCO (Baltic and International Maritime Council), FOSFA (Federation of Oils, Seeds and Fats Associations) and GAFTA (Grain and Feed Trade Association), contain standard or default provisions on application of English law. So, under the circumstances, Ukrainian maritime law practitioners deal mainly with casualties and incidents, not with contracts. The Merchant Shipping Code of Ukraine of 23 May 1995 regulates all the main questions in this respect like collision, pollution or grounding. Ukraine has signed and is a party to many international conventions, e.g. the International Convention for the Prevention of Pollution From Ships 1973 as modified by the Protocol of 1978 (MARPOL 73/78), the International Convention on Maritime Liens and Mortgages (Geneva, of 6 May 1993), the International Convention Relating to the Arrest of Sea-Going Ships (Brussels, 10 May 1952), etc. A number of conventions are not ratified but implemented into the text of the Merchant Shipping Code of Ukraine, e.g. the International Convention for the Unification of Certain Rules of Law relating to Bills of Lading (Hague Rules, Brussels, 25 August 1924), the International Convention for the Unification of Certain Rules of Law With Respect to Collision Between Vessels (Brussels, 23 September 1910), the International Convention on Salvage 1989 (SALVAGE, London, 28 April 1989), etc.

Arbitration vs. Litigation in Shipping

In recent years, arbitration has become an increasingly favored means of dispute resolution, particularly in maritime disputes. The most popular choice for maritime arbitration is London. The majority of standard form charter parties, international sale contracts, salvage contracts, reinsurance and P&I Club Rules provide for London arbitration and, in particular, arbitration at the LMAA (London Maritime Arbitrators’ Association). Many bills of lading incorporate an arbitration clause in the charter party under which the bill is issued. www.ukrainianlawfirms.com

In Ukraine there is the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry, an independent permanent arbitration institution operating under the On International Commercial Arbitration Act of Ukraine of 24 February 1994, the Statute on the Maritime Arbitration Commission at the Ukrainian Chamber of Commerce and Industry (Annex No.2 to this Act) and the Rules, approved by the Decision of the Presidium of the Ukrainian Chamber of Commerce and Industry No.18 (1) of 17 April 2007, amended in 2012. This tribunal shall resolve disputes arising out of contractual or other civil law relationships in the area of merchant shipping regardless of whether participants of such relationships are subjects of Ukrainian and foreign law or exclusively of Ukrainian or foreign. To be honest, the number of cases here is not significant and in the main this forum considers disputes with the engagement of state-owned companies. Typically, maritime disputes revolve around: — investigation of damages to transported goods and ensuing liability attached to the maritime carrier; — damage to the ship caused by the nature of the carried goods; — issues of lay days and demurrage including damages resulting from late entry to a port or late access to the operative quay; — damages suffered by the carrier as a result of force majeure; — issues relating to non-execution of charter parties (for example, non-payment of the charter fee, late return of the vessel or early collection of the ship); — sale, construction and ship repairs; — matters relating to salvage at sea; and maritime insurance. Maritime cases are very specific and very complex. Many of them are connected with casualties. The accidental factor is very strong. Which vessel is guilty when a collision arises? Why is the cargo found wet? Is it because of unfit hatches? To draw the right conclusion, one needs to have specific knowledge and expertise. That is why many in shipping favor arbitration over litigation. Arbitrators are more knowledgeable in maritime matters rather than judges, who have limited exposure to shipping. Arbitrators are not bound by existing

Interlegal Address: 24B Genuezska Street, Odessa, 65009, Ukraine Tel.: +380 482 33 7528 Fax: +380 482 33 7529 E-mail: odessa@interlegal.com.ua Web-site: www.interlegal.com.ua

I

nterlegal is a recognized law firm with its head office in Odessa, the biggest sea-gate of Ukraine. Established in 1995, Interlegal acquired the reputation of boutique maritime law expert operating and servicing clients in the Black Sea region. Interlegal’s expertize has been focused on the following major practices crystallized from our 20 years of experience: shipping, transport & logistics, ports & terminals, international trade, corporate, investment & transactions, litigation & arbitration. Within wide practice in commercial shipping Interlegal also renders the full range of yachting services: making sales contracts of yachts and ships, their registration and insurance. All participants of the transportation process are among the firm’s clients: cargo owners, carriers, forwarders, agents, ports, terminals, charterers, ship owners, insurers, banks, etc. Interlegal employs 20 top level law experts advising clients 24/7. Careful selection brought together talented, enthusiastic, goal oriented professionals united by high standard team spirit able to solve hard tasks effectively and fast. Thinking of the future, in 2013 the firm grew 25% when it was enriched by young prospective lawyers. The firm was the first in Ukraine to implement a hybrid management system. Continuously developing legal practice in Shipping and International trade in the Black Sea region, we opened offices in Batumi, Georgia and in Istanbul, Turkey. The annual research of the legal service market Ukrainian Law Firms 2012-2015. A Handbook for Foreign Clients has determined Interlegal as one of the leading companies dealing with maritime, transport and infrastructure.

law doctrine and have broad latitude to use their commercial sense of fairness. Neither are arbitrators bound by strict court rules of evidence and procedure.

To Be Continued in Ukraine

All the above are reasons why, despite a long maritime tradition, Ukrainian maritime arbitration and court practice are of minor importance for the maritime business. The serious drawback of Ukrainian legislation in the maritime sphere is the absence of a unified approach in issues related to maritime activity. Ukrainian legislation consists of the Merchant Shipping Code, laws and subordinate acts that regulate certain specific maritime relations. The legal framework is in this respect imperfect. Ukraine should refuse to regulate shipping by subordinate acts and base it mainly on international conventions and traditions. There is a strong need to systemize legal norms regulating maritime activity. If Ukraine is positioning itself as a maritime state then it should follow global trends.

115


Mediation

Mediation Arthur Tretiakov Partner, TCM Group Ukraine. He practices in such spheres as international commercial debt collection, restructuring and mediation, international litigation and arbitration processes, recognition and enforcement of foreign judgments and arbitral awards, bankruptcy

Sergii Melnyk Counsel, TCM Group Ukraine. His areas of expertise include international arbitration and litigation, international trade law, international commercial law and procedure, contract law, energy, recognition and enforcement of arbitral awards and bankruptcy

Bohdan IVASHCHUK Senior Associate, TCM Group Ukraine. Mr. Ivashchuk focuses on international commercial debt collection, mediation, international commercial litigation and arbitration

Yevhenii SHAMRAIENKO Associate, TCM Group Ukraine. He practices in the field of international commercial dispute resolution, in particular mediation, as well as in the areas of banking and financing

W

hile doing business, companies often get involved in commercial disputes with their business partners. If negotiations fail, companies are left with three standard ways of resolving their disagreements: litigation, arbitration, and mediation. In fact, litigation is still considered in many jurisdictions, including Ukraine, to be the most popular option for settlement of commercial disputes. However, litigation has several disadvantages when compared to methods of alterna-

116

www.ukrainianlawfirms.com

tive dispute resolution. First, companies may expect to incur significant costs, related to litigation. If a case is litigated in appellate and cassation instances, legal fees and court expenses can be extremely high. Second, it can take several years to resolve a dispute in courts, especially if there is a lot of money at stake. Often, the outcome of a dispute is not worth the time and money spent on litigation. If a case is tried in foreign courts, additional complications arise, such as reliance of courts on foreign substantive and procedural law or conduct of proceedings in a foreign language. Often, companies are forced to hire

a local counsel, which significantly increases the overall costs of litigation. Moreover, in certain jurisdictions companies may have to deal with bias of courts in favor of defendants or even with corruption. However, over the past 20 years, other forms of dispute resolution have become more and more popular. In fact, mediation has proven to be one of the most reliable methods. It is an informal and confidential way for companies to resolve disputes with the help of a neutral mediator, who is trained to assist parties in the resolution of their differences. Importantly, a mediator neither decides who is right or wrong, nor issues a binding decision. Instead, he or she helps parties to work out a compromise solution themselves. Despite the fact that mediation is still not widespread, big companies have already started to use it regularly instead of referring disputes to courts. Certainly, mediation allows costs borne by the parties to be cut significantly. Compared to conventional litigation in state courts, it is also much quicker. Parties are often able to resolve a dispute in the first or second hearing. Another advantage of mediation is its confidentiality: anything said by the counterparties cannot be disclosed or later used in a court of law. It should be noted that agreements, reached through mediation are more likely to be carried out than those imposed by a judge. When companies resort to litigation, the losing party is almost always unwilling to comply with a judgement voluntarily. Mediation can also be an effective means to restore damaged business relationships between business partners. Unlike litigation, where a court issues a one-sided judgment, favoring the winning party, the final goal of mediation is to reach a win-win situation acceptable by both partners. Although mediation is generally subject to less control than other types of dispute resolution, certain issues should be regulated by law in order to establish reliable rules for the mediators and users of the system. Thus, the majority of developed states have already adopted their own legal acts regulating the conduct of mediation. In this regard, Ukrainian legislation currently awaits significant changes. On 17 December 2015 the Draft Act On Mediation (No.3665) was registered in Ukraine’s Parliament. The alternative Draft Act On Mediation (No.3665-1) was registered on 29 December 2015. These Acts are expected to solve problems arising from the uncertain status of mediation under Ukrainian legislation.


PROfile Both Acts define mediation as an alternative dispute resolution method aimed at settling disputes through negotiations, assisted by an independent mediator. Moreover, both of the Acts regulate mediation in civil, commercial, labor, family and criminal disputes. However, some drastic differences between the Acts exist. Act No.3665 provides for a complex system of mediation-related institutions that would include educational facilities for future mediators, a register of mediators, and institutions that would sanction mediators who violate internal codes of conduct. In turn, the alternative Act provides for a simplified procedure, whereby the register would be kept by educational institutions. The significant disadvantage of both Acts is the non-binding character of mediation clause in a contract. Thus, even if the parties agree to mediation in case of any disputes, they can easily avoid this clause and file a claim to a court without any pre-trial negotiations. Surely, nothing shall restrict the parties’ right to refer a dispute to a court, according to the Constitution of Ukraine. However, a mandatory mediation clause that would act as a precondition before litigation, should contribute to quicker and more peaceful settlement of disputes. Adoption of a specialized legislative act will definitely speed up the evolution of alternative dispute resolution in Ukraine. It is worth noting that mediation is already used broadly in Ukraine. As no regulatory mechanisms have yet been established with regard to mediation on a national level, the issue of quality control for mediation services remains especially important in Ukraine. As the majority of mediators are lawyers, such control is conducted, in one way or another, by various professional organizations,

law firms and by mediators themselves. The key qualities that must be acquired by professionals in this area are developed communication skills, diplomacy, ability to conduct legal analysis, and preservation of impartiality by mediators vis-à-vis the parties. A good example of a successful mediation can be a mediation proceeding, conducted by lawyers of TCM Group Ukraine in a commercial dispute regarding an unpaid delivery of goods. The original debtor was liquidated through a bankruptcy proceeding and its payment obligation was transferred to an affiliated company. However, no assignment agreement was concluded between the creditor, the original debtor and the new debtor. Through a successful mediation proceeding, associates of TCM Group Ukraine have assisted the parties to reach an agreement regarding the payment of the outstanding debt. Following the mediation, the debt was paid in full and the parties have restored their fruitful business relationship. Notably, chances for the creditor to prevail in a conventional litigation before state courts in this dispute were minimal, as the creditor had no sufficient documentary evidence to support its claim. The debtor has also benefited from the mediation, as it was able to secure important deals with the creditor. To sum up the above, mediation, which was introduced not so long ago, has become one of the most popular methods of dispute resolution in Ukraine. Its efficiency and broad acceptance by Ukrainian business are evident due to its key advantages, namely, confidentiality, relative cheapness and speed of the process. Based on existing trends, even greater use of mediation in Ukraine is expected in the near future.

TCM Group Ukraine Address: 10A Vozdvyzhenska Street, Kiev, 04071, Ukraine Tel.: +38 044 228 1338 E-mail: info@tcm.com.ua Web-site: www.tcm.com.ua

T

CM Group Ukraine is a Ukrainian office of TCM Group International Ltd., which is a unique alliance of 35 law offices and 110 agencies, practicing international commercial dispute resolution in a total of 145

countries. TCM Group International was established in 1987, when a small group of globally minded credit management law firms and debt collection agencies, primarily located in the Pacific Rim, banded together to combat the rising tide of outstanding receivables and collection costs in international trade. While creating a one-stop shop for international companies, organizations, and individuals in need of global credit management solutions, international commercial dispute resolution and international commercial debt recovery services, TCM’s founding members aimed to give their clients access to the combined experience and expertise of a cross-border, cross-jurisdictional network. Over that time, the Group has acquired a first-class record in enhancing the cash flow for the vast majority of its clients by delivering sound credit management services and, above all, the successful recovery of international accounts receivables and delinquent debts, both amicably and through court settlement. With over 25 years of experience in global credit management and debt recovery, the offices of TCM Group International have developed an understanding of complex legislative, cultural and logistical challenges their clients face in recovering outstanding receivables across multiple boarders, languages, cultures, time zones, and currencies. Since 2014, TCM Group International has been represented in Ukraine through its office in Kiev, providing Ukrainian clients with a unique opportunity to access its offices worldwide. At the same time, TCM Group Ukraine represents all foreign offices of TCM Group International in international dispute resolution in Ukraine, building on the Group’s knowledge and expertise in the following areas: international commercial litigation and arbitration, negotiations and mediations, international commercial debt collection, recognition and enforcement of foreign judgments and arbitral awards, and bankruptcy proceedings. TCM Group offices: Argentina, Australia, Austria, Belgium, Bolivia, Brazil, Canada, Chile, China, Colombia, Cyprus, Czech Republic, Denmark, Dominican Republic, Ecuador, Egypt, Estonia, Finland, France, Germany, Greece, Hungary, Iceland, India, Ireland, Israel, Italy, Japan, Netherlands, Norway, Poland, Russian Federation, South Africa, South Korea, Sweden, Switzerland, Ukraine, UAE, United States of America.

www.ukrainianlawfirms.com

117


Medicine & Healthcare

Reasons to Invest in Ukrainian Medicine Tetyana Gavrysh Managing Partner, ILF, Coordinator of the Kharkov expert group on implementation of medical reform, Honorary consul of Germany in Kharkov

Olena Khytrova Associate Partner, ILF, Head of UkrainianGerman Medical Association (UGMA) committee on reforming of health system

T

he paradox of Ukrainian medicine is that despite having a host of medical facilities and hospital beds it still cannot fully satisfy the people’s need for quality health care. The public sector, which occupies approximately 90% of the market, provides low quality service, while private medical businesses simply don’t cover the whole spectrum of medicine. Thus, around 80% of private companies focus on stomatology or laboratory diagnostics. Large outpatient private clinics are few and far between and are usually located in large cities of Ukraine, while remote regions lack proper inpatient care. The high demand for health care provides no incentive for competition among medical businesses. It’s no wonder that the latter are able to raise their prices to European levels, neglecting to do the same for the quality of their service. Weak competition in the private medicine market is a major attraction for investors. Among the most popular and fast-payback market segments to invest in are perinatology, cardiology, oncology, ophthalmology and rehabilitation. The average payback period of Ukrainian medical businesses is 3-7 years, which is considerably lower than that in

118

www.ukrainianlawfirms.com

more developed countries. In fact, according to Pro-Consulting, the average profit margin rate of a private hospital remains at 18-22%1 even during economic crises. It’s no wonder that foreign investors have been represented on the Ukrainian health care market for many years. For instance, as early as 2011 Advent International, an investment fund that has invested in more than 50 medical institutions all over the world, acquired a block of shares of the Ukrainian private clinic ISIDA. In 2012 Siguler Guff & Company bought the Ukrainian clinic chain Into-Sana for EUR 30 million. As a result, Into-Sana is developing rapidly, gaining ground in regional markets by taking over private regional clinics. Other Ukrainian private hospitals like Dobrobut and Boris also shifted their attention towards advancing regional health care, which is a positive development for the market as a whole. Another positive factor for investors is the medical reform that seeks to implement mandatory health insurance in Ukraine. The reform will result in the state buying medical services for the population from medical facilities of any ownership — another funding source for private medical businesses. As a result, Turkish, Georgian, American investors and medical business owners are already considering how to approach the Ukrainian market. An investor or foreign clinic that intends to enter the Ukrainian health care market has two options: 1. Acquisition of existing medical businesses. The advantage of this option is that the investor gets a working enterprise complete with a client base, location and established operation. The catch is that very few Ukrainian health care companies have a transparent financial and legal structure. A clinic might turn out to be a group of independent doctors, each of whom is his own firm bringing in his share of customers. Naturally, when such doctors leave the clinic they take their patients away as well. Other pitfalls besides the lack of clear legal guidelines for dealing with doctors include possible hidden financial obligations, http://nv.ua/ukr/publications/tisk-120-na80-chomu-privatni-kliniki-v-ukrajini-pidnjali-tsinido-zahmarnih-visot-80390.html

1

improper registration of real property, issues regarding the protection of intellectual property (trade mark registration, methods of treatment, etc.). With business conditions being what they are it’s tricky to pass a standard procedure, to determine the actual worth of a business and detect hidden risks. Therefore, the investor should insist on restructuring the medical enterprise and on instituting transparent management that will help to minimize the risks. 2. Opening a new clinic based on the assets of existing municipal or governmentowned hospitals. The existing private clinics are located mainly on the premises of municipal or government-owned hospitals. For example, the private clinic Medicom opened most of its branches in Kiev’s city hospitals. An advantageous location for sure, providing a steady influx of patients as well as the opportunity to sell diagnostic and other medical services not covered by hospitals. This year all municipal and governmentowned hospitals were ordered to reduce the number of hospital beds by 15%. That space now remains unused while the hospitals still have to pay their bills. The government’s plan to make hospitals self-sufficient and change their financing philosophy (payment for services rendered instead of hospital beds) will lead to a further reduction in the number of hospital beds and provide more free space that could be put to good use by investors. In light of this, regional communities as well as the government will want to draw in foreign investors and turn unused hospital assets into public-private partnership projects. These projects will attract new capital and technologies while the presence of foreign players in Ukrainian markets will promote competition and improve the quality of health care. It’s a logical development reflecting current world trends which place medical public-private partnerships in leading positions these days. Unfortunately, Ukraine’s procedure for such partnerships is far from perfect. To be honest, in accordance with the current On Public-Private Partnership Act of Ukraine, as of yet no such project has been implemented. Things like the complicated procedure for concluding contracts, mandatory call for bids and lack of support from the government all


PROfile add to the problem. A bill has been submitted to the Verkhovna Rada to simplify and improve the public-private partnership procedure, including that in the health care industry. We hope that the changes will be passed this very year and the procedure will become transparent and accessible. While the bill is wandering around the halls of the Ukrainian Parliament, such deals are conducted according to civil and economic law. For instance, they can take the form of renting of municipal or government-owned property, joint venture, concession or management contracts. Any of the proposed deals will work in health care as well by making use of the assets of municipal and governmentowned hospitals, in accordance with Ukrainian health legislation. Thus, in Kirovohrad a private investor rented part of the building of the regional oncology dispensary and opened a TomoTherapy center fitted out with state-of-the-art equipment — the only one in Ukraine. As per the terms of the rental agreement the regional council lowered the rent and the investor promised, in turn, to provide free treatment to a number of children with cancer. However, every deal has aspects that should be carefully considered by

www.ukrainianlawfirms.com

the investor-to-be. For instance, according to current law, on the grounds of a management contract the owner can withdraw from it at any time provided that the manager has been notified. When signing a rental agreement for municipal or government-owned property it’s important to make sure that it allows for renovation of real estate and provides compensation for non-severable improvements, is a good choice for long-term investment and will let the investor purchase the rented property in the future. Investors should also consider the fact that since hospital buildings are municipal or government property, the rental agreement will be put up for competitive bidding. In addition, every regional community has its own procedure for renting, with its own distinctive features. Therefore, when planning to rent hospital premises it would be wise to assess whether those features might conflict with the investor’s goals. While the current situation in Ukraine doesn’t exactly inspire confidence in strategic investors, the Ukrainian health care market has become a window of opportunity for those planning to rise to the top within the next 5-10 years. After all, change brings opportunity.

ILF Address: 22 Shovkovychna Street, Kiev, 01024, Ukraine Tel.: +380 44 390 7777 Fax: +380 44 253 4549 E-mail: referent-kiev@ilf-ua.com Web-site: www.ilf-ua.com

I

LF is the No.1 law firm in Eastern Ukraine whose core competences are in: public-private partnerships and privatization, corporate and investment consulting and dispute resolution. We have been working on the Ukrainian market since 1994 and are among the top 15 leading law firms. As a legal advisor for business, ILF helps clients to maintain control over the situation and be confident of the decision and their future. The ILF team includes more than 50 highly-qualified lawyers, attorneys, tax, investment, and business consultants, who are leading experts in industrial markets: agribusiness, information technologies, banking and finance, medicine and pharmacy, retail and alternative energy. We defend and are successful in complex, resonant, and controversial situations, when there is no easy solution and there is a threat to business, property or personal safety. Based on the client’s strategic priorities and international experience, we help our clients to enter new markets and to build strong relationships with foreign partners and investors. Since 2014 ILF has been an IPO-partner of the Warsaw Stock Exchange. Our offices are located in Kiev and Kharkov, also we have partner offices operating in the UK, Germany, Poland, France, the USA and Cyprus. We are result-oriented and do not operate for the account of the client, but for the client. This allows our clients to achieve their goals ahead of time.

119


Mergers & Acquisitions

Investing in Ukraine: How to Make a Successful M&A Deal Yuriy Nechayev Counsel, Avellum

A

lthough the topic of this article may seem to go against the current trend, sooner or later it will again become popular to invest in Ukraine. Like any other investment instrument, an M&A deal in Ukraine has its own specifics. One of the main features of a successful M&A deal is when the parties are able to identify and bridge gaps between them, which is often a difficult task. In case of a Ukrainian M&A deal, this task becomes even more difficult when the buyer is a foreign entity dealing with a local seller. As evidenced by various international ratings, the investment climate in Ukraine has improved in the past few years. Moreover, Ukrainian businessmen are not as ignorant on how to carry out M&A deals as they were several years ago. Therefore, a foreign buyer does not have to come to Ukraine wearing a bulletproof vest any more (figuratively speaking, of course). However, there are still a number of specific points of a local nature that they should be aware of before starting the deal.

Anti-Russia Sanctions

As a response to Russia’s illegal annexation of Crimea and its support of separatists in Eastern Ukraine, both Ukraine and its Western partners (mainly, the EU and US) have introduced various economic sanctions against Russia. Some of these sanctions are sectoral, while others are personal. Thus, a diligent foreign buyer should check this matter in advance to make sure that these sanctions affect neither the seller nor the target in question.

120

www.ukrainianlawfirms.com

Any Serious Deal in Ukraine is Done under English Law

Although Ukrainian law is gradually evolving, it is still unable to provide parties to an M&A deal with the sufficient range of legal instruments comparable with those provided by English law. Warranties and indemnities serve as a good example. Option agreements and other instruments common in Western shareholder agreements also prove difficult to structure and enforce in Ukraine. English law also boasts a few centuries of precedents, which encompass virtually every business situation. In addition, corruption in the Ukrainian judicial system, which still remains at a high level, is another factor that forces the parties to an M&A deal to govern their relations by nonUkrainian law and subject their disputes to non-Ukrainian judicial authorities (often to an arbitration under the rules of the London Court of International Arbitration).

Legal Due Diligence

When conducting legal due diligence in Ukraine, you should expect various violations of corporate law due to the historical growth of companies. Past real estate acquisitions are rarely free of procedural violations. Pensions and the environment are not yet hot topics in Ukraine, while regulatory issues are quite common among manufacturing and FMCG companies. The good news is that, due to the recent deregulation in Ukraine, as well as tax and antitrust “amnesties”, the exposure of local companies to various regulatory risks has been reduced, which may often result in “cleaner” due diligence reports than before. Another piece of good news is that, as a result of recent reforms, Ukrainian public registers have been substantially improved and now most of the registers are both reliable and accessible via the internet. By way of example, now, knowing just basic information about a Ukrainian company, you can quite easily find corporate information on it, information on its real estate, litigations it participates in, licences it holds and whether or not it is in insolvency proceedings.

Seller’s Lawyers

Some Ukrainian sellers are still not used to engaging a professional legal advisor in

M&A transactions. They tend to rely on their in-house counsel, who often has limited practical experience in sophisticated M&A. The buyer and its legal counsel may spend days explaining the mechanics of an English law agreement. Eventually, the Ukrainian seller is likely to realise the need for professional legal advice and will hire a law firm to advise him on the agreement already negotiated! We strongly recommend that the foreign buyer insist on the seller engaging qualified lawyers from the outset.

Warranties and Indemnities

Some Ukrainian sellers are unfamiliar with the notion of warranties and indemnities. This means that many sellers will resist giving extensive warranties and will refuse to give any indemnities whatsoever. In the view of such a seller, once the deal is closed it will not refund any money to the buyer. One of the reasons for this is that, at some stage, M&A deals “as is” were widespread in Ukraine.

Disclosure Letter

However counterintuitive this may sound, we strongly recommend requesting a disclosure letter from the Ukrainian seller early in the negotiations, even if the seller is reluctant to prepare one. The simple reason is that the disclosure letter could flush out any “skeletons in the closet” not previously disclosed to the buyer in the course of legal due diligence. While this is true in other jurisdictions as well, it is particularly so in Ukraine. Indeed, some unpleasant surprises are possible, because some sellers are naturally less inclined to disclose their problems at the stage of due diligence. They fear that this might affect the valuation of the target and prefer to disclose this at the stage of the disclosure letter, when they finally realise that the more problems they disclose the less liability for breach of warranties they will bear.

Who Gives Warranties and Indemnities?

It is important to bear in mind that warranties and indemnities are worth as much as the party giving them is. If the seller is dealing through its offshore holding company or a special purpose vehicle (SPV), it is likely that such


PROfile a company has few assets and may not be around when the buyer raises a warranty claim. Thus, it is always better either to withhold a portion of the purchase price or to have a financially strong guarantor to cover potential losses. For example, a public company with listing on a major stock exchange or a bank. Personal guarantees by ultimate beneficial owners seem to remain popular, but their practical value is often limited. A foreign buyer should also be aware that such a security instrument as warranty and indemnity insurance, while popular in more developed jurisdictions, is still broadly unavailable in Ukraine. Therefore, it is critical to discuss the issue of security in detail and we encourage you to do so as soon as possible in the negotiations (and, for instance, to clearly include this in a term sheet or a letter of intent). Some sellers are not prepared to provide any security if this was not agreed from the outset.

Deal Structuring

Discuss early on whether an onshore or an offshore structure will be used in your acquisition. Ukrainian sellers will often have tax optimisation or reputational concerns and will insist on selling a foreign holding company (Cyprus is a common domicile) with Ukrainian assets underneath it. At the same time, it might well be that no such foreign structure exists at the moment the negotiations commence. Therefore, if an offshore structure for the deal is agreed, insist on starting the restructuring as soon as possible and monitor it closely. It normally takes several months to properly complete a corporate restructuring for an offshore structure. The timing will largely depend on whether the target group was historically formed in accordance with antitrust rules. If yes, the corporate restructuring will be regarded as an intragroup and, as such, will not require any antitrust approvals. Otherwise, such approval will be required which will prolong the process (see section on regulatory approvals below for more details on antitrust approvals).

Escrow Arrangements

Escrow arrangements, a popular and handy mechanism in the West, do not formally exist in Ukraine. This is one of the reasons why many M&A deals in Ukraine are done offshore. www.ukrainianlawfirms.com

Some commercial banks offer solutions which, in effect, work as escrow mechanisms in support of simultaneous completion. However, these solutions work well only with the sale of shares in a Ukrainian joint stock company. In the case of sale of shares in a limited liability company, more complicated structuring is required to achieve something similar to escrow. While certain positive legislative changes allowing escrow arrangements may occur in the short-term perspective, Ukraine is still not there. As a rule of thumb, documentary escrows are generally possible in Ukraine, while cash escrows are not.

Regulatory Approvals

Virtually all good acquisitions in Ukraine are likely to require the prior approval of Ukrainian antitrust authorities for concentration. This is because the financial thresholds under Ukrainian competition law remain very low. Long-awaited legislative changes in this area were adopted in January 2016 and will come into force in May 2016. These changes increase the financial thresholds triggers to more reasonable levels and simplify the merger filing procedure. If the target is doing business in a certain regulated area (e.g., banking, insurance or securities trading), in addition to the antitrust approval, in order to close the M&A deal the buyer will have to obtain separate approval from the relevant regulator. Furthermore, depending on the legal form of the target and the area of its business, the M&A deal may trigger certain notification requirements.

Non-Compete and Non-Solicitation Clauses

Common clauses in Western share purchase agreements, non-compete and non-solicitation clauses are not easily enforceable in Ukraine. In particular, the enforceability of non-solicitation clauses will be limited by the applicable labour legislation of Ukraine, which is quite pro-employee now. Finally, a non-compete arrangement requires prior approval from the antitrust authorities of Ukraine. Unlike in more developed jurisdictions, a non-compete arrangement will not be covered by an antitrust approval for the transaction mentioned above (concentration approval), but requires separate approval (concerted actions approval).

Avellum Address: 38 Volodymyrska Street, Kyiv, 01030, Ukraine Tel.: +380 44 591 3355 Fax: +380 44 591 3355 E-mail: info@avellum.com Web-site: www.avellum.com

A

vellum is a leading Ukrainian full service law firm with a special focus on finance, M&A, and dispute resolution. The firm covers capital markets, competition, corporate/M&A, dispute resolution, employment, banking and finance, energy and infrastructure, real estate, restructuring and insolvency, and tax. Avellum’s goal is to be the firm of choice for its clients with respect to their most significant business transactions. Its team is responsible, commerciallyminded, solution-orientated and cost-effective. The firm brings the most advanced Western legal techniques and practice, which, coupled with first-hand knowledge, broad industry experience, and unparalleled level of service, will help clients achieve the best results in their business endeavours. Avellum’s lawyers work seamlessly in integrated teams with premier US, UK and European law firms in the course of multijurisdictional transactions. The firm offers its clients highly individualised focus on their matters, and is relentless when it comes to observing deadlines. Avellum’s clients include international and domestic companies, governmental authorities, financial institutions, investment funds and investment banks seeking specialised legal advice and transactional skills from legal experts in the above practice areas. Avellum’s clients include Citybank, CNBM, Deutsche Bank, EBRD, Ferrexpo, ING Bank, Kernel, Lafarge, MHP, the Ministry of Finance of Ukraine, Nadezhda Group, Novartis, PrivatBank, Raiffeisen Bank International AG, Raiffeisen Bank Aval, UBS, UDP, Unicredit Group, and others. The firm’s employees received their education from top Ukrainian and Western universities. The team consists of 27 highly qualified attorneys, including three partners — Mykola Stetsenko, Glib Bondar, and Dmytro Marchukov, who are actively involved in every transaction. Avellum is recognised as one of the leading law firms in Ukraine by various international legal directories and Ukrainian legal editions such as Chambers & Partners, IFLR1000, Legal500, International Tax Review, Ukrainian Law Firms, and others.

121


Natural Resources

Security of Gas Supply, Ukrainian Gas Production Timur Bondaryev Managing and Founding Partner, Attorney-at-law, Arzinger

Maryna Ilchuk Associate, Head of Energy and Natural Resources Practice, Arzinger

A

ccording to the IEA World Energy Outlook Special Report (2015), world natural gas demand will increase by around 30% by 2030. Therefore, the uninterrupted supply of energy, including of natural gas, as well as energy supply security are a key world concern. Considering the fact that historically Ukraine has been a gas-dependent country the security of gas supplies is one of the priorities of Ukrainian energy policy. Seeking a solution gas importing countries referred to the principle declared long ago by Winston Churchill of “Safety and certainty in oil lie in variety and variety alone.” With this imperative for variety, the topic of energy security was born. It should be noted that taking into account the tension in the relationships with Russia, which used to be the main exporter of natural gas to Ukraine, in April 2015 the Government approved the Forecast Balance for receipt and distribution of natural gas in Ukraine for 2015. According to the document state-owned energy company NJSC Naftogaz of Ukraine should continue to take steps towards diversification of natural gas supply sources and, what is more important, the Forecast Balance prohibits, inter alia, NJSC Naftogaz of Ukraine from importing

122

www.ukrainianlawfirms.com

more than 50% of the total volume of natural gas from one supplier1. It should be admitted that Ukraine has made good progress in this direction, as in fact gas imports from Europe in 2015 were 63 %, whereas only 37% of gas supplies were from Russia, which means that import from Russia is no longer critical. In terms of diversification Ukraine is also working on developing its infrastructure to enable an increase in gas supplies from Europe to Ukraine. Thus, in December PJSC Ukrtransgaz, the operator of the Ukrainian gas transportation system, and Poland’s Gaz-System S.А. agreed on the construction of a 110 km main gas pipeline interconnector called Drozdowicze — Bilche-Volytsa with a capacity of 8.0 billion cubic meters per annum in the direction Poland-Ukraine and 7.0 billion cubic meters per annum in the direction Ukraine-Poland. The project provides for the integration of the gas transport systems of both countries to increase gas imports to Ukraine from Europe through the Republic of Poland and ensure the safety of European gas in underground gas storages located in Ukraine and its supply to consumers in EU Member States. In October 2015 the parties received the feasibility study on the interconnector’s construction and he project itself is expected to be fully implemented in 2020 as a part of The NorthSouth Gas Corridor. Furthermore, in June 2015 Ukrainian gas transmission system operator Ukrtransgaz and Hungarian operator FGSZ signed an interconnection agreement governing twoway natural gas flows on the interconnector across the border. At the same time, these kinds of supplies may be implemented only provided that Gazprom provides the Ukrainian operator with shipping code pairs, which contain information on volumes of gas, supplier and buyer, which Gazprom continues to refuse to do so. It is obvious that as soon as Russia provides Ukraine with the needed information this will facilitate European and Ukrainian cooperation within gas supCurrently Russia and Ukraine are not applying the provisions of the existing gas supply contract signed in 2009 as they await the arbitration decision in Stockholm, at the same time the parties together with the EU are reaching temporary compromises for each season of gas supplies by setting conditions for cooperation. It should be noted that Ukraine halted natural gas purchases from Russia in November 2015.

1

ply and infrastructure development, but the issue is more of a political one. In terms of Ukrainian diversification energy policy another component is to boost domestic gas production. According to the State Statistics Service, in 2015 Ukraine produced 19.9 bcm of gas (not taking into account the territory of temporarily occupied Crimea), which means a decline of just 3% in production compared to 2014. NJSC Naftogaz of Ukraine declared that PJSC Ukrgazvydobuvannia produced 14.5 bcm of natural gas (a 4% fall on 2014). It should be noted that the statistics are quite good given the conditions in which the gas production companies appeared to be in 2015. The main obstacle for the sector became dramatically high rent levels. Thus, on 28 December 2014 the Ukrainian Parliament adopted the Act of Ukraine On Amendments to the Tax Code of Ukraine and Some Legislative Acts of Ukraine Regarding Tax Reform to establish, in particular, new rent rates for oil and gas production. Under the mentioned law, increased taxation for private oil and gas companies was introduced as follows: (1) for oil — 45% for production at a depth of up to 5 km, 21% — for production at a depth of over 5 km; (2) for natural gas provided for household needs, — 55% for production at a depth of up to 5 km, and 28% — for deposits at a depth of over 5 km; (3) for companies producing hydrocarbons under joint operation agreements, regardless of the depth of resources, the rent was established in the 3rd quarter in the amount of 70%. This means that the government failed to keep its promise that high rental rates introduced in 2014 were temporary and that they would be reduced from 2015. Moreover, on 2 March 2015 Parliament adopted the On Amendments to Articles 165 and 252 of the Tax Code of Ukraine to Increase the Rent Rate for Subsoil Use in the Production of Natural Gas for Household Consumption for Gas Deposits up to 5 km from 20% to 70% No.211VIII Act of Ukraine. In particular, it referred to state company Ukrgazvydobuvannia. Such a fiscal regime was explained by the economic situation in the country and Parliament intending to bring additional income to the state budget. At the same time, these actions were not in line with


PROfile the announced strategy of Ukraine on diversification of gas supply, as it did not encourage a rise in domestic gas production, but on the contrary many gas production companies announced they were about to stop their activity as they were unable to bear such a high tax burden. After lots of initiatives and discussions on 24 December the On Amendments to the Tax Code of Ukraine and Certain Legislative Acts as to Ensuring Balance of Budget Revenues in 2016 No. 909-VIII Act of Ukraine was adopted, which stated that from 1 January 2016 rent rates for gas production would be reduced from 55% to 29% (well depth up to 5 km) and from 28% to 14% (well depth of over 5 km). Another obstacle which gas production companies faced in 2015 was formation of a so-called insurance reserve of natural gas. Thus, the Cabinet of Ministers endeavored to oblige traders and gas producing companies to form an insurance reserve in the amount corresponding to the 100% of the planned monthly delivery, but later it was reduced to 50%. The reduced rate is better than previously, but still being just half way to a genuine improvement in the market. There is a lot of discussion among market participants about the approach and main idea of such obligations, mainly on who should be the proper subjects to form such reserves. Therefore, we await introduction of amendments in this regard. In general, it is clear that the year was a very complicated one for the upstream sector in general, including extremely high rent payments negatively affected it. However, the fact that finally taxes as well as the obligation on gas insurance reserves were reduced means that market players were heard by the government and the latter is ready for dialogue, which is a positive signal. To sum up, 2015 was marked by a number of other important developments in the oil and gas sector, including adoption of the On the Natural Gas Market Act (in accordance with the Third Energy Package); restructuring of NJSC Naftogaz (unbundling); Ukraine joining the Extractive Industries Transparency Initiative (EITI) and restructuring of NAK Naftogaz Ukraine; the unconventional gas sector investors’ exit www.ukrainianlawfirms.com

from shale gas projects; privatization of city gas distribution companies. The main purpose of the On the Natural Gas Market Act is to create an effective competitive environment on the natural gas market and bring Ukrainian laws and regulations into line with the Third Energy Package. It is important that in future operators of the backbone transmission system, gas distribution systems, storages, LPG plants and gas suppliers must be different companies. Ukraine’s gas transportation system will still be owned by the State, while its management will be entrusted to partner companies that should be selected on a competitive basis and have at least five years of experience of managing a gas transportation system on the EU or U.S. market. Though Ukraine is only on the reform path and has basically only taken its first steps, it is believed that the result of reform of the Ukrainian oil and gas market according to the Third Energy Package, including unbundling of gas transportation system operator and securing nondiscriminatory access to the gas networks, will turn the Ukrainian market into a competitive one and attract foreign market players. Being realistic it should be admitted that lots of measures have not been taken yet and lots of legislative acts still need to be developed. The future of the Ukrainian gas transportation system (GTS), including underground gas storages (UGS), has still not been determined. It is still to be defined whether, taking into account legal, financial and technical aspects, it is more efficient to operate GTS and UGS together or apart. No doubt foreign traders will enter Ukraine in order to store their gas in Ukrainian UGS only when there is a clear framework for importing and what is of more importance exporting such gas (as they will inject their gas only if there is a guarantee that such gas may be taken back to Europe). The issue of tariffs rates and methodology of tariffs formation need to be determined and, as a result, Ukraine will be able to propose competitive terms for gas storage. The scenario when Ukrainian GTS and UGS are not used either by Europeans or by Russia is so far not favorable for Ukraine and, therefore, this shall be the main factor fostering implementation of a really competitive and open gas market.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

123


Patents

Novelty as an Invention Patentability Criterion Iryna Ortynska Head of Inventions & Utility Models Department, IPStyle

T

he modern economy is driven by technology with thousands of invention patents registered around the world annually. If you want to protect your invention, you need to act quickly and effectively because it might be quite possible that in the same hour a scientist somewhere at the other end of the world invents something similar to yours. In Ukraine, all relations arising in connection with acquisition and realization of property rights to inventions and utility models are regulated by the On Protection of Rights on Inventions and Utility Models Act of Ukraine. The priority, authorship and ownership of an invention must be certified by a patent (declarative patent). Like in most countries, a Ukrainian patent for invention is valid for 20 years from the date of filing of an application with the Ukrainian Intellectual Property Institute (Ukrpatent). According to Article 7 of the above Act, an invention is deemed to comply with the requirements of patentability if it is new, involves an inventive step and is industrially applicable. An invention patent may be taken out provided that the applied technical decision meets all these three criteria. Let us consider one of the key criteria of patentability — its Novelty.

What is Novelty of Invention?

The law provides that an invention is new if it is not known among the prior art, which includes any information having become publicly available before the invention priority date. Patentable invention constitutes information on a technical task’s solution. Such information is considered to be new if, by the time of filing an application of the invention patent,

124

www.ukrainianlawfirms.com

the latter has not been found among the other, previously known, sources of information, which as a whole defines available prior art. The prior art includes any information on the character of the invention, no matter whatever the way may be that it has become publicly available — whether through publication, oral disclosure or disclosure by use. In other words, the prior art is a combination of already known solutions reflected in technical objects, design and technological documentation and other sources of that kind. It also includes the content of any patent application in Ukraine (PCT applications entered in Ukraine) in the original wording. Besides, publicly available information refers to such data that any person can learn in a lawful manner. Novelty of invention is defined at the date of filing an application with the Ukrainian Intellectual Property Institute (Ukrpatent) or at the priority date. As follows from the foregoing, any publicly available information, which is found known within these dates and which is identical to that described in the new invention, may discredit its novelty. However, if the information about the invention has been disclosed by the inventor himself or by the person who has received the information from the inventor — whether directly or indirectly, and that has become publicly available 12 months prior to filing the application with Ukrpatent, then such information does not deny the novelty of the invention, since the law provides authors with the exception to lack of novelty for the period stated. Suppose you have been developing your invention and presented it at a scientific conference. Since you are the inventor and the invention has been publicly disclosed, such disclosure is not to discredit the novelty of your invention (provided it is filed within 12 months from the date of such disclosure).

Area of Disclosure that Discredits Novelty

Inventors who intend to apply for an invention in Ukraine should be prepared for the fact that the novelty of the invention relates to the requirement of an absolute world novelty: the essence of the invention before the filing date must be disclosed neither in Ukraine nor abroad. For example, a Ukrainian inventor has invented a ventilated mattress. According to the inventor, the novelty of the invention lies in the fact that the mattress is provided with

a built-in vents and using such a mattress will ensure air circulation, improve the processes of heat exchange and evaporation of moisture, which would enable an improvement in the overall hygiene of the product. However, when checking this technical decision for novelty, experts have found a patent for a Ventilated mattress published on 24th August 1909 in the United States. According to the American inventor’s patent, the mattress was placed in a wooden frame installed between the bed backs and, through the holes in the mattress, access to air was provided for a person lying on the mattress. It goes without saying that the technologies and materials of mattresses manufactured in the 21st century and in early 20th are completely different. However, these two solutions are considered identical since the mattresses are provided with holes and carry the same function. As a result, the Ukrainian inventor was refused in being granted an invention patent.

Novelty Test

The Novelty Test of the invention claimed is essentially an important stage of the patent application qualifying expertise. The purpose of this expertise is establishing the compliance of the claimed subject matter of invention with conditions of patentability. Novelty testing is carried out on the set of essential features specified in the independent claim by comparing this set of features with the information on the objects that are among the prior art identified in the course of the search carried out by Ukrpatent. In determining the invention novelty the objects included in the prior art are to be treated separately. This means that in order to substantiate the invention’s non-conformity with the condition of novelty, the combining of results obtained from different sources (including different parts of the same document), each concerning only a part of independent features of the invention claimed, is not allowed. Still, if the data on the object that the claimed invention is being compared to, is contained in one source of information (primary) while the clarification of certain features of the object is contained in the other, this other source is considered to be a part of the primary source provided there are doubtless reasons to believe that the information from both sources refer to the same object. In addition, for interpretation of the concept used


PROfile in the source of information, the use of dictionaries, reference books, international, governmental and industry standards, rules and regulations in the art this invention falls within, is allowed. Invention is not considered a novel if there is an object detected in the prior art, which uses every feature (or equivalent feature) included in the independent claim. In this case the form of the feature presentation — whether verbal, mathematical, graphic, symbolic or the like — does not matter. The equivalents are recognized as features that have different forms of their implementation but perform the same function on the same principle and in the same way and, thus, enable the technical result of the same kind and quality to be achieved. An example An application was filed with Ukrpatent for “candy, which consists of a body, covered with glaze, and which is characterized in that the body constitutes peeled sunflower seeds”. During the novelty search the expert has found a source which describes “candy, which consists of a body, covered with chocolate glaze, which is characterized in that the body constitutes a peeled and fried sunflower seed”. As we can see, the item found uses every feature of the invention having been claimed, so it was not recognized as novel.

How can you Estimate Invention Novelty?

The answer to this question seems at first glance to be simple — it is the Internet that will help me! It is quite easy — I enter my question into the search engine and it gives me everything I need! I enter and…here the first problem arises. For example, Google on your request for a “waterheating boiler” will in 0.39 seconds give you out more than 483,000 results, and on requesting a “hot water

www.ukrainianlawfirms.com

boiler” millions of results. How long does it take to go through all that information? And does it include all existing sources? For example, scientific conferences or symposia reports, theses, etc. are not always published in their entirety. It is quite clear that the number of search results may be limited by entering additional keywords into the search area, but the problem still remains. Another problem of independent search for analogs to your invention lies in the fact that an average Internet user could not perform the search in the database of patent offices located throughout the world. The only solution to these problems is a preliminary patent study or patent search for novelty to be conducted by qualified IP information search experts. The main purpose of conducting a search for novelty is to establish the presence or lack of novelty of the invention prior to the date preceding the date of the search. It is a rather essential procedure since thanks to the search it is possible to minimize the risk of refusal of a patent registration. In the course of a patent search experts usually distinguish the following stages: 1. Determining a set of features that make the subject matter of the invention at stake distinctive. 2. Analyzing the prior art (sources available) with regard to novelty and popularity of the essential features of the invention. 3. Identifying the sources describing the invention’s analogs. 4. Making the closest analog stand out, i.e. the invention prototype which is the most similar to the set of features the invention belongs to. 5. Carrying out comparative analysis of the test subject and the prototype. If no differences are revealed, the invention is not deemed a novel. But if differences are found on a number of criteria, the conclusion is drawn that the test subject is a novel and has a good chance of getting a patent.

IPStyle Address: 1A Khoryva Street, Kiev, 04071, Ukraine Tel.: +380 44 393 4012 Fax: +380 44 394 5064 E-mail: office@ipstyle.net Web-site: www.ipstyle.net

I

PStyle Patent Law Company is a full-service IP boutique with a special focus on CIS countries. We operate not only in Ukraine, but also in Russia, Belarus, Kazakhstan, providing integrated support to our clients. Launched in 2007, IPStyle is well-known on the Ukrainian market as a trustful legal adviser on IP projects. For these years the company has been working with many worldwide and Ukrainian brands on various complex and challenging IP matters. Our client list is a trustworthy measure of various Ukrainian and foreign companies, including companies from the United States, United Kingdom, Germany, Poland, Mexico, South Africa, Russia, Romania, etc. We have in-depth experience in all Intellectual Property spheres, including trademarks, patenting, copyright, domain names, IP consulting and litigation. IPStyle’s multifunctional team includes 14 people who are IP experts and lawyers specialized in IP protection as well as technical specialists, who provide high quality expertise and consulting. Each of our members has a special individual field of work and responsibilities to provide 360 degree IP protection. IPStyle managing partner Mariya Ortynska is the guide and the leading force of the company, who contributes towards developing and expanding the scope of our activities. Our experts are members of International Trademark Association (INTA), Eurasian Patent Agents (CEAPA), Ukrainian Bar Association (UBA), Federation of Appraisers of Business and Intellectual Property (FOBIS). IPStyle occupied a position in the Silver League of Legal500 Ranking as a firm recommended on IP law matters in Ukraine. World Trademark Review 1000 also included IPStyle in its list, as it was recognized as a Silver League IP law firm in Ukraine for 2015-2016. We not only protect intellectual property rights performing our duties, but also try to take an active part in social activities and raise legal awareness in Ukraine to a new level. In this regard, the company’s specialists carry out pro-bono training sessions and seminars. What set IPStyle apart is that every project is unique and they lack comparables. We go all the way with a client project, delivering personalized business solutions based on applicable IP law and unique business industry mechanisms.

125


Petrochemicals

Oil Market vs. the Perils of Criminal Justice Denis Ovcharov Attorney-at-law, Partner, WhiteCollar Crime, Juscutum Attorneys Association

Kseniya Prokonova Attorney-at-law, Senior associate, White-Collar Crime, Juscutum Attorneys Association

T

he petroleum industry has traditionally been under the magnifying glass of law-enforcement. This business is characterized by natural monopolies and it has lots of money. Reforms have also affected this tasty morsel, leaving a trace of notorious searches.

Five Searches Related to the Petroleum Business

Sumy, Okhtyrka, 2 February 2016. This search, based on allegations of oil theft was initiated by Okhtyrkanaftogaz as a method to fight the company’s competitors. Kiev City Court of Appeals, 19 June 2015. The Prosecutor General’s Office conducted a search at the office of Court Chairman Anton Chernushenko, who had previously issued several decisions in favour of PJSC Naftogazvydobuvannya and revoked the seizure of wells, shares, and accounts. This search marked the beginning of a new trend whereby those judges issuing “wrong” decisions were prosecuted for rendering knowingly unjust judgments. The move is smart and tasteful. Importantly, despite ongoing criminal proceedings against the judge, the Pechersk Court revoked all seizures of Naftogazvydobuvannya’s property as unlawful. In other words, the court admitted that the judges of

126

www.ukrainianlawfirms.com

the Court of Appeals were correct, as absurd as it sounds. Pereyaslav-Khmelnytsky, BRSM-Nafta, 25 June 2015. The search was originally positioned as a corporate raid since the visitors had no insignia and it was rather difficult to identify them as representatives of the Main Department of the Ministry of Internal Affairs in Kiev Region. The visit was related to a fire at the petroleum storage and distribution facility near Vasylkiv. The State Fiscal Service even mentioned this case when justifying the recommencement of inspections and revocation of the moratorium. Kremenchuk, Kremin-Nafta Ltd, 20 March 2014. The visit followed a complaint from a certain law-abiding citizen alleging that the company was selling lowquality fuel. This peculiar tool for protecting the customer’s rights resulted in a search of the offender. The tax inspection paid a visit and collected fuel samples. Further forensic expertise confirmed the quality of petroleum. Odesa, Thermal Power Station, 6 August 2015. The Security Service of Ukraine arrested the director of Odessa Thermal Power Station on suspicion of funding terrorism and embezzlement of funds. The arrest was followed by searches.

What Happens during Searches at Oil Companies

Visiting without paperwork or documents. What does this look like? People in civilian clothing enter a company’s premises. Sometimes they are assisted by people in uniforms armed with automatic rifles. This is where the shutdown of the enterprise’s operations begins. What can be done? At this stage, it is important to keep them out. For instance, good physical protection is helpful (trained security staff, lack of “blind spots” of surveillance cameras, guarding of the entire perimeter). Law-enforcement press offices loudly claim that it is only in exceptional situations that a court order authorizing the search is absent or contains errors. In reality, however, these situations are widespread. It is necessary to review the court order and verify whether the document meets the requirements listed in the Criminal Procedure Code. Denying access to an attorney. What does this look like? The procedure has already started, and the investigating officer does not regard it necessary to let the attorney enter

the premises. What can be done? The attorney must be notified immediately after the first signs of the upcoming search. The earlier she/he arrives, the greater the chances for the attorney to get in. As to physical access, there are more obstacles to enter these facilities during peaceful times compared to a regular office or residence. It gets even more complicated in the presence of an investigation team. The attorney must be familiar with all points of entry and exit, and every staff member should recognize him/her in person and welcome with open doors when the attorney is rushing to the search. Most importantly, remember that the investigator’s claims are unlawful as she/he can only limit exit, not entry, to the premises. In addition, nobody can violate your right to legal assistance wherever you are, including a petroleum storage and distribution facility. Collecting oil samples. What does the process look like? It looks like part of the procedure called “search”. If the search is based on allegations of financing terrorism, as was in the case of Poltavagazvydobuvannya, the purpose of collecting samples is to prove that you have been extracting oil on the territories outside of Ukraine’s control or in the Russian Federation. For quite some time now, allegations of financing terrorism are no longer unusual. These charges are added to the mix with the purpose of authorizing the use of force during investigative procedures. What can be done? Recognizing the situation in our country, it is necessary to make preparations in advance and perform several unsolicited expert assessments, as well as have documents confirming origin available. Expropriating everything. How does this happen? The investigating officer presents a rather wide interpretation and seizes everything she/he deems necessary for criminal proceedings. What can you do? Obtain and review carefully the court order to understand the scope of court authorization. You can only prevent something from being seized through physical advantage. However, if the seizure record is detailed and contains all the attributes, it is a lot easier for the attorney to have property returned through a court. Take the initiative and make a detailed record yourself. A visit following someone’s complaint remains a good old tradition. How does it look like? After the search is complete, you will definitely be curious about the underlying reasons. These can be found in case files kept


PROfile with the judge authorizing the search. In most cases, there is a complaint from a mysterious citizen who was taking a stroll nearby and suspected that you were violating the law. What can you do? It might sound ridiculous, but this is a very popular scheme. If you really annoyed someone, this alert citizen might be a parliamentary member with all resources at his/her disposal. Your security service should follow-up on possible signs as soon as they appear. Do not dismiss seemingly meaningless interviews or ignore incoming requests from the law enforcement bodies. Ignoring them is the first step on the road to a search. A well-written response to the request, along with an elaborate company strategy in general, can create miracles in criminal proceedings. Imposing seizure on wells and fuel. What does this look like? Lawenforcement bodies always present these actions as necessary for the purposes of a criminal investigation. What can you do in a situation where the assessment has already been done, but your property remains hostage? What are your actions? The aim of the seizure is always to shut down your operations and force a deal. However, accepting its terms will not help to recover your property or receive an ausweis for the future. You need to go to court and have the seizure revoked there. A significant amount of case law has been developed to date in these matters. Violations in the process. What does this look like? Damage to property, attempts to interview staff members, restricting movement around the premises, denying ambulance access… The list depends only on one’s imagi-

nation and the skills of the investigator and his/her subordinates. What can be done? It is crucial to prepare staff for stressful situations and provide security training for them. Your members of staff are a resource that can help you win the fight. They need to feel that they are a team, support each other, and never leave anyone alone with law-enforcement officers. All violations must be recorded in the comments to the search record. In the future, it might be helpful to file a report about the crimes committed by the investigator. Even state enterprises are not immune to searches. How do they look in reality? The search at Ukrenerho on 6 October 2015 was a vivid example. It should be noted that the search followed several complaints by Anton Gerashchenko who was the first to report about its conduct on his Facebook page. What can you do? Law-enforcement officials are actively using social networks to shape public opinion or put pressure on the courts. Therefore, the PR department must be an integral part of the company’s security system. It is necessary to work with the media even prior to any search. The conclusion is that every victory in court is unique. However, all searches have the same shortcomings in common. There is an objective need to amend the Criminal Procedure Code. We have developed a Draft that would increase the safeguards for attorney’s access to the premises, introduce stricter requirements in relation to property seizure and to ensure that rules are clear and transparent for all players in the game. Yes, a search is also a game, and the toys in this game are quite expensive ones.

Juscutum Address: 27A Taras Shevchenko Ave, Kiev, 01032, Ukraine, Tel.: +380 44 223 3847 E-mail: office@juscutum.com Web-site: www.juscutum.com

Who We Are Juscutum Attorneys Association is an agile law firm, which was designed to provide legal support to innovative businesses domestically and internationally. As a law firm with a full range of legal services we are adjusting the classical legal practices to the needs of clients. In 2011 we established a new one for Ukraine, IT & Media. We turned classical litigation practice into dispute & conflict resolution, white collar crime has very strong expertise in security matters. We are bringing new technologies to legal services. Juscutum Legal Alarm is the first legal app in Ukraine that provides a new client-lawyer communication level. Juscutum is a member of: — World IT lawyers, global alliance of member firms, specializing in IT law. — International Fiscal Association (IFA Ukraine). — U.S.-Ukraine Business Council (USUBC). Juscutum is ranked in TOP-50 Law Firms in Ukraine 2015 and in Intellectual Property according to Legal 500 2016 (EMEA). Represented in the Ukrainian Law Firms 2014, 2015: A Handbook for Foreign Clients (ULF 2014, 2015). The firm is named in the TOP 5 of law firms in media, telecommunications and intellectual property law as well as in white collar crime according to internal rankings for 2015. Juscutum also works as a legal representative of the Red Cross Society, participants of the Eurovision Song Contest and a number of Ukrainian museums, cinemas and theaters as a pro bono. The firm’s attorneys have top-tier law firms experience and offer the same level of service at more reasonable prices. Our clients The geography of our clients varies from Ukraine, Russia, Kazakhstan and Georgia to the USA, France, Switzerland, Denmark, the Netherlands. Among our key clients are: Diamond International, Ciklum, Miratech, ISM eCompany, DTEK, Hosting Ukraine, BMS Consulting, SportLife, MTI, ERC, TMM. Core practice areas IT & Media White-Collar Crime Tax law Corporate law Dispute & Conflicts Resolution International Business Administration

www.ukrainianlawfirms.com

127


Pharmaceuticals

Dealing in Drugs 2016: A Bumpy Road Ahead Mykola Orlov Managing Partner, Law Offices of OMP

W

ith the past two years witnessing a slump in pharmacy sales, there is no promise of a U-turn in 2016. The increasing devaluation of the national currency has led to a steep rise in the prices of almost all medicines. This is bad news for the government. Unfortunately, it is even worse so for the industry, which is held to blame by public officials. All of that spells rough ride for all stakeholders in the current year. One does not need a crystal ball to predict fierce competition and continued misunderstandings with the state. Below are just a few of the legal hot spots to keep a wary eye on.

Misplaced Competition Concerns

Following several hikes of prices at pharmacies, the Antimonopoly Committee of Ukraine set about correcting the situation. The usual suspect was the retail sector. (Surprisingly, the AMCU seemed to take little notice of the effect the rapid devaluation of the Hryvnia had on these prices.) It did not take the regulator long to start blaming the marketing services provided by the pharmacies to the pharmaceutical companies. Marketing bonuses were accused of distorting the competition and driving up the cost of medicines to the public. In its non-binding recommendations of March 2015, the AMCU voiced concern that marketing services agreements might be in breach of competition laws. It went even further and effectively advised retailers to refrain from charging marketing fees in excess of the actual cost of such services. At the same time, the regulator had to admit that marketing services agreements were both common (with over 50% of the industry using them) and arm’s length (with the individual

128

www.ukrainianlawfirms.com

contractual terms being agreed upon on a case by case basis). The AMCU position was further weakened by the fact that none of the pharmacies dominates the market nationally and only a few do so locally. Predictably, no investigations and prosecutions followed. The absence of solid legal grounds meant that the AMCU limited its push to circulating enquiries into group structure of the pharmacies and their overall sales on the regional level. Nonetheless, the fresh wave of accusations and recommendations brought a considerable degree of uncertainty to the market. Wary of fresh repressions, pharmacies panicked. Many of them sought to terminate marketing services agreements or camouflage them. As a result, quite a few of the previously transparent over-the-counter arrangements were gradually substituted for convoluted arrangements involving private entrepreneurs or intermediaries. The main victim of the witch-hunt became marketing bonuses linked to the volume of sales of medicines. (In the case of pharmacies and pharmaceutical producers, these bonuses are paid to the retail on the basis of the volume of medicines supplied to it by the distributors.) The midyear change in the top brass at the AMCU brought with it a fresh round of negotiations with the industry. From July through November 2015, the agency held several meetings trying to make up their mind what to do with the marketing services agreements. From the legal stand point, the opponents of these agreements cannot pinpoint any rule or law which is violated by these arrangements. There is no evidence of any misuse or market abuse where the marketing services were involved. To the contrary, marketing services appear to provide the much needed incentive for pharmacies to keep stock of the expensive medicines of non-Ukrainian origin. These pharmaceuticals take longer to sell and, but for the additional bonuses, might have well been omitted from the orders of many local drugstores.

AMCU Corrects Itself

The year long dispute culminated with the AMCU clarifying their recommendations on the marketing services agreements. Rather than revoking its controversial recommendations, the regulator decided to effectively restate some of them in the press release of 14 December 2015. First and foremost, the AMCU admitted that the pharmacies could

make a profit on their marketing services, although it warned that its price should be economically justified. This was in stark contrast to the previous position that the price of these services could not exceed the cost of their provision. Second, the regulator finally offered clear guidelines on the use of marketing bonuses linked to the volume of sales. These effectively ended speculation regarding the use of such marketing instrument. The AMCU effectively indicated its intention to prosecute volume-based bonuses only when these are employed by market players enjoying dominant position and only in three types of cases: — if such bonuses impede access to the market of other producers or remove them from the market; — if such bonuses are offered on different terms under similar contracts which discriminate against some market players; and — if such bonuses lead to higher consumer prices which would otherwise be lower had there been more competition on the market. On the face of it, the AMCU recognized lawfulness of the above bonuses and their admissibility from the point of view of antimonopoly regulation. Furthermore, the new guidelines demonstrate that marketing services agreements in general and volumebased bonuses in particular are subject to the same antitrust rules as any other contractual arrangements in the market. Thus, they can and may be investigated and prosecuted only when and if there is proven market abuse. Otherwise, market players should be left free to agree on any contractual terms they choose. Unfortunately, the year-long battle left the market unnerved and disillusioned. The AMCU has once again demonstrated that it can deviate from its own regulations if it is justified by political considerations. As a result, the industry is no longer comfortable with the marketing services agreements, although there is no other instrument which can effectively substitute them.

Marketing Services: Do’s and Dont’s

Contrary to what may be the popular perception of the latest AMCU actions, marketing services agreements are permitted under Ukrainian law. Their legality has never been disputed. They are also widely used in every type of retail active in Ukraine. The disputed


PROfile bit of the marketing services is their price which under certain (rather unique) conditions might fall foul of antimonopoly regulations. The usual accusations would be market abuse (for pharmacies) and pricing competitors from the market (for pharmaceutical producers). It is yet to be proven (if at all possible) that marketing services lead to an actual increase in price for the consumers. Marketing services and, in particular, volume-based bonuses might be frowned upon if targeting rare and expensive medicines, as well as medicines that are in short supply. Recent examples of such instances proved to be oncology, hepatitis and diabetes medicines which are often in short supply and are quite expensive. Special care should be taken in instances when there are only one or two competitors whose market share is decreasing dramatically. These could always try to improve their stakes by claiming unfair market practices and intentional squeezing from the market. One more concern is pharmacies enjoying dominant position on local markets. In some regions, local chains do control over 35% of the market which makes them the usual suspects for any market abuse enquiries and investigations. Expectedly, their promotional services would be closely scrutinized by the AMCU. Arguably, the main reason for such scrutiny would be the better legal position for any actions on the part of the regulator which has broader powers vis-àvis market monopolists. In response to what was widely perceived as the growing unpredictability of AMCU policies, the market has been developing its risk minimization strategies. The two most popular structures for camouflaging marketing services agreements are (a) contracting with private entrepreneurs instead of pharmacy chains and (b) hiding volume-based bonuses behind payments for other marketing services. In the case of private entrepreneurs, tax risks might outweigh antimonopoly ones. In order to minimize any challenges regarding the the validity of such agreements (as sham transactions), private entrepreneurs should have proven links to the respective pharmacy chains. Ideally, they should have their own marketing services agreements with pharmacy chains. www.ukrainianlawfirms.com

Substituting accrued payments for marketing services for volumebased bonuses is far from transparent and straightforward. Differences in performance of various contracted pharmacy chains usually lead to unexplainable gaps in payments for the marketing services which, on the face of it, should have been provided by all of the pharmacy chains equally. A good example of such discrepancies would be a different number of monthly visits to pharmacies or unequal payment for placement of medicines on the shelves of individual pharmacies. Finally, it appears self-evident that the terms of marketing services agreements offered by each of the producers or pharmacies should be the same for all of their business partners. Any digression, from such terms which is hardly advisable, should be justified and reasonable.

Tax Curse of Credit Notes

Credit notes have long become an instrument of choice for transfer of various financial incentives from pharmaceutical producers to the distributing companies and on to the pharmacy chains. The tool is commonly used to finance promotion and marketing campaigns. Of late, credit notes have come under increasing scrutiny by the Ukrainian tax authorities due to the different VAT tax rates applicable to the sale of medicines and the marketing of pharmaceuticals. At the end of 2012, the Ukrainian tax authorities issued a letter warning the pharm market of the tax consequences of using various motivation payments under supply agreements to pay for marketing services. They claimed that such payments attracted Ukrainian VAT at the rate applicable to marketing services. The fiscal authorities did not provide any guidance on which payments were at risk. However, the warning prompted the market to reconsider the benefits offered under supply agreements, including discounts. In effect, all the discounts fell under two groups — those related to the actual shipments of goods and those used to pay for any extras. The latter included, inter alia, payments for provision of information, marketing services and promotion activities. The first group was covered by the then existing VAT exemption for sales of pharmaceuti-

OMP Address: 9 Tarasivska Street, 4th Floor, Kiev, 01033, Ukraine Tel.: +380 44 391 3001 Fax: +380 44 391 3002 E-mail: office@omp.ua Web-site: www.omp.ua

L

aw Offices of OMP is well known on the CIS legal market and as the most dynamic full service Law Firm on the Ukrainian legal market with particular industry focus in a pharm business, agriculture, construction and development. The firm’s practices also include the following fields: M&A, corporate law, taxation tax audit securities, dispute resolution — litigation and arbitration, etc.

cals, while the second was at risk of being taxed at 20% as payment for (marketing) services. (Since then, the sales of medicines became subject to the 7% VAT tax rate, which is still lower than the full 20% rate applicable to marketing services, hence the unflagging attention of the tax authorities.) On 29 October 2015, the Ukrainian tax authorities reconfirmed their position on the taxation of motivation payments under supply agreements. This time, however, they went even further. Tax collectors professed their intention to treat as payment for marketing services any bonuses paid to buyers for reaching targeted volumes of sales. This position, of course, is more than questionable under Ukrainian tax law. It is highly doubtful that such an interpretation would be upheld by Ukrainian courts, which are becoming increasingly critical of the Ukrainian tax authorities and their policies of tax extortion. The provision of incentives, in particular, discounts, for buying more goods is at the core of any trade. It is almost universal for supply agreements. Although it might be used in the marketing of supplied goods, of itself it is not linked to any marketing services, in any of their common definitions. In the absence of any extra services covered by such bonuses it is difficult to see how such incentives may be treated as compensation for marketing services. In order to minimize the risk of any subsequent tax-reassessment of discounts (credit notes), both parties to the supply agreements should be explicit in their description of the purpose of such discounts. Care should be taken to link them expressly to the sale of goods if this is the intention of the parties. As a practical matter, discounts provided for advance payments or achievement of targeted volumes of sales have not to date been formally challenged by the Ukrainian tax authorities. Care should also be taken with the discounts provided on separate batches of supplied pharmaceuticals. These can give rise to the tax authorities questioning the price of such medicines used as the basis for the payment VAT for their importation into Ukraine. As a practical matter, it is less risky to spread such discounts evenly across all supplies and sales in a year.

129


Private Clients/Wealth Management

Wealth Management in Ukraine: Overview of Private Banking Nickolas Likhachov Counsel, Spenser & Kauffmann

C

ompared to the West and global business, the development of Ukrainian business started only relatively recently and coincided in part with the collapse of the Soviet Union and the independence of Ukraine in 1991. In this regard, we can conclude that today’s generation of entrepreneurs is rather young and not always familiar with modern wealth management mechanisms. Private Ukrainian business is 20 years young. Accordingly, the vast majority of Ukrainian businessmen were trying, within these first years of their business development, to create wealth rather than to structure and manage their wealth and succession. This situation led to the point where Ukrainian business was not ready for the negative impacts of financial, political and economic crises, which have happened over the last decade in the country. In 2015 more than 60 banks became insolvent and the national currency (Hryvnia) depreciated by more than 300%. As a result, Ukrainian people do not trust banks, and the banking system as a whole. The high level of corruption, distrust of public authorities and banking institutions, absence of effective regulatory framework for the protection of private wealth lead to a lack of development in the economic sector, to the brain drain, to the fact that the majority of entrepreneurs and affluent individuals in Ukraine prefer to use the services of foreign financial institutions, to the reluctance and fear of investors to invest funds in the development of Ukraine and Ukrainian business. Private banking services began to develop in Ukraine relatively recently. One of the key problems of this kind of service in

130

www.ukrainianlawfirms.com

“Global Private wealth to reach an estimated USD 198.2 TRN by the end of 2018” Private Banker International. Ukraine is the very big difference between people’s income level. Accordingly, an imbalance occurs in the private banking customer segmentation. It should also be noted that in connection with the above-mentioned problem of distrust in the banking system, clients in Ukraine have usually resorted to the option of so-called diversification of risks. In this particular case the diversification of risk refers to the reduction in the risk of loss in the event of a recession that engulfed only one company or one sector of the economy. The Ukrainian market is very different from what is commonly understood as a classic private banking services industry and wealth management. A different level of product offering exists in Ukraine. In addition, we must understand that there are onshore and offshore solutions. Trying to avoid the rather high level of taxes in Ukraine, local and foreign business owners tend to build cross-border corporate structures. Ukraine has double taxation treaties with more than 70 countries. However, the most preferable jurisdictions for Ukrainian business are the Netherlands and Cyprus. The classical model of wealth management — relations with customers — shows that in this respect Ukrainian private banking differs very little from European ideology. At the end of 2012, one of the Big Four auditors conducted a study of the market for private banking and wealth management. In their research they noted that about half of all affluent people in Ukraine receive private banking services in Ukrainian banks; the majority of the banks determines the minimum annual income of a private banking client at USD 120,000; according to the participants of the research, the five leaders in private banking services in Ukraine are: Privatbank, UkrSibBank, Alfa-Bank, OTP and Raiffeisen Aval. According to the latest research I can identify the following major private banking services in Ukraine: investment portfolio, venture funds, offshore jurisdictions, interbank currency exchange, working with precious metals, investment in objects of art

and luxury items, investment consulting and client asset management, deposits, financial planning and other services. When it comes to private banking clients, two basic segments have been formed to date. The first segment is wealthy individuals, usually top managers or owners of medium-sized businesses, who prefer mass affluent products, VIP-services and who provide funds in trust. Their main goal is to accumulate and to increase their capital. The second segment is high net worth individuals who possess a significant amount of capital that requires the development of a personal investment strategy and portfolio management, a more sophisticated approach to portfolio diversification. Typically, this group is made up of the owners of large businesses and apart from saving their capital they have a goal — succession. Inheritance rights are governed by Book Six of the Civil Code of Ukraine. According to Article 1216, succession is the passing of rights and obligations (inheritance) from an individual who passed away (the testator) to other persons (the heirs). There are two types of succession in Ukraine — based on a will (testamentary succession) or according to law (legal succession). Inheritance shall include all rights and obligations of the testator as of the moment of opening of inheritance that did not terminate in consequence of the testator’s death. One of the main requirements of a client of a private banking service is the need to prove their origin of funds. This process is regulated by the On Prevention and Counteraction to Legalization (Laundering) of the Proceeds from Criminal Activity or from Terrorist Financing Act of Ukraine and by the Criminal Code of Ukraine. This Act shall protect the rights and legitimate interests of citizens, society and state by means of determination of the legal mechanism for prevention and counteractions to legalization (laundering) of the proceeds from crime or terrorist financing as well as ensure development of national, multisource analyst information providing Ukrainian and foreign lawenforcement agencies to detect, verify and


PROfile investigate offences related to money laundering and other illegal financial transactions. According to Article 4 of the Act, legalization (laundering) of the proceeds of crime shall cover any acts related to the proceeds (property) received (obtained) from commiting crime, directed to conceal the origin of such proceeds (property) or assistance to the person who is the associate in crime that is the origin of such proceeds (property). In accordance with Article 209 of the Criminal Code, effecting financial transactions and other deals involving money or other property known to be proceeds from socially dangerous criminal offenses prior to legalization of incomes, and committing of acts aimed at covering up the illegal origin of such money or other property or their ownership, the rights to such money or property, their origin, location, transfer, as well as obtaining, holding or use of money or other property known to be proceeds from socially dangerous criminal offenses prior to legalization of incomes, is a criminal offence under Ukrainian legislation, which provides for criminal liability and a prison sentence. As of 2012 I worked for more than three years as Chief Legal Counsel for a commercial bank in Ukraine, which managed to develop and raise the level of private banking services higher compared to competing banks. They key was trying to find an individual approach to every client. When a person first comes to the bank, you do not just tell him about your capabilities, but also try to explore in detail investment tastes and preferences, you arrange for a scope of non-banking services that the potential client may be interested in. The aim is to make them comfortable with you and bring your bank to a “superior one-stop-shop”, rather than to a “just a good bank”. In general terms there are two main types of clients. For example, if the client is the owner of an operating

www.ukrainianlawfirms.com

business or top manager, the issue of earnings is not the most important issue for him/her. It is more significant for them to retain their savings and to have a person who would professionally deals with financial issues. The second type are people that are close to retirement age or already retired, who have a certain amount of funds and who want to earn more but, at the same time, are afraid of losing their savings. So it is necessary to develop a completely different, more averaged strategy. Also, there are clients who deliberately want to go for risk. Therefore, it is important that a particular solution must be chosen for each client, depending on their needs and wishes. The development of Ukrainian business requires the introduction of corporate governance and private wealth management structures. There is a growing need to introduce these structures at the owner level. The age of first-generation entrepreneurs is also pushing them to look into restructuring their businesses to secure their family interests for years to come. Ukraine still has a hard and long way to go before the implementation of a taxation system and legislative norms in the business sector and wealth management, compatible to European and international standards. Lots of reforms in different sectors and in particular in the area of tax law and financial area are still required to modify and polish these systems in Ukraine and to attract more customers to our banks, prove to Ukrainian users of private banking services that our financial institutions can provide services at a level that is not inferior to international level and to restore confidence in public institutions and banks and the overall level of the Ukrainian economy. The first steps have been already taken and it is possible to see positive results. It is our sincere hope is that Ukraine will continue to move in the right direction.

Spenser & Kauffmann Address: 7 Klovskiy Lane, 14th Floor, Kiev, 01021, Ukraine Tel.: +380 44 288 8383, 288 6707 Fax: +380 44 351 2155 E-mail: office@sklaw.com.ua Web-site: www.sklaw.com.ua

S

penser & Kauffmann is one of Ukraine’s leading full-service law firms. Since it was founded in 2006, Spenser & Kauffmann has been aiming to provide its clients with the highest standards of legal advice and exemplary service. The firm represents our clients in all areas of business law, including mergers and acquisitions, corporate, commercial, antitrust, competition, and insurance law, as well as banking and finance, real estate and litigation. Over 30 team of talented, ambitious, driven and professional legal advisors provide insight for clients into their legal projects. Our people speak Ukrainian, Russian, English and French, which enables us to understand and communicate with domestic and international clients without any psychological or language barriers.

131


Private Equity

Private Equity Financing in Ukraine Oleksander Plotnikov Partner, Arzinger

D

ue to the current political and economic situation in Ukraine foreign investors are quite reluctant to invest in Ukrainian business, as evidenced by the decline in the level of foreign investment. At the same time, the Government has announced “big privatization” of stateowned banks and enterprises in the near future. And, with a view to prospects for the Ukrainian economy, these plans may be very attractive for international business and could restore the interest of foreign investors in Ukraine. It is evident that Ukraine has made a final choice towards the European Union and aims to meet the expectations of foreign partners. Though the speed and efficiency of declared reforms are not largely satisfactory, it would be fair enough to say that there is clear positive dynamic in changes within the country. And in some sectors of public

life the reforms that have been implemented have already proved to be quite successful. In order to achieve substantial growth and further development on the international market in the current turbulent environment, Ukrainian business requires significant modernization of production facilities, development of a transparent corporate structure and introduction of international management standards. This requires sufficient financing and the involvement of the relevant experts to ensure proper implementation of all plans. While banks are improving their liquidity and getting rid of distressed assets, private investment funds may become an extremely useful partner for Ukrainian business due to their ability to provide both financial resources and profound expertise in a particular business. Positive local examples show that cooperation with leading private equity funds may give an impressive impulse to a company’s development not only because of financing but by bringing unique know-how, a broad view and new contacts for business. At the same time, Ukraine is quite a complicated jurisdiction for foreign investors, and has a number of features which anyone should be aware of prior to arriving in the country for doing business, just to be ready for certain difficulties. When talking about relations with potential Ukrainian business partners, the following risks should be outlined: — false financial statements;

— division of the business into several legally unrelated parts (real estate, production facilities, operations, trade); — use of SPVs in various jurisdictions for tax optimization; — financing of non-core businesses by funds raised for the core business. I am not saying that all these features are relevant to all or the majority of Ukrainian companies. However, notable recent cases connected with insolvency of big Ukrainian companies show that, unfortunately, famous brands and the previous reputation of shareholders do not guarantee clean conduct of business and fair relations with business partners and creditors. The formula for minimizing possible risks is well known, though it’s sometimes ignored in practice. A potential target must be examined thoroughly by experts before any deal is concluded and further permanent control should be established. It should include: — studying the target’s corporate structure and restructuring, if necessary, before concluding the deal; — conducting an independent audit; — appointing an independent financial supervisor and implementing an efficient management reporting system; — establishing good relations with midlevel management; — establishing close relations with banks that finance the business. It is fair to note that most representatives of local business are quite resistant to

Showcase Your Market Standing www.ukrainianlawfirms.com

132

www.ukrainianlawfirms.com


PROfile external influence and reluctant to share business with investors on a pari passu basis. And this may cause a problem, since Ukrainian realities require thorough control over business and investments to protect them. Unfortunately, save for some exceptions, the culture of communication with investors and reporting to them remains at a very low level. The specifics of the Ukrainian market require permanent presence of a local team on the ground. As follows from the experience of investment funds operating in Ukraine, the presence of a professional local team and deep industry expertise is a prerequisite for successful work in Ukraine. Another factor that complicates the work of investment funds in Ukraine is imperfect legislation that does not adequately protect the rights of investors and creditors. In this respect, a team of qualified lawyers is a must for anyone considering any business activity in Ukraine. In addition, in order to compensate loopholes in local legislation, relations with Ukrainian business partners should be formalized through foreign jurisdictions based on contracts governed by foreign law (English law in most cases). As practice shows, the existence of agreements with direct beneficiaries of the business considerably reduces the risk of fraud on their side, or at least allows investors to effectively protect their rights. The main purpose of such agreements is to obtain rights of direct claims against beneficiary owners of the business and their assets in the event of any conflict. This may be a heavy argu-

www.ukrainianlawfirms.com

ment in resolving any conflict situations with local business partners. Apart from capital contributions, private equity funds sometimes provide financing to Ukrainian companies or offshore SPVs in the form of loans. As already mentioned above, equity relations should be governed by English law and, as a rule, require execution of Shareholders Agreement, Put Option Agreement, etc. With regard to securing repayment of loans, it should be taken into account that Ukrainian currency control regulations are quite tough and significantly narrow the possible ways to recover loans. Furthermore, in order to have an adequate picture in case of the borrower’s default, it is absolutely necessary to proceed from the practical possibility of efficient enforcement of various security instruments. Unfortunately, most of the security instruments commonly used in international business do not provide efficient protection to a foreign lender in Ukraine. For example, such agreements as pledge of receivables, pledge of rights to bank accounts, pledge of rights under various commercial contracts prove to be useless in case of default. I must admit that quite often a situation transpires where a creditor has around ten security agreements, none of which can be used to recover at least part of the disbursed funds. This situation brings us back to the thesis that a skilled and experienced local team supported by experienced local experts (lawyers, auditors etc.) is essential for successful operation of private equity funds in Ukraine.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

133


Privatization

Privatization Denis Lysenko Managing Partner, AEQUO

process slowed down significantly, due mainly to drawbacks in applicable privatization regulations, stagnation of the investment activity and political instability — all exacerbated by the country’s permeating corruption.

Recent Ukrainian Legislation Amendments

Oksana Krasnokutskaya Senior Associate, AEQUO

Aimed at remedying a number of drawbacks in applicable privatization regulations and bringing them into line with current Ukrainian macroeconomic and political reality, the On Amending Certain Legislative Acts of Ukraine Regarding Improvement of Privatization Process Act of Ukraine (On Privatization Process Improvement Act) was adopted by the Ukrainian Parliament, came into effect on 6 March 2016 and provided for several noticeable changes in the privatization procedure as outlined below.

“No” to Aggressor — Ban on Investments Originating from the RF Yaroslav Lepko Associate, AEQUO

O

f around 3,500 state-owned enterprises that exist in Ukraine, only a few are profitable. It is widely accepted that privaterun companies are potentially more efficient than those operated by the state. There are multiple reasons for this: historically inflated headcount, excessively bureaucratic and inefficient decision-making and loopholes for corrupt officials, to name just a few. It is hard to argue that certain sectors and enterprises should remain state-owned due to their strategic significance for Ukraine, but certainly there is no need to keep thousands of smaller, outdated enterprises on the state’s balance sheet without a good economic reason. This Ukrainian government was not the last to realize it, and there were numerous attempts in the past to boost privatization of state-owned enterprises, including those having strategic significance for the state. However, over the latest few years the privatization

134

www.ukrainianlawfirms.com

The On Privatization Process Improvement Act bars representatives of aggressor states from partaking in privatization of the Ukrainian state-owned enterprises. The Ukrainian Parliament may declare a certain state engaged in hostile activities against Ukraine to be an “aggressor state”. As of 2016, there is only one state on this list, namely the Russian Federation. It means that (1) Russian citizens and companies, (2) other entities controlled either directly or indirectly by Russian companies or individuals, and/or (3) their affiliates, are not allowed to act as purchasers in Ukraine’s privatization process. National security-related reasons for such prohibitive measures are obvious and sound, but it remains to be seen whether the competent Ukrainian authorities (including the State Property Fund of Ukraine, Antimonopoly Committee of Ukraine and others involved) will have all the necessary tools to ensure in practice effective compliance with such prohibition by any potential bidders. Monitoring and ensuring such compliance might become even more complicated in view of any post-privatization transfers of respective targets/assets at a secondary market.

“No” to Pre-Privatization Sales — Preventing Oligarchs from Getting their Feet in the Door

The purchase price is not the last issue to deal with when conducting privatization of an asset. Oftentimes it is really difficult to

get an objective market valuation for such an asset. For this reason, Ukrainian legislation has historically provided for mandatory sale of 5-10% of shares of a state-owned company at a local stock exchange prior to the main privatization tender. However, such a system proved to be ineffective — primarily, due to the underdevelopment of Ukraine’s domestic stock market. As a result, such pre-privatization sales often decreased the actual purchase price instead of establishing a true market valuation and/or allowed dishonest investors (often — local oligarchs or thuggish middle men-type politicians) to get their feet in the door of any future privatization opportunities. So the On Privatization Process Improvement Act abandoned this controversial requirement. Now the value of the asset shall be determined exclusively by independent appraisers to be appointed in each particular case. They are in turn expected to be selected and managed by independent ‘lead managers’, as described further below.

“Yes” to Lead Managers — Professional Advisors now Welcome on SellSide Too

The On Privatization Process Improvement Act introduces the concept of privatization lead managers — third party professionals responsible for the sale of state assets in an efficient, timely manner, acting with the aim of maximizing profit for the state. Such lead managers are expected to be chosen for each asset to be sold, and their duties would include managing due diligence process, improving the investment attractiveness of an asset, searching for investors, contacting potential bidders that may have little knowledge of Ukraine, and supporting the Ukrainian state in preparing the tender documentation and the sale process. The idea of this amendment is to provide state authorities with an independent source of advice and support in the course of the privatization procedure. The initiative will be sponsored by the state and/or international organizations.

Large Scale Privatization Looming — 2016

The State Property Fund of Ukraine (SPF) approved the list of state-owned enterprises to be sold in the course of privatization in 2016 by adopting the Order On Approval of the List of Objects of Groups B and G to be Privatized in 2016 as of 30 December 2015 No. 2064 (2016 SPF Privatization Order).


PROfile The 2016 SPF Privatization Order enlists almost 90 state-owned enterprises to be sold this year, with the state’s stake offered for sale varying from 0.004% to 100%. No doubt, there are attractive assets inserted in the 2016 SPF Privatization Order, which would include entities in the energy and chemicals sectors, as well as port infrastructure. A few examples include regional energy generation companies in Kherson, Mykolayiv, Odessa, Dniprodzerzhynsk and electricity distribution companies in Kharkov, Khmelnytsky, Mykolayiv, Zaporizhzhya. However, there are two noticeable leaders expected to be the most attractive for strategic investors, namely Centrenergo and Odessa Port Plant.

Centrenergo

Centrenergo is Ukraine’s 2nd largest thermal power generator, currently 80% owned by the state. Centrenergo’s structure consists of three thermal power plants, namely Vuglegirska TPP (Donetsk Region, close to Eastern Ukraine’s anti-terrorist operations (ATO) zone), Zmiivska TPP (Kharkov Region) and Trypilska TPP (Kiev Region) whose total design capacity reaches 7600 MW, equal to ca. 14% of the total capacity of Ukrainian power plants. Centrenergo’s headcount is around 8,000 employees. According to the data of the Ukrainian stock exchange as of 22 February 2016, capitalization of Centrenergo was about UAH 1.66 billion. The main activities of Centrenergo are electric power production, thermal energy production, transportation of thermal energy via the main and local (distributing) thermal networks and the supply of electric power as per an unregulated tariff. This potentially interesting privatization target is nevertheless still plagued by several risks, including those related to physical security (Vuglegirska TPP), huge upgrade capital expenditures needs and lack of ultimate clarity with tariff trends in Ukraine’s still under-reformed energy market, all of which would require an extremely solid and proactive strategic investor to become fully engaged with Ukraine’s competent authorities both at the tender and post-privatization phases to attain a successful commercial outcome.

www.ukrainianlawfirms.com

Odessa Port Plant

The Odessa Portside Plant (OPP) is Ukraine’s major chemical company, producing 17% of ammonia nitrate and 19% of urea in the country, at the same time operating the country’s exclusive marine chemicals transshipment terminal. OPP’s production facilities consist of two ammonia production units with a design capacity of 450,000 MT/ year each, two urea production units with a design capacity of 330,000 MT/ year each, an ammonia transshipment terminal with a capacity of 4,300,000 MT/year having storage facilities for 120,000 MT, urea transshipment terminal with a capacity of 5,000,000 MT/ year, having storage facilities for 80,000 MT and other production, repair units. According to public information, the starting price of the Odessa Port Plant is expected to be set by the government to be at least USD 500 million. While this is not the first attempt to privatize OPP (previous ones having failed largely for political reasons), the current privatization auction is sought to be more transparent and commercially-driven, as Ukraine remains in dire need of foreign capital and is subject to close scrutiny by the IMF and the EU in the privatization process.

Way Forward — Key Expectations

Assuming a consolidated position between the Ukrainian government and Parliament on privatization plans for 2016, key expectations from largescale privatization would be achieved and privatization would be successful if the following conditions are met: — the tenders are transparent, open to foreign investors with minimum prequalification criteria for potential bidders which would minimize possibilities for manipulations in the course of the privatization process; — professional financial advisors will be actively enlisted by the SPF in the privatization procedure, so that the respective amendments are not merely declaratory; — the tender committees are formed independently, and there will be no direct or indirect interference; — privatization should not be motivated solely by a rapid cash inflow to the state budget, and in case any preparatory actions are required to increase the starting price of the privatization target such measures shall be taken.

AEQUO Address: Vector Business Centre, 52 Bohdana Khmelnytskogo Street, Kiev, 01030, Ukraine Tel.: +380 44 490 9100, 233 6599 Fax: +380 44 490 9102, 233 7769 E-mail: office@aequo.com.ua Web-site: www.aequo.com.ua

A

EQUO is an advanced industry-focused Ukrainian law firm made up of highlyqualified, internationally recommended lawyers who work proactively to help their clients reach their business goals and generate commercial advantages. Backed up by solid industry expertise and a thorough understanding of business, we develop innovative strategies and provide efficient solutions to the most complex and challenging matters. Today, AEQUO is the legal advisor of choice for many of the largest Ukrainian and multinational companies and financial institutions, including Fortune 500 entities, and leaders in their respective sectors. The list of AEQUO’s representative clients includes Agroprosperis, Alfa Bank, Allianz, Apax Partners, Apollo Global Management, AXA, ATB Market, British American Tobacco Prilucky, Bunge, BXR Partners, Citadele Banka, Discovery Networks, Dr. Reddy’s Laboratories, Dragon Capital, DuPont, Epicenter K, European Bank for Reconstruction and Development, European Commission, FESCO, Forbes, GlaxoSmithKline, Google, Groupe Danone, Inditex Group, Mosquito Mobile, MTS Ukraine, NCH Capital, Nova Poshta International, Novus Ukraine, Philips, Pioneer Hi-Bred International, Porsche Bank AG, Portigon AG, Premium Sound Solutions, Samsung Electronics, Sandvik, Sonae, Soros Fund Management, Syniverse, Synthon, Tetra Laval, Thomson Reuters, TIS, Ukrainian Redevelopment Fund, UniCredit Group, VimpelCom and Zara Ukraine. AEQUO is recognized by international and local legal directories, such as Chambers, Legal 500, IFLR1000, World Trademark Review 1000, and Best Lawyers. The firm is shortlisted for Chambers Europe Awards for Excellence 2016, The Lawyer European Awards 2016, Financial Times Innovative Lawyers Awards 2015 in Europe. Areas of practice: Antitrust and Competition, Banking and Finance, Capital Markets, Corporate and Commercial, Dispute Resolution, Government Relations, Insolvency and Restructuring, Intellectual Property, International Trade, Labor and Employment, Mergers and Acquisitions, Real Estate and Construction, Tax and Customs. Membership: International Association for the Protection of Intellectual Property (AIPPI), International Bar Association (IBA), International Trademark Association (INTA), European Business Association (EBA).

135


Property Rights

Protecting Property Rights in Ukraine: New Challenges to Deal With Anna Sisetska Counsel, Vasil Kisil & Partners

T

here is no doubt that the issue of ownership right is not only an essential attribute of a rule-of-law state, but also one of the key indicators of a country’s investment attractiveness, the predictability of business and investment protection. In the absence of a transparent system of title registration, relevant guarantees, protection mechanisms, an independent judiciary system and an effective system of enforcing court decisions, we cannot even begin to talk about any sort of qualitative or competitive business development.

Guarantees for the Steadiness of Ownership Rights

The Constitution of Ukraine, whose provisions have direct effect and other regulations as a whole guarantee the inviolability of ownership rights. Ukraine recognizes the equality of all forms of ownership and all owners before the law. The law governing relations in this sphere is characterized by some restrained dynamics. Proposals to strengthen the guarantees of the rights of owners and to improve the mechanisms for protecting ownership rights in Ukraine are regularly submitted for consideration. One of the most iconic legislative changes over the last few years has been the reform of the registration system of real property rights. Starting on 1 January 2013, Ukraine introduced a new title registration system, which is generally consistent with European tradition. All of the rights and encumbrances on land, together with the rights to buildings located on it, are recorded in one register. Last year,

136

www.ukrainianlawfirms.com

Ukraine also opened the register allowing everyone to learn about property rights to real estate. Moreover, a Draft is now being considered which, if passed by Parliament, will make all data included in the public registers with regard to real estate, vehicles and land plots available in accordance with search criteria associated not only with property, but also with a person. According to Ukrainian law, no-one can be unlawfully deprived of the right to ownership or restricted in the exercise of such right.

Lawful Expropriation

However, Ukrainian law as much as the law of any other European country, allows individuals to be deprived of their ownership, but only in cases and in the manner prescribed by the law. In particular, this refers to: (1) termination of the right to property, which by law cannot belong to the person concerned; (2) buy-out of cultural heritage in order to prevent its damage or destruction; (3) buy-out of land and property located on it, for public needs; (4)  expropriation of land and property located on it for reasons of public necessity; (5) foreclosure on the property to fulfill the owner’s obligations; (6) seizure of the property in the public interest in the event of extraordinary circumstances, including natural disasters, accidents, epidemics, epizootics, etc.; (7) confiscation as a sanction for any offense committed. Practical application of the above tools has its own specifics in Ukraine and is often associated with certain difficulties, both legal and technical. Below we consider only some of them. Forced expropriation can only be implemented by a court and, except for confiscation, with full compensation to the owner for the value of the expropriated property. In some cases, such as buy-out of land and real property located on it, for public purposes, an option of compensation in nonmonetary form is allowed, by providing the owner with another piece of property. In the first case, inevitable difficulties are associated with determining the amount of compensation. In the second case, there are significant problems with defining an equiv-

alent property item to be provided to the owner of the expropriated one. Where the buy-out price is determined by the authority that would carry out the buy-out or by the court that would decide on the expropriation, there is enough room for abuse in the absence of statutory criteria for determining the price in each case and the equivalence of expropriated property which would properly observe the market value of the assets. Also, the lack of specifics in defining the circumstances that determine public needs and public necessity often also contributes to abuse. Moreover, it is often forgotten that expropriation should only take place when the use of the property without termination of ownership is not possible. At the same time, the law does not provide for liability in case of future use of the property expropriated for public needs or for reasons of public necessity for other purposes, which undoubtedly increases the risk of raids by both the state and by individuals using state authority as a tool to further establish control over other people’s property. We should also pay closer attention to legally undefined requisition and, moreover, nationalization. There is no legislative act governing the procedure for nationalization in the interests of public order, which in connection with the situation in Crimea and in Eastern Ukraine is a hot topic for Ukraine. Although there is much talk and even legislative initiatives associated with the nationalization of property, for reasons of public necessity, which belongs to the Russian Federation as the country carrying out military aggression against Ukraine, it would still be hardly implemented considering the currently effective prohibition on the nationalization of foreign investments and the guarantees provided by international treaties, to which Ukraine is party. Obviously, this issue has no simple solution and requires many legal, political and organizational things to be carried out, unless Ukraine wants to have the reputation of a state that violates local and international law like the Russian Federation does in it of the nationalization performed by them with regard to the Crimeanbased enterprises belonging to Ukraine and Ukrainian businessmen.


PROfile Special Confiscation

On 28 February 2016 a completely new legal instrument was introduced into the Ukrainian legal framework. It refers to so-called “special confiscation”. Without going deeply into legal peculiarities, this basically means that any property of any person, even of someone who is not involved in a criminal investigation, can be confiscated in accordance with a court decision, if it is proved that such property has been acquired from a criminal suspect, criminal defendant or any other party, and such person has or should have known that the acquired property has a relation to an intentional crime. Until the respective court decision is issued, the seizure can be applied by the law-enforcement authorities if there is any vague apprehension that the mentioned property could be subject to such special confiscation. It is too early to comment on how this mechanism actually works, as it has not been applied in practice so far. However, there are serious concerns as to whether this instrument would not lead to violation of the property rights of bona fide owners.

Expropriation de Facto

In addition to the above grounds for forced termination of ownership rights, we should also mention cases of de facto expropriation. Instruments used in such cases are not included in the list of grounds for deprivation of ownership right, despite the fact that they generally meet the formal requirements of the laws of Ukraine. So-called re-privatization and judicial processes are the two most evident forced expropriation instruments. Thus, Ukraine is still undergoing the process of privatization of state property. After each parliamentary or presidential election the law-enforcement agencies, and sometimes directly privatization authorities, immediately initiate a multitude of litigation cases in order to invalidate certain previously conducted privatizations due to the lack of compliance with a privatization plan, violation of any investment obligations, violation of the privatization tender and its result, etc. The lack of legal regulation of the privatization itself, competition, inconsistency in laws, legal uncertainty of the re-privatization process and lack of legislative guarantees of investors’ rights, as well as a selective approach to the use www.ukrainianlawfirms.com

of property that becomes the target of re-privatization, practical problems of restitution and compensation for previously made investments, and the lack of accountability of civil servants related to illegal privatizations are all factors that negatively affect the position of investors and negate the basic guarantees provided by ownership rights. Also, cases of expropriation using judicial tools and mechanisms are frequent. Property owners often face those problems inherent in the Ukrainian judicial system as a whole, like bias, lack of transparency, inadequate procedural rules, the duration of court disputes, etc. Sometimes the courts are used in a chain of illegal schemes aimed at denying or depriving someone of the right of ownership. In the last decade, there were a significant number of claims for deprivation of ownership rights by invalidating title documents or cancelling the state registration of rights on frivolous or purely formal grounds. In addition, inadequate procedural law often contributes to problems with the definition of jurisdiction in disputes involving ownership, which unduly restricts owners from pursuing the timely and effective opportunities to protect their ownership rights.

***

We should admit that, despite some positive reforms, the instruments in place to guarantee and protect ownership rights in Ukraine are still far from perfect. Ukraine faces a number of acute practical challenges associated with the implementation of ownership rights and their protection, which cause the need for serious legislative work. In general, this situation is typical for a developing country but resolving it is undoubtedly crucial to achieving qualitative transformation in Ukrainian society. Immediate action is required in order to establish effective and transparent mechanisms for the protection of ownership rights and equality before the law of all owners. We need to reform the judicial system and the executive (bailiff) services. Privacy and protection of property should be in deed and not in name as one of the main functions of the Ukrainian state, as protecting economic relations as the foundation of any social system is the most important task of any legal system and a prerequisite for increasing the attractiveness of Ukraine for foreign investors.

Vasil Kisil & Partners Address: Leonardo Business Centre, 17/52-A Bohdan Khmelnytsky Street, Kiev, 01030, Ukraine Tel.: + 380 44 581 7777 Fax: + 380 44 581 7770 E-mail: vkp@vkp.ua Web-site: www.vkp.ua

V

asil Kisil & Partners is a leading independent multi-disciplinary Ukrainian law firm with thriving international and national practices. We work as a trusted adviser on high-profile local and international matters and cater to large domestic and global corporate clients, including many Fortune 500 companies. In Ukraine, the Vasil Kisil & Partners brand is synonymous with great depth and breadth of legal expertise and experience, which has created superior value for our clients since 1992. Vasil Kisil & Partners is a Ukrainian law firm that delivers sophisticated legal advice in banking & finance, mergers & acquisitions, capital markets, business & commercial law, dispute resolution, tax law, energy and natural resources law, intellectual property law, international trade law, labor and employment law, real estate and construction law, as well as public private partnership, concessions and infrastructure law. We provide legal services international and domestic companies, as well as private individuals, dealing in banking and financial industry sectors, agriculture, chemical, construction, energy, hi-tech, general commodities, insurance, IT, media, metallurgy, pharmaceutical, real estate, shipbuilding, telecommunications, trading, transport, and other industries and economy sectors. The firm`s clients include such world-known companies as Air Liquide, Alfa Bank (Ukraine), Alpcot Agro, Ardagh, Arricano, Astellas Pharma, Bayer Consumer, BNP Paribas, British American Tobacco, Central European Media Enterprises, Coca Cola, Credit Agricole Group, Hubei Changyang Hongxin Industrial Group, Danone, Dell Inc., DuPont, EBRD, Ericsson, Energy Standard Group, Eurosport, Ferrexpo AG, Google, Hewlett-Packard, Inditex Group, LG Electronics, MTS, Moody’s, NCH Capital, Opel, Philips, Piraeus Bank, Red Bull, Samsung, Seven Hills, Shell, Shelton Petroleum, Sony Corp, St. Sophia Homes, Swedbank AB, Tchibo, Thomson Reuters, Ukrsibbank, UniCredit Group, Uniqa, Utair, Vanco International/ Vanco Energy, Volkswagen, YouTube, etc.

137


Real Estate

Developments in Ukrainian Real Estate Law in 2015 Bate C. Toms Managing Partner, B.C.Toms & Co. Legal education: Yale Law School (J.D., 1975); Magdalene College, Cambridge University (Law Tripos I; 1972-1973). Mr. Toms is admitted to legal practice in the District of Columbia and Virginia, USA, and in France.Chairman, British Ukrainian Chamber of Commerce

The Problem for Apartment and Shop Owners because of the Multi-Apartment Buildings Law (1) The Problem The most important change in law affecting real estate in 2015, that will likely harm most owners of residential apartment and non-residential premises in multi-apartment buildings in Ukraine, results from Act No. 417-VIII, of 14 May 2015, On the Peculiarities for the Realization of a Right to Property in a Multi-Apartment Buildings (hereinafter – the Multi-Apartment Buildings Act1). This Act will, effective from 1 July 2016, permanently deprive owners of apartment and non-residential premises in a building of all management control over the common parts of their building, and of the land underneath and adjacent pertaining to the building, property that they should instead jointly own and control. This is because the owners have until 1 July 2016 to register a condominium (commonly referred to as an OSBB) or make certain other arrangements for the management of their buildings. If they do not meet this deadline, then their buildings are to be managed by private mangers appointed by designated local government authorities under contracts that may, according to their terms, automatically be forever renewed, except as such contracts may be terminated, and the managers replaced, by the appointing local government authorities. The premises owners will not be involved in such decisions on management fees and other terms, services or termination, though by law these owners must pay these managers whatever fees the managers decide to charge. The author wishes to thank Kateryna Krakhmalova for her legal research on the Multi-Apartment Buildings Act for this article. The opinions expressed, however, are solely those of the author.

1

138

www.ukrainianlawfirms.com

As a practical matter, presently it can be hard to organise such OSBB’s and obtain their registration, or to complete other real estate management arrangements, before this 1 July 2016 deadline for many reasons, including because: (1) there may be legal issues and ambiguities in the ownership of some premises and the delineation of common areas and land, and (2) a number of legal acts that are required in principle for the Multi-Apartment Buildings Act to be implemented are not yet in place, in particular for the transfer of rights to the land underneath and adjacent that pertains to a building. While public tenders are supposed to be held to select the private managers that are to be appointed by the local government bodies, it is not clear how promises of various levels of service and prices by different bidders will actually be evaluated or verified by the local government bodies taking the decisions. There are also no clear standards provided for the implementation and supervision of these management contracts with the government appointed private property managers. It appears that in Kiev and many other locations, the ZHEKs, the state management bodies that now generally have reduced responsibility, are effectively being privatized in order to resume providing general management to the buildings they used to manage, but as private managers for much higher fees starting on 1 July 2016. This new government buildings management system, that will apply to all of those buildings that fail to meet the 1 July 2016 deadline, may also create a risk of corruption, as for such buildings the local officials involved will enter into contracts with private managers to agree terms for each building’s management, the fees for which will have to be paid by the owners of the building’s premises, although as noted, the owners will have no control over this cost or the quality of the services. If an owner fails to pay, then the privatized ZHEK can sue and enforce against the

non-paying owner and his or her premises, with the risk that the owner may be evicted and his or her premises may be forcibly sold to satisfy a judgments for unpaid fees2. In this context, it should be especially noted that, due to the poor services of many ZHEKs in the past, many buildings have accumulated serious problems that presently need expensive repair work. There is, therefore, a risk that the new government appointed building managers may quickly impose such capital repair costs on ordinary owners, many of whom, during the current economic situation, will not be able to easily bear such potentially large costs, which may push many individuals into personal financial difficulty. (2) Solutions The Multi-Apartment Buildings Act urgently needs to be amended by Parliament to delay the 1 July 2016 deadline for OSBB registration or other private management arrangements until at least 1 July 2017. In addition, the Multi-Apartment Buildings Act should be amended so that a majority of the owners of the premises of a building can at any time (1) cause the termination of a contract for the management of their building that has been concluded by a local government authority with a private manager, and (2) replace such terminated contract manager by creating an OSBB to take over the management or to provide for management by another entity that their OSBB or they authorize (all management contracts executed by a local government should expressly provide for this termination right). There is no valid reason why, after the 1 July 2016 deadline (or the later date that it is hopefully extended to), the premises owners should not be able to take over the management of their building and the common parts and land that they Currently, the local government bodies that have largely succeeded to the ZHEKs, and the ZHEKs, have the right to charge and collect fees for their services for buildings, but they do not enforce debts for unpaid fees in court proceedings, so there have been no evictions by such local government bodies of the owners of premises for failures to pay. The new On Multi-Apartment Buildings Act and the existing laws on OSBBs, combined with new legislation on the enforcement of court judgments, will revolutionized the situation, as the newly privatized ZHEKs and other private managers will be able to evict owners and sell premises to recover payment of the presumably high fees that owners will soon have to pay, the level of whose fees most owners will have no control over, as explained in this article.

2


PROfile jointly own if they are dissatisfied with the manager appointed by the local government authority, subject only to a reasonable notice period for transition to a new manager (except where new management is urgently required, for example, to deal with a serious water problem threatening the structure of the building or where the existing manager effectively ceases to function). In addition, the local government officials involved should be required to take into account the views of the owners of the premises affected, that they represent. There is currently no requirement, mechanism or even encouragement for this. Ukraine’s city and regional administrations should urgently adopt legal acts to provide for such involvement of the premises owners, while waiting for remedial parliamentary action, including to reassure their residents. If the owners of the premises of a building have the right to so dismiss, replace and influ-

www.ukrainianlawfirms.com

ence the government appointed manager, this by itself should encourage such mangers to provide better services and not to overcharge. The creation of such a termination right should also discourage any building manager from making improper payments to government officials in order to obtain or keep a management contract, since then any such local government appointed manager for a building could easily be later terminated by the premises owners if its services are unsatisfactory or its charges are unreasonably high. For most Ukrainian residents, their residential premises are their principal asset, so the management of their building’s common parts and related land, that they are supposed to co-own legally, is a vitally important issue for which regulation should be conducted in such a way that the owners can genuinely exercise their co-ownership rights and are not exposed to abuse.

B. C. Toms & Co Address: 18/1 Prorizna Street, Suite 1, Kiev, 01001, Ukraine Tel.: +380 44 490 6000, 278 1000 E-mail: kyiv@bctoms.net Web-site: www.bctoms.net

B.

C. Toms & Co is a multinational law firm of Ukrainian and Western lawyers specializing in Ukrainian law. It was the first Western law firm to open a Kiev office, having focused its practice on Ukraine at its independence in 1991. The firm has handled, for example, many of Ukraine’s largest residential real estate projects, land leasing for many of Ukraine’s largest agricultural and oil and gas projects, as well as acquisitions of land for commercial property developments. We also handled the legal work for the first, and the most, IPOs to raise funding for Ukrainian companies, and the first true project financing in Ukraine. Based on our over 25 years of experience in Ukraine, we can provide, with our legal advice, practical commercial advice on how to establish and develop a business in Ukraine. The firm has recruited and trained its Ukrainian lawyers from students at Ukraine’s leading law schools, most of whom have also studied at UK and US law schools as Chevening, Pinchuk, Fulbright and Muskie fellowships. Based on the firm’s practical experience, it has written numerous articles on Ukrainian law, including the legal section of the book Doing Business in Ukraine. The principal practice areas of B. C. Toms & Co include real estate and land development, energy, natural resources, agriculture, banking and finance, M&A, environmental, labor, bankruptcy and administrative law. The firm also has a successful litigation and arbitration practice, having successfully handled many of Ukraine’s most important cases, including in all Ukrainian courts and before the Permanent Court of Arbitration in The Hague. The firm regularly advises on Ukrainian tax law, including from a multinational tax planning perspective. B. C. Toms & Co has prepared a wide variety of documentation for clients, including Ukrainian law share purchase agreements, asset purchase agreements, joint venture agreements, construction contracts, project financing documentation, production sharing and oil and gas license agreements, airport investment and management agreements, hotel management agreements, private placement agreements, real estate acquisition agreements, loan agreements, leases and agency, distribution, franchise and licensing contracts.

139


Sanctions

Crimea-Related Sanctions Imposed by Ukraine Andriy Selyutin Attorney-at-law, Partner, Head of the SouthUkrainian Branch, Arzinger

T

he regime of national sanctions is a new legal institution for Ukraine. Unfortunately, the establishment of this legal category is related to the terrible times experienced by our country. The institution of national sanctions was the response of Ukraine to external aggression. Prior to such aggression Ukraine did not need it for different reasons, but some of them may be emphasized separately. First, Ukraine was a state with a multi-vector foreign policy. Second, the economic interests of Ukraine were in priority in contrast to political, so the imposition of sanctions against potential Ukrainian trading partners due to political reasons (in circumstances, where there was no external threats) was recognised as unreasonable. On 14 August 2014 the Verkhovna Rada of Ukraine enacted the Sanctions Act, which provided the legal framework for imposition of sanctions in response to external threats. According to Article 3 of the Sanctions Act, Ukraine may apply sanctions against individuals and legal entities in response to the actions of a foreign state, foreign legal entity or individual, or other parties creating imminent and/or potential threats to national interests, national security, sovereignty and the territorial integrity of Ukraine, supporting terrorist activities and/or violating human and civil rights and freedoms. Other grounds for imposing sanctions are resolutions of the United Nations General Assembly and Security Council, decisions and regulations of the Council of the European Union and facts of the violation of the Universal Declaration of Human Rights, the Charter of the United Nations. Lists of sanctioned persons and restrictive measures in respect of them may be proposed by the Cabinet of Ministers, Verkhovna

140

www.ukrainianlawfirms.com

Rada of Ukraine, the President of Ukraine and the Security Service of Ukraine. Those proposals shall be adopted by the National Security and Defence Council of Ukraine, enacted by a Presidential decree and approved by a resolution of the Ukrainian Parliament within 48 hours of the issue of the relevant Presidential decree. In accordance with the abovementioned procedure, on 12 August 2015 the Cabinet of Ministers of Ukraine provided the extended list of personal sanctions against individuals and legal entities that were directly or indirectly connected to the continuing armed aggression against Ukraine. On 22 September 2015 Ukraine imposed personal sanctions on a number of individuals and legal entities (mostly of Russian origin) associated with supporting the continuing violation of the national sovereignty and territorial integrity of Ukraine. Restrictive measures were introduced under the Presidential Decree of 16 September 2015 No.549/2015 On Decision of the National Security and Defense Council of Ukraine of 2 September 2015, On Application of Personal Special Economic and other Restrictive Measures (Sanctions). While the procedure of imposition of sanctions is not complex, it lacks transparency, since the state authorities are not obliged to provide evidence of activities against Ukraine by persons included in the list of persons under sanctions. In addition, there is no open procedure for consideration of potential persons for further application of sanctions against them. Setting aside minor procedural issues, the major problem is in the operation of sanctions after their imposition. Summing the data from the lists of persons under sanctions, it can be concluded that the following restrictive measures are most common type of imposed sanctions: assets freezing (temporary restriction of right of the entity to dispose of its property); avoidance of removal of funds outside Ukraine; stoppage of business and financial transactions; ban on participation in public procurement; ban on financing companies that are subject to sanctions. Sanctions against Russian transport companies may be noted separately. For instance, airlines that performed flights to Crimea after the peninsula received the status of a temporarily occupied territory were prohibited to fly to Ukraine and to perform transit passages through the air-

space of Ukraine. The situation is also clear with banking and financial measures. Thus, the Board of the National Bank of Ukraine in its Decree of 1 October 2015 No. 654 On Providing Implementation and Monitoring of Efficiency of Personal Special Economic and other Restrictive Measures (sanctions) clarified that in case the freezing assets measure is applied to a person then the funds may be entered in the bank account of such a person. However, a bank should reject any payment document of an account’s owner envisaging disposal of such funds. Also, payments to accounts of persons under sanctions to which the sanction of stoppage of financial transactions was applied must not be provided, banks are obliged to reject any payment documents envisaging payments to accounts of persons under sanctions. By way of summary, the Ministry of Infrastructure of Ukraine and the National Bank of Ukraine provided clear instructions on how to deal with the prohibition of transit and with financial sanctions. However, there are still a number of restrictive measures and in regard thereto it was totally unknown as to how private persons should act with persons under sanctions, and are they obliged to perform sanction clearance? The simple response to that question is ‘yes’, because it is in the interests of such private persons. For example, in case a counterparty of a foreign supplier was added to the list of persons under sanctions and is subject to a ban for business activities and financial transactions, it would be unable to pay for supplied goods. While there is a clear mechanism for dealing with persons under sanctions and prohibited transactions by banks, there are no instructions for other entities and institutions on compliance with imposed sanctions. As a result, an interesting practice was revealed in actions of the Ministry of Economic Development ad Trade of Ukraine. Without proper regulations on how to carry out the stoppage of business activities of a person under sanctions within Ukraine, the Ministry imposed a special sanction of temporary stoppage of business activities envisaged by Article 37 of the Foreign Economic Activity Act on legal entities with reference to government sanctions. It should be noted that in accordance with the aforementioned Act, special sanctions may only be applied in case of breaches of that Act or related laws. Thus, the Ministry of Economic Development


PROfile and Trade of Ukraine has no grounds to apply the special sanction solely on the ground of application of government sanctions against a person, if there was no breaches of exchange control rules or laws on foreign economic activity by such person. Such a situation occurred because the core act on sanctions (Sanctions Act) lacks provisions regarding the operation of particular restrictive measures. This led to the situation when specific public authorities must comply with the regime of sanctions, but they have no adopted procedures for implementation of restrictive measures. In the end, they are obliged to use legal tools available to them even if this were to contradict effective legislation. Moreover, the Sanctions Act does not contain the procedure for contesting imposed sanctions, so a person under sanctions should apply to the administrative court with a claim to reject the Decree of the President of Ukraine whereby the sanctions were imposed. Such a claim will be con-

www.ukrainianlawfirms.com

sidered in an ordinary procedure for administrative claim, so the burden of proof with regard to the legality of imposed sanctions will be on the state authorities, particularly the President of Ukraine. The legal analysis of imposition and operation of government sanctions shows that procedural issues regarding those sanctions require significant modifications. First of all, instructions for operation of every restrictive measure should be adopted to avoid further wrongful practices by the state authorities. In addition, guidelines for private entities on dealing with persons under sanctions are required (it is common practice in the US and the EU, by the way). Finally, a transparent procedure for contesting sanctions and liability for breach of the regime of sanctions should be adopted. Without those modifications the operation of government sanctions is not efficient and, in fact, may cause troubles for innocent counterparties of persons under sanctions.

Arzinger Address: Eurasia Business Centre, 75 Zhylyanska Street, 5th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

A

rzinger is an independent law firm headquartered in Kiev with regional offices in Western and Southern Ukraine. For over 10 years now Arzinger has been among the leaders of the legal business, providing high-quality legal support to clients throughout Ukraine. Top representatives of international and local business are among the firm’s many clients. Arzinger follows high standards of legal services and is an advantageous partner in view of its great experience in a wide range of industries and legal practices: M&A, corporate law, real estate and construction, antitrust and competition, litigation and arbitration, IPR, tax, banking & finance, PPP, public procurement, labor law, regulatory, private equity/investments, capital markets and IPOs. We serve clients operating in financial services, energy, mining and natural resources, pharmaceuticals, food & beverages, investment banking and corporate finance, telecommunications, retail & leisure, hospitality, aviation and automotive, agriculture, insurance, and infrastructure & transport industries. Arzinger employs highly-qualified professionals with vast hands-on experience in a wide range of legal matters, deep knowledge and understanding of the local market, international education and background. The firm has a team of over 60 seasoned legal professionals led by 5 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognised by reputable international and local rankings. As a result, Arzinger can offer extensive legal assistance to effectively support a variety of complex and challenging transactions, including cross-border matters. The firm renders tailor-made legal services of unsurpassed quality to meet the client’s expectations. The following are among Arzinger’s many clients: Adecco, ADM Ukraine, AGI, Alcon, Altcom, Alfa Bank, BNP Paribas, Bunge, Commerzbank AG, Credit Agricole, Credit Suisse, CSAV, Deutsche Bank AG, EKF, Erste Bank, EBRD, Euralis, Ferrero, First Ukrainian International Bank, GLD, IFC, IKEA, ING, Leroy Merlin, Medcom, Nestle, OTP Bank, Peugeot Citroen, Porsche Holding (Volkswagen Group), Prominvestbank, Puratos, Raiffeisen Bank Aval, Raiffeisen Bank International, Raiffeisen Leasing Aval, Sandoz , Sineat, Softline, Takeda, Turkcell, UkrSibbank, UniCredit Bank, Vienna Insurance Group, Yandex, Venbest, Rosneft, Ministry of Justice of Ukraine and others. With a view to providing its clients with high-quality services Arzinger has established successfully-operating French, Austrian and German Desks in the firm, which efficiently serve French and German speaking clients in Ukraine as well as Ukrainian and Russian companies operating on international markets.

141


Sports Law

Contract with a Sportsman: What must you Know?! Andriy Shulga Partner, ARBITRADE

N

owadays, many participants of sporting relations (sportsmen, coaches, doctors, sports clubs, etc.) share the opinion that the sphere of sports is not sufficiently regulated at the legislative level, leading to numerous violations of the rights of sportsmen and other parties in this sphere. In this article I will try to dispel this myth somewhat and demonstrate the other side of the absence of ‘overregulation’ in sports, in particular, using the example of a sports contract. It is the contract that serves as the instrument of regulating relations between two equal parties. The contract sets out the rules of the game to be followed in the absence of detailed legislative regulations. It also provides advantages and deprives a sportsman of rights in the event of any disputes in the future.

The Legal Nature of a Sports Contract

A sports contract may be defined as a contract between two equal parties in the sphere of sports which regulates their relations connected with the preparation and participation in competitions with the aim of achieving sporting results, setting out mutual rules and obligations of the parties and is concluded for a fixed term. The closest definition to the above in our legislation is the definition contained in the Labor Code of Ukraine. Part 3 of Article 21 of this Code provides that “A special form of an employment agreement is a contract in which its period of validity, rights, obligations and liabilities of the parties (including pecuniary liability), conditions of supply and organization of the employee’s labor, conditions of termination of the agreement, including premature termination, may be established by agreement of the parties. The sphere

142

www.ukrainianlawfirms.com

of application of a labor contract is determined by the laws of Ukraine”. In the opinion of the author of this article, this is the definition that one should be guided by when assessing the legal nature of a sports contract. One shouldn’t think that the issue of a contract is unregulated and unclear. On the contrary, the Ukrainian legislator has granted the contacting parties in the sphere of sports the widest possible discretion in setting out the terms of cooperation between the sportsman and the employer with the aim of achieving high results and profits. And who knows whether it would be better if the state interfered more heavily in these relations. Therefore, the parties should use the freedom provided to them in determining their own rights and obligations towards each other.

Basics of Legal Regulation of the Sports Contract

The Decree of the Cabinet of Ministers of Ukraine of 19 March 1994 No.170 On the Ordering of the Use of Contractual Form of an Employment Agreement stipulates that the contractual form of an employment agreement should apply to employees at the time of recruitment for a position only in cases directly foreseen by the law (Clause 1). The conclusion of a sports contract is foreseen by the specialized On Physical Culture and Sports Act of Ukraine. It should be noted that the specialized On Physical Culture and Sports Act of Ukraine does not contain a definition of an employment contract or an indication of terms that the latter may regulate. Yet, the Act directly connects the acquisition of the status of a professional sportsman with the conclusion of a sports contract, rendering such a contract extremely important. Namely, according to part 3 of Article 38 of the Act, a sportsman acquires the status of a professional sportsman from the moment of conclusion of a contract with the corresponding parties in the sphere of physical culture and sports on the participation in competitions between professional sportsmen. In light of this, it is important to remember that contracts should contain a clear reference to the participation of a sportsman in professional competitions. Separate contracts are to be concluded with members of the national

teams of Ukraine, which is also foreseen by the Act (parts 7 and 9 of Article 37). A Standard Form of an employment contract has been approved by the Order of the Ministry of Labor of Ukraine of 15 April 1994, No.23. It should be borne in mind that this form is not compulsory, but serves an informational and auxiliary function, and the parties are free to use it in full or in part. Generally, the standard form of a contract regulates the following issues: the scope of offered work and the requirements to the quality and time limits of its performance, the duration of the contract, the rights, obligations and mutual liabilities of the parties, the conditions of payment for and the organization of labor, the conditions for termination of the agreement, social, physical and other conditions necessary for the performance of the parties’ obligations, taking account the specificity of the tasks, professional peculiarities and financial possibilities of the enterprise, institution, organization or employer. As mentioned above, this Standard Form of contract does not affect the principle of party autonomy, which parties should be guided by when negotiating the terms of the contract. The provisions on party autonomy are expressly foreseen in the Civil Code of Ukraine in Article 627, according to which the parties are free in the conclusion of an agreement, the choice of counterparty and in determining the terms of the agreement, taking into account the requirements of the Code, other acts of civil legislation, trade usage, requirements of reasonableness and justice. According to Article 6 of the Civil Code of Ukraine, the parties are free to conclude an agreement which is not foreseen by the acts of civil legislation but corresponds to the general foundations of civil legislation. The parties are free in an agreement foreseen by the acts of civil legislation to regulate their relations, which are not regulated by such acts. The parties may deviate from the provisions of acts of civil legislation and regulate their relations at their own discretion. The parties may not deviate from the provisions of acts of civil legislation if these acts expressly provide for this, as well as in cases where the compulsory nature of provisions of civil legislation for the parties follows from their content or from the nature of the relationship between the parties.


PROfile Party Autonomy

The latter principle “what is not forbidden is allowed” applies to the terms of the employment agreement between the sportsman and the employer. Therefore, the parties should not be afraid to regulate in as much detail as possible all the issues that may be relevant to their cooperation. This ensures the avoidance of future claims and disputes. For instance, if the situation as to the financial difficulties of the employer was clearly regulated in employment contracts, there would be significantly fewer disputes between sportsmen and clubs. Therefore, both civil law and employment law currently give the parties in the sphere of sports the broadest possible discretion to regulate the terms of their employment contracts. It should be noted that the draft Labor Code of Ukraine being currently considered by the Verkhovna Rada of Ukraine does not change the position on party autonomy in employment contracts. On the other hand, a sports contract cannot be considered an employment agreement in the classical sense attributed to it by the Labor Code of Ukraine. An employment

www.ukrainianlawfirms.com

agreement in fact does not regulate the relations between an employer and a hired employee, but fixes the hired employee with the employer. The requisite relations under an employment agreement are actually regulated by the Labor Code of Ukraine, which is designed to regulate employment at large state enterprises with a significant bias in favor of the employer, and does not answer the modern challenges raised by a relationship between two equal parties such as a professional sportsman and his or her employer.

Conclusions and Recommendations

To conclude, the author would like to urge all parties to relations in the sphere of sports to try and regulate their relations independently. As of today, all the necessary conditions are in place to attain this. What is needed is simply to work out in detail each provision of the contract and bear in mind all the situations which may arise in the future within the context of your relations. Only then will you achieve the stability and confidence which are often lacking in relations between sportsmen and their employers.

ARBITRADE Address: 4 I.Lepse Ave, Building 1, Floor 5, Office 518 Kiev, 03680, Ukraine Tel.: +380 44 454 0508 Fax: +380 44 454 0509 E-mail: info@arbitrade.ua Web-site: www.arbitrade.ua

A

RBITRADE is a boutique law firm specializing in international trade, international arbitration, litigation and complex negotiations/restructuring. The firm has a reputation of a client-focused law firm. ARBITRADE’s team is made up of highly qualified and experienced dispute resolution lawyers. The leading positions of ARBITRADE in international arbitration are confirmed by professional awards and international rankings, such as the Legal 500, Ukrainian Law Firms 2015, Best Lawyers International, ILO Client’s Choice, Who is Who International Arbitration. ARBITRADE has extensive experience in representing clients before the leading international arbitral institutions in international commercial, investment, sports, maritime and commodities arbitration. Being a GAFTA and FOSFA member, the company is particularly wellequipped in advising on structuring and drafting of sale and purchase agreements for soft commodities incorporating GAFTA and FOSFA standard contract forms. The ARBITRADE team also has extensive expertise in representing clients before national courts in Ukraine in commercial and administrative disputes within many industries and fields of business. White Collar Crime defense, legal security for business, support in internal corporate investigations, and compliance are among the featured practices of the firm. ARBITRADE is a long-term legal partner of the Ukrainian Chess Federation (UCF). We have represented the UCF at the meetings of the General Assembly and the Executive Committee of FIDE (World Chess Federation), the General Assembly of the European Chess Union, including with regard to issues of sports jurisdiction over Crimea and disputed player transfers. ARBITRADE has set up a representative office in Bulgaria as part of its strategy to expand the reach of its arbitration practice. Being a law firm specializing in international trade and promoting bilateral trade between Ukraine and other European countries, ARBITRADE became a member of the Norwegian — Ukrainian Chamber of Commerce (NUCC), the Bulgarian Chamber of Commerce and Industry and the Ukrainian Chamber of Commerce and Industry.

143


Tax

From Panama to Kiev: Offshore Havens and Onshore Islands Dmitriy Mikhailenko Partner, OMP

T

he story with the Panamanian company once again demonstrated how useless efforts to “protect business through confidentiality” (they protect, in our opinion, not so much from the raiders, but rather from our own regulatory authorities) or the use of “smart nominees” really are. Several cases that we examined show the “poverty” of using, for example, a violoncellist as a billionaire, or to hope that “when a company is closed — no-one will find this out”. From the beginning, let’s look aside the problem of presidents and discuss it from the point of view of business people — the taxpayers, who hand in hand followed the beaten track, creating fake companies. Firstly, we would like to note that such kind of disclosure that at the time being happens sporadically at the initiative of journalists or in the course of criminal proceedings (referring to the Phoenix Capital case), will be continued on a systematic basis within the framework of international exchange of tax information, to which Ukraine is obliged to join. Observing this trend, as well as the processes that take place in Ukraine (the disclosure of beneficial owners, foreign currency control) and in Europe (4th Directive), we have received additional confirmation that the only solutions in the medium perspective are: — open and legal establishment of companies abroad, in compliance with the formalities of Ukrainian currency legislation; — clear history of the origin of income / assets of a foreign company. If it is a loan, it should be borrowed due to market conditions;

144

www.ukrainianlawfirms.com

— the transfer of assets, functions and risks (substance) to a foreign company, including employment / change of tax residence of shareholders, key management and personnel. Each of these sub-tasks are important for legal tax planning purposes. Accordingly, the legal product that service providers should offer to newcomer clients will be more expensive than yesterday, but it may be several times cheaper than the other expenses that accompany normal functioning of the business. In the first place — costs for hiring their own staff, and not for maintenance of someone else’s mailbox. Ultimately this will lead to the fact that legal tax planning, based on the legal and economic (substance) component must be tested for the ability to immediately declare the establishment of a new business unit, its goals, team, ultimate beneficiary owners, and be prepared to correlate the profits it receives with the functions, assets and risks, which are delegated to the new structure. Now, let us abstract ouselves from the business structuring and talk about our country in general.

The Overall Situation is Far from Optimistic

It seems that the government has gone rogue and squeezes money out of everywhere for funding future elections. Bribes for refunds from the budget, bribes for the restoration of electronic keys for registration of tax invoices — all this is happening in front of our eyes. We all know how such situations have ended in the past. Since voters are clearly watching this picture, a convincing victory in elections no longer works, then a new “different” government arises, imprisons the old one, and then this new one has to be overthrown at the expense of sacrifice of ordinary people. We are making the same mistakes within the political cycle of the latest decade (now we are at the stage of legal anarchy), and we do not like the fact that we cannot get out of this vicious circle. Apart from the above, for many years, there has been a more general trend, regardless of the political cycle phases, and if we talk about its evolution, it seems to be developing only for the worse.

Briefly, we call it “a criminal state — criminal society.” Let us talk about both sides of this model.

The Criminal State

In the past, for example in times of feudalism, the Varangians, circling around the conquered villages and collecting the tributes, felt they were right, because the law was simple and largely reduced to the principle of “hardness of the hand” and “following the instructions of the suzerain”. Accordingly, the top of the government did not burden itself with remorse. The picture of the world in their eyes, as well as in the eyes of most of their subordinates was quite harmonious and honest. Little by little this idyll was destroyed. Simple performers of orders were hung in Nurnberg, and in Ukraine, meanwhile, even a tougher method was invented: to keep the authorities in starvation, in order that the ways out for them for a decent existence became either escape from the government, or official crimes. It is rather convenient: criminals are easier to control, because they quickly forget how to do something alternatively useful, and may always be threatened with imprisonment. Moreover, the system works at all levels, from the lawmaker to the clerk in the State Fiscal Service. Somehow, the patrol police managed to escape from this system, they say by means of foreign grants. Surprisingly, the idea of a mere salary increase is consistently rejected as far as the budget does not have enough money for this. Just think it over: the state is the largest corporation in the country, it redistributes hundreds of billions of Hryvnias, but its “managers” cannot (and maybe do not want to) provide a decent market level of wages — a task with which even a small firm handles easily!

The Criminal Society

It was also brought to the fact that the honest performance of its duties is considered either bad manners, or the direct way to bankruptcy. It is a nightmare: in Western countries, it’s a shameful not to pay taxes, while Ukrainians, looking at the comments to the Panamanian case, are ashamed before


PROfile their colleagues when the taxes are fully paid! Importantly, both component parts of this macro-model intensify and stimulate each other. It is more convenient to the criminal official to deal with a criminal taxpayer both from a material point of view (it is possible to fulfill the plans on additional charges, fines or bribes), and a psychological point of view (we all have the same nature). It is also difficult for criminal taxpayers to deal without criminal officials: who then will not detect them, or will shield them in the courts? In general, all of them feel comfortable. Against this background, there is an island that is trying to live honestly. Please do not be offended those here who were not mentioned, but this is a number of Ukrainian businessmen who observe the law in spite of everything; experts on foreign grants; foreign corporations that comply with their own laws, and even with Ukrainian ones; as well as business associations and other service providers that have signed on to civilized methods of struggle. This island, however, does not tend to increase, it even does not always manage to defend its members — looking at thrilling stories, where at one end of the economic chain our criminal taxpayers steal VAT, and at the opposite end tax officials oppress “bourgeois” enterprises as if they were the “beneficiaries” of stolen VAT. Neither is the Criminal SocietyState able to completely suppress this island. Firstly it depends on external creditors (from where the foreign corporations have come). Secondly, it should produce a myth about the exception to the rule (if anyone thinks we are through with stealing — we will show the taxpayers who honestly pay their taxes and claim honest justice). What should be done to make the island bigger? We have some doubts that the evolutionary methods like the BEPS plan that our Western friends offer, will work in Ukraine on their own accord. The efficiency shall be approximately 20%. Why? Let us give an example with the mentioned above automatic exchange of tax information. In 2013, Ukraine committed to implement it by the end of 2015. It is already 2016, and there’s a tendency that other countries show no willingness to share tax information with us, and our offiwww.ukrainianlawfirms.com

cials are even glad — that means there’s nothing to find, unless journalists investigate. In our opinion, the following steps are necessary. 1) Start from ourselves. The path of the righteous is simple and clear, but people prefer to walk winding roads. We do not give bribes or salaries in envelopes but pay all taxes, comply with other rules of Ukrainian legislation, no matter how bad they may seem. From the “No smoking” plates at the offices right up to Microsoft licenses. Otherwise, we shall never begin to change wicked legislation — there will be no incentive. Frequently used ideas with which we strongly disagree: — “Let them adopt the Tax Code developed by Uzhanina, and then we will begin to pay taxes” is a selfdeception. As a result, the code shall not be adopted, and we shall never start paying taxes; — “If you have behaved improperly ones — it’s no use pretending you’re a goody” and so on. Nonsense, manipulation used by those who wish to leave everything as it is. 2) Public pressure. We have already mentioned the “no hurry” to implement exchange of information. The President of Ukraine starts speaking about it only after the Panama scandal. There are many other examples that give grounds for discretion. Now, as we are told, there is simply no authority that could verify the President’s dealing with offshore business. Accordingly, society must fight for the introduction of effective facilities of control over the state. 3) The reform of relations between government and society. The Tax Code by MP Uzhanina and other useful initiatives that enable the payment of all taxes honestly, and not to hide profits offshore, remove loopholes between the overall tax system, on the one hand, and foreign and domestic offshore, on the other hand (collective investment funds, agriculture, and so on.). 4) Reform of government itself. Officials should receive a bonus plus an extra payment for political risk, and they should have clear objectives, the implementation of which should be constantly evaluated. The State must give up a number of functions that it cannot properly fund and, therefore, cannot establish quality control for.

OMP

Tax Practice Address: 9 Tarasivska Street, 3rd Floor, Kiev, 01033, Ukraine Tel.: +38 044 391 3003 E-mail: info@omp-tax.com.ua Web-site: www.omp-tax.com.ua

L

aw Offices of OMP is one of the most dynamical full-service law firms on the Ukrainian legal market. The company was founded in 2007 and currently employs over 60 qualified professionals in the field of law, accounting and audit, with deep knowledge and considerable experience in Ukrainian and foreign markets. The Law offices of OMP specializes in complex assistance to investment projects and also in legal support of businesses and objects acquired under investment decisions of our clients. Our advantages are provision of a full range of tax & legal consulting services, auditing and accounting services with a particular industry focus on pharma business, agriculture, IT sector, construction and development. Taxation is a core practice that involves around 25 staff members of OMP. The firm’s other practices include the following fields: securities, banking & finance, real estate, mergers & acquisition, corporate law, intellectual property, dispute resolution — litigation and arbitration, etc. Law Offices of OMP provides legal assistance to both domestic and international clients. Our clients come from different countries and industries. We work with half of the globe and always find a common language. The constant and active cooperation with customers from various sectors of business, as well as with legislative and supervisory authorities provides us with the opportunity to gain experience, which we then apply for new projects, creatively recycling and using the best ideas, methods and models of legal instruments. Our team earned glowing reviews and high rankings — the firm is rated No.1 in the Agribusiness area & recognized among the 5 best Ukrainian law companies in Tax practices and Healthcare & Pharmaceuticals. OMP’s Partners are named among TOP 100 lawyers in Ukraine. Our team is in the ТОР 50 law practices list for Ukraine, LEGAL 500 recommends Law Offices of OMP. Our lawyers are fluent in Ukrainian, English, German and Russian. The Law Offices of OMP cooperate with different government and non-government organizations, including the Parliamentary Committee on Taxation and Customs Policy, the European Business Association, the Chamber of Commerce and Industry in Ukraine, etc. OMP Partners are among active members of public councils at the State Fiscal Service, Ministry of Finance and Economy. The firm is continuously expanding its network cooperating with partner offices in Poland, the Netherlands, the Baltic countries, Cyprus, the Emirates.

145


Tax Controversy

Ukrainian Tax Disputes in 2016: Faster, Higher, Stronger Sergiy Gryshko Partner, Head of Dispute Resolution Practice, Redcliffe Partners. Sergiy has a track record of representing clients in arbitrations under various international institutional and ad hoc arbitration rules, including ICACU, LCIA, LMAA, SCC, ICC, UNCITRAL and ICSID. His experience also includes advising oil & gas and energy sector clients in investment arbitrations involving Ukrainian counterparties. He comes recommended for Dispute Resolution and International Arbitration in Ukraine by Chambers Europe and Who’s Who: Ukrainian Law Firms. Sergiy Gryshko is Head of ICC Ukraine’s Commission on International Arbitration and a Council member of the Ukrainian Bar Association Committee on Procedural Law. Mr Gryshko is also listed as an arbitrator at the JSM Permanent Court of Arbitration (Slovak Republic)

D

espite high hopes at the start of 2015, the year saw a number of controversial developments in both Ukrainian tax law and practice in Ukrainian courts. In 2015, a total of 26 amendments were made to the Tax Code, Ukraine’s principal tax statute. As a form of relief came the longawaited abolition of corporate profit tax payments of CPT in advance, which will take effect on 1 January 2017. In the past corporate profit tax advances were often, quite literally, extorted by the tax authorities. What is also very reassuring is that tax authorities will not be allowed to annul the value-added tax (the VAT) registration of a taxpayer if the latter’s actual corporate seat is different from that registered with the Companies Registry. Another positive development is that the administration of VAT refunds is expected to become more transparent and predictable going forward, not least because the VAT credit arising from corrected tax returns can now be claimed by taxpayers within 365 calendar days following the underlying correction. The introduction of new VAT refund registers should also help to finally achieve automatic VAT refunds to honest taxpayers. The administration of Ukrainian VAT refunds has been so opaque, discriminatory and corrupt that it has been a nightmare for foreign companies for decades. Overly keen attempts by some US companies to receive their due VAT refunds were even a recent subject of the Foreign Corrupt Practices Act investigation by the US Department of Justice. Although the number of amendments is impressive, and some amendments are quite

146

www.ukrainianlawfirms.com

comprehensive and long overdue, the Tax Code (or rather the way in which it is used by the tax authorities) still remains a rather cumbersome, user-unfriendly piece of legislation. A number of new taxes have been introduced, but tax collection remains poorly managed and often discriminatory. In particular, the Ukrainian Parliament tends to ignore the principle of tax legislation stability embedded in Article 4 of the Ukrainian Tax Code. This fundamental rule provides that any amendments to the Tax Code aimed at introducing new taxes and modifying existing taxes must be published at least six months prior to them coming into force. As good as this principle looks in theory, very few amendments to the Tax Code adopted by the Verkhovna Rada, i.e. the Ukrainian Parliament, have to date actually complied with this fundamental rule. Unfortunately, 2015 was no different. After dramatically raising the subsoil use fee from 28% to 55% in 2014, which continued into 2015, the Ukrainian Government had to defend the first ever investment claim over a tax increase. Three investors (the UK’s JKX Oil & Gas plc, Poltava Gas Petroleum BV and Ukrainian PJSC Poltava Oil & Gas Company of Ukraine) brought investment arbitration under the Energy Charter Treaty and other investment treaties against Ukraine claiming that, among other things, the spike in the subsoil use fee runs afoul of Ukraine’s international obligation to accord fair and equitable treatment to them and their investments in Ukraine. In an attempt to save their Ukrainian business from going bust, the investors

sought a protective award from an Emergency Arbitrator appointed by Stockholm Chamber of Commerce. On 14 January 2015, the Emergency Arbitrator ordered that pending the arbitral tribunal in the investors’ case, Ukraine must refrain from levying subsoil use fees on Poltava Oil & Gas Company above a rate of 28% rate. This was the first ever Emergency Arbitrator award issued against a sovereign state. The capital’s Pechersk District Court granted leave to enforce the Emergency Arbitrator award to the investors in June 2015, but the Kyiv City Court of Appeal reversed it on public policy grounds a few months later. In February 2016, the Higher Civil and Commercial Matters Court reversed and remanded the case back to the appellate court for a new consideration. Fortunately, in the meantime, the subsoil use fee was reduced to a more sensible 29% by Parliament in December 2015. In 2015, taxpayers were as busy as ever suing the Ukrainian tax authorities in administrative courts. Most often, the thrust of taxpayers’ claims were challenges to arbitrary reassessment of corporate profit tax deductions and/or VAT credit entitlements by the tax authorities. In previous years, the tax authorities tended to reduce the deductible expenses by alleging that underlying transactions were invalid since no actual goods or services were provided to taxpayers. However, after some hesitation, Ukrainian courts took a firm line to the effect that whether the transaction was valid or invalid was of no relevance for corporate profit tax deduction purposes. What matters is only whether the actual delivery of goods or provision of services to taxpayers took place. The response of the tax authorities was to issue a flood of allegations that taxpayers did not actually receive any goods, services or works and, hence, couldn’t make deductions from their taxable corporate profits. Such allegations came to be commonplace in the practice of Ukrainian tax authorities even though they are rarely based on anything more than suspicion. Unfortunately for Ukrainian taxpayers, the courts tend to lay the burden of proof on the actual delivery of goods (and provision of services) on them rather than to make tax authorities discharge


PROfile their own burden of proof that the duly recorded deliveries of goods and/ or provision of services did not actually take place. Although every case is different, the discernible trend is that taxpayers have to show ultimately that what is on their books is what they actually have or have had. Another hot topic for Ukrainian taxpayers is denial of the VAT credit where one of companies in their supply chain is found to be a “fictitious entrepreneur” by the tax authorities. The only statutory definition of “fictitious entrepreneurship” is found in Article 205 of the Criminal Code which reads as “establishment or acquisition of legal entities with the aim of covering up illegal activities or carrying out prohibited activities”. As this definition suggests, allegations of “fictitious entrepreneurship” require meeting quite a high burden of proof to show the criminal intent of perpetrators. Moreover, it requires the tax authorities to rebut the presumption of innocence to show the criminal intent. Such rebuttal is only possible where charges of fictitious entrepreneurship result in the criminal conviction of the corporate officers responsible. However, the tax authorities blatantly disregard the requirements of Ukrainian law; they regularly make allegations of fictitious entrepreneurship based on very scarce evidence, if any. What is even more troubling, they frequently deny VAT credits and/ or refunds to innocent businesses based on their “findings”, (actually suspicions) that an intermediary

www.ukrainianlawfirms.com

supplier somewhere in the supply chain was a “fictitious entrepreneur”. In other words, the Ukrainian tax authorities prefer to deny law-abiding businesses the VAT privileges which they are entitled to due to their ‘perception’ of wrongdoings by others. In fact, the tax authorities place the responsibility for their own failures to identify and effectively combat fraudsters onto taxpayers. Even though this practice of making an innocent businessman liable for abuses of others has been condemned as incompatible with the basic notions of the rule of law by the European Court of Human Rights in Strasbourg, e.g. in the Intersplav v Ukraine case, Ukrainian courts did not rush to grant legitimate entrepreneurs adequate protection against tax authorities’ frivolous and manifestly unjust reading of the law. In particular, on 22 September 2015 the Supreme Court of Ukraine raised the evidentiary bar for taxpayers, holding that even where a transfer of goods or provision of services is supported by documentary evidence, such transfer must still be proven beyond any reasonable doubt by the taxpayer. As a general conclusion, despite numerous attempts by Ukrainian legislators, 2015 will not be remembered for an all-encompassing tax overhaul. Although recent tax amendments may inspire some cautious optimism, Ukrainian tax regulations remain as opaque, unpredictable and inconsistent as ever. The Ukrainian tax authorities and the administration of taxes are both in dire need of urgent reform.

Redcliffe Partners Address: 75 Zhylyanska Street, 13th Floor, Kiev, 01032, Ukraine Tel.: +380 44 390 5885 Fax: +380 44 390 5886 E-mail: office@redcliffe-partners.com Web-site: www.redcliffe-partners.com

R

edcliffe Partners was launched as a new brand in Ukraine in December 2015. Before that, the core legal team of Redcliffe had worked together for more than 7 years as the Kiev team of Clifford Chance, handling many of the region’s most sophisticated transactions. Redcliffe’s capabilities across practice areas and industry sectors Redcliffe focuses primarily on antitrust, banking and finance, corporate and M&A, debt restructuring and insolvency, international arbitration and litigation. Its sector-focused groups include agribusiness, financial institutions, energy, pharmaceuticals, FMCG and retail, TMT and infrastructure. Reputation Redcliffe is recommended in its areas of expertise by all international and local directories: — top-ranked in Energy, Banking and Finance, and Capital Markets by The Legal 500 — recommended in M&A by Chambers Global and IFLR 1000 — No.3 by number of Ukraine’s largest M&A and finance deals in 2015 according to the Yuridicheskaya Practika Deals Tables Clients Redcliffe’s clients are major international and local companies from various industry sectors, global private equity houses and financial services institutions, including Abbott Laboratories, Amadeus IT Group, BaDM, BNP Paribas, Citigroup, Credit Suisse, Deutsche Bank, EBRD, FMO, IFC, ING, JPMorgan, Macquarie Bank, Monsanto International, Morgan Stanley, Raiffeisen Bank International, Renaissance Capital, UniCredit Bank, Vitol.

147


Telecommunications

Telecom and Media Anna Babych Partner, AEQUO

As a result, MTS Ukraine changed its brand to Vodafone (although remaining controlled by MTS Russia), and all further services (including the launch of 3G) will now be provided under Vodafone TM. Such a deal will inevitably lead to changes in tariffs and range of services, and cannot but enhance competition on the market. Experts do not rule out that Vodafone may acquire a minority stake in MTS Ukraine in future.

ithout any hesitation we can say 2015 was a year to celebrate in the sphere of Telecom and IT in Ukraine. Brightened up by several notable M&A deals, it is evidence of revolutionary developments in the industry, such as the long-awaited 3G launch and the road map introduced for implementation of 4G / LTE in 2017. The only matter that is yet to be decided is the Number Porting Service.

IT The Soros Fund acquired, through its Ukrainian Redevelopment Fund LP, a noncontrolling stake in one of the largest IT companies in Ukraine — Ciklum, which is a leading global software engineering and solutions company with a strong presence in Ukraine. The Ukrainian Redevelopment Fund, a private investment vehicle focused on private equity investments in Ukraine and Ukraine-related companies, undertook this investment to promote economic and social development in Ukraine. This transaction is an excellent example of how profitable and successful IT business can be if combined with Ukraine taskforces. Two other notable transactions reaching up to around USD 350 million involved startups, once again proving the extraordinary potential of Ukrainian software engineers. Oracle bought a Ukrainian provider of cloud-based software that enables the testing, targeting and personalizing of what a customer sees on a web page or mobile application — Maxymiser, while Snapchat acquired Looksery, a facial tracking and transformation technology company.

M&A: Renovation and Innovation

At Last: Long-Awaited 3G appears in Ukraine

Oksana Krasnokutskaya Senior Associate, AEQUO

W

Telecom and IT markets showed unexpected M&A activity, which strengthened the hope for further developments. Telecom The first notable transaction took place in June 2015, when Turkcell acquired a 44.96% stake in Euroasia Telecommunications Holding BV (Netherlands), owning 100% in the Astelit LLC (Life:) mobile operator. As a result, Turkcell is now the sole owner of Astelit LLC, and will continue further expansion in Ukraine under a new trademark, Lifecell, instead of Life:). Such activity on the part of a major player shows nothing but a strong belief in Ukraine’s telecom market prospects. Another brand-changing deal took place later in 2015, when Vodafone entered Ukraine by concluding a brand arrangement with MTS.

148

www.ukrainianlawfirms.com

2005 — 2015 Ukrainian 3G saga about 3G implementation in Ukraine is finally over, with users getting fast wireless mobile Internet. No wonder that in February 2015 three major mobile operators (Kyivstar, MTS Ukraine (now Vodafone) and Life (now Lifecell), who were announced to bid for all lots and pay a guarantee fee in the sum of UAH 810 million (App. USD 32 million) each, all successfully acquired a 3G license. Kyivstar was the operator who paid less than the others (UAH 2.7 billion, approx. USD 108 million), while Life had to invest UAH 3.35 billion (approx. USD 134 million) and MTS Ukraine — UAH 2.715 billion (approx. USD 108.6 million). Following the auction, all three operators rushed in pursuit of the goal to launch

3G as soon as possible. Now all operators are concentrated on complying with their license obligations, namely to implement the 3G technology in all Ukrainian regional centers within 18 months from the date of being granted the license, and to launch 3G in all district towns and the towns with a population exceeding 10,000 people in the next 2-6 years. Taking into consideration the speed of introduction of 3G and the high demand from the public, the forecasts are positive, with the 3G market accounting for 12.6 million subscribers in 2016. Such a tempo brings Ukraine to be the fastest growing 3G market in the world. When assessing the average revenue per user in Ukraine (which is very low compared to other countries), the launch of 3G is considered an impact capable of increasing this index and will further increase the aggregate volume of Internet data transfers and reduce the volume of calls, sms and mms transfers between end users.

4G — Why Hesitate?

The Ukrainian government decided not to hesitate with the next step — introduction of 4G in Ukraine. For this purpose, the National Telecommunication Commission prepared the Action Plan on Introduction of the Fourth Generation Mobile Communication in Ukraine, subsequently adopted by the Cabinet of Ministers of Ukraine on 11 November 2015. The plan in question provides for several steps to be taken: (i) creation of a working group in November and approval of the technical specifications in November 2015, (ii) appoint a foreign company for conducting scientific research and execute a contract on such works in December 2015, (iii) approval of results of such scientific research in December 2016, (iv) introduction of changes to the national frequency allocation table / usage plan and re-farming existing frequencies for LTE under a new technology-neutral licensing regime in February — June 2017, and, finally, (v) tender for 4G license. However, it appears that the plan is regarded as optimistic, and that it would be hard to stick to the deadlines set in it. In particular, the contract, which had to be executed with a foreign company for conducting scientific research in December 2015, was approved only in February 2016 and has not been signed yet. Nevertheless, there is a strong belief that implementation of 4G in Ukraine will not resemble implementation of 3G.


PROfile Mobile Number Portability — Never Ending Story?

Portability of mobile numbers allows users to change their operator without changing the user’s mobile number. This possibility is an ordinary service in many countries, but it is still not available in Ukraine. The regulations allowing the implementation of this service (Regulations on Providing the Subscriber Number Porting and Personal Number Use Services (Regulations) were adopted in April 2013. Pursuant to the Regulations, starting from 1 July 2014 the users of mobile telecom services should have enjoyed the number porting possibility from any current operator’s (donor operator’s) telecom network to any new one (recipient operator’s) network. However, the service has not been provided within the said term due to certain drawbacks in the procedure of MNP administrator appointment, litigations initiated by Kyivstar against the launch of MNP service on terms and conditions provided in the Regulations. On 31 July 2015 the National Telecommunication Commission adopted new Rules on Provision of Mobile Number Porting Service. According to the Ukrainian State Centre for Radio Frequencies, the mobile numberporting launch is scheduled to start at the end of March 2016. The special tender for purchase of software and hardware for this service took place on 25 January 2016. Dialink company was announced as the winner as its software solution on the basis of Latvian platform Mediafon cost UAH 71 million (approx. USD 2.84 million). However, another company, SI Centre, whose proposal appeared to gain more points from Ukrainian State Centre for Radio Frequencies preliminary estimation, filed a claim to the Antimonopoly Committee of Ukraine. On 18 March 2016 the Antimonopoly Committee of Ukraine (ACU) satisfied SI Centre’s claim, and obliged Ukrainian State Centre for Radio Frequencies to cancel all tender decisions adopted after the disclosure of participants’ proposals.

www.ukrainianlawfirms.com

The Ukrainian State Centre for Radio Frequencies has 30 days to decide whether to appeal the ACU decision in a court or comply with the ACU decision. If the Ukrainian State Centre for Radio Frequencies does not appeal against the decision the whole process of tender announcement, filing proposals and estimating them by the regulator will take place once again. If ACU decision is appealed to a court it may take months to put an end on this matter. Therefore, there are a lot of obstacles as to MNP service launch in 2016, and it may easily take another year to implement this service in Ukraine.

Transparency of Ownership of Media Companies

At the end of 2015 new amendments to media laws came into effect. These amendments introduced the following changes: — each media company shall disclose its ultimate beneficiary holding directly or indirectly of 10% or more in its share capital to the Television and Radio Broadcasting Council and publicly on their Internet sites; — The Television and Radio Broadcasting Council shall control diligent disclosures and may penalize media companies for failing to do so with fines of up to 5% of their license fees; — prohibition on Russian companies and individuals to establish and participate in Ukrainian media companies. It is fair to note that the disclosure of beneficial owners of media companies to the respective media regulators and to the public is not required in most jurisdictions. In many countries the legal framework failed to ensure public access to information about the beneficial owners of media companies. In Ukraine the procedure for such disclosure should be further developed, particularly in terms of documents to be disclosed to the regulator for checking the accuracy of information and monitoring of subsequent changes.

AEQUO Address: Vector Business Centre, 52 Bohdana Khmelnytskogo Street, Kiev, 01030, Ukraine Tel: +380 44 490 9100, 233 6599 Fax: +380 44 490 9102, 233 7769 E-mail: office@aequo.com.ua Web-site: www.aequo.com.ua

A

EQUO is an advanced industry-focused Ukrainian law firm made up of highlyqualified, internationally recommended lawyers who work proactively to help their clients reach their business goals and generate commercial advantages. Backed up by solid industry expertise and a thorough understanding of business, we develop innovative strategies and provide efficient solutions to the most complex and challenging matters. Today, AEQUO is the legal advisor of choice for many of the largest Ukrainian and multinational companies and financial institutions, including Fortune 500 entities, and leaders in their respective sectors. The list of AEQUO’s representative clients includes Agroprosperis, Alfa Bank, Allianz, Apax Partners, Apollo Global Management, AXA, ATB Market, British American Tobacco Prilucky, Bunge, BXR Partners, Citadele Banka, Discovery Networks, Dr. Reddy’s Laboratories, Dragon Capital, DuPont, Epicenter K, European Bank for Reconstruction and Development, European Commission, FESCO, Forbes, GlaxoSmithKline, Google, Groupe Danone, Inditex Group, Mosquito Mobile, MTS Ukraine, NCH Capital, Nova Poshta International, Novus Ukraine, Philips, Pioneer Hi-Bred International, Porsche Bank AG, Portigon AG, Premium Sound Solutions, Samsung Electronics, Sandvik, Sonae, Soros Fund Management, Syniverse, Synthon, Tetra Laval, Thomson Reuters, TIS, Ukrainian Redevelopment Fund, UniCredit Group, VimpelCom and Zara Ukraine. AEQUO is recognized by international and local legal directories, such as Chambers, Legal 500, IFLR1000, World Trademark Review 1000, and Best Lawyers. The firm is shortlisted for Chambers Europe Awards for Excellence 2016, The Lawyer European Awards 2016, Financial Times Innovative Lawyers Awards 2015 in Europe. Areas of practice: Antitrust and Competition, Banking and Finance, Capital Markets, Corporate and Commercial, Dispute Resolution, Government Relations, Insolvency and Restructuring, Intellectual Property, International Trade, Labor and Employment, Mergers and Acquisitions, Real Estate and Construction, Tax and Customs. Membership: International Association for the Protection of Intellectual Property (AIPPI), International Bar Association (IBA), International Trademark Association (INTA), European Business Association (EBA).

149


Trade Remedies

Old-New Approaches in Trade Defence Proceedings Andrii Zablotskyi Counsel, Sayenko Kharenko. Mr. Zablotskyi is a highly qualified trade lawyer with outstanding expertise in advising companies, industries and authorities on trade remedies (anti-dumping, countervailing and safeguards proceedings), application of WTO regulations, exportimport regulations and the economic and commercial impacts of international trade on the growth of business and industry. Mr. Zablotskyi was recognized in trade and customs for Ukraine by Who’s Who Legal: Trade and Customs 2015.

Anzhela Makhinova Counsel, Sayenko Kharenko. Ms. Makhinova comes highlyexperienced in trade remedy proceedings (anti-dumping, countervailing and safeguards) both in Ukraine and abroad. She also specializes in all aspects of international trade, including cross-border trade transactions and drafting different types of contracts, WTO regulations, advice on different regulatory issues. Ms. Makhinova is a country expert on franchising for the International Distribution Institute.

I

t goes without saying that 2015 was a flagship year for Ukraine in the field of trade defense remedies. In addition to numerous proceedings initiated and measures applied, Ukrainian investigative authorities faced lots of challenges, to name but a few: the first lost a WTO case Ukraine — Definitive Safeguard Measures on Certain Passenger Cars (DS468); the first decision of the Supreme Court of Ukraine shedding light on the competence of the Interdepartmental Commission on International Trade (i.e. the state agency responsible for adopting key decisions in trade defense proceedings) (the Commission) and of the courts proceedings; the new WTO case initiated by Russia to challenge the Commission’s cost adjustment approach1; for the first time Ukraine applied countervailing duties. In this article our aim is to highlight major trends of trade defence proceedings in Ukraine.

Brief Statistics on Ukrainian Market

In March 2015 the Commission extended application of safeguard measures (in the form of quotas) applied to imports of steel casing pipes and oil well tubing irrespective of country of origin and export by September 2016. In July the Commission applied antii.e. Ukraine — Anti-Dumping Measures on Ammonium Nitrate (DS493)

1

150

www.ukrainianlawfirms.com

dumping measures to imports into Ukraine of incandescent electric lamps originating in the Kyrgyz Republic, while in December the Commission imposed the definitive countervailing measures to imports into Ukraine of passenger cars originating in Russia. At the same time, 2015 was quite rich for new trade defense proceedings. In June and November the Commission initiated two anti-dumping investigations against products imported and originating from Russia, namely: certain nitrogen fertilizers and abrasives. Notwithstanding the very negative conclusions made by the Panel in the WTO case DS468 in respect of the Commission’s approaches employed in a safeguard investigation regarding passenger cars, in July the Commission initiated the safeguard investigation related to imports into Ukraine of blocks and sheets from polypropylene foam irrespective of country of origin and export. Additionally, in 2015 the Commission initiated a number of reviews of both safeguard and anti-dumping measures. In February the Commission reviewed the safeguard measures applied to the import of passenger cars into Ukraine. Following the results of the review the passenger cars with hybrid diesel-electric propulsion system were excluded from the scope of application of safeguard measures. In March and September the Commission initiated a sunset review and interim review of anti-dumping measures applied to the following

products originating in Russia: fibreboards and asbestos cement shingle, respectively. In 2015 the Commission repeatedly made recourse to national interests when justifying termination of several trade defense remedies (i.e. anti-dumping measures applied to imports into Ukraine of float glass originating in Bulgaria, Poland, Belarus, Turkey and safeguard measures applied to imports into Ukraine of passenger cars irrespective of country of origin and export).

Cost Adjustment: to Be or Not to Be

Ukrainian producers have not only learned how to persistently stress their points in the course of trade defence proceedings, but also have demonstrated their strong interest to assert their rights in courts if the relevant decisions of the Commission are challenged in a court. The Ukrainian producers of ammonium nitrate has broken new grounds in respect of anti-dumping duties applied by the Commission following the results of interim and sunset reviews of anti-dumping measures imposed on imports into Ukraine of ammonium nitrate originating in Russia. A reminder that in 2014 Ukrainian producers applied the EU experience in cost adjustment in the course of the said reviews. As a result, the Commission considerably increased the relevant anti-dumping duties imposed following the results of the basic investigation. Thereafter, the Ukrainian producers managed to assert the said duties in all court instances — starting from the first instance to the Supreme Court of Ukraine. The relevant judgments contain several crucial conclusions that may have precedential value for Ukraine. Particularly, the courts ruled that the Commission has exclusive competence to adopt decisions on initiation of investigations and reviews as well as on application of anti-dumping measures. Dumping, material injury caused by such dumping as well as other grounds mandatory for application of anti-dumping measures (including adoption of decision under which anti-dumping measures shall not apply to particular companies) shall be established only by competent authorities and only in the course of anti-dumping investigation. Another crucial aspect, particularly important for foreign companies, is that the conclusions of the Commission made in respect of a holding company shall not apply


PROfile to related companies because under the effective legislation anti-dumping duty rate shall be established individually for each producer and exporter. Additionally, for substantiating their positions, the courts directly referred not only to WTO Agreements, but also quoted WTO jurisprudence. The above may be treated as indirect confirmation that the courts are ready to take into consideration thereof. Notably, on 7 May 2015, Russia requested consultations with Ukraine regarding anti-dumping measures imposed by Ukraine on imports of ammonium nitrate originating from Russia (DS493). The said case is at the stage of consultations. It goes without saying that the decision of the Panel (if any) on the present case can shed light on the mere possibility to apply any cost adjustments.

The First WTO Case Lost by Ukraine

On 30 October 2013 Japan initiated WTO dispute settlement proceedings over the definitive safeguard measures imposed by Ukraine on imports of certain passenger cars. On 26 June 2015 the Panel issued a report in the said case. According to the report, the Panel found that Ukraine had violated Article XIX:1(a) of GATT 1994 and Articles 2.1, 4.2(a)-(c), 8.1, 12.1-12.3 of the Agreement on Safeguards because the Commission applied safeguard measures in the absence of (a) unforeseen developments; (b)  the recent, sudden, sharp and significant increase in imports; (c)  serious injury; (d)  a causal link. Moreover, Ukraine failed to (i) publish promptly a detailed analysis of the case under investigation and a demonstration of the relevance of the factors examined; (ii) notify the WTO Committee on Safeguards immediately after initiating a safeguard investigation and immediately after making a finding of serious injury or threat thereof caused by increased imports; (iii) provide Japan with adequate opportunity for prior consultations with a view to reviewing all pertinent information. Ukraine has not even tried to appeal the said findings of the Panel before the Appellate Body of the WTO. Instead, on 10 September 2015 the Commission adopted a decision on terminating the safeguard measures on imports of passenger cars that came into force on 30 September 2015. www.ukrainianlawfirms.com

We believe that the Commission and the Ministry of Economic Development and Trade of Ukraine (i.e. the state agency responsible for conducting trade defense proceedings in Ukraine) will draw the relevant conclusions from the said case and will further apply safeguard measures only in the WTO compliant manner.

New Approach in Review — Float Glass Case

In June 2014 the Commission initiated interim review of anti-dumping measures on imports of float-glass originated in Belarus, Russian Federation and Poland, though the measures were initially applied also against floatglass imports from Turkey and Bulgaria. On 10 September 2015 the Commission terminated the interim review procedure and issued four separate decisions in a row on the same date terminating anti-dumping measures applied to imports into Ukraine of float glass originating in Bulgaria, Poland, Belarus and Turkey respectively. The Commission recoursed to the national interests argument as a decision making point, since domestic producers halted production of float-glass. What is important to know about this decision? This is the first time in Ukraine’s practice to terminate active antidumping duties against countries that were not subject to the review procedure (i.e. Turkey and Bulgaria). Additionally, there are no separate regulations to review/terminate existing measures against countries that are not subject to the review. Of course, it is not likely that Turkey or Bulgaria will raise any concern in this respect, but other countries may do so. Secondly, such an approach from our perspective may encourage interested parties to participate in reviews more actively, trying to find additional evidence and change or review measures already applied.

Afterword

As a result of hostilities in Eastern Ukraine, mid-cap size companies operating outside of the occupied territories became leaders in their industries. At the same time, the data shows their occasional involvement in the application of trade remedies. We believe that trade remedies can be quite an effective tool for industry protection and a starting point for market expansion for small and mid-cap size companies.

Sayenko Kharenko Address: 10 Muzeyny Provulok, Kiev, 01001, Ukraine Tel.: +380 44 499 6000 Fax: +380 44 499 6250 E-mail: info@sk.ua Web-site: www.sk.ua

S

ayenko Kharenko is Ukraine’s leading law firm, with an internationally oriented full-service practice and a Ukrainian law representative office situated in London. In 2015, Sayenko Kharenko collected three national Law Firm of the Year awards, having been recognized Ukraine’s best team by IFLR European Awards, Who’s Who Legal Awards, and Chambers Europe Awards for Excellence. Sayenko Kharenko was also recognized one of the two best law firms in Ukraine in 2015 according to Top 50 Largest Deals Table published by Yuridicheskaya Practika Publishing. The firm is highly recommended in Ukraine by all major international guides, including Chambers Global, Chambers Europe, IFLR1000, and The Legal 500. About its International Trade Group Sayenko Kharenko International Trade Practice Group offers a wealth of experience across the full spectrum of cross-border trade regulation and policy to help clients manage risks and maximize opportunities associated with the increasing level of regulation of international trade in goods and services around the world. Sayenko Kharenko is one of the few national law firms with a stellar team of lawyers possessing experienced of a myriad of complex of rules of the World Trade Organization law (WTO). The firm′s team continually advises foreign and domestic companies, manufacturers, exporters, and importers on the enforcement of WTO rules. Sayenko Kharenko’s lawyers advise both Ukrainian and foreign companies on bilateral and regional agreements — free trade and customs union agreements. Sayenko Kharenko’s trade team regularly helps domestic and international clients to set up new routes to market, which involves establishing or restructuring international distribution networks or cross-border agency relationships, elaborating franchise agreements and retail concessions, and dealing with exports, imports and parallel trade issues. Sayenko Kharenko trade lawyers have a strong reputation among colleagues and the professional community, and come recommended by leading legal directories for Trade, Customs and Franchising in Ukraine. They also serve as Ukraine’s national experts on agency, distribution and franchising of the International Distribution Institute.

151


Trademarks

Harmonization of IP Legislation with European Standards: What’s New? Alexandra Odinets Attorney at Law, Patent Attorney, Konnov & Sozanovsky

O

n the way towards integration with European Union and accession to the Single European Space, Ukraine has accepted obligations on the harmonization of national legislation and its formalization with European standards. An important part of Ukraine’s integration into the global economic system is improving the national IP protection system. This mostly concerns improving national IP legislation with the aim of raising standards of protection and enforcement of IP rights. Therefore, state policy in the field of protection and enforcement of IP rights will progress to a new level and should be based on principles of legality and transparency. The year 2015 saw a range of draft laws in the field of IP introduced by subjects of legislative initiative as well as by the authorized instance in the field — State Service of Intellectual Property (SIPS). SIPS was focused on the issues of effective cooperation with applicants and right holders as well as improving the regulatory and legal framework, elaborating the respective copyright and related rights laws in order to improve Ukraine’s image in the Special 301 Report. As we remember, one of the reasons for including Ukraine in the 301 Report was its failure to implement an effective means to combat the widespread online infringement of copyright and related rights in Ukraine, including the lack of predictable provisions on intermediary liability and liability for third parties that facilitate piracy and other copyright infringements. In this article we will focus mainly on the most expected legislative innovations and draft laws, which deal with industrial property and copyright protection issues.

152

www.ukrainianlawfirms.com

The maintenance of an electronic database of pending applications to the trademarks was long awaited news by IP practitioners and trademark owners. Article 8 of the On Protection of the Rights to Marks for Goods and Services Act of Ukraine stipulated that any person had the right to review the materials of a trademark application after establishing the date of the application’s filing. However, before August 2015, when the Order of Publication of the Details of Trademark Applications on the Internet (the Order) has adopted, it was impossible to review the materials of trademark applications. Thus, the individual may only conduct a search by ordering such a paid service through Ukrainian Intellectual Property Institute (Ukrpatent). After approval of the respective Order any person has the possibility to study the following information about a trademark application: filing number and date; priority details; classes of International Classification of Goods and Services (ICGS); an image of the trademark; the applicant’s name and address; etc. Thus, the implementation of the electronic database of trademark applications was a rather positive innovation which aimed to improve the conditions for any person to oppose trademark application. It is one of the most topical developments in 2015. Another anticipated innovation of transparency in the IP field was the decision by SIPS to publish decisions of the SIPS Appeal Chamber. All decisions of the Appeal Chamber issued after 23 September 2011 are now published on the SIPS web-site. Notably, SIPS gave special attention in 2015 to issues on combating so-called “patent trolling”. In the course of working with IP experts, employees of UIPI and SIPS together with patent attorneys, and importing companies, which suffer highly from the “patent trolling” in Ukraine, developed certain amendments to the On Protection of the Rights to Industrial Designs Act of Ukraine that are expected to be introduced in the near future. The aim of the amendments is to develop an additional mechanism for preventing the grant of exclusive rights to industrial designs, which do not comply with the conditions for obtaining legal protection, or for preventing the granting of those rights to unfair applicants through the introduction of a procedure

of submission of third-party objections to the granting of an industrial design patent. The above-mentioned Draft Act stipulated the following innovations: — non-registered industrial designs can obtain legal protection. This means that a non-registered industrial design will obtain legal protection within 3 years from the date when it was made available to the common attention on the territory of Ukraine. The owner of a non-registered industrial design will have the right to prohibit its use within such period; — the additional patentability criteria — “individual character” of the industrial design is established. It means that the general impression, which an industrial design produces on the informed user, shall differ from the impression, which another design produces on the same user; — the possibility of filing a grounded objection against registration of the industrial design to the Ukrainian Patent Office within one month from the date of publication of the information about the application, in case of non-compliance with the conditions for obtaining of the legal protection, is provided by the Draft Act; — the possibility of appeal against the decision of the Ukrainian Patent Office by an individual who has filed a grounded objection against registration of the industrial design to the Appeal Chamber of SIPS; — the Draft Act stipulated the provision regarding reimbursement of damages by the mala fide applicant in case of invalidation of the patent to the industrial design. It means that in case of judicial invalidation of the patent to an industrial design when the court found that the patent owner had acted unfairly and his actions caused damages to any person, the court is entitled to make a decision about reimbursement of the damages by the patent owner. The highest priority was given to the issue of protection and enforcement of the copyright and related rights in the Internet. The Draft Act of Ukraine On Amendments to Certain Legislative Acts of Ukraine on Copyright and Related Rights Enforcement in the Internet developed by the Ministry of Economic Development and Trade of Ukraine is aimed at ensuring the implementation of


PROfile minimum standards of copyright protection in the Internet. The abovementioned Draft bill in the main incorporated the requirements of the Association Agreement between the EU and Ukraine as to the liability of providers, as well as the EU Information Society Directive and Electronic Commerce Directive. It provides the following innovations: — the possibility to make an inquiry to the hosting provider about the owner of the website which uses appropriate services in order to provide access to the information, which infringed his copyright or related rights; — the legal owner of the content is entitled to send a notification to the owner of the infringing website and demand removal of the offending content; — the user of the website has the right to send a “notice of takedown” to the website owner, where the owner of the website or hosting provider must immediately (no later than within 24 hours) to remove or prevent access to information that violates copyright or related rights; — the administrative responsibility is applied for the non-compliance by the website owner or hosting provider of the requirement for the removal of the information, which infringed the copyright and/or related rights or for not providing the identifying information about the web-site owner which infringed and which placed the information, which infringed the copyright and/or related rights;

www.ukrainianlawfirms.com

— the website owner shall renew access to the removed information in cases when the copyright owners within the stipulated period do not provide the documents confirming filing of the lawsuit for the protection of his copyrights; — notaries will be entitled to ensure the protection of evidence in the Internet by drafting the corresponding minutes; In summarizing, we can point out that the core directions of initiatives in the IP field last year dealt with the protection of copyright in the Internet, preventing patent trolling and improving legislation, regulating protection of rights to industrial designs as well as providing public access to the databases maintained by the Ukrainian Intellectual Property Institute. Furthermore, certain amendments to the Civil Code of Ukraine and Commercial Code of Ukraine were proposed by SIPS and were elaborated as amendments to the Resolution of the Cabinet of Ministers No.847-р On Plans of Implementation of the Association Agreement between the EU and Ukraine. These amendments primarily foresee the following innovations: the procedure on disclosure of evidence by court instances was amended; the list of interim relief was extended and a procedure on reimbursement of damages for infringement of IP rights was elaborated by SIPS. However, the above innovations are still at the stage of approval by the Ministry of Economic Development and Trade of Ukraine. We believe that this year will be more fruitful for the IP industry and a range of draft laws will be adopted by the Ukrainian Parliament.

Konnov & Sozanovsky Address: 23 Shota Rustaveli Street, Suite 3, Kiev, 01033, Ukraine Tel.: +380 (44) 490 5400 Fax: +380 (44) 490 5490 E-mail: info@konnov.com Web-site: www.konnov.com

K

onnov & Sozanovsky is a full-service law firm oriented towards providing comprehensive legal advice to Ukrainian and international clients. Since 1992 it has proved to be justly recognized as one of the leading law firms in Ukraine. Konnov & Sozanovsky advises clients in the most popular business areas of law: agrarian law, banking and finance law, copyright and media law, commercial law and contracts, competition law, corporate law, intellectual property law, labor law, real estate, construction and land law, tax law, and has represented clients in large-scale mergers as well as acquisitions and litigation cases. The firm practices an individual approach in each case, taking into consideration the peculiarities of a client’s business and its preferences. The firm’s rich experience covers legal advice of matters in such industries as advertising and design, agriculture, banking, energy and power, food industry, insurance, investment and the equity market, light industry, media and telecommunications, pharmaceuticals, publishing, real estate and construction, software, spirits industry, tobacco industry, trade and distribution, veterinary production. Konnov & Sozanovsky is greatly involved in the activities of the business community and is a full member of the American Chamber of Commerce in Ukraine (ACC), Ukrainian Bar Association (UBA), European Business Association (EBA, Ukraine), Association of European Businesses (AEB, Russia), International Trademark Association (INTA). Konnov & Sozanovsky is an exclusive member of First Law International (FLI) — the specialized international legal network, which has been operating on the legal market since 2003 and has already succeeded in integrating the most competitive law firms from more than 40 countries around the globe. This enables FLI members to provide high quality legal assistance to clients in all major legal systems, thereby saving clients considerable time and resources, while maintaining service quality and confidentiality of information transferred. Therefore, the client gets not only service but also a reliable business partner and legal advisor across three continents. The firm’s conformity to international service quality standards is recognized annually by such legal research as Chambers and Partners, Legal 500, PLC Which Lawyer, IFLR 1000 and Who Is Who Legal. High appraisal is built on the recommendations of clients, favorable reviews from competitors as well as the opinions of key industry leaders. Along with international recognition, Konnov and Sozanovsky is a multiple nominee and holder of the national award-winning Law Award of the Year and for has for many years been in the TOP-10 leading law firms in Ukraine according to the Yuridicheskaya Practika Weekly. Partners and lawyers are acknowledged as leaders in various branches of law in accordance with the Ukrainian Law Firms. A Handbook for Foreign Clients publication.

153


Transfer Pricing

Transfer Pricing Trends of 2016 Yaroslav Romanchuk Managing Partner, Attorney-at -law, International Legal Center EUCON, President of the Ukrainian Business Association in Poland. Yaroslav Romanchuk focuses on the most complicated issues of corporate and tax law, transfer pricing, commercialization of IP rights objects and tax planning with the use of non-material assets, corporate restructuring and assets protection. He represents the interests of international and national corporations in the most complicated and high-profile corporate and tax disputes

Larysa Vrublevska Partner, Auditor, International Legal Center EUCON. Larysa Vrublevska advises well-known national and multinational companies on transfer pricing documentation with justification of contractual prices and introduction of transfer pricing control, as well as on tax planning and tax strategies. Larysa Vrublevska is a head of Transfer Pricing School and holds course of lectures on the most sensible issues of transfer pricing. She regularly takes part in conferences, forums, round tables. Specialization: tax consulting, tax planning, transfer pricing, business restructuring, accounting and tax accounting

T

he Organization for Economic Cooperation and Development has been working on the measures of fighting against offshores and aggressive tax planning lately. In this context, transfer pricing has always been one on the most efficient means of prevention of understatement (erosion) of the tax base and shift of taxed profits to low-tax jurisdictions. G20 heads of government within the BEPS plan implementation have adopted the final version of amendments (autumn, 2015). The plan itself provides for 15 basic measures of fighting against the tax base erosion with 4 points related to transfer pricing (TP). Currently, the main amendments have to be implemented to the national legislations of countries. Let us consider what exactly is to be amended regarding transfer pricing.

On Intangible Assetbased Profit Taxation

1. The concept of an economic owner of intangible assets is introduced. It means that the legal owner does not necessarily have the right to receive total profit from use of intangible assets. In order to distribute profit, the contribution of parties to the creation of value is to be analyzed and associates performing essential functions (such as design, promotion, protection, development and operation)

154

www.ukrainianlawfirms.com

are to benefit correspondingly from it, not just through compensation of their expenses as is usually stipulated by licensing agreements. 2. Associates performing exclusively the function of financing an intangible assetbased project and assuming appropriate financial risks can benefit only from the financial default risk premium. 3. The list of methods for determining the value of intangible assets is expected to be extended (mainly, with techniques used in valuation activities).

On Allocation of Profit Depending on Risks Assumed by Transacting Parties

In fact, the terms and conditions of agreements do not always correspond to actual functions and actions of the parties to the transaction and risks assumed by them. That’s why the principle of Substance over Form will, to a certain extent, be updated. With terms and conditions of the agreement remaining the starting point for analysis, actual risks of the parties will be taken into consideration as well. Besides, for the purposes of transfer pricing the tax authorities have the right to ignore the actions of the parties in the framework of the agreement if they do not have a certain commercial (business) goal.

The risk will be considered to be assumed by the party: — with authority and expertise available for taking decisions related to such risk management; — with financial capacities to assume such risk. Furthermore, additional measures for preventing understatement of the tax base are to be implemented for high-risk transactions. In general, transactions in raw materials, intra-group transactions and others are recognized as high-risk transactions. To impose a tax on transactions in raw materials the price is to be determined by means of stock exchange quotation, with well-grounded adjustment of delivery conditions being allowed for determining the comparability of transactions. It is worth mentioning that in this respect Ukrainian tax legislation is almost adapted to the requirements provided by the BEPS plan, as the norms regarding determining prices for transactions in goods having a stock exchange listing correspond to all the regulations approved by the OECD. At the same time, the application of these norms by Ukrainian taxpayers does, to some extent, pose a problem. Firstly, the Cabinet of Ministers of Ukraine failed in the last year or so to approve The List of Exchange Traded Commodities and The List of World Stock Exchanges available in accordance with Article 39 of the Tax Code of Ukraine. Additionally, there are problems related to the compliance of certain commodities with those listed on world stock exchanges. Grains may serve as a perfect example. In Ukraine, DSTU (State Standards of Ukraine) 3768:2010 is relevant for wheat. This standard sets quality parameters for soft and hard wheat, with soft wheat having 6 classes (Classes 1 to 3 — Group A, classes 4 and 5 — Group B and class 6) and hard wheat having 5 classes. Taking into account the varieties of wheat grown in Ukraine, a reduction in the number of classes is hardly ever likely. However, according to quality parameters, world practice divides grains into food and feed grain. In this context, there are no additional specifying parameters set. If one of the quality parameters does not comply with the requirements, grains immediately become a feed category. Thus, the absence of grading of sorts makes it impossible to find an item on the stock exchange compliant with the item identified according to the DSTU.


PROfile As legal practitioners, we informed the Cabinet of Ministers of Ukraine on a number of current problems that should be eliminated by developing a document containing information on the comparability of commodities, giving an opportunity to apply safely legislative requirements on the prices determined based on stock exchange quotations. However, no positive shifts have been made so far. Finally, the crucial changes will be observed regarding the extent of the information disclosure in documentation on transfer pricing. The novelties are aimed primarily at setting the necessary information exchange between the tax authorities of different countries. The preparation of new forms of documentation should provide for complete understanding of the value-setting scheme for commodities or services by the fiscal authorities. For the implementation of the transparency principle, forming the following clauses of transfer pricing documentation is suggested, namely the Master File, the Local File, the Country-by-Country Reporting. The Master File is submitted by the main (parent) company of the group. This reporting shall contain a large amount of information regarding organizational structure of the group, the geographic location of its units and description of its economic activity including the supply chain for main goods and services as well as factors having influence on determining price. The Local File is submitted by the structural units of the group at the

www.ukrainianlawfirms.com

place of their location. In effect, this reporting meets current requirements of transfer pricing documentation provided by Article 39 of the Tax Code of Ukraine containing information on controlled transactions, functional analysis, selection of the pricing method, price rationale, etc. Country-by-Country Reporting is submitted by the members of the group to the tax authorities of the country the parent company is registered in and contains detailed information on the economic activity of the unit of the group. Groups with consolidated profit of less than EUR 750 million will be an exception. It should be mentioned that the Draft Act On Amendments to the Tax Code of Ukraine developed by the Ministry of Finance in Autumn 2015 provided for the fulfillment of amendments to the requirements to the documentation on controlled transactions. It provided for the submission of the In-depth (Master File) Reporting by parent companies and Local (Local File) Reporting by the companies of the group. Nevertheless, this Draft Act was, for a variety of reasons, rejected. However, the amendments to BEPS cannot be ignored, and Ukraine will adopt them later. We discussed the above-mentioned issues and other ones with Olena Makeyeva, the Deputy Minister of Finance of Ukraine, and the senior management of the State Fiscal Service of Ukraine on 24 March 2016 at the International Forum Transfer Pricing — 2016. The Forum was organized by the International Legal Center EUCON.

ILC EUCON Address: 33 Taras Shevchenko Blvd, Office 12, Kiev, 01032, Ukraine Tel./Fax: +380 44 238 0944 Tel./Fax: +380 44 238 0413 53 Emilii Plater, Warsaw, 00-113, Poland Tel./Fax: +48 22 528 9490 Tel./Fax: +48 50 339 2053 E-mail: ilc@eucon.ua Web-site: www.eucon.ua

O

ur philosophy on protecting a client’s rights is simple — to prevent legal risks and litigation. International Legal Center EUCON provides services representing the interests and outsourcing of non-residents and residents doing business in Ukraine and abroad. An important feature of services provided by the firm is a comprehensive study of clients problems, in particular, the involvement of auditors, financial advisers, tax advisers, deep doctrinal research tasks. This approach in work has led to the structure of the Center, which includes the attorneys sector, audit sector, tax sector and sector of scientific advisers together finding not only effective but also competent decisions. The firm operates at two offices. Yaroslav Romanchuk heads the Ukrainian office in Kiev and Ihor Yatsenko is head of the Polish office in Warsaw. The team of International Legal Center EUCON advises clients on the most complicated issues of tax, transfer pricing, corporate, business restructuring, assets protection, commercialization of IP rights objects, tax planning with application of non-material assets. The firm’s clients include international and Ukrainian industry leaders that come from oil and gas, energy, agriculture and food industry, telecommunications, trade, transport, metallurgy, chemical industry, construction, hospitality, finance, etc. The performance of the International Legal Center EUCON and its partners is highlighted by numerous recognitions and awards. Since 2010 EUCON is included into the list of top 50 Leading Law Firms in Ukraine according to the annual ratings conducted by the Yuridicheskaya Practika Weekly and Kommersant-Ukraine Publishing House. EUCON is recognized among leading law firms according to international directories Legal 500 EMEA, World Tax and World Transfer Pricing, International Tax Review, and national legal directory Ukrainian Law Firms. A Handbook for Foreign Clients, the Kyiv Post, by Legal Awards. In 2015 EUCON has won the Ukraine Transfer Pricing Firm of the Year award at the annual European Tax Awards 2015, International Tax Review. In view of the current trends in tax policies, the International Legal Center EUCON has established a separate transfer pricing practice and engaged lawyers, auditors, assessors. International Legal Center EUCON and the International Audit Union established and operate the Transfer Pricing School attended by managers of accounting and financial divisions.

155


Transportation

Review of Transportation Law: in the Heart of Europe Viktor Moroz Managing Partner, Suprema Lex

Valerii Prysiazhnyi Senior Partner, Suprema Lex

To Be Done

U

kraine is situated in the middle of Europe and lies between the Black Sea and the Carpathian Mountains. Ukraine borders on Romania, Moldavia, Belarus, Russia, Poland, Slovakia and Hungary. So, the transport infrastructure of Ukraine, together with its airports, seaports, railroads and roads is the key to the country’s competitiveness and its integration into European and world transport networks and the global economy. European integration processes, including harmonization of Ukrainian legislation with European standards, are Ukraine’s current priority. Moreover, Ukraine is also taking part in the global “New Silk Road” project that will connect China with the European Union by rail and will lie through Ukraine.

The Basis of Ukrainian Transportation Law

As the transport system of Ukraine consists of several kinds of transport, each of which has certain characteristics, then the legislation on transport is quite significant in scope and diverse in content. Relations associated with transport activities are regulated by the Constitution of Ukraine, Civil and Commercial Codes, On Transport Act of Ukraine of 10 November 1994, On Pipeline Transport Act of Ukraine

156

of 15 May 1996, On Railway Transport Act of Ukraine of 4 July 1996, On the Transit of Goods Act of Ukraine of 20 October 1999, On the Automobile Transport Act of Ukraine of 5 April 2001, On the Functioning of the Single Transport System in the Special Period Act of Ukraine of 20 October 1998, On the Freight Forwarding Activities Act of Ukraine of 1 July 2004. A significant range of transport relations is governed by transport codes and charters on certain types of transport: Air Code of Ukraine of 19 May 2011, Maritime Code of Ukraine of 23 May, 1995, Charter of Inland Water Transport of USSR of 15 October 1955, Charter of Road Transport of Ukrainian URSR of 27 June 1969, the Charter of Railways of Ukraine of 6 April 1998. Among other acts of Ukrainian transport legislation that are important are the rules for transporting goods, acting for various types of transport and all sorts of goods.

www.ukrainianlawfirms.com

Taking into account the fact that a considerable number of types of transport exist in Ukraine, let’s focus on each of them separately. Railway transport Analysis of the current state and trends of the railway transport in Ukraine shows that despite its stable work, there are several significant problems that need to be solved. This applies in particular at the undetermined legal status of Ukrainian Railways as the regulatory body of railway transport; contravention between legal and actual status of railways as the companies and branches of Ukrainian Railways; distinction between commercial and government control functions in rail transport; imperfections of the financial and economic mechanisms ensure the depletion of assets in part due to lack of innovation and adaptability to specific operating conditions of transport. The urgency of solving these problems determines the need to reform the railways, which has become a decisive factor in realizing the strategic objectives of industry. The main goals and directions of railway reform are the creation of favorable conditions for attracting investment for the industry to update the industrial and technological base of industry, bringing Ukrainian Railways to a higher technical and technological level and integration of the Railway Transport of

Ukraine into the European and world transport systems, creating organizational and legal, economic, technical and technological conditions for the next transition to functioning in line with the principles of European industry transport policy. To implement these goals amendments have to be made to the On Transport Act of Ukraine and the Charter of railways of Ukraine and legislation introduced on the corporatization of railway transport, tariff regulation and European technical standards of engineering, building and exploitation of highspeed railways. Automobile Transport The automobile transport industry in Ukraine has an extensive legal framework, but there are a number of important areas that require legal regulation. Particularly there is much tension around the issue of financing highways and attracting foreign investment. The technical standards of Ukrainian roads do not meet EU standards nor the quality and the weight loads, so Ukraine need to bring its legislation into line with EU standards. So, have to be made amendments to the On the Public-Private Partnership Act of Ukraine, On Concessions Act of Ukraine. At the end of 2015 amendments were passed to the On Concessions for the Building and Exploitation of Roads Act of Ukraine. For the further development of international transportation of goods and passengers by leased automobile transport regulations have to be harmonized with European standards on duty free importation of cars. The current Rules of Hazardous Materials Transportation, Safety Rules and Rules of Freight within Loading Gage Transportation have to be harmonized with European standards. Sea and Inland Water Transport Sea and inland water transport also are very popular in Ukraine and play a significant part in transporting goods and passengers. An important step in the approach of the transport industry to European standards is interventions to develop regulations system quoting the part of export goods for domestic cargo fleet. To carry out this goal it is important to establish national freight exchanges and develop a system of financing national shipbuilding companies and, taking into account the importance of improving the


PROfile quality of agency services, to implement minimum requirements for ship agents, based on recommendations developed by UNCTAD. Ukraine is a participant of the European Agreement on Main Inland Waterways of International Importance (AGN), the European Agreement concerning the International Carriage of Dangerous Goods by Inland Waterways and has introduced the On the Seaports Act of Ukraine that allows Ukraine to be an equal participant of international projects in the area of sea and inland water transportation.

laborative airspace with the EU, based on the free access to the market of air carriage, equal competitive conditions and collaborative rules, especially at the areas of aviation safety, air traffic management, environmental protection and industrial social norms, development of cooperation between air manufacturing complexes of EU and Ukraine. For the moment the issue of the airlines exploitation licensing that have to be regulated by the State aviation service of Ukraine is unregulated.

Aviation Transport Ukrainian legislation on aviation law was developed in accordance with international standards, but to some extent it reflects only the beginning of market reforms in Ukraine. The main feature of aviation law in Ukraine is that legislative acts are in the main not directly applicable, but based on subordinate legislation. However, due to the basis of Ukrainian aviation legislation in international principles and acts it does, in the main, meet EU requirements. The main goals of Ukrainian aviation transport industry today are to build modern airports on the basis of old airports in Ukraine’s regions, create an effective air transportation market and develop air manufacturing. Ukraine is a participant of the Convention on International Civil Aviation (Chicago Convention), Montreal Convention (the Convention for the Unification of the Certain Rules for International Carriage by Air) and other international acts as well as inter-governmental agreements as Air transport agreement between the government of Ukraine and the government of the United States of America. The Ukrainian government has introduced the Concept of State target program of airports development that is aimed at involving private investments under state guarantees to make reconstruction of aerodromes and terminal complexes of regional airports in Ukraine. The Ukrainian government is also working on the establishment of col-

So, to have a comfortable transport business in Ukraine a foreign investor has to acknowledge that Ukrainian transport legislation is now developing but does not fully correspond with EU standards. Considering the quality of the Ukrainian court system and imperfections of national legislation for protecting the interest of foreign investors, reform of investment legislation that regulates activities on the Ukrainian transport market is needed. Transport law in Ukraine, due to its complexity, is closely connected with intellectual property law, M&A, corporate law, banking & finance law, labour law, litigation. The serious drawback of Ukrainian legislation in the transport sphere is the lack of a unified approach in questions related to transport activity. Ukrainian transport law consists of different laws and subordinate acts that regulate certain, specific transport relations. The legal framework in this respect is imperfect. Ukraine should refuse to regulate transport activities via subordinate acts and instead base it mainly on international conventions and traditions. There is a strong need to systemize legal provisions regulating transport activity. If Ukraine is positioning the transport industry as one of the main Ukrainian economic areas then it should follow global trends and harmonize laws with EU standards. There is the hope that in the near future Ukraine will be known as the heart of the Europe not only in terms of its location but also as the one of the largest transport arteries in the world.

www.ukrainianlawfirms.com

Instead of a Conclusion

Suprema Lex Address: 8 Cosmonavta Comarova Avenue, Kiev, 03067, Ukraine Tel.: +380 44 384 0557 E-mail: office@supremlex.com Web-site: www.supremlex.com

S

uprema Lex is a multi-disciplinary, industryfocused Ukrainian law firm made up of highlyqualified lawyers who work proactively to help their clients reach their business goals and generate commercial advantages. The firm provides a full range of legal services to national and international companies that do business in Ukraine and abroad as well as to private people. The firm’s main principles are an individual approach to every client, knowledge of the finest peculiarities of Ukrainian and international legislation, confidentiality and personal responsibility for services provided. The guarantee of your success in deciding any legal question is the professional competence of specialists to whom you apply. Highly-qualified lawyers and attorneys work at Suprema Lex, who have high-quality legal educations and excellent experience in various branches of law. Suprema Lex offers a full range of legal services and maintains a high reputation for its expertise in a wide array of practices, such as transport law (including aviation law and maritime law), corporate law, taxation, competition & antitrust, M&A, insolvency, dispute resolution, banking & finance law, land and real estate law, construction law, intellectual property, branding, licensing, domain disputes, media law, sport law, family law, labor & employment, medical & pharmaceutical law, criminal law, etc. The firm has extensive industry-specific experience and consults clients in various market sectors, including agriculture, automotive, aviation, banking and finance, energy, infrastructure and transport, insurance, media and advertising, oil and gas, pharmaceuticals and healthcare, private equity, real estate and construction, retail and consumer goods, telecommunications and IT. One of the main industry-specific experience of Suprema Lex is legal support of aviation. The firm’s attorneys provide preparation of legislation, getting licenses, certificates, etc, preparation of contracts and agreements, including international, customs & tax issues, intellectual property law, litigation.The experience in this area has a background in a special education in the aviation law of Viktor Moroz, managing partner of the firm, and his experience of work in the United Nations and international aviation companies. Our client portfolio includes international and domestic companies that require deep expertise and specialized legal advice from legal experts in the above-stated practice areas. We develop innovative strategies and provide efficient solutions to the most complex and challenging matters within the shortest period of time. With us nothing is impossible. Membership: Ukrainian Bar Association (UBA), Ukrainian Advocates’ Association (UAA).

157


Unfair Competition

Unfair Competition in Pharmaceutical Sector: Prevailing Violations Alexey Kot Managing Partner, Antika Law Firm, PhD (Law), Member of the Public Council of the Antimonopoly Committee of Ukraine

T

he Antimonopoly Committee of Ukraine traditionally focuses on the monitoring of compliance with competition law on the pharmaceuticals market. This is connected not only with the social importance of this market, but also with the relatively high level of competition and profit on it. In view of this, it is no surprise that when companies try to increase sales they often violate current legislation on protection against unfair competition. One of the most common violations of legislation on protection against unfair competition on the pharmaceutical market is the misuse of business reputation of the entity and deception of consumers. Misuse of business reputation includes several relative violations stipulated in Articles 4-7 of the On Protection against Unfair Competition Act of Ukraine: unlawful use of trademarks (Art. 4), copying goods’ outward appearance (Art. 6), unlawful use of goods made by other manufacturers (Art. 5) and comparative advertising (Art. 7). The most common are the first two violations. Unlawful use of trademarks lies in using the name, trade name or brand name, trademarks (signs for goods and services), advertising materials, package design of goods and periodicals, other indications without the permission (consent) of a business entity, which earlier started to use them or similar to them indications in economic activity that led or may lead to confusion with the activity of this business entity. Copying the outward appearance of goods is replication of the outward appearance of goods belonging to another business entity and commercialization of them without ex-

158

www.ukrainianlawfirms.com

plicitly indicating the manufacturer of copies, which may lead to confusion with the activities undertaken by the other business entity. It should be noted that the above violations are very similar in nature to violations in the area of intellectual property. Similarly, the outward appearance is often protected as an object of intellectual property by patents and/or design inventions. However, the scope of regulation of protection against unfair competition has distinctions that can enable companies to protect their rights in cases where intellectual property legislation does not provide such protection. The area of application of legislation on protection against unfair competition is bigger, since protection is provided not only to registered trademarks of goods and services but to any indication that is used by the company. At the same time, appealing to the Antimonopoly Committee of Ukraine with a complaint about the misuse of indications or copying of the external appearance, it should be understood that the primary purpose and function of the Committee is protection of competition on the market, not the protection of an individual’s rights. Therefore, the company is unable to claim through the Antimonopoly Committee of Ukraine to obtain damages or other compensation from an offender. However, if the purpose of appeal is to halt the illegal activities of the offender and prevent similar situations in the future, an appeal to the AMCU can be an effective tool. Thus, the Committee may impose on the offender a fine of up to 5% of revenue from sales of goods (services) for the year preceding the imposition of the fine. Such fine is essential for any company regardless of its size and, therefore, has a significant “preventive” effect. Another important tool that the Antimonopoly Committee of Ukraine has is the right to withdraw from commerce those goods containing an illegally used indication which are copies. This prevents the further spread of infringing goods. Another violation of legislation on protection against unfair competition that is very common on the pharmaceuticals market is the dissemination of information that deceives consumers. This violation is stipulated in Ar-

ticle 15-1 of the On Protection against Unfair Competition Act of Ukraine and is one of the important mechanisms that ensure accuracy and completeness of advertising information about goods. According to Article 15-1 of the On Protection against Unfair Competition Act of Ukraine, the dissemination of misleading information is giving either directly or through another person by business entity to one or several persons or general public, including in advertising, incomplete, inaccurate, false information, in particular due to the chosen method of statement, omission of certain facts or fuzziness of wording that affected or may affect the intent of these individuals to purchase (order) or realization (sale, delivery, performance, provision) of goods, works, services to the business entity. The information is considered misleading if it: — contains incomplete, inaccurate or false information about the origin, manufacturer, seller, method of manufacture, source and manner of acquisition, realization, the number of consumer properties, quality, completeness, suitability for use, standards, specifications, the sales peculiarities of goods, works and services, price and any discount on them, as well as the essential terms of the contract; — contains incomplete, inaccurate or false information about the financial standing or business activity of the business entity; — refers to authorities and rights that are not enjoyed, or relationships that are not involved in; — refers to production output, purchase, sale or supply of products, works and services that were not performed at the day of spreading information. Unfortunately, the provisions contained in Article 15-1 of the On Protection against Unfair Competition Act of Ukraine are fairly subjective, that is why usually in practice especially while creating promotional material the question related to whether the advertising video, announcement or other types of advertisements correspond to legislation on protection against unfair competition. It is also worth noting that special requirements are applied to advertising of pharmaceuticals in terms of its completeness and information that it contains.


PROfile The basic requirements for the amount of information that must be contained in the advertising of pharmaceuticals are established by part 4 of Article 21 of the On Advertising Act of Ukraine. In particular, such advertising must contain: — objective information about a medicinal product and should be produced in such a way that it is clear that the message is advertising and the advertised good is a medicinal product; — demand of consultation with a doctor before using the medicinal product or medical device; — recommendation for mandatory review the instructions to the medicinal product; — the following warning: “Selfmedication can be harmful to your health”, which takes at least 15 percent of the area (length) of the whole advertising. Parts 5-14 of that Article also contain a list of facts and information, which is prohibited from being used in the advertising of medicines. However, despite the prohibitions and list of the required information, the current legal regulation of pharmaceutical advertising in Ukraine is very liberal in comparison with the legislation of the EU and the United States. It should be noted that the debate on the reform of legal regulation in this area and detalization of the information to be provided in advertising has recurred repeatedly. In particular, a proposed introduction of a mechanism that would oblige the indication in advertising of counterindications and side effects of medicines and administration details. A similar obligation exists in the USA where an advertiser in the advertising of medicines has to note side effects and counterindications in such quantity that meets positive effects and benefits specified in the advertising. Unfortunately, initiatives on introducing similar principles in Ukraine have remained in projects. According to the Antimonopoly Committee of Ukraine during 20132015 the most common cases of violations of Article 15-1 of the On Advertising Act of Ukraine in pharmaceutical advertising are the provision of false information about the possibility of usage of a medicinal product for a certain range of customers, providing false information on the therapeutical www.ukrainianlawfirms.com

effects of medicines and details of administration. In particular, a very common violation in the advertising was the use of indication on possibility for children to take the medicines but without specifying their age. In terms of the Antimonopoly Committee of Ukraine, such indication points to the possibility of children’s administration irrespective of age. Thus, if a medicine can be used only for children from a certain age the advertising in question was clearly regarded by the Committee as misleading. Another example is specification in the advertising the information about the possibility of the medicine administration by pregnant women and during lactation. According to the medicine’s instructions on use, it can be used if prescribed by a doctor. The Antimonopoly Committee of Ukraine decided that advertising is misleading because the consumer receives the idea that the medicine can be taken without any restrictions, whereas in fact such restrictions exist and its use was only allowed subject to a doctor’s prescription. Another common misleading violation concerned the therapeutic characteristics of medicine. For example, the indication in advertising in any form of information that over some time the pain disappears, there comes relief, etc. In view of the Antimonopoly Committee specifying such information in advertising is allowed only if the relevant medicine properties are confirmed by pharmacological properties or corresponding research. Another example is stating in advertising of information that the medicine “cures coughing fast”, whereas in reality under pharmacological properties the medicine soothed defluvium of mucus and softened the cough. The Antimonopoly Committee regarded this as misleading. It should be noted that in the view of the AMCU the most common misleading claim was the instructions for use. Thus, when creating adverts on medicines special attention should be paid as to compliance of statements used in advertising, information on properties, counterindications and pharmacological effect of the medicine, which is described in the instructions for use and avoid statements that could have or create a picture of the wider use of medicine than in fact.

ANTIKA Address: 12 Khreschatyk Street, 2nd Floor, Kiev, 01001, Ukraine Tel.: +38 044 390 0920 Fax: +38 044 390 0921 E-mail: office@antikalaw.com.ua Web-site: www.antikalaw.com.ua

A

ntika Law Firm was founded in 2010. The firm provides legal services to national and international companies that do business in Ukraine and abroad. Main areas of practice: antitrust, litigation and arbitration, criminal defense for business, construction & real estate, subsoil use, energy & energy efficiency, project financing, corporate/M&A, legal expertise. The firm has been recognized by authoritative international and Ukrainian guides such as The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, and is recommended in the area of antitrust, dispute resolution, corporate/M&A, banking, finance and capital markets, real estate, land, subsoil use, energy, energy efficiency and energy savings. Antika’s team includes 15 lawyers, who have significant experience in various fields of legal practice. Our lawyers are professionals with broad experience and skills to provide comprehensive and creative solutions. We follow traditions in law. Meanwhile, having a good understanding of today’s challenging business requirements and a deep knowledge of the legal environment we bring an innovative, creative and practical problem-solving approach to all of our work. The firm’s main principles are high quality and timely legal services, strict confidentiality and a bespoke approach to every client’s project. Antika serves Ukrainian and international companies doing business in telecommunications, heavy machinery, chemical and food industries, pharmaceuticals, automotive, construction, real estate and complex development, energy, oil and gas, subsoil use, wholesale and retail, media and sports, banks and financial services market. The firm also advises the World Bank, EBRD, NEFCO, KfW, USAID on energy efficiency, utility and other infrastructure projects in Ukraine. The firm is a member of the Ukrainian Chamber of Commerce and Industry, the American Chamber of Commerce in Ukraine, the Canada-Ukraine Chamber of Commerce, the European Business Association, and the International Turkish Ukrainian Businessmen Association.

159


advertisement

International expertise with local insight

3 Rognidyns’ka street, Office 10, 01004, Kyiv, Ukraine +38 (044) 537 09 10 kyiv-law@ecovis.com

www.ecovis.ua


Who is Who

in Ukrainian Law by Practice Areas/ Industries Agribusiness Antitrust / Competition Banking & Finance / Restructuring Bankruptcy Capital Markets / Liability Management Corporate and Mergers & Acquisitions Criminal Law / White-Collar Crime Energy & Natural Resources Intellectual Property

International Arbitration International Trade IT / Telecommunications & Media Labor & Employment Litigation Pharmaceuticals / Medicine & Healthcare Real Estate, Construction, Land Tax and Transfer Pricing Transport: Aviation, Shipping & Maritime


Who is Who

Agribusiness

in Ukrainian Law by Practice Areas ⁄ Industries

Oksana Kryzhanivska, Alexandrov & Partners Ukraine is becoming increasingly attractive for investment coming into the agricultural business. With decent management, Ukrainian agricultural companies can become super-profitable. Taking the above into consideration, 2015 was the year when Ukraine turned over a new leaf in its agricultural life. 1) A considerable number of promising companies were unable to cope with competition and were offered for sale at very attractive prices. 2) Agricultural holding companies were optimizing logistical links among their clusters and, as a result, were selling their distant entities and purchasing those which were located closer to the management hub; that means that some rather attractive assets may be acquired at good prices. 3) Some agricultural holding companies were active in “putting things right” in their production and management systems for the purpose of further growth, increasing the land bank and raising funds. 4) A number of companies (particularly, small-sized and medium-sized ones, with a land bank of up to 10,000 hectares) focused on introducing innovative methods and enhancing efficiency thanks to new technologies. 5) Liquidation procedures were initiated in numerous banks; as a consequence, at the current stage, the pledged assets of agricultural companies may be purchased at prices which are much lower than their real market values. There are ongoing discussions on the issue regarding lifting a moratorium on the sale of agricultural land. According to opinion polls, a majority of players on the agricultural market are not ready to purchase land even if this market is opened. At the same time, in certain regions, land— owners are already willing to sell and certain agricultural companies (both foreign and Ukrainian) are ready to buy certain amounts of land. Thus, due to the availability of both demand and supply, as well as due to the moratorium, the land market offered new opportunities in 2015 through conclusion of agreements for emphyteusis (land use for agricultural needs). An advantage of such agreement is: so far as private land is concerned, it may be concluded for an indefinite number of years, whereas the right to use land under such an agreement constitutes in itself an article of merchandise and may be, for instance, sold or provided to a creditor as collateral. Thus, an agreement for emphyteusis is a real and efficacious alternative to the land sale and purchase transaction.

| 162 |

Agribusiness

W

ith a diverse legal service offering for the Ukrainian agrarian sector and consistently formidable workflow, Law Offices of OMP retains its top positions on the market. The broad range of sectoral queries includes assets sale and lease, financial and corporate restructuring, land plots transactions, commercial litigation and arbitration. The team is a top point of contact for sector specific acquisitions across different regions of the country. Some notable highlights of the team is complex support the owners of Agrokultura Holding in exchange for assets of its group of subsidiaries for MHP S.A. Russian group of subsidiaries; rendering advice to Prometey Group on purchase of an elevator complex in Mykolayiv Region. The team is regarded for its active involvement in the USAID AgroInvest program. There are many significant names among the impressive spectrum of clients, names like Mriya Agro Holding Group, Agrokultura AB, Agro-region Group, Cygnet Holding, Dedov, MHP, Kernel Group, Harvest Holding, APK, Selhosproduct Group, Glencore, USAID AgroInvest, Prometey Group, Agroprodservice Corporation, Rosan-Agro Group, Astarta Group. The four-partner strong practice is led by Mykola Orlov, Yaroslav Sverdlichenko, Kyryll Levterov and Igor Ogorodniychuk. The Kiev office of Dentons is continually active in transactions in the agrarian sector. The international law firm is traditionally attracted by the major international agricultural players, such as CHS, Noble Group, for rendering advice on their activity in Ukraine. Among the recent work is acquisitions in the sector, corporate reorganization, issues of investment and construction, export finance, tax advice. Ihor Mehedynyuk and Volodymyr Monastyrskyy are lead partners. Anzhelika Livitska, senior associate, is a point of reference for land law advice named by peers. Asters, a respected full service team, is a prominent counsel in finance and corporate areas, with an increasingly growing practice of international trade support. The firm regularly advises its agrarian clientele on access to domestic and international finance and capital markets, and is equally active in supporting the EBRD and IFC on financing the sector. Asters has recently advised the IFC in connection with committed and anticipated facilities to Astarta. The firm regularly supports clients on investments and operations in Ukraine, and handles contentious matters. Clientele includes ED & F Man Holdings, Monsanto, Creative Group. The multidisciplinary practice workload is divided between partners — Oleksiy Didkovskiy, Armen Khachaturyan, Oleksiy Demyanenko, Alexey Khomyakov.

Alexandrov & Partners is primarily known for its deep niche in agribusiness. Agricultural land and assets lease, acquisitions, corporate structuring and complex investment support, competition, debt restructuring, tax and regulatory disputes, currency control fall within its recent performance. In particular, the firm advised a foreign investor, the group of Resilient companies on alternative to land plots acquisition — emphyteusis contractual package. Both partners Dmytro Alexandrov and Oksana Kryzhanivska are very active in advising agrarian sector players. The reputable full service firm Sayenko Kharenko is centered on handling high-profile projects in the agricultural sector, in particular, advises on international trade and corporate matters, and acts for international financial institutions on financings to Ukrainian agro companies. The team is also traditionally visible in arbitrations and litigations involving agrarian sector clients. The international trade team led by partner Tatyana Slipachuk and counsel Andrii Zablotskyi, who is coordinating the firm’s agribusiness practice, advised Soufflet Group in connection with the signing of a MoU between Soufflet Group and Illichivsk seaport on USD 70 million investment in port infrastructure and construction of grain transshipment terminal. In 2015 the firm became the official legal counsel of the Ukrainian Agricultural Council. The finance team led by partner Nazar Chernyavsky advises the EBRD on finance to the sector and the Nordic Environment Finance Corporation (NEFCO) on a range of financings to Ukrainian agribusinesses aimed at implementation of energy-saving technologies. The corporate team as led by partner Vladimir Sayenko, advised agro clients on the sale, personal data transfer and various other data protection issues, settlement of outstanding debts. The international arbitration team enjoys a series of high profile arbitrations, inter alia, in LCIA and GAFTA. Highly visible in the agrarian sector, the compact team of AGA Partners is recognized for its wealth of experience in commodities trade support, transportation and high profile international arbitration, notably GAFTA and FOSFA. The firm enjoys assignments from top sectoral clients, inter alia, PJSC Rise (Ukrlandfarming Group), State Food Grain Corporation of Ukraine, NCH Capital Inc. and others. Among the firm’s arbitration highlights is representing Public Company Rise at the High Court of Justice in a dispute with Nibulon S.A. The team of partners Aminat Suleymanova, Ivan Kasynyuk and Irina Moroz are highly active in the market and demonstrate a solid and growing caseload. www.ukrainianlawfirms.com


Who is Who

Agribusiness

Over the last couple of years Avellum established its market position as a vivid legal counsel for capital markets work and cross-border financing agricultural enterprises. The team of finance partner Glib Bondar advised the noteholders’ committee of Mriya Agro Holding plc in connection with the restructuring of Mriya Agro Holding debt; and acted as Ukrainian legal counsel to ING Bank N.V. in connection with a USD100 million sunflower oil preexport loan facility to MHP S.A. The corporate team of managing partner Mykola Stetsenko is often hired for supporting joint ventures and asset deals. He recently acted as Ukrainian legal counsel to MHP S.A. in connection with the exchange of grain growing assets Voronezh Agro in Voronezh Region of the Russian Federation for Agrokultura in the Lviv, Ternopil and Ivano-Frankivsk Regions of Ukraine. Vasil Kisil & Partners has a distinctive focus on supporting comprehensive projects in the sector and demonstrates increasing activity in arbitration cases. The firm is a legal counsel to Ukrainian Club for Agricultural Business for a variety of issues, such as corporate, tax, regulatory, land, commercial and other nature. Currently Alexander Borodkin, partner, advises Pioneer Hi-Bred International, Inc. (Switzerland), Du Pont Corp. (USA) on a construction of a seed plant in Ukraine, that covers all matters, starting from land acquisition and rezoning, and covering all sorts of regulatory and compliance advice in land and construction matters. The multidisciplinary practice team assembles Anna Sisetska, Volodymyr Igonin, Alexander Borodkin, Oleg Alyoshin. The name of managing partner Andriy Stelmashchuk gained praise for his profound ownership dispute performance. Baker & McKenzie is a port of choice for big multinationals seeking investments in Ukraine, as well as for transactional and operational legal support in the jurisdiction. The office is enlisted for business restructuring, M&A, land and tax advice, finance, commercial litigation including cross-border disputes. As the team advised sectoral issuers on their capital markets deals, it recently acted as a legal counsel on various liability management issues. The current example by way of illustration is acting as legal counsel to Agroton Public Limited in connection with solicitation of consents of Eurobond holders. The projects of the practice team are managed by three well-known partners, Viacheslav www.ukrainianlawfirms.com

Yakymchuk (corporate, M&A, private equity and equity capital markets), Oksana Simonova (competition) and Lina Nemchenko (real estate and construction). The team of Redcliffe Partners (prior to 1 December 2015 — Clifford Chance) commands a strong profile among foreign investors, lenders, private equity funds investing in Ukraine’s agricultural sector, as well as among international and local agribusinesses. In 2015 the team advised on transactions involving leading agricultural producers and exporters, including Kernel, Myronivsky Hliboproduct, Astarta, Valinor, COFCO, Louis Dreyfus. Among selected highlights is representing the world’s largest agricultural traders on establishing a joint venture in relation to development of a port. The banking and finance practice led by Olexiy Soshenko, managing partner, acted for an international lender on USD 400 million refinancing of pre-export facility extended to Kernel; and for the EBRD on setting up risk-sharing arrangements between the EBRD and Ukrainian banks for the purposes of financing agricultural producers in Ukraine. Dmytro Fedoruk and Rob Shantz (joined in autumn 2015 as a partner) lead the agriculture industry group at Redcliffe. AEQUO is rendering both transactional and dispute work, having on board partners with consistent expertise in agribusiness. The formidable client portfolio includes Ramburs Group, E.I. du Pont de Nemours and Company, Pioneer Hi-Bred International, Inc., Illychivsk Grain Port. With rapidly growing finance workflow, the team of Yulia Kyrpa, partner, has been engaged in a number of debt restructuring projects. For example, it advised Ramburs Group on restructuring its indebtedness and advised on the implemenation of derivatives to hedge the risks arising out of agri trading transactions. Under the guidance of managing partner Denis Lysenko the firm advised on group restructuring, real estate and regulatory matters related to a greenfield grain terminal project development in Yuzhny (Pivdenny) port, with a view to future JV arrangement with a US-based global commodities trader. Pavlo Byelousov, counsel, is in charge of GAFTA arbitrations. In 2015 Integrites was involved in a number of high-value financial, corporate and restructuring transactions, arbitrations and litigations involving the agrarian sector clients. Recent work encompassed

Leading FIRMS 1. 2. 3. 4. 5.

Law Offices of OMP Dentons Asters Alexandrov & Partners Sayenko Kharenko

notable

Practitioners

Listed in alphabetical order

Dmytro Alexandrov (Alexandrov & Partners) Eugene Blinov (Eterna Law) Oleg Boichuk (Egorov Puginsky Afanasiev & Partners Ukraine) Alexander Borodkin (Vasil Kisil & Partners) Danylo Getmantsev (Jurimex Law Firm) Ivan Kasynyuk (AGA Partners) Oksana Kryzhanivska (Alexandrov & Partners) Denis Lysenko (AEQUO) Ihor Mehedynyuk (Dentons) Ihor Melnyk (IMG Partners) Alexander Minin (WTS Tax Legal Consulting) Mykola Orlov (Law Offices of OMP) Olena Perepelynska (Integrites) Andriy Romanchuk (Moris Group) Serhiy Silchenko (ILF (Inyurpolis Law Firm) Mykola Stetsenko (Avellum) Aminat Suleymanova (AGA Partners) Yaroslav Sverdlichenko (Law Offices of OMP) Andrii Zablotskyi (Sayenko Kharenko)

Counselink A.G.A. Partners law firm Kuznetsky Business Center 64/16 Gorkogo Street, Kiev, 03150, Ukraine Tel.: +380 44 237 7933; 237 7943 E-mail: office@agalawyers.org Web-site: www.agalawyers.org

GoldenGate Law Firm Business Center Saksagansky, 70 Saksaganskogo Street, Tel.: +380 44 392 8907 Fax: +380 44 248 0009 E-mail: info@goldengate-law.com Web-site: www.goldengate-law.com

Interlegal

24B Genuezska Street, Odessa, 65009, Ukraine Tel: +380 482 33 7528 Fax: +380 482 33 7529 E-mail: odessa@interlegal.com.ua Web-site: www.interlegal.com.ua

| 163 |


Who is Who

Agribusiness

in Ukrainian Law by Practice Areas ⁄ Industries

advising the EBRD on several loans and restructurings; a leading Ukrainian agriholding on a USD 10 million pre-export credit facility provided by one of the leading commodity traders. Notably, Integrites acted as a global legal counsel to New Products; advised Ukraine’s leading agribusiness operator on an investment project for the construction of a regional logistics centre. The international arbitration practice led by partners Olena Perepelynska and Vsevolod Volkov was engaged in several disputes involving both local and global agricultural companies, including ICC, LCIA, GAFTA arbitrations on debt recovery from Ukrainian agro-industrial companies; and completed the large SCC arbitration representing a leading poultry producer in the CIS. The sizeable team includes partners Dr. Oleksiy Feliv, Oleh Zagnitko and new M&A and corporate practice head Svyatoslav Sheremeta. The team of Egorov Puginsky Afanasiev & Partners Ukraine assists the largest agricultural companies with a wide range of matters, including finance, capital markets, corporate and M&A, arbitration and litigation projects, tax and real estate matters. In 2015 the firm advised its long-standing client Sodrugestvo Group with respect to Ukrainian law matters of its local operations (grain trading and operating a grain elevator), including litigation, tax and regulatory aspects. The firm regularly advises the world’s leading corn flour and tortilla production company on various business structuring and litigation matters. Oleg Boichuk, who was appointed as a partner, leads the agriculture team. Arzinger is noted for handling investment projects and litigation work. The firm advises the EBRD in EUR 20 million worth of investment in a joint project with the French agrarian player Soufflet Group. The team is also present in finance and debt restructuring in agribusiness. The most sound and complicated projects is multimillion debt restructuring of Mriya Agro Holding. Another significant part of assignments remain in the field of tax litigation. Partner Anna Zorya (corporate and M&A) and partner Kateryna Gupalo (tax litigation and white-collar crime) are the lead practitioners. Moris Group is primarily known for its full service expertise in supporting agriholdings. Being regularly attracted by AvangardCo PL, the leader in the egg and egg processing industry in Ukraine and Eurasia, the group supports investment projects on construction poultry and equipment delivery in five Ukrainian regions to the total sum of USD 876 million. The scope of support encompasses a variety of corporate,

| 164 |

investment, tax and dispute assignments. Another important feature of the recent workflow is proliferating tax litigation practice. The name of Andriy Romanchuk, managing partner, is widely known on the market. Renowned for its niche commodities arbitration and foreign trade practices, ARBITRADE continues to act in all capacities in a series of FOSFA and GAFTA arbitrations. The firm represents its long-standing client, PJSC State Food and Grain Corporation of Ukraine (SFGCU), in a series of arbitrations at the GAFTA and acts for EFKO-Trade LLC (Russia) in a FOSFA dispute. Among significant clients are also Logos Group and Bunge. Yuliya Chernykh and Andriy Shulga are the main contacts. The multi-facet practice group of ILF (Inyurpolis Law Firm) is focused on corporate restructuring and asset protection, structuring ownership, assets and land plot acquisitions. The firm renders continuous advice to BASF as for payments for supply, debt recovery litigation, loan facility. ILF is enlisted for inbound and outbound investments. In particular, it recently supported a private local investor on the acquisition of an agro processing plant in Turkey. The litigation practice is traditionally loaded with an array of debt collection, administrative and regulatory disputes. Recently the firm represented Rol Pol LLC, Polish Capital Group Norblin, on challenging the decision of the Antimonopoly Committee which accused it of monopoly abuse. Serhiy Silchenko is the lead partner. Gramatskiy & Partners arranged export finance for Ukrainian agrarian producers accessing Middle East markets and drafted legal schemes of arranging trade, including regulatory queries. Firm’s team supports complex export programs of Finrostorg Ltd and Investtradeservice, trade in fertilizers and crop protecting agents, purchases of agro equipment, renders everyday support to processing companies and traders. Among new illustrative projects are negotiations with the state agencies of Iran for export and export finance after the abolition of sanctions, debt restructuring work and land disputes. Andriy Trembich is the main practitioner who leads the 5-lawyer team. Apart from traditional expertise in representing banking institutions on financing the agrarian sector, CMS Cameron McKenna has global multinational and Ukrainian sectoral clients on board. The office showcases M&A, corporate, competition, employment and finance matters. Kateryna Chechulina and Tetyana Mykhailenko advised a syndicate of

banks on syndicated secured pre-crop and preexport credit facility of up to USD 65 million for Kernel Group. Partner Graham Conlon is a contact for M&A queries. The team of Jeantet (a French international law firm, launched by taking over the Kiev office of Gide Loyrette Nouel in November 2015) enjoys established legacy for supporting French originated agrarian clients on their activities in Ukraine. Illya Tkachuk assists a Ukrainian subsidiary of Savencia Fromage & Dairy Europe, the worldwide leader in cheese production, on various corporate matters; and Igor Krasovskiy advised the EBRD on restructuring the corporate loan to Agrogeneration, secured by assets located in Ukraine. In 2015 Ilyashev & Partners gained solid sector clients, among others OLAM Ukraine, Danone, Agrein, RONLY, Noble Group, and continued supporting KWS Ukraine and Creative Group. The sizeable team is well-versed in comprehensive cross-border litigation and arbitration. The firm represents Agrein group in a high value USD 200 million corporate dispute. Transaction support was performed with a number of corporate, M&A and asset acquisition assignments in the past year. Maksym Kopeychykov was the lead partner. International Legal Center EUCON renders support in profound for the firm sector of specific tax matters and commercial litigation. The strong tax team recently acted for Mikogen Ukraine and Zhoravske Agricultural LLC. On the dispute front the firm represented AGRO TEKS PLUS in a property rights recognition dispute. The distinctive feature of the team is outbound investment workflow, coupled with corporate assignment redirected to the Warsaw office, headed by partner Ihor Yatsenko. Since Anatoliy Miroshnychenko, the firm’s scientific counsel, left for the High Council of Justice, the practice is headed by senior partner Tetiana Samsina. FCLEX added major agribusiness companies to its clientele, showcasing litigation, debt restructuring and criminal defense service. The firm’s illustrative projects are advising Ahroholding Mriya on USD 60 million debt restructuring to Alfa-Bank; and acting for Soloduсhin agricultural company in a debt recovery dispute with Delta Bank. Partners Andriy Nikitin, Vyacheslav Kraglevych and Taras Poshyvanyuk lead the projects of this rapidly-developing industrial specialization of the firm. WTS Tax Legal Consulting supports projects and agreements in the sphere of production and trade of agricultural goods. As the top www.ukrainianlawfirms.com


Agribusiness

tax counsel on the market, the firm is a widely acclaimed legal counsel for sector specific tax advice. Thus, the team acts in numerous tax litigations, renders broad— based regulatory work, and covers a wide range of contractual aspects as well as advice on land legislation. Three partners, namely Alexander Minin, Maxim Oleksiyuk and Alexander Shemiatkin, are at the front of queries from clients. IMG Partners has the agricultural sector among its premier industrial focus. The scope of dedicated practice covers the establishment and management of agribusiness, including land acquisition, land tenure, business restructuring, international trade, taxation, dispute resolution and any other day-to-day matters. Among illustrative projects is representation of one of the largest agricultural holdings against a Ukrainian bank in a USD 37.5 million debt collection; and acquisition of an integral property complex (sugar refinery) in the interests of a large agricultural holding. Managing partner Ihor Melnyk leads the practice and is highly active across various initiatives. Another key input is provided by partner Mykola Struts. Jurimex Law Firm is a long standing market player with broad-range offering in the

sector. A significant workflow of the practice is dedicated to land plots operations, land lease, ownership rights protection and subsequent litigation. The firm often deals with cross-border contracts and customs issues, as for export and import of soft commodities and cattle. The real estate team supports Glukhyvskiy Elevator LLC on reconstruction of elevator agricultural complex and construction projects; advises Ukrainian-Dutch Agrocompany LLC on reconstruction of its dairy complex. The firm’s multidisciplinary capacity is driven by such main figures as Danylo Getmantsev, Marina Slobodnichenko and Lybomir Pytel. AstapovLawyers* international law group commands a legacy from a following of industrial clients. The significant share of the arbitration caseload comes from representing clients in FOSFA and GAFTA arbitrations. Eugene Blinov, partner, head of the international arbitration department, has a strong focus in this area. GOLAW (previously known as Gvozdiy & Oberkovych) possesses notable expertise *In May 2016 AstapovLawyers merged with European Law Firm Baltic Business Group to operate under the new joint brand of Eterna Law.

Who is Who

for agrarian clients. The firm handled export finance restructuring by a foreign agrarian company and supports ongoing comprehensive project of funding and construction of agrarian capacities as well as regulatory work in the sector. Another highlight is giving advice to the Ukrainian representation of Syngenta on regulatory and contractual issues. Partners Valentyn Gvozdiy and Sergiy Oberkovych are the main contacts. The Dnepropetrovsk-based Law Firm Dynasty is retained by clients for contentious issues. Debt recovery, administrative disputes and land law advice were in scope in 2015. Snejana Karagodina, Viacheslav Kohlyakov and Anna Poddubnaya are the core figures. Interlegal, the Odessa-based legal counsel with a sharp focus on transportation and logistics, deals with international trade matters and has been actively engaged in GAFTA arbitrations. EY Ukraine, working under the guidance of Albert Sych, partner, and a law leader in Ukraine, is a preferred legal counsel for restructuring, assets and corporate acquisitions, tax structuring work.

advertisement

www.ukrainianlawfirms.com

| 165 |


Who is Who

Antitrust / Competition

in Ukrainian Law by Practice Areas ⁄ Industries

Antitrust / Competition

Ulyana Khromyak, EVERLEGAL In 2015, the Ukrainian competition law enforcer (AMCU) was busy with additional pressures caused by staff optimisation. The newly-appointed management focused, among other things, on power and gas, FMCG and pharma retail, utilities, and domestic air services sectors. The majority of enforcement actions related to abuse of dominance, cartels and a fair share of unfair competition cases. A number of clients continue to apply for the amnesty announced by the AMCU for past non-notified mergers, which will last until 15 September 2016. The number of AMCU decisions which were appealed against in courts was not significant as the courts are currently reluctant to second-guess the Committee. The major recent achievement was the passing of merger control reform laws aimed at aligning the Ukrainian regime with EU rules. From 18 May 2016, the two sets of reshaped statutory thresholds will come into force, whose expected effect is to capture higher value transactions with closer nexus to Ukraine rather than sweeping deals with remote ties to Ukraine. The number of Phase II reviews is expected to increase as the AMCU will look into concentrations having real impact on the Ukrainian market with emphasis on substantive analysis. A fast track review will be introduced for certain low-impact transactions. More straightforward notification and disclosure rules are expected to be adopted by the AMCU soon. The Committee became more transparent by publishing its decisions and by adopting fining guidelines so making the AMCU’s approach to penalties more predictable. Notably, the AMCU is preparing for full scale introduction of state aid rules in 2017. Some issues still remain to be resolved. For example, a target is still taken as a part of the seller’s group for calculating the thresholds, ancillary restraints (e.g. non-compete clauses) are still cleared separately from a merger notification, and the courts are not authorised to review a fine or remedy imposed by the AMCU. For 2016, we expect the role of legal counsel to become more complex in merger filings with additional emphasis on substantive analysis with use of economics experts. Given the AMCU’s scrutiny, the volume of work related to dominance abuse, cartel investigations and public procurement disputes will also increase and the parties will appeal against more of the AMCU’s decisions given the increasing sums of fines.

| 166 |

A

s the undisputed leader of the Ukrainian competition law market, Asters is the largest team in terms of scope of work and human capacities. This is the only competition team in the country with three dedicated partners on board. The top practice possesses broad experience in the entire spectrum of antitrust and competition issues including merger control, compliance, unfair competition matters, investigations. Of late the team has acted for Actavis plc and Allergan, Inc. in the USD 66 billion acquisition by Actavis plc of control over Allergan, Inc; obtained merger and antitrust clearances for three-part inter-conditional transaction between GlaxoSmithKline plc and Novartis AG; obtained merger clearance for the acquisition by General Electric Company of Alstom’s Thermal & Renewable Power and Grid businesses; and handled many other significant mandates. Among significant public clients are AC Nielsen Ukraine, Teva Pharmaceutical Industries Ltd, GlaxoSmithKline plc, Allergan plc, Philip Morris, Siemens, Mars, Cisco Systems, Alstom, Clariant, GE, KKR, Evonik Industries, Vivendi and others. Igor Svechkar, partner, is a hugely respected figure on the market, serving as an eminent leader. Alexey Pustovit, partner, has an outstanding record of advising Ukrainian and international clients. Oleksandr Voznyuk, partner, enjoys incredible support from the market insiders, and is called among the most experienced practitioners with a solid background in both public service and private legal practice. Long-standing Sayenko Kharenko’s competition team retains a leading position in the market. Traditionally active in advising on merger control issues, in 2015 the team handled over 100 mergers and non-compete filings with the Ukrainian competition authorities for cross-border M&A deals. The firm has also represented a number of the worldwide leading companies in relation to unfair competition and anticompetitive concerted practices investigations before the AMCU. The key highlights include advice on Ukrainian competition law issues related to the GBP 47 billion acquisition of BG Group plc by Royal Dutch Shell plc; USD 32 billion threepart inter-conditional transaction between GlaxoSmithKline plc and Novartis AG; USD 17 billion acquisition of Sigma-Aldrich Corporation by Merck KGaA. The client representation on cartel and unfair competition issues include a wide range of international and local businesses in chemical, pharmaceutical, tobacco, consumer goods, pulp and paper, energy, etc. The core competition team members include counsel Maksym Nazarenko and senior associate Valentyna Hvozd. The prominent individual — partner Vladimir Sayenko, is highly

referred as a core rainmaker. Dmitry Taranyk, partner, is another highly referenced individual. In April 2015 renowned professional Antonina Yaholnyk established CLACIS, an independent competition law advisory boutique. The boutique is designed as a “one-stop-shop” platform for CIS backed competition law matters on the regional level. With an impressive workflow of merger filings mandates, throughout 2015 the team acted for Alcoa Inc., the largest U.S. aluminum producer, in its planned USD 2.85 billion acquisition of UK aerospace-components maker Firth Rixson Ltd; represented ArcelorMittal and CLN Group in merger clearance for establishing a joint venture; acted for MHP and Dnister Agro in merger clearance for the acquisition by PJSC MHP of Dnister Agro (agricultural assets). It is noteworthy that the team worked on obtaining CIS merger control approvals and general competition law advisory for several JVs in Ukraine and in the CIS region with leading business representatives European Bearings Corporation, a Russian leader in bearing production. At present CLACIS represents The Timken Company, US based global bearing producer, in the second phase competition law investigation. Another landmark work is supporting MasterCard in a competition law matter in Ukraine, Russia and Kazakhstan. Antonina Yaholnyk, founding partner is among the top esteemed practitioners on the market. The key team member is Kateryna Tkachenko, who successfully represents clients in terms of market investigations and competition law cases, especially in unfair competition law matters. In October the team was strengthened with the arrival of Olga Prytyla from the AMCU. Established in 2015 the AEQUO team has rapidly occupied its niche on the market and continued to win new mandates from existing and new clients. The firm’s workload has covered a wide range of issues, namely highly sophisticated merger control matters, abuse of dominance, cartel cases and high value disputes. For example, over the past year the dedicated team provided advice to George Soros’s Ukrainian Redevelopment Fund on the acquisition of a significant equity stake in Ciklum Holding Limited; obtained merger clearance for the establishment of the joint venture between Sidel and Amcor; represented Perrigo Company LLC (Ireland) in connection with large hostile takeover by pharmaceutical company Mylan. The team is also known for representing Novus in an alleged cartel case and is currently challenging a decision adopted by the AMCU. The market player impresses with the list of its international clientele that contains names like 21st Century Fox, Tetra Laval, Schneider Electric, Apollo Global Management, NCH Capital, Fairfax Financial, Apax Funds, and others. In July www.ukrainianlawfirms.com


Antitrust / Competition

2015 partner and practice head Mariya Nizhnik was appointed the State Commissioner of the Antimonopoly Committee of Ukraine. Denis Lysenko, managing partner, has taken over the role as head of practice. Sergey Denisenko, counsel, is highly active across the firm’s projects and is endorsed by market insiders for his strong practice dedication. The traditionally well-versed competition practice of DLA Piper Ukraine demonstrates a diverse offering encompassing merger control, antitrust and strategic competition advice, anti-competitive concerted practices, abuse of dominance; commercial agreements and trade practices (distribution, marketing, merchandising, tendering procedures), competition compliance audits, representation in competition investigations; competition litigation. Thus, in 2015 the team provided full legal support in obtaining clearance from the AMCU for shareholders of Pharma Start LLC in connection with the sale of a 100% stake in Pharma Start to Acino Pharma AG; advised Comverse Inc for the purchase of Acision, a privately-held UK company. Another notable representation covered acting for a global pharmaceutical company during a market investigation undertaken by the AMCU with regard to concerted actions and price regulations for pharmaceutical products on the Ukrainian market. Among the notable public clients are Pharma Start LLC, Comverse, Inc., Ferrero International S.A., Mondelez Ukraine, Pfizer, Bacardi, SanofiAventis. Galyna Zagorodniuk, recently promoted to partner, is highly respected for her considerable experience. Arzinger law office is mostly known for its industrial approach and the past year was very active in pharmaceutical and healthcare, retail, FMCG, agrarian, banking sectors. The scope of work covers merger control, unfair competition, compliance, vertical and distribution agreements, tenders, representation in investigations. The highlights of the previous year were covering advice on Ukrainian competition law issues related to the USD 600 million acquisition by Imerys of business S&B; advising the EBRD in connection with the establishment of a joint venture with Soufflet Agriculture S.A.S. Presently the practice is led by Timur Bondaryev, managing partner, and Lana Sinichkina, partner, both active in contributing to reform of Ukrainian competition law. www.ukrainianlawfirms.com

CMS Cameron McKenna is a longstanding practice with a strong international following for merger control advice in terms of M&A, JVs establishment and corporate restructuring; structuring commercial arrangement from antitrust perspective. The Kiev office is present in a range of industries, handling assignments of agrarian and food industries, manufacturing, finance, etc. Senior partner Olexander Martinenko, renowned general practitioner, is especially highly esteemed for handling competition projects. Olga Belyakova, recently promoted partner, is known for her deep involvement in practice. Nataliya Nakonechna and Mykola Heletiy make up the core team. The Kiev office of Baker & McKenzie is regularly seen handling competition work for big multinational public and private companies in connection with merger control, unfair competition, competition aspects of IPO and private placement. In 2015 the practice group advised Unilever U.K. Holdings Limited in two merger control filings in connection with the direct acquisition of REN Limited and REN USA Inc.; assisted in a joint acquisition by Avista Capital Partners and Nordic Capital of 100% of LLC Pharma Start; advised Rozetka UA in acquisition of LLC OTK Europlus and sale of a minority stake to a leading private equity fund focusing on Ukraine. The Kiev team gained particular expertise in advising clients, especially from the pharma sector, as well as consumer goods companies, on the implications of various vertical arrangements with Ukrainian customers. Partner Oksana Simonova leads the office’s competition and pharmaceuticals practice groups. The team includes Olga Mikheieva and Nataliya Kovalyova. Egorov Puginsky Afanasiev & Partners Ukraine team, guided by partner Oksana Ilchenko, continues to provide local and international clients with comprehensive competition law advice including merger and concerted actions clearances and related investigations, investigations of the alleged abuse of dominant position, unfair competition, and competition aspects of commercial arrangements (e.g., exclusive distribution agreements). The firm was recently instructed to assist Kemira Oyj with obtaining merger clearance with the AMCU for the acquisition of the paper chemical business of AkzoNobel; advised Nokia Corporation in connection with obtaining

Who is Who

Leading FIRMS 1. 2. 3. 4. 5.

Asters Sayenko Kharenko CLACIS AEQUO DLA Piper Ukraine

Leading INDIVIDUALS 1. Igor Svechkar (Asters) 2. Antonina Yaholnyk (CLACIS) 3. Vladimir Sayenko (Sayenko Kharenko) 4. Alexey Pustovit (Asters) 5. Galyna Zagorodniuk (DLA Piper Ukraine) The selection of firms and professionals in the table reflects the research carried out by the editorial staff of Yuridicheskaya Practika Publishing. It is based on a poll with market participants and submissions of the project portfolio provided by law firms. It remains a subjective view and implies no disparagement of any firm/professional not mentioned here but which is, nevertheless, active in this field.

Other notable Practitioners

Listed in alphabetical order

Oleksandr Aleksyeyenko (Integrites) Olga Belyakova (CMS Cameron McKenna) Timur Bondaryev (Arzinger) Sergey Denisenko (AEQUO) Oleksandr Fefelov (Ilyashev & Partners) Oksana Ilchenko (Egorov Puginsky Afanasiev & Partners Ukraine) Ulyana Khromyak (EVERLEGAL) Alexey Kot (ANTIKA Law Firm) Denis Lysenko (AEQUO) Olexander Martinenko (CMS Cameron McKenna) Maksym Nazarenko (Sayenko Kharenko) Oksana Simonova (Baker & McKenzie) Lana Sinichkina (Arzinger) Dmitry Taranyk (Sayenko Kharenko) Kateryna Tkachenko (CLACIS) Oleksandr Voznyuk (Asters)

Counselink Onstan Law Firm

2/8 Kateryny Bilokur Street, Suite 1, Kiev, 01014, Ukraine Tel.: +380 44 384 4195, 228 8001 E-mail: office@onstan.com Web-site: www.onstan.com

| 167 |


Who is Who

Antitrust / Competition

in Ukrainian Law by Practice Areas ⁄ Industries

regulatory clearance for the acquisition of Alcatel-Lucent. The firm also advised one of the world’s leading farm equipment manufacturers on the competition aspects of distribution arrangement with Ukrainian dealers. Partners Oleg Boichuk and Ilona Zekely, an Austrian lawyer, are important team members. Ilyashev & Partners develops and broadens its offering on various matters of antitrust law in Ukraine and abroad, inter alia, merger clearance work, anticompetitive practices, public procurement. Amongst notable highlights of the past 12 months is advising Letter One Group in the acquisition of the German company RWE Dea AG and assisting PZU S.A. in the acquisition of shares in Alior Bank. The firm is also present in some investigations conducted by the AMCU. Oleksandr Fefelov, the head of antitrust and competition practice, is a point of reference named by peers. Avellum obtains merger control mandates, competition aspects of distribution arrangements and regulation, antitrust due diligence. In 2015 the team, as led by managing partner Mykola Stetsenko, acted for Mohawk Industries, Inc. in obtaining merger clearance in the USD 1.2 billion acquisition of IVC Group. Dentons is observed to extend its practice and commends coverage of a wide range of competition/antitrust matters within cross border M&A transactions and complex corporate restructuring; advising on abuse of dominance, concerted actions and compliance. The growing clientele industry-wise encompasses the telecom, energy, luxury, hotel and leisure and MLM sectors. In 2015 the Kiev office advised IK Investment Partners in obtaining Ukrainian merger clearance for acquisiton, through Palmyra Sp. z o.o., via a tender offer of up to 100% of Ferro S.A. Borys Schwarzer is the key practitioner, and Volodymyr Monastyrskyy is a contact partner. Vasil Kisil & Partners re-booted its antitrust and competition practice with merger control work, advice on anticompetitive concerted actions and abuse of market dominance, investigations, and commercial agreements. The firm’s clientele consists of energy and mining, retail, IT, pharma, investment sectors. Among the notable matters in the recent caseload of the firm is advising Billa Ukraine in a cartel investigation and further ongoing court proceeding on challenging the AMCU’s decision (the AMCU has found eighteen operators of FMCG retail chains guilty of concerted practices in the form of information). Anna Sisetska, counsel, became a key competition practitioner in the firm.

| 168 |

As part of the magic circle, the legal team of Redcliffe Partners (prior to 1 December 2015 — the Kiev office of Clifford Chance) has been mandated for the largest cross-border M&A deals involving Ukrainian assets, offering seamless antitrust and merger clearance advice relating to such projects. Selected highlights in 2015 include advising General Electric on obtaining merger clearance relating to USD 13.9 billion acquisition of Alstom’s power business; Hearst Corporation on the Ukrainian competition law matters relating to USD 2 billion acquisition of Fitch Group; Mondelez International on competition law matters related to the demerger of its coffee business. Advice on cartels, state procurements, abuse of dominance and antitrust compliance fall within the firm’s remit. Partner Dmytro Fedoruk and senior associate Natalia Gerus lead the practice. New market player EVERLEGAL, a domestic law firm, enjoys strong expertise of its main performers. The practice is co-headed by Yevheniy Deyneko, managing partner and Ulyana Khromyak, of counsel. Among the clientele are international corporations and private equity houses, as well as global law firms. In terms of industries, the firm focuses on pharma, IT, agro, energy, banking and finance. Some recent mandates included advising a world-leading digital industrial company on complex antitrust issues in connection with its acquisition of power and grid business and formation of a joint venture; a leading online retailer in acquisition of control over another online retailer’s business via an asset deal. Integrites maintains flourishing activity in obtaining merger clearances and concerted actions approvals, review of corporate structures as to compliance with antitrust laws. The firm also represents clients in antitrust investigations, preparing and adapting compliance manuals. Among the latest highlights is obtaining merger clearances and concerted actions approvals for Archer Daniels Midland Company, Nova Poshta, Farmak as well as advising Master & Dynamic and Aspen Pharmacare Holdings Ltd on antitrust compliance issues. The list of selected clients includes Iron Mountain Inc., Malbi, IATA and Rockwool. The rapidly growing practice is led by a notable partner by the name of Oleksandr Aleksyeyenko. Wolf Theiss retains the lion’s share of merger control work that comes from the firm’s M&A track. As an example, the Kiev team acted for AMIC Energy Management GmbH, in obtaining merger clearance for the direct acquisition of LUKOIL-Ukraine, a 100%

company with foreign investments; obtained merger clearance in connection with indirect acquisition (as part of a global transaction) in an Ukrainian company involved in the provision of IT services by Emeram Capital Partners GmbH. Olga Ivlyeva leads the practice. ANTIKA Law Firm is known for the expertise of its team and especially its managing partner Alexey Kot. The recent work highlight is advising on purchase of shares of a bank and obtaining a permit for concentration. Senior associate Alexander Tretiakov inputs the team. Being dedicated to the pharmaceutical industry, Legal Alliance Company provides industry specific competition offering. The recent caseload concerned anticompetitive concerted actions regarding medicinal products supply, unfair competition, and commercial agreements. The team is notably active in advising on TV advertising. In the past year the firm supported Berlin-Chemie AG in a case related to violation of legislation on economic competition through anticompetitive concerted actions; protected AIPM Ukraine in a case against Pro-Pharma Agency on distribution of TV advertisement containing violations in the field of unfair competition. Andrii Gorbatenko, associate partner, and Lidiya Sangarovskaya-Gurlach, senior associate, are the core practitioners. Illya Kostin, partner, supervises the firm’s practice. Jeantet is a French international law firm launched in Ukraine in November 2015 by taking over the Kiev office of Gide Loyrette Nouel. The team inherited Gide’s strong expertise. In November 2015 Jeantet advised Ansaldo Energia on the acquisition of Alstom advanced gas turbine business. Oleksiy Soloviov is the main point of contact. Occupying its aviation niche on the market, ECOVIS Bondar & Bondar continued advising Ukraine International Airlines with regard to alleged violations of Ukrainian competition law on the Ukrainian aviation fuel market and on obtaining clearance from the AMCU for concerted actions related to cooperation with KLM Royal Dutch Airlines. Another notable case involved representing LLC Interavia on Ukrainian competition law issues in connection with protection of the company’s interests in Boryspil International Airport. Oleksandra Nikitina, partner, and Olena Kravtsova, senior associate, handle the respective workflow. WTS Tax Legal Consulting advises clients in the area of the antitrust and comwww.ukrainianlawfirms.com


Antitrust / Competition

petition law and accompanies restructuring projects, M&A, obtains approvals from the competition authority for concentration and concerted actions. The firm frequently advises on unfair competition issues and monitors packaging models, food labels and non-food products, advertising drafts, terms of advertising campaigns and labeling of products with a discount. Other areas of advice include competition aspects of distribution and projects in the agrarian sector. Maxim Oleksiyuk and Alexander Shemiatkin are leading partners. FCLEX covers competition law matters within the framework of the firm’s comprehensive corporate projects and dispute settlement. In 2015 the firm advised PJSC Zaporozhtransformator when it contested the decision of the AMCU to prohibit it from taking part in procurement for 3 years. The firm was also recently involved in a dispute on cancellation of a tender in connection with violation of procurement regulation where it defended Telecommunication technology. The practice is headed by partner Andriy Nikitin.

Acquisitions-related mandates in the agrarian sector have been a key focus of Law Offices of OMP. The team provided complex support for the owners of Agrokultura Holding in exchange of assets of its group of subsidiaries for MHP S.A. Russian group of subsidiaries; advised Makaronna factory PJSC on the sale of a plant; assisted Prometey Group in its purchase of an elevator complex in Mykolaiv Region. The 6-lawyer team is guided by Yaroslav Sverdlichenko, partner. Over the past year the competition team of KPMG Ukraine, as led by Tetiana Zamorska and Yuriy Katser, covered merger control issues related to both domestic and foreign transactions. For example, providing legal advice to Soudal Holding NV in the acquisition of an EU construction materials manufacturer; one of the leading European construction materials manufacturer in the acquisition of a Latvian construction materials manufacturer. In the last year EY was centred on merger clearance work and recently obtained merger and concerted actions clearance for Horizon

Who is Who

Capital’s acquisition of control over Rozetka group; advised on antitrust matters at the pre-transaction restructuring stage and full support in the acquisition of a water filter manufacturer holding a significant market share in Ukraine by a EU group specializing in water treatment technologies. Albert Sych, Borys Lobovyk and Bogdan Malnev are actively involved in practice. Throughout 2015 Peterka & Partners assisted Soufflet Group in obtaining antitrust and merger clearances, as well as in accomplishment of local formalities related to the consolidation of all of Soufflet’s existing and future silo and seed plant business in a new company called International Grains Silos. Tatiana Timchenko, partner, is the director of the Ukrainian office. Kharkov-based Shkrebets & Partners is a vivid litigation force in the region. The firm recently, as supervised by managing partner Eugene Shkrebets, represented the interests of Novobud-Komfort in a dispute with the territorial department of the Ukrainian competition authority in Kharkov Region.

advertisement

www.ukrainianlawfirms.com

| 169 |


Who is Who

Yulia Kyrpa, AEQUO In 2015 and early 2016 the Ukrainian banking sector continued struggling against a severe financial crisis caused by a deteriorating economy, war in Eastern Ukraine and a certain degree of political instability in the country. In this environment, the most significant initiatives of the National Bank of Ukraine were aimed at cleaning-up the banking sector and withdrawal of captive banks from the market. Hence, most Ukrainian banks focused on survival and keeping their heads above water. However, such turbulence and challenging environment led to significant transformations of the market, change of the players and the rules of play. As a result, finance lawyers remained busy, implementing debt restructuring transactions and supporting acquisitions in the banking sector of Ukraine. Although most banks decided to substantially reduce their lending activities until revival of the market, the EBRD and IFC kept supporting Ukraine’s struggling economy by granting new financing and refinancing to suitable borrowers (e.g. a USD 250 million loan granted by IFC to Myronivskyi Hliboprodukt and a USD 300 million loan granted by the EBRD to Naftogaz). Moreover, the following landmark transactions implemented in 2015-2016 were first of a kind and established certain trends in the market: — Restructuring of sovereign and quasi-sovereign debt; — Acquisition of insolvent Astra Bank (formerly owned by Mr. Mykola Lagun) by US private equity house NCH Capital from the Deposit Guarantee Fund.; — Acquisition of Ukrsotsbank (a Ukrainian subsidiary of UniCredit Group) by Alfa Group (the transaction is supposed to be completed by the end of 2016).

| 170 |

Banking & Finance / Restructuring

in Ukrainian Law by Practice Areas ⁄ Industries

Banking & Finance / Restructuring

T

his past year the broad banking and finance practice of Avellum was boosted by instructions from the Ukrainian state, when the firm acted on lending, debt restructuring and capital markets mandates. Thus, Avellum is constantly present in major milestone financing projects and in the largest restructuring mandates. The team acted as a Ukrainian counsel to the Ministry of Finance in connection with multimillion loans to Ukraine from the KfW and Export Development Canada. Another landmark transaction is the JPY 108.2 billion loan from the Japan International Cooperation Agency to the Cabinet of Ministers of Ukraine for the purpose of implementing the Bortnychi Sewage Treatment Plant Modernisation Project. It is noteworthy that Avellum advised the EBRD in connection with a three-year USD 300 million guaranteed renewable facility from the EBRD to NJSC Naftogaz of Ukraine. On the restructuring side, the team acted for the Finance Ministry with respect to USD 15 billion restructuring of thirteen sovereign and sovereign-guaranteed Eurobonds; and concerning reprofiling Eurobonds of two state-owned banks, namely Ukreximbank and Oschadbank. Given its remarkable track record for representing corporate borrowers, the team acted for cross-border restructurings having advised DTEK, PrivatBank and Ferrexpo. Practice head Glib Bondar is certainly among the busiest and most active practitioners on the market in the past year. Sayenko Kharenko retains its profile as a Ukrainian heavyweight in international finance, being involved in a number of complex, multijurisdictional transactions. The firm continues to act as a Ukrainian legal counsel to the EBRD on finance projects and advised on arranging a EUR 40 million loan to Kronospan UA, a market leader in the wood-based panel sector, and on a syndicated working capital loan to the Industrial Group ViOil, a major Ukrainian sunflower oil producer and exporter. The firm remains a trusted legal counsel to the Nordic Environment Finance Corporation (NEFCO) and advised on finance projects related to a dozen Ukrainian enterprises and municipalities aimed at implementing energy-saving technologies. In 2015 the firm was active with a number of innovative and complex debt restructuring transactions, handling projects for a total amount of over USD 5 billion. The key highlights include advice on a series of debt restructurings carried out in line with the requirements of the IMF’s Extended Fund Facility, in particular, representation in the course of Eurobond restructurings of two state-owned banks, Ukreximbank and Oschadbank. The firm also acted on restructurings carried out under the English law scheme of ar-

rangement; it worked on the municipal sector and represented Goldman Sachs as a lead manager on the restructuring of Kyiv City Eurobonds. Top notch partner Michael Kharenko is widely recognized by market insiders. Of late his focus encompasses ultrahigh profile mandates including so-called special situations and sensitive, highly-complicated restructuring mandates. Nazar Chernyavsky, experienced banking and finance and capital markets partner, took over the key role in banking and finance mandates. Meanwhile, counsel Anton Korobeynikov and senior associates Olexander Olshansky, Iryna Bakina, Olexander Droug and Yuriy Draganchuk are the firm’s key practitioners. As pioneers in banking and finance on the Ukrainian legal market, Baker & McKenzie is amongst the broadest experienced international counsels. The sizeable Kiev team enjoys established close integration with banking/finance teams around the globe. In a recent highlight the firm advised AKA AusfuhrkreditGmbH and Landesbank Berlin AG in connection with a EUR 14.5 million syndicated loan for agroindustrial company Ovostar Union. The team advised Eurobank Ergasias S.A. in connection with entry into agreements with entities of the Ukrainian Delta Bank Group for the disposal of its Ukrainian subsidiary, PJSC Universal Bank, and the transfer of certain Ukrainian assets for total consideration of EUR 95 million; acted as legal counsel to three major international institutions in connection with the UAH 43.2 million additional capitalization of Ukrainian commercial bank Megabank. The team has wide-ranging experience of handling complex cross-border financial restructurings and is often especially attracted to represent the largest corporate borrowers. For example, the firm represented Metinvest and Agroton Public Limited on consent solicitations of bondholders. Its clientele includes prominent international lenders, major corporate borrowers, global payment giants, amongst others the IFC, EBRD, KfW, AerCap, ING Bank Ukraine, Metinvest B.V., MasterCard, Western Union, American Express. Managing partner Serhiy Chorny has headed the practice for about 15 years and frequently advises on securities trade and securities custody, cross-border leasing matters. His solid experience is endorsed by the legal banking community and he is often referenced as a market authority. Respected for strong regulatory advice, partner Ihor Olekhov spans his general banking and finance focus on financial regulations, banking M&A, as well as derivatives, securities, debt capital markets. Throughout 2015, the banking and finance practice team of AEQUO was one of the most rapidly www.ukrainianlawfirms.com


Banking & Finance / Restructuring

Dentons has rapidly expanded its cross-border capabilities at the global level, subsequent scope of work, complexity, as well as the team of its Ukrainian branch. The 10-lawyer practice team is regularly instructed for cross-border finance, syndicated facilities, sovereign financings, secured lending, regulatory advice, real estate finance, trade and assets finance, leasing, factoring, refinancing and complex restructuring, bad debts trade. The Kiev team assisted Export Development Canada (EDC) in connection with two loans to Ukraine. The firm developed a solid financial in-

stitutions/banking client base, among others, advising the Black Sea Trade and Development Bank, BNP Paribas, Czech Export Bank, EBRD, EDC, HSBC, UniCredit Bank. The firm has delivered comprehensive advice on banking activity in Crimea and has extensive experience of selling distressed portfolios. Recent restructuring work included large value corporate and sovereign debts, and stands out in particular for representation of a group of bondholders, led by one of Ukraine’s largest private creditors, Franklin Templeton Investments, in USD 15 billion sovereign debt restructuring. The team has been strengthened by senior associate Nadiya Shylienkova, who joined from the Kiev office of Clifford Chance. Knowledgeable partner Natalia Selyakova leads the practice. Asters is traditionally recognized among major Ukrainian counsels for financial matters, including syndications, lending, debt restructuring; and banking M&A and equity investment. The firm also acts for intra-group financing transactions, and extends its advice to a wide scope of regulatory issues, including currency regulation and financial monitoring. Asters advises international financial institutions on an almost continual basis. For example, the IFC was advised in connection with committed and anticipated facilities to Astarta; China Development Bank Corporation — on financing to PJSC Ukrtelecom for the purchase of telecommunications equipment. The experienced team is regularly enlisted as a legal counsel for multimillion-debt restructuring, debt collection and recovery against mortgaged property, as well as for execution and enforcement matters. The team has recently acted as legal advisor to Ukrzaliznytsya, the state Ukrainian railway company, in connection with the restructuring of USD 500 million Eurobonds and advised JSC Rodovid Bank on restructuring a syndicated loan from international financial institutions. Lead

Counselink Gryphon Investment Consulting Group

5-B Dimitrova Street, Suite 305, Kiev, 03680, Ukraine Tel.: +380 44 227 9212 Fax: +380 44 287 0616 E-mail: office@gryphoninvest.com.ua Web-site: www.gryphoninvest.com.ua

www.ukrainianlawfirms.com

Onstan Law Firm

2/8 Kateryny Bilokur Street, Suite 1, Kiev, 01014, Ukraine Tel.: +380 44 384 4195, 228 8001 E-mail: office@onstan.com Web-site: www.onstan.com

Leading FIRMS 1. 2. 3. 4. 5.

Avellum Sayenko Kharenko Baker & McKenzie AEQUO Dentons

Authorities Serhiy Chorny (Baker & McKenzie) Armen Khachaturyan (Asters) Michael Kharenko (Sayenko Kharenko)

Leading INDIVIDUALS 1. Glib Bondar (Avellum) 2. Nazar Chernyavsky (Sayenko Kharenko) 3. Natalia Selyakova (Dentons) 4. Olexiy Soshenko (Redcliffe Partners) 5. Yulia Kyrpa (AEQUO) The selection of firms and professionals in the table reflects the research carried out by the editorial staff of Yuridicheskaya Practika Publishing. It is based on a poll with market participants and submissions of the project portfolio provided by law firms. It remains a subjective view and implies no disparagement of any firm/professional not mentioned here but which is, nevertheless, active in this field.

Other notable Practitioners

Listed in alphabetical order

Anton Korobeynikov (Sayenko Kharenko) Igor Krasovskiy (Jeantet Ukraine) Oleksandr Kurdydyk (DLA Piper Ukraine) Helen Lynnyk (Gryphon Investment Consulting Group) Iryna Marushko (Marushko & Associates) Ihor Olekhov (Baker & McKenzie) Oleksandr Plotnikov (Arzinger) Iryna Pokanay (Asters) Roman Stepanenko (Egorov Puginsky Afanasiev & Partners Ukraine) Oleh Zahnitko (Integrites)

| 171 |

Banking & Finance

growing ones on the market. The firm significantly broadened its clients’ portfolio with domestic and international banks, leading international financial institutions and investors. AEQUO advised the European Commission on the new Macro-Financial Assistance (MFAIII) program for Ukraine, amounting to a total of EUR 1.8 billion. Another significant part of the team’s work comes from restructuring, amongst the highlights was giving advice to the EBRD on restructuring of its operations in Eastern Ukraine, including restructuring of loans granted to Ukrainian borrowers operating in that region. With the team’s strong history of banking M&A work, the firm stands out for a number of landmark projects, inter alia, advising US private equity fund NCH Capital on acquisition of PJSC Astra Bank and acted for UBG Group on the acquisition bridge bank from the Ukrainian Deposit Insurance Agency in the course of banks’ resolutions. The firm’s clients include, among others, RwS Bank, Fidobank, UniCredit Group, Alfa Bank, Sberbank of Russia, Porsche Bank AG, Portigon Financial Services, etc. Yulia Kyrpa, partner and practice head, is extensively expanding the team’s capacities and enhancing her market reputation. Denis Lysenko, managing partner, traditionally contributes with his broad-based experience.

Who is Who


Who is Who

Banking & Finance / Restructuring

in Ukrainian Law by Practice Areas ⁄ Industries partners are Armen Khachaturyan (named by market authorities), Iryna Pokanay and Yevgen Porada.

Michael Kharenko, Sayenko Kharenko 2015 was a record year in terms of the volume and number of debt restructuring deals by major-league Ukrainian borrowers. Our firm alone was involved in successfully completed transactions for around USD 5 billion in the past year. A notable feature of these recent deals is their wide diversity in all aspects. There have been simple reprofilings and complex debt conversions and exchanges, pure commercial restructurings and restructurings driven by IMF requirements, voluntary restructuring and court-approved arrangements. Activity in debt restructuring is likely to continue this year since a fair amount of problem debt remains unresolved. Hopefully, local debt will become more involved as this is where a great many problem lie. A lack of trust and inadequate regulatory environment makes multi-creditor local debt restructuring deals quite difficult to handle. Our legal team is currently working together with international organisations, Ukrainian authorities and the banking community to develop legislation which should facilitate restructuring in Ukraine and help both Ukrainian business and the banking system to survive these difficult times.

Redcliffe Partners (prior to 1 December 2015 — the Kiev office of Clifford Chance) has a 5-lawyer banking and finance practice renowned for its broad experience of advising foreign and local lenders, corporate and investment banks, international financial organizations, borrowers, project sponsors, developers and investors in connection with complex cross-border financings. Throughout the past year the team advised on USD 400 million refinancing to Kernel, representing UniCredit Bank Austria; the EBRD on USD 85 million financing to Myronivsky Hliboproduct. The practice team is also well positioned to handle the largest and complex restructuring projects (the reported total amount of debt restructuring in 2015 exceeded USD 1.5 billion). The team advised the EBRD on the restructuring of financing provided to the Ukrainian State Air Traffic Services Enterprise for the modernization of the Ukrainian air navigation system; and was mandated by ING and Ukrsotsbank for a debt restructuring project. Emphasized by peers for his broad experience managing partner Olexiy Soshenko and counsel Dmytro Orendarets are notable practitioners of Redcliffe. DLA Piper Ukraine is active in lending and restructuring projects, M&A in the financial sector, financial leasing, and is also noted for its special focus on energy projects, infrastructure and PPP. The team is currently working on one of the largest port projects in Ukraine that envisages modernization and concession of Yuzhny Port (Odessa Region) to one of the largest port’s operator; provides legal support to one of the biggest debt collection agencies in Russia and Ukraine in relation to restructuring of debt payable to its creditors. In terms of bilateral financing DLA often represents lenders, in particular, it advised the largest European banks on bilateral financing to a number of Ukrainian borrowers, members of DTEK Group, and to Ukrainian subsidiary of Monsanto. Amongst significant clients are the EBRD, IFC, AvangardCo, Horizon Capital, Dragon Capital. Notable recent restructuring work included advising AvangardCo Investments Public Limited on the restructuring of its USD 200 million Eurobonds through an arrangement scheme. Oleksandr Kurdydyk, partner and head of finance and projects, is known on the market and leads the team with key members Illya Muchnyk, Rodion Ignatenko and Mykhaylo Byelostotskiy. Featured for its English law capacity on the ground, the Kiev team of CMS Cameron McKenna regularly counsels international banking and finance names. The team recently represented a syndicate of banks on syndicated secured pre-crop and pre-export credit facility for Ukraine’s leading agribusiness, Kernel Group. The firm is known for its extensive track record in project finance, restructuring, sectoral M&A and litigation. For example, the team acted for Horizon Capital and Zubr Capital on the sale of MTBank, the largest private bank in Belarus. The outgoing year was

| 172 |

also noted for advisory regarding derivative transactions and financial agrarian receipt, loan restructurings. The banking and international finance team consists of Vyacheslav Ovechkin, Kateryna Chechulina, Tetyana Mykhailenko, guided by managing partner Daniel Bilak. Egorov Puginsky Afanasiev & Partners Ukraine gets wide referrals for its strong cross-border performance, being equally well established in banking finance, capital markets and financial restructuring. The firm handles an extensive portfolio of prestigious clients — parties to transactions in the capital markets and banking business. EPAP Ukraine recently acted as legal counsel to the EBRD in connection with a secured loan facility to Serinus, a Canada-based oil and gas production company; major international banks as pre-export facilities lenders on restructuring of pre-export facilities and issuance of further funding instruments by one of the biggest Ukrainian industrial groups. The practice team also handles projects of multi-jurisdiction secured loan facilities, cross-border restructuring and complex regulatory advisory. EPAP Ukraine advised Credit Suisse and Morgan Stanley on an exchange offer for USD 500 million Eurobonds issued by Ferrexpo Finance plc. The banking and finance, capital markets team is led by partner Roman Stepanenko. Partner Ilona Zekely, an Austrian lawyer, works with Austrian, German, Swiss and other international companies. Integrites international law firm, headquartered in Kiev and rapidly developing internationally, now has a 3-partner banking and finance practice. The focus of the team is cross-border lending and subsequent restructuring, pre-export finance, loans portfolio management, regulatory, domestic banks insolvency and recovery issues. VTB Bank, instructed the firm to register its increase in share capital. Amongst notable highlights is advising Banque de Commerce et de Placements on issues connected with validity and enforceability of Ukrainian law security documents guaranteeing a USD 25 million loan facility to the largest Ukrainian grain trader; and a number of cross-border restructuring projects where the firm represented Rabobank International, EBRD and Autonomy Capital. What sets Integrites apart is its extensive pool of ECAs clients, that enable the firm to be a hub for trade finance work. The team of partners Vsevolod Volkov and Oleksandr Aleksyeyenko has been strengthened with the arrival of Oleh Zahnitko, who joined as a partner from Gide Loyrette Nouel. Arzinger is preferred for project finance, real estate finance work, cross-border lending, and predominantly acts on the lenders’ side. In a recent highlight the firm supports the EBRD on its USD 20 million investment in a joint project with Soufflet Group for infrastructure projects in Ukraine, Poland and Romania. The firm is highly active in restructuring work, especially in the agricultural sector, and currently represents the lenders’ committee in the www.ukrainianlawfirms.com


Who is Who

Banking & Finance / Restructuring

Jeantet, a French international law firm, was launched in Ukraine in November 2015 by taking over the Kiev office of Gide Loyrette Nouel. The Kiev team was regularly instructed by VTB Bank (Austria), UniCredit Bank Austria, European Investment Bank, IFC, EBRD. Apart from cross-border lending performance, the practice team has been active in restructuring work. For example, advised Air Liquide in restructuring EBRD secured financing; acted for the EBRD in connection with the restructuring of corporate loan to Agrogeneration. A recent work highlight also included acting for Bank of New York Mellon Trustee Company in connection with the recognition and enforcement of the LCIA Award in Ukraine against Industrial Union of Donbass and Alchevskiy Iron & Steel Works. Practice head Igor Krasovskiy was promoted to counsel. Ilyashev & Partners covers its strong litigation performance, and is increasingly active in regulatory and restructuring matters. Banks formed a formidable part of the firm’s client base and counts BTA Bank (Kazakhstan, Ukraine), Bank Mykhailivskyi, Procredit Bank, Trasta Кomercbanka, Credit Europe Bank, Crimean Development Company, PZU, Group DF. The firm continued to receive the bulk of its work from BTA Bank Ukraine, in particular, restructurings; Bank Mykhailivskyi hires the firm for regulatory advice. PZU Ukraine was represented in the adopted course of challenging decisions by the National Commission on Regulation of Financial Services. Partner Maksym Kopeychykov headed the banking and finance practice. Wolf Theiss demonstrates its focus on acquisition finance and regulatory assignments, accompanying the firm’s M&A work. Most recently the team advised Bluebay Asset Management on the financing of the acquisition by LDC, a leading UK private equity company, of Synexus, one of the largest multi-national clinical trials business groups. Another area of expertise covers insurance sector M&A. In particular, the firm advised VIG on the acquisition of a 20% shareholding in the insurance company GLOBUS and advised QBE, an Australian based www.ukrainianlawfirms.com

insurance provider, on the sale of its 50% Ukrainian subsidiary, QBE Ukraine, to Fairfax Financial Holdings Limited. In terms of restructuring, the firm acted as Austrian law and Ukrainian law counsel to the EBRD in connection with the restructuring of a loan granted to a Ukrainian brick producer. The practice is lead by Oksana Volynets. LCF Law Group considers financial sector among its core industrial priorities, while its clients’ portfolio counts such players as Alfa Bank, Universal Bank, OTP Bank, Bank Kontrakt, Bank Novyj, Bank of Cyprus (NEOS Bank), TAS Group. The practice is sharply centered around litigation, the core strength of the firm, with comprehensive work on debt recovery and foreclosure disputes. Alfa Bank instructs the groups for a variety of representations, including a series of litigations with group of companies Azovmash, Virobichnii Vector LLC, Apartment complex Pokrovskiy Posad, PJSC Renaissance Life. The group represents Bank of Cyprus (NEOS Bank) in loan restructuring work. The projects were handled by managing partner Anna Ogrenchuk and senior partner Artem Stoyanov with input from counsel Olena Volianska. The group also enhanced the practice team with new counsel Oleksandr Biryukov, who previously worked on international projects. Vasil Kisil & Partners has a notable capacity for lending and restructuring, project financing, financial and alternative instruments, factoring operations, regulatory and litigation. In early 2015 the firm acted as a legal advisor to one of the largest banks in Ukraine on the launch of an online micro-lending project. Anna Sisetska, counsel, advised IMS on acquiring the rights of demand under a bank loan with discount (factoring) along with share participation in a Ukrainian developer. Clients include Sberbank of Russia, Piraeus Bank, Latvijas Krajbanka. The strong litigation team that is headed by Oleksiy Sluch, counsel, regularly represents banks in their disputes with borrowers and enforcement matters.

Leading FIRMS 1. 2. 3. 4. 5.

Avellum Sayenko Kharenko Baker & McKenzie Dentons Asters

Leading INDIVIDUALS 1. Michael Kharenko (Sayenko Kharenko) 2. Glib Bondar (Avellum) 3. Serhiy Chorny (Baker & McKenzie) 4. Natalia Selyakova (Dentons) 5. Olexiy Soshenko (Redcliffe Partners) The selection of firms and professionals in the table reflects the research carried out by the editorial staff of Yuridicheskaya Practika Publishing. It is based on a poll with market participants and submissions of the project portfolio provided by law firms. It remains a subjective view and implies no disparagement of any fir