Ukrainian Law Firms. A Handbook for Foreign Clients by Olga Usenko

PROFILE www.ukrainianlafirms.com

Contents

Editorâ&#x20AC;&#x2122;s Preface

Ukrainian Legal Market

Practice Areas and Industries Review

Agribusiness

Customs

132

Mergers & Acquisitions

Aircraft and Airports Finance

Due Diligence

134

Non-Performing Loans

Alternative Dispute Resolution

Energy

136

Patents

Anti-Corruption

Energy Efficiency

138

Political Prosecution

Anti-Money Laundering

Enforcement of Foreign Awards

140

Private Clients

Anti-Raiding

Factoring

142

Privatization

Antitrust

Family Law

144

Procedural Actions

Banking Disputes

Financial Restructuring

146

ProjeŃ t Finance

Bankruptcy

Financial Services

148

Public-Private Partnerships

Business Crime

100

FinTech

150

Railways

Business Immigration

102

Fraud

152

Real Estate

Business Protection

104

Free Trade Agreements

154

Renewable Energy

Capital Markets

106

Government Relations

156

Role of Experts in International Arbitration

Commodities Arbitration

108

Infrastructure

158

Secured Transactions

Competition Investigations

110

International Arbitration

160

Securitization

Compliance

112

International Civil Procedure

162

State Aid

Contract Law

114

International Tax

164

Tax

Corporate

116

Investigations

166

Tax Controversy

Corporate Disputes

118

Investments

168

Trade Remedies

Corporate Governance

120

IT Law

170

Trademarks

Corporate Intelligence

122

Jurisdiction Issues in Commercial Procedure

172

Transfer Pricing

Counterfeiting and Piracy

124

Labor & Employment

174

Transportation

Criminal Process

126

Land

176

Unfair Competition

Cross-Border Debt Restructuring

128

Litigation

178

World Trade Organization

Currency Regulation

130

Medicine & Healthcare

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Contents

181

Who is Who in Ukrainian Law by Practice Areas/Industries

182

Agribusiness

186

Antitrust and Competition

190

Banking & Finance, Debt Restructuring

196

200

202

228

International Trade: Trade Remedies/ WTO, Commodities, Commercial Contracts

232

IT / Telecommunications & Media

236

Labor & Employment

240

Litigation

248

Pharmaceuticals & Healthcare

252

Private Clients: Wealth Management, Family Law

254

Real Estate, Construction, Land

BA NK

Bankruptcy

Capital Markets

Corporate and M&A

208

Criminal Law/ White-Collar Crime

212

Energy & Natural Resources

216

Infrastructure

260

Retail

220

Intellectual Property

262

Tax and Transfer Pricing

224

International Arbitration

270

Transport: Aviation, Maritime & Shipping

The project of YURIDICHESKAYA PRACTIKA Publishing

UKRAINIAN LAW FIRMS 2020. A Handbook for Foreign Clients. ISBN 978-966-8042-73-7. 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 DESIGNER: Serhii Chebyshev • 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 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. The Handbook 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. The publication uses Ukrainian transliteration of geographical names and indications. All names of individuals are written with mixed transliteration (Ukrainian and Russian) at their personal request. 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» Украинские юридические фирмы. Справочник для иностранных клиентов (на английском языке) Издатель: ЧАО «Юридическая практика»

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Helicopter View The fast-changing business reality continues to drive the world to search for conceptually new approaches in doing business – online management and collaboration tools, digital presence and sales, remote court technologies, protective equipment and social distancing. As for the summer of 2020, it is obvious that this pandemic will have far-reaching consequences, which are beyond our ultimate understanding and control. What should be at the top of the minds of law firm leaders today? The only suitable answer is a smart approach — client-centered technologies, efficiency and rightsizing.

OLGA USENKO | Editor-in-Chief We have been navigating this ever-changing environment for many years, together with the legal community, to provide an independent helicopter view of the market. Perhaps, it has never been more important to understand and respond to the issues shaping the future than in this post-lockdown world. Thus, Ukrainian Legal Market presents market trends, which are certainly strongly determined by the lessons learned from the coronavirus experience. It helps to explain changes in legal decision-making and thinking. Practice Areas and Industries Review reflects updates on legislative developments and views from practicing experts. Who is Who in Ukrainian Law created the most extensive, in-depth guide into the performance of law firms right across practices and industries. I am truly passionate about the market, in which this new Handbook plays quite a significant role. We hope you enjoy reading this fundamental report.

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Ukrainian Legal Market

A Window of Opportunity Research 2020 Having a presence on the market for over 18 years, Ukrainian Law Firms. A Handbook for Foreign Clients is the most in-depth analytical publication encompassing developments in Ukrainian law, its business implications, transaction activity and disputes. The publication traditionally presents the landscape of the Ukrainian legal market by practice areas and industries — the most friendly and useful way for clients. The analytical surveys are produced on the basis of thorough research using submissions from law firms, available public sources, individual feedbacks often called peers’ reviews, indepth personal telephone interviews, and other market insights collected by the team on a nonstop basis for many years. For the second year in a row the in-house counsel is another source of valuable insight. Those firms, which have not provided their submissions but were highly referred during the polls, were mentioned in respective surveys but were not ranked due to the absence of available public information to prove their active track record during the period under research. Each year before the launch of the submission period we approach market insiders for their comments and suggestions, new trends and ideas to watch for our future editions. We are grateful to those legal practitioners who shared their experience and ideas for the purposes of our research. In the present overview the Capital Markets section is observed, which is a sign of positive market conditions for the state and corporate issuers in 2019. Another new area that we kept an eye on the second year in a row (and finally produced our findings) is Family Law (as part of the Private Clients practice). The market landscape is presented in the form of corporate and individual shortlists. In those practices/industries where it was evident, the shortlists are composed of 3, 5 and 10 firms. In certain areas where the landscape is not sharply seen, we provided our selection in alphabetical order with supportive descriptions of the performance of market players in the editorial texts.

Our contacts with international law firms involved in Ukrainian matters have continued to expand. We currently observe their roles in capital markets, banking and finance, international arbitration, cross-border litigation and international trade. Notably, we extended our digital presence. In response to the pandemic this spring when we launched a special COVID-19 Guidance on our site for hands on comments and clear understanding on the unprecedented measures and their impact. This, the eighteenth edition of the Handbook, includes 21 surveys and 32 rankings. The criteria of inclusion are based on a reasonable combination of project portfolio during the research period — 2019, complexity and significance of matters, client profile, practice versatility, a team’s expertise, its capacity and reputation. The “Other established practices” category assumes firms with sustainable practice development during the research period, a solid project portfolio, an accomplished team of legal practitioners, and established expertise recognized by the market and proved by existing workflow. So-called “authorities” — a category attributed for individual achievements, referred to undisputable market professionals named as people establishing standards, less involved in each project at present, but playing a key role in client relationships, reputation and the present staying of their firms or practices. On a traditional basis, we continue to collect and systematize publishable deals (please, see Tables 1-5). This is perhaps the most laconic but informative piece of our research.

Welcome to the New Reality With the new political team in power international interest in Ukraine has increased significantly. Global political and economic forums were targeted with a set of messages that the government was ready to provide investors with comfortable conditions and a flexible individual approach. The new Parliament began to function in so-called “turbo mode”. 2019 was favorable for lending on international capital markets and banking finance. At the same time, with the favorable market conditions

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for corporate issuances, the cross-border debt restructuring lagged behind. This past year the IT and technologies sector has shown remarkable growth. It concerned not only outsourcing services, which are traditional for Ukraine, but a growing product segment. There was facilitation of M&A deals in IT and the e-market. Furthermore, the offline retail market tended to scale online. The new law on concession, particularly in the construction of roads and infrastructure, also attracted interest to this sector. A widely-discussed “battle for agricultural land” resulted in legislative adoption of a law introducing its sale. The white-collar crime practice continued its upcoming track, facilitated by the establishment of regulating bodies — the Anti-corruption Bureau, Anti-corruption Court, and the new wave of political cases resulted in the initiation of criminal proceedings, but no final verdicts. The notable trend in 2019 was development of GR and lobbying practice, facilitated by the parliamentary elections in July. The sudden pandemic forced the whole world to think how to handle the outbreak and preserve business. The good news is that Ukraine enforced its lockdown at the early stage of the outbreak of COVID-19, avoiding mass scale virus exposure and the collapse of its healthcare system. The bad news is that it is having a dramatic impact on its economy, like other countries without financial resilience. However, economists predict a quicker recovery than after the crisis of 20082009. And this recovery should fuel the legal market with work. During this massive business disruption, labor and employment advice was one of the fastest-growing legal offering of the past spring. Business required proper documentation of temporary unpaid leave, introduction of shorter working hours, redundancies. As the measures taken were truly unprecedented, employment disputes seem unavoidable. The development projects and transactions that were put on hold are gradually being brought back to the negotiating table. The parties obviously have to renegotiate the terms of deals or reconsider them strategically. The volume of transactions is, as a consequence, expected to fall.

MARKET EVENTS Mergers, Splits and New Brands In May 2019, GRACERS white-collar crime defense firm was established. The team consists of criminal defense attorneys headed by Serhii Lysenko. In July 2019 Sayenko Kharenko and Solodko & Partners completed the process of merging their white-collar crime practices, which encompassed white-collar criminal defense, anti-corruption compliance, and corporate investigations. In October 2019 the Swiss legal group SIGTAX and its managing partner Paul Gheorghiu, along with Ukrainian partners Ruslan Redka, Lana Golian and Natalia Radchenko, opened a multi-family office in Ukraine under the brand name of Legal House. The firm provides support in financial, tax and legal matters, structuring and protecting the private and corporate assets of wealthy families. In December of the same year Ovcharov & Partners, criminal defense attorneys at law, became a part of Legal House. The same month, Ilyashev & Partners unveiled its office in Odesa. The new office is focused on sea carriage (shipping), international trade and cargo handling in ports, and is headed by Sergey Nedelko, an Odesa-based expert previously employed in ANK Law Office. At the beginning of December 2019 partners of S.T. Partners, Svitlana Trofimchuk and Sergiy Tyurin, terminated their cooperation. Both continued to develop their legal practices separately from each other. In March 2020 Dmytro Vidsota, who was a counsel at Asters, established Robinson Patman. The new law firm specializes in international trade, antitrust and competition, GR. In April 2020 LCF Law Group announced the expansion of its business by adding lawyers’ teams from EVRIS Law Firm and Sheverdin and Partners. The executive team remained unchanged — Anna Ogrenchuk, managing partner, and Artem Stoyanov, senior partner. Other partners of the amalgamated firm are: Olena Volianska — bankruptcy and restructuring; Yulia Atamanova — international arbitration, commercial and corporate disputes; Ihor Kravtsov — cross-border litigation; Sergiy Benedysiuk — corporate, M&A and antitrust; Andriy Reun — tax; Alexander Molotai — intellectual property; Maksym Sheverdin — criminal law and cross-border investigations. In May 2020 AGA Partners and AVELLUM announced that the two firms continue their cooperation as an alliance. A reminder that these two firms merged in July 2018. AGA Partners team resumes operations under its brand. The alliance format assumes close cooperation on joint projects. In June 2020 BRANDSFIELD Brand Care Law Firm announced the launch of its operations. The new firm is co-founded by former counsel

of the IP practice at Sayenko Kharenko, namely Oleg Klymchuk and Denis Krokhmalyov. The same month Maksym Uslystyi, former partner of Eterna Law, established ACQUIS Law Firm. The new brand is a full-service firm with the focus on energy and natural resources.

Moves and Promotions In June 2019 CMS Cameron McKenna Nabarro Olswang announced the arrival of Ihor Olekhov as a partner of its banking and finance practice. He was previously a partner in the Kyiv office of Baker McKenzie. In August the Kyiv office also promoted Kateryna Chechulina (finance practice) and Olga Shenk (dispute resolution and compliance) to counsel. In July Ilyashev & Partners appointed its lawyers and attorneys at law, in particular, Andrey Bychkov, Leonid Gilevich, Valeriia Gudiy, Vadym Kizlenko, Andriy Konoplya, Oleg Trokhimchuk and Dmitry Konstantinov as counsel. The head of the Ukrainian office of SBH Law Offices, a Belarus legal brand, changed from Zoya Krasyuk to Ksenia Prokonova. In September 2019 Denys Kytsenko (previously — Dynasty Law Firm) joined Eterna Law as a partner of the bankruptcy and restructuring practice. The same month Ivan Bondarchuk from ILF Law Firm joined EVRIS as head of the energy law practice.

Asters announced the appointment of Talina Kravtsova, focused on family law litigation, as partner effective from 1 January 2020. Additionally, the firm announced the promotion of Olga Lepikhina (family and inheritance law), Kateryna Oliynyk (banking and finance, capital markets), Anton Sintsov (commercial and civil law, bankruptcy and debt collection), and Oleksandr Volkov (international arbitration and cross-border litigation) to counsel. INTEGRITES announced the appointment of Serhiy Shershun, head of antitrust and competition, as partner effective from 1 January 2020. Eterna Law announced the promotions of Artem Kuzmenko as a partner in corporate and M&A; Igor Mulyarchuk as a counsel in international litigation; Karina Pavlyuk as a counsel of the firm’s international taxation and corporate structuring practice. Sayenko Kharenko boosted its antitrust and competition and banking and finance practices with the promotion of two counsel to partner status — Valentyna Hvozd and Igor Lozenko, respectively. On 20 January Markian Malskyy returned to Arzinger as partner and headed the firm’s Western Ukrainian office. He was the head of Lviv Regional State Administration from July 2019. Anastasia Usova, who leads the antitrust practice at Redcliffe Partners, was promoted to partner. Sergey Denisenko became the partner of AEQUO’s antitrust and competition law practice.

AEQUO announced the promotion of Nataliya Dryuk to counsel of its intellectual property practice.

In February INTEGRITES appointed Yevgen Ivanets as counsel on economic investigations to the international trade practice.

Oleksandr Padalka (previously — Sayenko Kharenko) joined Ilyashev & Partners as a counsel.

LCF Law Group promoted Yulia Atamanova to a partner in March 2020.

On 19 September Vasil Kisil & Partners announced the accession of the team of lawyers from Nazar Kulchytskyy & Partners. Nazar Kulchytskyy leads the practice of criminal law, representation at the European Court of Human Rights and protection of personal data. Late September the Salkom Law Firm announced the election of Eduard Tregubov as its new managing partner. In October Olena Sukmanova joined Sayenko Kharenko as a partner to head the firm’s litigation practice. Prior to joining she was the First Deputy Minister of Justice. In November Eterna Law announced the appointment of Oleh Beketov, partner, head of international litigation, as the firm’s senior partner. Shaukat Valitov joined the firm as a partner, responsible for the Uzbekistan market. Starting from November 2019 Vadim Medvedev, partner at AVELLUM, has been the head of its dispute resolution practice.

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UKRAINIAN LEGAL MARKET

Ukrainian Legal Market

Olesia Kryvetska joined Asters international trade practice as counsel and Oleksandr Frolov joined the dispute resolution team as counsel. In May CMS Cameron McKenna Nabarro Olswang announced the promotion of Natalia Kushniruk as a partner in the firm’s real estate team. Iryna Nikolayevska was promoted to partner of the corporate/M&A and compliance, risk and sensitive investigations practices in Kinstellar’s Kyiv office. Daniel Bilak has joined as a senior counsel to the firm’s regional management team. He was previously a chief investment adviser to the Prime Minister of Ukraine, and managing partner of the Ukraine office of the global law firm CMS Cameron McKenna. At the end of May 2020 Maryna Tomash (previously — private practice and ADER HABER) joined Juscutum Law Firm as a partner and the head of tax.

Ukrainian Legal Market The rest of 2020 and beyond will trigger debt restructuring, and hopefully both creditors and borrowers are interested in reaching new, reasonable commitments. Those players focused on distressed assets and non-performing loans began to deal with opportunities that the resulting crisis has created. Some of them already look precisely for attractive objects for acquisition as the financial terms of such transactions have become more attractive. As the resolution of many disputes was paralyzed within the COVID-19 outbreak, the postponed demand should be realized in full in the second half of 2020. It is predicted that there will be a wave of disputes involving investment and financing cases, as well as bankruptcies and default situations. The current crisis will be a source of contractual disputes and see a rise in the caseload of arbitral institutions all over the world. In Ukraine the most widely-discussed issue is investment treaty claims, particularly in the field of energy disputes. The situation naturally caused disruptions of supply chains, and may trigger disputes arising out of commodities originating from Ukraine. The fiscal function of the tax authorities is likely to be back. Both business and lawyers predict a myriad of tax disputes, especially controversies related to transfer pricing. On a similar note, Ukraine followed the global anti-offshorization trend. The recent changes in tax legislation will certainly bring lots of work to tax advisors. Another noteworthy consideration from the fields is the desire of business to take on state authorities for their inconsistent policies by appealing their regulations in courts.

TOP-10 Market Trends One notable advantage of running this research across multiple years is the determination of development cycles and dynamics. Below we present industry trends which we identified before and after the spring of 2020. It expectedly looks like some of them are lockdown driven and would otherwise be invisible to law firms.

1. Splits and new forms of cooperation Over the last couple of years, the appetites of national law firms have spurred on mergers between local players. Throughout 2019-2020 a few mergers took place (please see the timeline box below), and several anticipated mergers remained under negotiation and didn’t convert into amalgamations. Before the pandemic struck we expected the merger trend to continue. But the new changed reality turned the trend onto the opposite direction, where flexibility is the main response to crisis. Furthermore, a number of recent splits and establishment of new law firms is also a traditional development in times of crisis. Similarly to 2009, entrepreneurial skills are fostered by a turbulent and uncertain reality. All in all, changing the complexion of the legal marketplace is on its way.

2. Filling the gaps and rightsizing Many law firms responded to the lockdown in March with immediate staff reduction compensations (often noted as temporary) and even termination of employees — both lawyers and administrative personnel.

Conversely, some Ukrainian law firms and internationals attempted to be two steps ahead and prepare for tightening competition. They used the lockdown period for strengthening their teams — attracting rainmakers, filling in gaps in expertise, attracting talents from the market. Those firms, which reacted to the crisis with immediate dismissal of legal staff to secure their cash flow and maintain existing reserves to cover operating costs, have already felt decreased capacity when the workflow began to come back to the previous intensity. The unique feature of this crisis was that firms had to accept changes that are hard to manage. Rightsizing is one of them.

3. New generation of in-house lawyers Over the last couple of years client expectations have changed — strict demand in quality, pricing, assignment time frames. Curiously enough, not only does the economic background stay behind, but so does an evolving portrait of a modern in-house counsel. The community of in-house lawyers was fueled by legal practitioners from law firms who spent at least a couple of years in external advisory. It impacts heavily on their strategic decision-making and determined a more sophisticated choice of external counsel. The new generation of in-house practitioners understands the mindset of law firms, making them change approaches to sales and delivery of legal services.

4. Flexible pricing During quarantine and beyond, clients expected loyalty, discounts, installment plans, extensions, quite often all together. It means that a fresh approach to pricing was the most reasonable response for preserving the selling point and gaining distinction. The dumping trend existed long ago before the lockdown, but it received even more widespread use by firms with a financial safety bag, which had appetites for a slice of new clients. The situation forced an additional push to revise fees.

5. Strategic importance of technology The firms estimated the significant role of client-based technologies and document management systems in the period of lockdown. Those who have introduced client collaboration tools felt much confident in keeping close communication with clients. In times when clients are more self-serving these tools ensure a better client experience. Another serious concern was the robustness of prepared cyber security systems to demonstrate protection of client confidential information. It was a real test of this strategic investment made by many firms in recent years.

6. Remote work The pandemic changed the way in which legal work is done. Before the recent spring some law firms encouraged remote work arrangements to achieve a better work-life balance, and hence, increased efficiency. But it could be hardly called an overall trend. As a result, for many traditional market players working from home was a big challenge in terms of technologies, management and discipline. The situation revealed that remote arrangements can work and forced their leaders to reconsider the needs of technology in the light of new realities.

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Similarly, many online meeting tools, for example, Zoom, Microsoft Teams, Skype, Google Meet, became an essential part of everyday business life. The main requirements are safety, ability to screenshare, security settings, allowing multiple players to join. They are further used in a normal reality to save time and speed up operational decision-making.

7. Crucial role of online presence Even those firms that entered the crisis financially strong were urged to put their development and marketing plans on hold. When all off-line activities were terminated, the firm felt the pivotal role of its presence online. Digital marketing took in the budgets of traditional PR and marketing tools. Firms held webinars almost every day during the lockdown period. Sometimes clients even asked them to slow down as social networks were oversaturated with various screens and invitations. Similarly, it has a crucial impact on the industry of professional events and education. Those providers who offered online learning opportunities and were technically ready to operate fully remotely, won a new audience and pushed their business to a new level.

8. Video marketing With the lack of time the consumption of information gradually changed from lengthy texts to short takeaways, infographics, images and, finally, video. Visual marketing is tasked to be efficient, brief, understandable for a wider audience, and providing a call to action. Brief videos turned on the emotional side of expert positioning, as the perception of an individual always determines the purchasing choice. The shift towards video content didn’t happen immediately, but gained momentum in 20192020.

9. Business-driven leadership It is a multi-year trend in many progressive firms to map their client roster and execute consistent monitoring of their needs. Approaching the client by industry, understanding its strengths and gaps, has proved to be a truly sustainable strategy to generate work and stand out from the crowd. The quarantine gave the market a pause for thought — as to which industries and clients could be a source of work, and to elaborate a subsequent response with a set of legal products relevant to the situation. A product-wise model in sales appeared to be much more workable in times of uncertainty.

10. Emergency planning Unfortunately, the path to be taken by the pandemic cannot be predicted. This situation should likely be repeated in autumn and winter. So the leaders of law firms have already asked themselves questions; what changes should be made in their structures and business processes in order to be better prepared? How to work remotely for an extended period of time and to stay competitive in acquiring new clients? How to preserve quality and offer innovative pricing? How to reduce stress and improve working efficiency? And finally, in order to stay sustainable it is necessary (not desirable as before) to have an “emergency plan”.

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Capital Markets

Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 1.109 billion (EUR 1 billion)

The issue of EURdenominated notes by Ukraine

Sayenko Kharenko represented BNP Paribas and Goldman Sachs; AVELLUM represented the Ministry of Finance of Ukraine

Latham & Watkins acted as English and US legal counsel to BNP Paribas and Goldman Sachs; White & Case acted as English and US legal counsel to the Ministry of Finance of Ukraine

USD 1 billion (EUR 600 million and USD 335 million)

EUR 600 million and USD 335 million Eurobond offering of Naftogaz of Ukraine

AVELLUM represented Citigroup Global Markets Limited and Deutsche Bank AG, London Branch; AEQUO represented Naftogaz of Ukraine

Freshfields Bruckhaus Deringer acted as English and US law counsel to Naftogaz; White & Case acted as English and US law counsel to joint lead managers; Linklaters acted as English law counsel to the trustee; Clifford Chance acted as English law counsel to the issuer

Dual-currency Eurobond issue by Metinvest

Sayenko Kharenko represented Deutsche Bank, Natixis and UniCredit; AVELLUM represented Metinvest

Linklaters acted as English, US and Dutch legal counsel to Deutsche Bank, Natixis and UniCredit; Allen & Overy acted as English, US and Dutch legal counsel to Metinvest

USD 500 million

Eurobond offering by Ukrainian Railways - PJSC Ukrzaliznytsia due July 2024

Sayenko Kharenko represented J.P. Morgan and Dragon Capital; Asters acted as legal counsel to PJSC Ukrzaliznytsia

Dechert acted as English law counsel to PJSC Ukrzaliznytsia; Latham & Watkins acted as English law counsel to lead managers

USD 500 million

Eurobond issue by Naftogaz of Ukraine

AVELLUM represented Citigroup Global Markets Limited as lead managers; AEQUO represented Naftogaz of Ukraine

Freshfields Bruckhaus Deringer acted as English and US law counsel to Naftogaz; White & Case acted as legal counsel to the underwriters on foreign law; Allen & Overy (UK) acted as a counsel to the SPV; Linklaters acted as a counsel to the paying agent

Debut green bond issue by DTEK Renewables

Sayenko Kharenko represented Raiffeisen Bank International and Renaissance Capital; AVELLUM represented DTEK Renewables

Linklaters acted as English, US and Dutch legal counsel to joint lead managers; Latham & Watkins acted as English and US legal counsel to DTEK Renewables; Van Doorne acted as Dutch legal counsel to DTEK Renewables

USD 834 million (USD 500 million and EUR 300 million)

EUR 325 million

Table 1

USD 350 million

Eurobond issue by MHP

USD 350 million

Eurobond tap issue by Ukraine

USD 300 million

Debut issue of secured notes by Aragvi Finance International DAC, member of the Transoil Group, a dominant agriculture player in Moldova

USD 300 million

Eurobond issue by Kernel Holding S.A.

USD 100 million

The issue of subordinated loan participation notes by Ukreximbank

USD 100 million

Eurobond tap issue by Ukrainian Railways — PJSC Ukrzaliznytsia

Sayenko Kharenko represented J.P. Morgan and ING; AVELLUM represented MHP

Sayenko Kharenko represented J.P. Morgan; AVELLUM represented the Ministry of Finance of Ukraine

Sayenko Kharenko represented Citigroup, Renaissance Capital and UBS Investment Bank; Baker McKenzie represented Aragvi Finance International DAC

Sayenko Kharenko represented ING and J.P. Morgan; AVELLUM represented Kernel Sayenko Kharenko represented Ukreximbank; AVELLUM represented J.P. Morgan and Morgan Stanley Sayenko Kharenko represented J.P. Morgan and Dragon Capital; Asters represented PJSC Ukrzaliznytsia

Latham & Watkins acted as English and US legal counsel to J.P. Morgan and ING; Freshfields Bruckhaus Deringer acted as English and US legal counsel to MHP; Harneys Aristodemou Loizides Yiolitis acted as Cypriot legal counsel to MHP; Arendt & Medernach acted as Luxembourg legal counsel to MHP Latham & Watkins acted as English and US legal counsel to J.P. Morgan; White & Case acted as English and US legal counsel to the Ministry of Finance of Ukraine Linklaters acted as US and English legal counsel to Citigroup, Renaissance Capital, and UBS Investment Bank; Turcan Cazac and Homburger acted as Moldovan and Swiss legal counsel to Citigroup, Renaissance Capital and UBS Investment Bank; Baker McKenzie acted as US, English and Swiss legal counsel to Transoil Group; Harneys Aristodemou Loizides Yiolitis, Gladei & Partners and Arthur Cox acted as Moldovan, Cypriot and Irish legal counsel to Transoil Group Latham & Watkins acted as English and US legal counsel to J.P. Morgan and ING; Linklaters acted as English and US legal counsel to Kernel White & Case acted as English legal counsel to Ukreximbank; Latham & Watkins acted as English law counsel to J.P. Morgan and Morgan Stanley Latham & Watkins acted as English legal counsel to J.P. Morgan and Dragon Capital; Dechert acted as English legal counsel to PJSC Ukrzaliznytsia

www.ukrainianlafirms.com

Value

Table 2

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

EUR 529 million

Facility extended to Ukraine under a guarantee from the International Bank for Reconstruction and Development

AVELLUM represented the Ministry of Finance of Ukraine; Sayenko Kharenko advised Deutsche Bank

White & Case acted as English law counsel to the Ministry of Finance of Ukraine; Clifford Chance acted as English law counsel to Deutsche Bank; Reed Smith acted as English law counsel to TMF Global Services (UK) Limited

USD 548 million

ABS transaction (attracting financing through issue of notes secured with certain assets that generate permanent income — aircraft and their leases) with pool of aircraft, some of which are leased to UIA

Jurvneshservice advised BOC Aviation as Originator and Service Agent

Milbank acted as New York law advisors to BOC Aviation

USD 464 million

Financing of acquisition of Vodafone Ukraine telecommunication company by Azerbaijani mobile operator Bakcell, part of the NEQSOL group, arranged by J.P. Morgan Securities Plc and Raiffeisen Bank International AG

AVELLUM represented J.P. Morgan Securities Plc and Raiffeisen Bank International AG; DLA Piper Ukraine advised NEQSOL

Linklaters advised J.P. Morgan Securities Plc and Raiffeisen Bank International AG; DLA Piper UK acted as English law counsel to NEQSOL

Up to EUR 430 million

Financing the acquisition by the Ministry of Interior Affairs of Ukraine of 55 helicopters from Airbus, including new H125 and H145 models, as well as retrofitted H225 (Super Puma civil use model)

Redcliffe Partners advised CACIB; AVELLUM advised the Ministry of Finance of Ukraine

Clifford Chance (Paris) acted as French law counsel to Crédit Agricole Corporate and Investment Bank and other lenders; White & Case acted as French law counsel to the Ministry of Finance of Ukraine

USD 384 million

ABS transaction with pool of aircraft, some of which are leased to UIA

Jurvneshservice advised Carlyle Aviation Partners as Originator and Service Agent

Milbank and Norton Rose Fulbright acted as foreign law advisors to Carlyle Aviation Partners

EUR 262 million

Secured term loan to SyvachEnergoProm provided by EBRD, NEFCO, BSTDB, Proparco, Finnfund, IFU, FMO, Green for Growth Fund and J.P. Morgan Securities Plc (debt coordinator) to fund the construction of a 250 MW wind power plant near Syvash Lake

Redcliffe Partners advised EBRD, NEFCO, BSTDB, Proparco, Finnfund, IFU, FMO, Green for Growth Fund and J.P. Morgan Securities Plc; INTEGRITES advised NBT

Clifford Chance acted as lead counsel to EBRD, NEFCO, BSTDB, Proparco, Finnfund, IFU, FMO, Green for Growth Fund and J.P. Morgan Securities Plc; Kanter Advokatbyra KB acted as Swedish law advisor to lenders; Törngren Magnell acted as Swedish law counsel to borrower; Wikborg Rein Advokatfirma AS acted as Norwegian advisor to sponsors; K&L Gates acted as English counsel to NBT

USD 160 million

Lease of 5 aircraft to SkyUp airlines

Jurvneshservice advised GECAS as lessor

USD 150 million

Equity and senior debt financing for the construction of the first 98 MW phase of 500 MW wind farm in Zaporizhzhia Region. The Overseas Private Investment Corporation (OPIC) provides USD 150 million in long-term financing and PRI insurance (over USD 250 million) to EuroCape Ukraine I LLC, a subsidiary of independent renewable energy company LongWing Energy SCA, as lead borrower and sponsor.The remaining project costs are financed by LongWing S.C.A, VLC Renewables and GE Capital’s Energy Financial Services

CMS Cameron McKenna Nabarro Olswang advised local sponsor and borrower — EuroCape New Energy Limited and Long Wing; Baker McKenzie advised Citibank, N.A. London Branch; DLA Piper advised OPIC; INTEGRITES advised Eurocape/ LongWing and GE Capital; Jeantet advised LongWing Energy; Dentons advised VLC Renewables

UKRAINIAN LEGAL MARKET

Banking & Finance

Baker McKenzie advised Citibank, N.A. London Branch on English law matters; DLA Piper advised OPIC on New York and English law matters; Shearman & Sterling advised LongWing Energy on New York and English law

WND — the value of the deal was not disclosed. Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there was no foreign law counsel.

www.ukrainianlafirms.com

>> Continued on page 14

Banking & Finance

Value

Table 2

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

EUR 116 million

Loan to Kronospan UA, a manufacturer of woodbased panels, extended by EBRD

Sayenko Kharenko advised EBRD

EUR 100 million

The European Union’s program to support Ukraine’s state-owned Energy Efficiency Fund, including implementation of guidelines and agreements for proper usage of grants from the Multi-Donor Trust Fund to be managed by IFC in cooperation with Energy Efficiency Fund, participating financial institutions and homeowner associations

Baker McKenzie advised IFC

EUR 100 million

Financing by ING of the acquisition of a Slovenian poultry producer, Perutnina Ptuj, a well-established, vertically-integrated company in South-east Europe, by MHP, one of the leading international agroindustrial groups and a leading poultry producer in Ukraine

CMS Cameron McKenna Nabarro Olswang advised ING

EUR 90 million

Loan facility financed by Bayerische Landesbank purporting to finance the construction of the second stage of a 200 MW wind power plant in Zaporizhzia Region, with Primorskaya-2 Wind Electric Plant (member of DTEK Renewables group) as borrower

Baker McKenzie advised Bayerische Landesbank

EUR 80 million

Loan to Ukreximbank provided by EBRD in support of green investments in Ukraine

Sayenko Kharenko advised EBRD

USD 70 million

Loan to Epicentr K, a leading Ukrainian DIY retail chain, from the Black Sea Trade and Development Bank

AEQUO advised Epicentr K; Baker McKenzie advised the Black Sea Trade and Development Bank

USD 56 million

Loan to Kernel for construction of four biomass plants in different regions of Ukraine, provided by EBRD

Redcliffe Partners advised EBRD

USD 50 million

Loan to OTP Leasing provided by International Finance Corporation for financing energy efficiency and renewable energy sub-projects

Arzinger advised IFC

USD 43.3 million

Secured loan to Astarta Group extended by EIB

Jeantet advised EIB

EUR 41.1 million

Loan provided by Bank Gospodarstwa Krajowego to Martin LLC for purposes of financing construction of RETROVILLE complex, also involving insurance by KUKE, the Polish export credit agency

CMS Cameron McKenna Nabarro Olswang advised Bank Gospodarstwa Krajowego

CMS (Warsaw), Sorainen (Lithuanian law), Demetrades (Cypriot law) advised Bank Gospodarstwa Krajowego and KUKE

EUR 37.8 million

Non-recourse debt financing to Scatec Solar (Norway), global solar power producer for the construction of 54 MW solar PV power plant in Boguslav, extended by FMO, the Dutch development bank, Green for Growth Fund (under FMO’s B Facility) and GIEK (providing an unfunded credit guarantee)

INTEGRITES advised Scatec Solar; Redcliffe Partners advised FMO, GGF and GIEK

Trinity International acted as English law counsel to Scatec Solar; Clifford Chance (Amsterdam) acted as English law counsel to FMO, GGF and GIEK

EUR 37 million

Non-recourse financing to Scatec Solar for the construction of 55.4 MW solar PV power plant in Orbita village, extended by EBRD, The Nordic Environment Finance Corporation (NEFCO) and Swedfund

INTEGRITES advised Scatec Solar; AVELLUM advised EBRD, NEFCO and Swedfund

Trinity International acted as English law counsel to Scatec Solar; Watson Farley & Williams acted as English law counsel to EBRD, NEFCO and Swedfund

www.ukrainianlafirms.com

CMS (Warsaw and Ljublijana) advised ING

Linklaters (Warsaw) acted as English law counsel to EBRD

Table 2

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

EUR 36.3 million

Senior secured loans to Rengy Bioenergo LLC (Ukraine), which belongs to the Norwegian developer of solar energy projects Scatec Solar and Rengy Development, to finance construction and operation of a solar PV plant in Mykolaiv Region for an aggregate installed capacity of 47 MW, extended by EBRD and the Black Sea Trade and Development Bank (BSTDB)

INTEGRITES advised Scatec Solar; AVELUUM advised EBRD and BSTDB

Trinity International acted as English law counsel to Scatec Solar; Stephenson Harwood acted as English law counsel to EBRD and BSTDB

USD 35 million

Loan to a major agricultural holding, Louis Dreyfus Company, from EBRD to finance railcar logistics business in Ukraine

EVERLEGAL advised Louis Dreyfus Company Ukraine; CMS Cameron McKenna Nabarro Olswang advised EBRD

CMS (Amsterdam) advised EBRD on Dutch law; Orrick, Herrington & Sutcliffe advised Louis Dreyfus Company Ukraine on Dutch law

USD 28 million

Lease of two Airbus 321 and 1 Boeing 737 to Windrose and Jonika

Jurvneshservice advised VALLAIR SOLUTIONS S.A.R.L. as lessor

EUR 25 million

Synthetic financing provided by EBRD in local currency to OTP Bank Ukraine under EU4Business initiative

Sayenko Kharenko advised EBRD

EUR 25 million

Synthetic financing provided by EBRD in local currency to Raiffeisen Bank Aval under EU4Business initiative

Sayenko Kharenko advised EBRD

EUR 24.5 million

Non-recourse debt financing to Scatec Solar for the construction of 32 MW solar PV power plant in Kamianka, extended by EBRD. FMO, the Dutch development bank, will take a 40% equity stake in Scatec Solar’s 32 MW Kamianka project. The total investment for the project is estimated at EUR 35 million

INTEGRITES advised Scatec Solar; AVELLUM represented EBRD and FMO

EUR 20 million

Synthetic financing provided by EBRD in local currency to ProCredit Bank Ukraine under EU4Business initiative

Sayenko Kharenko advised EBRD

USD 20 million

Long-term credit facility for Astarta Group arranged by DEG (Deutsche Investitions- und Entwicklungsgesellschaft mbH)

Kinstellar advised DEG

Clifford Chance and Kinstellar acted as English law counsel to DEG

USD 20 million

Long-term credit facility for Nibulon extended by DEG

Kinstellar advised DEG

Clifford Chance and Kinstellar acted as English law counsel to DEG

USD 20 million

Lease of Airbus 320 to Windrose

Jurvneshservice advised Genesis Funding Limited as lessor

USD 17 million

Double tranche loan to OTP Leasing LLC, the leading Ukrainian leasing company, provided by the European Fund for Southeast Europe (EFSE)

AEQUO advised the European Fund for Southeast Europe

Value

UKRAINIAN LEGAL MARKET

Banking & Finance

Trinity International acted as English law counsel to Scatec Solar; Stephenson Harwood acted as English law counsel to EBRD

>> Continued on page 16

www.ukrainianlafirms.com

Banking & Finance

Value EUR 15 million

Table 2

Transactions Financing to PJSC Farmak extended by EBRD

Legal Support (Ukrainian Law) Asters represented EBRD

EUR 10 million

Financing to Kormotech Group provided by EBRD

Asters represented EBRD

Up to EUR 10 million

Financing to Grain Alliance Group, a large Ukrainian agricultural producer

Asters represented EBRD

Up to EUR 10 million

Loan to Epicentr K provided by Raiffeisen Bank International

AEQUO advised Raiffeisen Bank International

EUR 8.7 million

Loan to Ukrainian building material producer Unigran provided by EBRD

AVELLUM represented EBRD

EUR 7.2 million

Loan to the Ukrainian business of a global logistics company extended by DEG (Deutsche Investitionsund Entwicklungsgesellschaft mbH)

Kinstellar advised DEG

EUR 5.3 million

Loan facility to Bank Lviv provided by EBRD

Sayenko Kharenko advised EBRD

EUR 5.1 million

Credit facility made available by EBRD to Snyatinenergoinvest LLC

Kinstellar advised Snyatinenergoinvest LLC

EUR 4.8 million

Credit facility made available by EBRD to West Solar LLC

Kinstellar advised West Solar LLC

EUR 4.5 million

Loan to a Ukrainian power generation company for building a solar power station provided by NEFCO

Arzinger advised NEFCO

USD 5 million

Loan facility to Ukrtelecom extended by SID Bank

Arzinger advised SID Bank

EUR 4 million

Loan facility provided by Raiffeisen Bank International AG and covered by Euler Hermes guarantee to one of the largest European producers of paper-based products

Arzinger advised Raiffeisen Bank International AG

EUR 3 million

Long-term senior secured loan to LLC Zunami, a producer of finished wooden floors and engaged in full-cycle wood processing, extended by EBRD

AVELLUM represented EBRD

EUR 2.6 million

Senior secured loan to Negabarit-Service LLC, a Ukrainian leader in oversized and complex auto cargo transportation, extended by EBRD

AVELLUM represented EBRD

EUR 0.7 million

Loan provided by NEFCO to a Ukrainian power generating company for construction of mini hydro power station

Arzinger advised NEFCO

www.ukrainianlafirms.com

Legal Support (Foreign Law) Hunton Andrews Kurth acted as English law counsel to EBRD Farley & Williams acted as English law counsel to EBRD; Cobalt acted as Lithuanian counsel to EBRD; Michael Damianos & Co acted as Cypriot counsel to EBRD Eversheds Sutherland Advokatbyrå AB acted as Swedish counsel to EBRD; Hunton Andrews Kurth acted as English counsel to EBRD

Clifford Chance and Kinstellar acted as English law counsel to DEG

Value

Table 2 Legal Support (Ukrainian Law)

Transactions

WND

Export credit financing granted by Bank Gospodarstwa Krajowego and insured by KUKE in relation to development of the Nikolsky shopping mall in Kharkiv

CMS Cameron McKenna Nabarro Olswang advised Bank Gospodarstwa Krajowego and KUKE S.A.

WND

Trade finance to VPG Tradind Ltd from Oman company Al Hadd Gas Group for tolling and production of ammonia

Gramatskiy & Partners represented VPG Tradind Ltd

WND

Debt financing by OTP Bank for construction of Novyi Complex LLC, developer and real estate holder, of second line of Trade and Entertainment Center Chocolate

Gramatskiy & Partners represented Novyi Complex LLC

WND

Financing to investment and developer group Panorama Invest for construction of solar power plants in Zaporizhzhia and Dnipropetrovsk Regions provided by White Green Energy Ltd

Gramatskiy & Partners represented Panorama Invest LLC

WND

Debt finance to AgroGazTrading LLC extended by UkrGazBank JSC for joint activity with Odesa Port Plant

Gramatskiy & Partners represented AgroGazTrading LLC

WND

Loan facility to N.L. Group LLC provided by RwS Bank, CrystalBank, Credit Europe Bank

Gramatskiy & Partners represented N.L. Group LLC

WND

Financing for construction company Budivelni Investitsii LLC provided by Bank Sich JSC

Gramatskiy & Partners represented Budivelni Investitsii LLC

WND

Loan facility to Factoring Finance Financial Company provided by Epivanon LLC, factoring company

Gramatskiy & Partners represented Factoring Finance Financial Company

WND

Financing of LLC Smachni Spravy, a social enterprise in Brovary, Kyiv Region, specializing in producing meat products, by Western NIS Enterprise Fund, a regional fund funded by US government via USAID

Marchenko Partners advised Western NIS Enterprise Fund

WND

Financing of Dnipro UVP UTOS (POG Dniprovsk Training and Production Enterprise of the Ukrainian Society of the Blind, a company specializing in production of equipment for rolling stock of rail operator Ukrzaliznytsia, as well as construction products) by Western NIS Enterprise Fund

Marchenko Partners advised Western NIS Enterprise Fund

Legal Support (Foreign Law) CMS (Warsaw) advised Bank Gospodarstwa Krajowego and KUKE S.A.

UKRAINIAN LEGAL MARKET

Banking & Finance

www.ukrainianlafirms.com

Debt Restructuring / Liability Management

Value

Table 3 Legal Support (Ukrainian Law)

Transactions

Sayenko Kharenko advised the coordinating committee of creditors; AVELLUM advised Interpipe

Stephenson Harwood acted as English law counsel to Interpipe Limited on loan instruments in general restructuring; Linklaters acted as English law counsel to Interpipe Limited on capital market instruments in general restructuring

Over USD 1 billion

Main debt restructuring of Interpipe

USD 159.6 million

Financial restructuring of debt of the group of companies of UkrLandFarming and AVANGARDCO IPL to Oschadbank

EY acted as an independent advisor

USD 50 million

Restructuring of corporate loan extended to Globino group of companies by EBRD and IFC

INTEGRITES advised EBRD and IFC

USD 43 million

Restructuring and refinancing of a bilateral loan to Royalty-Rent, linked to the acquisition of finance property, namely Aladdin Shopping Centre, a prime neighborhood shopping center in Kyiv

USD 23.4 million

Restructuring of facility agreement between BNP Paribas (Suisse) S.A. and a high-net-worth individual

INTEGRITES represented BNP Paribas (Suisse) S.A.

USD 16 million

Debt restructuring of Graal LLC to N.L. Group Financial Company

Gramatskiy & Partners represented Graal LLC

USD 4.5 million

Financial restructuring of L.K.O. LLC, distributor of beer and alcohol, to Raiffeisen Bank Aval PJSC

Gramatskiy & Partners represented L.K.O. LLC

USD 1.5 million

Restructuring of a loan facility for the reconstruction of buildings in Kyiv of General Construction LLC to OTP Bank PJSC

Gramatskiy & Partners represented General Construction LLC

WND

Debt restructuring procedure of TMM to JSC Oschadbank

AEQUO advised TMM

WND

Debt restructuring of Mriya Agro Holding Public Limited

Dentons acted for Chris Iacovides and Andri Antoniou of CRI Group as joint liquidators

WND

Financial restructuring of debts of Agency of Office Construction LLC to state-owned ExportImport Bank of Ukraine

EY acted as an independent advisor

WND

Debt restructuring of Closed Non-Diversified Venture Corporate Investment Fund Republic and Global Space Management to bond holders

Gramatskiy & Partners represented Venture Corporate Investment Fund Republic

WND

Debt restructuring of construction and development company Panorama-Invest LLC to Bank Sich (Power Bank JSC)

Gramatskiy & Partners represented PanoramaInvest LLC

WND

Sale of debt owed by shopping mall in downtown Kyiv under a USD 140 million credit facility agreement provided by FMS-Wertmanagement AöR, a German federal institution established to wind up risk positions of Hypo Real Estate Holding

Kinstellar advised FMSWertmanagement AöR

Norton Rose Fullbright and Kinstellar advised FMSWertmanagement AöR on English law matters

WND

Working capital facilities debt restructuring of Interpipe

Sayenko Kharenko advised working capital lenders; AVELLUM advised Interpipe

Hogan Lovells acted as international legal counsel to working capital lenders; Stephenson Harwood acted as international legal counsel to Interpipe

Dentons advised the sponsor, a reputable international fund manager

Legal Support (Foreign Law)

www.ukrainianlafirms.com

Gide Loyrette Nouel acted as English law counsel to EBRD and IFC

Dentons Amsterdam advised sponsor on English law matters

Mayer Brown acted as English law counsel to BNP Paribas (Suisse) S.A.

Dentons advised CRI Group on English, US and German law

Table 4

Value

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 13.2 billion*

Acquisition of 100% stake in Johnson Controls’ Power Solutions business by Brookfield and Caisse de dépôt et placement du Québec

Baker McKenzie advised Brookfield Business Partners L.P.

Approx. USD 1.34 billion

Transfer of Ukraine’s gas transmission system from JSC Ukrtransgaz to Gas Transmission System Operator of Ukraine LLC

EY advised National Joint Stock Company Naftogaz of Ukraine as parent (direct and indirect) of JSC Ukrtransgaz and Gas Transmission System Operator of Ukraine LLC

USD 734 million

Acquisition by NEQSOL of VF Ukraine, one of the largest local mobile network operators, from Russian telecommunications operator MTS Group

DLA Piper Ukraine advised NEQSOL; AEQUO represented MTS Group

Over USD 120 million

Sale of Gas Transmission System Operator of Ukraine LLC by JSC Ukrtransgaz to JSC Main Gas Pipelines of Ukraine

EY advised Naftogaz of Ukraine as parent of JSC Ukrtransgaz

USD 64 million

Acquisition of 100% shareholding in Rail Transit Kargo Ukraine by Kernel Holding S.A.

AVELLUM advised Kernel Holding S.A.

EUR 30 million

Sale of a 75.01% stake in a number of solar power plant projects under development in Odesa Region by UDP Renewables to Acciona Energia

EVERLEGAL represented UDP Renewables

UAH 777 million

Acquisition of Respublika Trade and Entertainment Center in Kyiv by Soltex Capital LLC

Ilyashev & Partners advised Soltex Capital LLC

USD 10 million

Acquisition of a significant minority stake in Ajax Systems, a wireless security system in Europe, by Horizon Capital from SMRK and management of Ajax Systems

EY advised Horizon Capital; Arzinger advised Ajax Systems

USD 5.25 million

Purchase by VPG Agro LLC of a number of companies that lease land in Kyiv and Chernihiv Regions to expand its land bank

Gramatskiy & Partners represented VPG Agro LLC

USD 4.14 million

Sale of Dreamgroup Management hostels in Warsaw, Prague and Bratislava to Safestay plc, an operator of an international brand of contemporary hostels

Nobles represented Dreamgroup Management

LCA Studio Legale (Milan) advised Dreamgroup Management on matters of Italian law; Eversheds Sutherland (Milan) advised Safestay plc

USD 3.75 million

Acquisition by Perion Network of Septa Communications LLC (known as Captain Growth), a Ukrainian start-up

DLA Piper advised Perion Network; Baker McKenzie represented sellers of Septa Communications

Meitar Liquornik Geva Leshem Tal acted as English law advisor to Perion Network

USD 2.5 million

Acquisition of Stand Plus LLC by Czech company STK Karlovarska, which operates in hotel and restaurant industry

Gramatskiy & Partners represented STK Karlovarska

USD 1.7 million

Acquisition of 49.9% share stake in PFTS Stock Exchange PJSC by WOCE Co., Limited (Hong Kong)

Ilyashev & Partners advised PFTS Stock Exchange

USD 1.4 million

Acquisition of Agricom Invest LLC by Czech company STK Karlovarska, which operates in hotel and restaurant industry

Gramatskiy & Partners represented STK Karlovarska

WND

Acquisition of a stake in Ciklum, a leading global digital services and software engineering company, by Dragon Capital

AEQUO advised Dragon Capital

DLA Piper UK acted as English law counsel of NEQSOL; Latham & Watkins acted as counsel to MTS Group

UKRAINIAN LEGAL MARKET

Mergers & Acquisitions, Joint Ventures Establishing

* Global deal, total value in all jurisdictions. WND — the value of the deal was not disclosed. Empty table cells in a foreign legal support column mean that the information is either not available, confidential or there was no foreign law counsel.

www.ukrainianlafirms.com

>> Continued on page 20

Mergers & Acquisitions, Joint Ventures Establishing

Value

Transactions

Legal Support (Ukrainian Law)

Table 4 Legal Support (Foreign Law)

WND

Acquisition of food metal packaging factory in Ukraine by Ardagh Group, a global leader in packaging solutions

AEQUO advised Ardagh Group

WND

Acquisition of warehouse complex Arctica by Dragon Capital from Oschadbank

AEQUO advised Dragon Capital

WND

Acquisition of Aladdin Shopping Mall in Kyiv by Dragon Capital from Meyer Bergman

AEQUO advised Dragon Capital; CMS Cameron McKenna Nabarro Olswang advised Meyer Bergman

WND

Acquisition of shopping mall Smart Plaza Obolon in Kyiv by Dragon Capital

AEQUO advised Dragon Capital; AVELLUM advised sellers

WND

Acquisition of Intereuropa, a large logistics company, by Netlog Lojistik Hizmetleri, the largest logistics company in Turkey

AEQUO advised Netlog Lojistik Hizmetleri

Selih & Partners (Slovenia) acted as counsel to Netlog Lojistik Hizmetleri

WND

Sale by Orexim Group, a major Ukrainian logistics group, of a controlling stake in its grain terminal business to Posco Daewoo Corporation, Korea’s largest trading company

AEQUO represented Posco Daewoo Corporation; Sayenko Kharenko advised Orexim Group;

Jipyong (Seoul) advised Posco Daewoo on Korean and Singaporean law matters

WND

Acquisition of entire business of Cropio Group, the agricultural technology company, by Syngenta

AEQUO advised Cropio Group; KPMG Law represented Syngenta

WND

Sale by Getin Holding S.A. of 100% stake in Idea Bank JSC to Dragon Capital, together with a private investor

AEQUO advised Dragon Capital; Sayenko Kharenko advised Getin Holding S.A.

WND

Acquisition of entire stakes in Italian multinational oil and gas company Eni S.p.A. and British independent oil and gas company Cadogan Petroleum in investment project on exploitation of Cheremkhivsko-Strupkivske Gas Field, by National JSC Nadra Ukraine

Arzinger advised National JSC Nadra Ukraine

WND

Investment of Investment Capital Ukraine in tech start-up Apostera, a pure automotive software product company providing a product solution for safe autonomic driving and navigation

Arzinger advised Investment Capital Ukraine

WND

Management buyout of Ukrainian part of Hubert Burda Media business with portfolio consisting of more than 45 brands, including Marie Claire, Playboy, Lisa, Burda Style

Arzinger advised Burda International Holding GmbH

WND

Carve-out of Biopharma’s non-plasma business and its further sale to Stada AG, a global manufacturer of pharmaceuticals and consumer healthcare products

Arzinger represented Stada AG; Baker McKenzie advised shareholders of Biopharma

WND

Acquisition of entire stake in Chumak, Ukraine’s leading producer of branded food products, by Delta Wilmar group of companies, from Dragon Capital

Arzinger advised Delta Wilmar CIS; KPMG Law provided tax due diligence of JSC Chumak

WND

Acquisition of Boris Medical Center by Dobrobut, a leading Ukrainian network of private medical centers

Asters represented Dobrobut

WND

Acquisition of 50% stake in Nicken Holdings Ltd from Investment Capital Ukraine

AVELLUM advised Investment Capital Ukraine; Sayenko Kharenko advised VR Capital

WND

Acquisition of a minority stake in Dobrobut, a leading private healthcare services provider in Ukraine, by Horizon Capital

AVELLUM advised Dobrobut; Sayenko Kharenko advised Horizon Capital

www.ukrainianlafirms.com

Value

Transactions

Legal Support (Ukrainian Law)

Table 4 Legal Support (Foreign Law)

WND

Acquisition of BENTELER Distribution Ukraine, part of the international distribution division of BENTELER International AG, by Van Leeuwen Pipe and Tube Group

AVELLUM advised Van Leeuwen Pipe and Tube Group; Sytnyk & Partners advised BENTELER International AG

Freshfields Bruckhaus Deringer acted as global legal counsel to Van Leeuwen Pipe and Tube Group; Mayer Brown acted as global legal counsel to BENTELER International AG

WND

Acquisition of SST Group’s electric underfloor heating and water leakage control systems business by GROUPE ATLANTIC, a leading French HVAC company

AVELLUM advised GROUPE ATLANTIC

Herbert Smith Freehills acted as global legal counsel to GROUPE ATLANTIC

WND

Acquisition of Ukrainian companies of CoreValue group, a US-based software and technology services company with development labs across Ukraine and Poland, by Cornerstone Partners

AVELLUM advised Cornerstone Partners; Eterna Law represented sellers

Weil, Gotshal & Manges (Warsaw) acted as global legal counsel to Cornerstone Partners

WND

Sale by SM Invest Construction B.V., a solar PV plants developer, of shares in the holding company, which owns the underlying assets to develop a 148 MW solar power plant in Mykolaiv Region to Scatec Solar ASA

AVELLUM advised SM Invest Construction B.V.; CMS Cameron McKenna Nabarro Olswang advised Scatec Solar ASA

CMS acted as English law counsel to Scatec Solar ASA

WND

Sale by Investment Capital Ukraine (ICU) to VR Capital Group of 50% stake in a holding company owning 11 solar plants with an aggregate capacity of up to 127 MW in Mykolaiv Region, and further establishment of joint venture between ICU and VR Capital Group

AVELLUM advised Investment Capital Ukraine; Sayenko Kharenko advised VR Capital Group

WND

Sale by Investment Capital Ukraine of remaining stake in alternative energy projects with total capacity of over 200 MW to VR Capital Group

AVELLUM advised Investment Capital Ukraine; Sayenko Kharenko advised VR Capital Group

WND

Sale by KfW, a German state-owned bank, of its shareholding in ProCredit Bank to ProCredit Holding AG&Co

AVELLUM advised KfW

WND

Acquisition by MHP SE, a leading Ukrainian agro-industrial group, of 90.692% of issued share capital in Perutnina, a well-established and vertically integrated company in Southeast Europe, including Slovenia

Baker McKenzie advised MHP SE

WND

Establishment of a joint venture between MAIS and a strategic investor, Remington Seeds

Kinstellar advised MAIS; Baker McKenzie advised Remington Seeds

WND

Establishing of joint venture by De Heus Animal Nutrition B.V., an international animal feed production company, through investment in a Ukrainian animal nutrition business

Baker McKenzie advised De Heus Animal Nutrition B.V.

WND

Bespoke exclusivity arrangements of Discovery Life Sciences and East West Biopharma

CMS Cameron McKenna Nabarro Olswang advised Discovery Life Sciences

WND

Acquisition of solar power project with capacity of 50 MW in Ukraine's Kherson Region

CMS Cameron McKenna Nabarro Olswang advised Scatec Solar ASA

WND

Merger of distribution networks of alcohol and non-alcohol beverages — LKO, Ditrade, SKS and Prodmarket

Gramatskiy & Partners represented LKO, Ditrade, SKS and Prodmarket

UKRAINIAN LEGAL MARKET

Mergers & Acquisitions, Joint Ventures Establishing

ODI acted as MHP’s counsel in Slovenia, Serbia, Croatia, and Macedonia

CMS acted as English law counsel to Scatec Solar ASA

>> Continued on page 22

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Mergers & Acquisitions, Joint Ventures Establishing

Transactions

Legal Support (Ukrainian Law)

WND

Acquisition of Fornetti group of companies by Bakery Food Industry

Gramatskiy & Partners represented Bakery Food Industry

WND

Acquisition of companies that own coworkings in Kyiv and Lviv by IT Soft LLC

Gramatskiy & Partners represented IT Soft LLC

WND

Acquisition of 51% stake in Antonov Logistic Salis GmbH by State Enterprise Antonov

Ilyashev & Partners advised SE Antonov

WND

Acquisition of corporate rights in Oiltransterminal LLC, a terminal in the Sea Port of Mykolaiv, by Eridon, a leading Ukrainian company in distribution of plant protection products, fertilizers and seeds of foreign selection

Pavlenko Legal Group represented Eridon

WND

Acquisition of corporate rights in Buhsky Elevator LLC by Pivdenna Agrarian-Export Company (PAEK Group)

Pavlenko Legal Group represented PAEK Group

WND

Acquisition of Cosmo Pharmacy chain on territory of Ukraine by TAS Group

Pavlenko Legal Group represented TAS Group

WND

Acquisition of corporate rights of Grant-N, producer of сoncrete items and construction products, to develop industrial capacities for Eridon to reprocess sunflower

Pavlenko Legal Group represented Eridon

WND

Acquisition of shares in Luregio Limited, which owns shares in Asphalt Plant Stolychnyy and stakes in LLC TIB, which operate in field of real estate lease, production of concrete and concrete fluids, stones and dry mortars by TAS Group

Pavlenko Legal Group represented TAS Group

WND

Acquisition of Ukrainian automated process documentation start-up StepShot by UiPath, a fast-growing software company

Redcliffe Partners advised UiPath

WND

Acquisition by BPCE, the second-largest banking group in France, of majority stake in Oney Bank S.A. and creation of joint venture with Auchan Group

Sayenko Kharenko advised Groupe BPCE

WND

Establishment of joint venture between VR Capital and Volterra Energy to develop solar power plants in Ukraine

WND

Acquisition of majority interest in a Ukrainian distribution company and establishment of a joint venture with a local partner aimed at developing the distribution network for Bergner products in Ukraine

Sayenko Kharenko advised Bergner Group

WND

Sale of Intercomp-Ukraine, a leading provider of financial and HR outsourcing services in Ukraine, by Elbrus Capital, a leading Russia and CIS-focused private equity fund

Sayenko Kharenko advised Elbrus Capital

WND

Disposal by Luxoptica Group of majority stake in Luxoptica and creation of joint venture with EssilorLuxottica

Sayenko Kharenko advised Luxoptica Group

WND

Second stage of acquisition required by listing rules by Giant Network Group Co., Ltd of Playtika Ltd (Playtika), one of the world’s largest social casino gaming company

Sayenko Kharenko advised Giant Network Group Co., Ltd

Value

Table 4

Legal Support (Foreign Law)

Cleary Gottlieb Steen & Hamilton advised Groupe BPCE

Sayenko Kharenko advised VR Capital; Kinstellar advised Volterra Energy

www.ukrainianlafirms.com

Allen & Overy acted as lead counsel to Giant Network Group Co., Ltd; Fenwick & West acted as lead counsel in China

Value

Legal Support (Ukrainian Law)

Transactions

Table 4

Legal Support (Foreign Law)

WND

Attraction of equity investments by Promprylad.Renovation from private and venture capital investors

Sayenko Kharenko advised Promprylad.Renovation on transaction documents; Bridges Consulting acted as lead counsel to Promprylad.Renovation; Moris Group advised Promprylad. Renovation

WND

Acquisition by Huhtamaki Group of a factory in Ukraine through built-to-suit arrangement

Sayenko Kharenko advised Huhtamaki Group

WND

The pilot Kherson port concession in Ukraine

Sayenko Kharenko advised Risoil Kherson LLC

WND

Acquisition by Blackstone of Murka Gaming, a group of companies engaged in development of online games

Sayenko Kharenko advised Blackstone

Kirkland & Ellis acted as lead counsel to Blackstone

WND

Acquisition of a Ukrainian subsidiary of Vertice by Vista Equity Partners, an American private equity and venture capital firm

Wolf Theiss advised Vista Equity Partners

Kirkland & Ellis acted as US law counsel to Vista Equity Partners

WND

Acquisition of Selerant group Serbia and Ukrainian subsidiaries engaged in software development as part of acquisition of 100% stake in Selerant S.r.l. by Dassault Systèmes SE, a French software company

Wolf Theiss advised Dassault Systèmes SE

Wolf Theiss (Belgrade); Gianni, Origoni, Grippo acted as Italian law counsel to Dassault Systèmes SE

Wolf Theiss advised JCI

Covington & Burling acted as English law counsel to JCI

WND

Global sale of power solutions business by JCI, a global diversified technology and multiindustrial leader

UKRAINIAN LEGAL MARKET

Mergers & Acquisitions, Joint Ventures Establishing

www.ukrainianlafirms.com

Transactions in the Antitrust Area

Value

Table 5 Legal Support (Ukrainian Law)

Transactions

USD 71.3 billion

Merger clearance for the acquisition by The Walt Disney Company of control over 21st Century Fox

Asters represented The Walt Disney Company and 21st Century Fox

USD 69.1 billion

Merger clearance for the acquisition by Saudi Arabian Oil Company of a controlling stake in Saudi Basic Industries Corporation

Sayenko Kharenko represented Saudi Arabian Oil Company; Redcliffe Partners represented Saudi Basic Industries Corporation

Clifford Chance acted as legal counsel to SABIC; White & Case acted as international legal counsel to Saudi Arabian Oil Company

USD 63 billion

Merger clearance for the acquisition by AbbVie Inc. of Allergan Plc

Sayenko Kharenko represented AbbVie Inc; Asters represented Allergan Plc

Kirkland & Ellis LLP and McCann FitzGerald advised AbbVie Inc Wachtell, Lipton, Rosen & Katz, and Clifford Chance served as Pfizer’s legal advisors; Skadden, Arps, Slate, Meagher & Flom served as its tax advisor; Khaitan & Co acted as legal counsel for Pfizer Inc for merger filing in India; Kirkland & Ellis and Slaughter and May represented GlaxoSmithKline

USD 12.7 billion

Merger clearance for combining the consumer healthcare businesses of GlaxoSmithKline plc and Pfizer Inc

Sayenko Kharenko represented GlaxoSmithKline plc; EVERLEGAL represented Pfizer Inc

USD 11.1 billion

Merger clearance for merger of Wabtec Corporation with GE Transportation

Sayenko Kharenko represented Wabtec Corporation

CHF 10.2 billion

Merger clearance for the acquisition by EQT Fund Management S.à r.l. of Nestlé Skin Health from Nestlé S.A

Sayenko Kharenko represented EQT Fund Management S.à r.l. and Nestlé S.A.

Kirkland & Ellis represented EQT

EUR 7 billion

Merger clearance for combination of Sivantos and Widex to create a global hearing aid leader

Sayenko Kharenko represented EQT (Sivantos) and Widex Holding A/S

Kromann Reumert represented Widex Holding A/S.; Freshfields Bruckhaus Deringer represented EQT Partners and their portfolio company Sivantos Pte Ltd

Approx. USD 4.8 billion

Merger clearances for the acquisition by Brookfield Asset Management Inc of 62% shareholding in Oaktree Capital Group, LLC

Asters represented Brookfield Asset Management Inc and Oaktree Capital Group, LLC

Approx. USD 3.6 billion (total value of Kantar business)

Merger clearances for the acquisition by Bain Capital Group of a 60% stake in Kantar marketing research business from WPP Plc

Asters represented Bain Capital Investors, LLC and WPP Plc

USD 3.4 billion

Merger clearance for the acquisition by CPPIB, AP, OTPP, Warbung Pincus, Inmarsat plc. of Inmarsat

Approx. EUR 3 billion

Merger clearance for the acquisition of Recordati S.p.A. by CVC

Redcliffe Partners represented CVC and Recordati S.p.A.

Approx. USD 3 billion

Merger clearances for the acquisition by Advent of Methacrylates business of Evonik

Asters represented Advent International Corporation and Evonik Industries AG

Approx. CHF 2.5 billion

Several merger control filings relating to acquisition by Sika AG of Parex, a French multinational company primarily active in pre-mix mortars

Baker McKenzie represented Sika AG

Sayenko Kharenko represented CPPIB, OTPP, Warbung Pincus, Inmarsat plc.; AEQUO represented AP

Legal Support (Foreign Law)

www.ukrainianlafirms.com

Clifford Chance (London) acted as international legal counsel to CVC

Value

Table 5 Legal Support (Ukrainian Law)

Transactions

USD 2 billion

Merger clearance for the acquisition by Natura Cosméticos S.A of Avon Products, Inc

Sayenko Kharenko represented Natura Cosméticos S.A. and Avon Products, Inc

EUR 1.6 billion

Merger clearance for the acquisition by BASF SE of the polyamide business of Solvay S.A.

Sayenko Kharenko represented BASF SE and Solvay S.A.

USD 1.75 billion

Merger clearances for the acquisition by JAB Holding of control over Coty Inc

Asters represented JAB Holding and Coty Inc

Approx. 1.34 billion

Merger clearance for the transfer of Ukraine's gas transmission system from JSC Ukrtransgaz to Gas Transmission System Operator of Ukraine LLC

EY represented and assisted NJSC Naftogaz of Ukraine as a parent of JSC Ukrtransgaz and Gas Transmission System Operator of Ukraine LLC

USD 1.3 billion

Merger clearances for the acquisition by Brookfield Asset Management Inc of shares in Brand Industrial Holdings, Inc

Asters represented Brookfield Asset Management Inc and Brand Industrial Holdings, Inc

Over EUR 1 billion

Merger clearance for the acquisition by OTP Bank NYRT of shares in Banka Societe Generale Albania SHA

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented OTP Bank NYRT

Over EUR 1 billion

Merger clearance for the acquisition by OTP DSK Bank EAD of shares in Societe Generale Expressbank AD and Sogelife Bulgaria AD

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented OTP DSK Bank EAD

Over EUR 1 billion

Merger clearance for the acquisition by OTP Bank NYRT of shares in Societe Generale Banka Srbija AD, Beograd and Societe Generale Osiguranje ADO Beograd

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented OTP Bank NYRT

Over EUR 1 billion

Merger clearance for the acquisition by Crnogorska Komercijalna Banka AD of shares in Societe Generale Banka Montenegro AD

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented Crnogorska Komercijalna Banka AD

Over EUR 1 billion

Merger clearance for the acquisition by OTP Bank NYRT of shares in Banca Comercială Mobiasbancă - Groupe Société Générale S.A.

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented OTP Bank NYRT

Over EUR 1 billion

Merger clearance for the acquisition by OTP Bank NYRT of shares in SKB Banka D.D. Ljubljana

Sytnyk & Partners represented Société Générale S.A.; CMS Cameron McKenna Nabarro Olswang represented OTP Bank NYRT

USD 1.08 billion

Merger clearance for the acquisition by Nidec Corporation of control over Embraco Refrigeration Compressors Business of Whirlpool

Sayenko Kharenko represented Nidec Corporation; Asters represented Whirlpool

Approx. USD 776 million

Merger clearance for the creation of a joint venture between BP P.L.C. and Bunge Limited

Asters represented BP P.L.C. and Bunge Limited

Legal Support (Foreign Law) Davis Polk, Pinheiro Neto (Brazil), Trench Rossi Watanabe, Baker McKenzie (USA) represented Natura Cosméticos S.A. and Natura Holding S.A.; Tudisco, Rodrigues & Junqueira advised the funding shareholders of Natura Cosméticos S.A.; Mattos Filho, Veiga Filho, Marrey Jr. e Quiroga, Cravath, Swaine & Moore represented Avon Products; Paul Weiss advised the independent directors of Avon Products; Kirkland & Ellis advised Cerberus Capital Management

UKRAINIAN LEGAL MARKET

Transactions in the Antitrust Area

Sidley Austin and White & Case represented Nidec Corporation

>> Continued on page 26

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Transactions in the Antitrust Area

Transactions

Legal Support (Ukrainian Law)

Legal Support (Foreign Law)

USD 734 million

Merger control clearance for the acquisition by NEQSOL of one of the largest Ukrainian telecom operators from Mobile TeleSystems (MTS)

DLA Piper Ukraine represented NEQSOL; AEQUO represented MTS Group

DLA Piper UK acted as English law counsel to NEQSOL; Linklaters acted as counsel to the lender

USD 661.6 million

Merger clearance for the acquisition by Assicurazioni Generali S.p.A. of shares in Seguradoras Unidas and Calm Eagle Portugal

Asters represented Assicurazioni Generali S.p.A.; Seguradoras Unidas, S.A. and Calm Eagle Portugal, Sociedade Unipessoal, Lda

USD 631 million

Merger clearance for the acquisition by Saudi Arabian Oil Company of Saudi Aramco Shell Refinery Co.

Sayenko Kharenko represented Saudi Arabian Oil Company and Saudi Aramco Shell Refinery Co.

USD 500 million

Merger clearance for the acquisition by the One Rock Capital Group of Process Solutions Business owned by Newell Brands Inc

Asters represented Zinc Holdings, Inc., Jarden Zinc Products, Polymer Process Holdings, Inc., and Tallistar Corporation

USD 421 million

Merger clearance for the acquisition by DP World FZE of Dubai Ferries Holding FZE

Asters represented DP World FZE and Dubai Ferries Holding FZE

USD 370 million

Merger clearance for the acquisition by Canada Pension Plan Investment Board and PT Baskhara Utama Sedaya of shares in PT Lintas Marga Sedaya

Asters represented Canada Pension Plan Investment Board, PT Baskhara Utama Sedaya, and PT Lintas Marga Sedaya

Approx. USD 328 million

Merger clearance for the acquisition by Domo Chemicals GmbH of a business for production of polyamide, intermediates and engineering plastics from Solvay SA, and antitrust clearance for non-compete and non-solicitation arrangements of Domo Chemicals GmbH with BASF SE

Asters represented Domo Chemicals GmbH and Solvay SA; Sayenko Kharenko represented BASF SE

USD 372.7 million

Merger clearance for the acquisition of the entire share capital of HyLife Investments Ltd by CPF Canada Holdings Corp., a subsidiary of Charoen Pokphand Foods Public Company Limited

Redcliffe Partners represented Charoen Pokphand Foods Public Company Limited

USD 250 million

Merger clearance for the creation of joint ventures by Rockwell Automation, Inc. and Schlumberger N.V.

Asters represented Rockwell Automation, Inc. and Schlumberger N.V.

USD 225 million

Merger clearance for the acquisition by COSCO of shares in Terminales Portuarios Chancay from Glencore Group

CLACIS represented COSCO and Glencore Group

EUR 200 million

Merger clearance for the acquisition by UPD Holdings Limited of a 33.5% shareholding in Ocean Plaza Project (Cyprus) Ltd

Ilyashev & Partners represented UPD Holdings Limited

USD 180 million

Merger clearance for the acquisition by Wilmar International Limited of shares in FPW Singapore Holdings Pte. Ltd

Asters represented Wilmar International Limited and FPW Singapore Holdings Pte. Ltd

USD 137 million

Merger clearance for the acquisition by GIC Group of a stake in Lendlease International Towers Sydney Trust

Asters represented GIC Group and Lendlease International Towers Sydney Trust

USD 132 million

Merger clearance for the acquisition by Archer Hotel Capital B.V. of shares in Earlsfort Center Hotel Proprietors Limited

Asters represented Archer Hotel Capital B.V. and Earlsfort Center Hotel Proprietors Limited

Over USD 120 million

Merger clearance for the sale of the Gas Transmission System Operator of Ukraine LLC by JSC Ukrtransgaz to JSCMain Gas Pipelines of Ukraine

EY advised and assisted NJSC Naftogaz of Ukraine as a parent (direct and indirect, respectively) of JSC Ukrtransgaz and Gas Transmission System Operator of Ukraine LLC

Value

Table 5

www.ukrainianlafirms.com

Latham & Watkins acted as legal counsel to Charoen Pokphand Foods Public Company Limited

Linklaters, KA-Legal acted as legal counsel for other jurisdictions

Table 5

Transactions

Legal Support (Ukrainian Law)

USD 82 million

Merger and non-compete clearances for the acquisition by Posco Daewoo, South Korea's largest trading company, of a majority stake in the grain export terminal in Mykolaiv Sea Trading Port

Sayenko Kharenko represented Orexim Group; AEQUO represented Posco Daewoo Corporation

EUR 55 million

Several merger control filings relating to acquisition by ALSO HOLDING AG, a company involved in wholesale distribution and logistics for products, solutions and services in IT, communications and consumer electronics in Europe, of the business of ABC DATA

Wolf Theiss represented ALSO HOLDING AG

EUR 54.7 million

Merger clearance for investment by ACCIONA Energia Global in the development of a solar power plant in Dymerka

Dentons represented ACCIONA Energia Global

USD 45 million

Merger clearance for creation of joint venture by AGRANA Group and The Amalgamated Sugar Company

Asters represented AGRANA Zucker GmbH and The Amalgamated Sugar Company

UAH 777 million

Merger clearance for the acquisition by Solteks Capital of Respublika mall

Ilyashev & Partners represented Solteks Capital

USD 14.2 million

Merger clearance for the acquisition by UTS - Universal Transportation Solutions Ltd of shares in TBIF-Dan Leasing Ltd

Asters represented UTS - Universal Transportation Solutions Ltd. and Kardan Financial Services B.V.

USD 10 million

Merger clearance for the acquisition by Dealbeta Investments Limited of Ajax Systems Cyprus Holdings Ltd

Sayenko Kharenko represented Dealbeta Investments Limited and Ajax Systems Cyprus Holdings Ltd

USD 1.7 million

Merger clearance for the acquisition of 49.9% stake in PFTS Stock Exchange by WOCE Co., Limited (Hong Kong)

Ilyashev & Partners represented the interests of sellers of shares in PFTS Stock Exchange

WND

Merger clearance for the acquisition by Tieto of a participation interest in Evry A/S from Apax Partners

AEQUO represented Apax Partners; Baker McKenzie represented Tieto Oyj

WND

Merger clearance for the acquisition by Apollo Global Management of PK AirFinance, from GE Capital’s Aviation Services (GECAS) unit

AEQUO represented Apollo Global Management; Redcliffe Partners represented GE Capital’s Aviation Services (GECAS) unit

WND

Merger clearance for the acquisition by Concorde Capital of Ukrainian division of a cement business from HeidelbergCement, one of the world’s largest building materials companies

AEQUO represented Concorde Capital; INTEGRITES represented HeidelbergCement

WND

Merger clearance for the acquisition by Dragon Capital of (Class A) warehouse complex Arctica in a Kyiv suburb from Oschadbank

AEQUO represented Dragon Capital

WND

Merger clearance for divestment of Chumak PrSJC by Dragon Capital to Delta Wilmar

AEQUO represented Dragon Capital

WND

Merger clearance for the acquisition by Dragon Capital of Smart Plaza Obolon, a 13,000 square meter shopping and entertainment center

AEQUO represented Dragon Capital

Value

Legal Support (Foreign Law)

UKRAINIAN LEGAL MARKET

Transactions in the Antitrust Area

Roschier Attorneys advised Tieto Oyj

>> Continued on page 28

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Transactions in the Antitrust Area

Value

Table 5

Legal Support (Ukrainian Law)

Transactions

WND

Merger clearance for the acquisition by Dragon Capital of a large warehouse in Kharkiv

AEQUO represented Dragon Capital

WND

Merger clearance for the acquisition by Dragon Capital of trade centres from Arricano Group

AEQUO represented Dragon Capital

WND

Merger clearance for the acquisition by Dragon Capital of office building in Kyiv from an insolvent bank â&#x20AC;&#x201D; Kyivska Rus

AEQUO represented Dragon Capital

WND

Merger clearance for the acquisition by Dragon Capital of shares in Idea Bank

AEQUO represented Dragon Capital; Sayenko Kharenko represented Getin Holding S.A.

WND

Merger clearances for the acquisition by Epicentr K of a number of agricultural assets (operating company and grain elevators)

AEQUO represented Epicentr K

WND

Merger clearance for the acquisition by Epicentr K of Svarog's business division

AEQUO represented Epicentr K

WND

Merger clearance for the sale by Agrocity Invest (AP Group, one of the leading Ukrainian agroholdings) of large elevator complex

AEQUO represented Agrocity Invest (AP Group, one of Ukraine's leading agroholdings)

WND

Merger clearance in connection with the sale by Parus Agro Group of KhreschatykAgro LLC

AEQUO represented Parus Agro Group

WND

Merger clearance for divestment by Rostok Group of shares in Rostok Agroinvest to Nemiroff Group

AEQUO represented Rostok Holding; Kinstellar represented Nemiroff Group

WND

Merger clearance for establishment of "alliance" for the joint purchase of products by Novus, Versen Plus and Delicat Retail

AEQUO represented Novus, Delicat Retail and Veresen Plus

WND

Merger clearance for divestment of shares in Osnova-Solsif LLC by leading European construction and engineering group Soletanche Freyssinet

AEQUO represented Soletanche Freyssinet

WND

Merger clearance for the creation of a joint venture by Danske Bank A/S, DNB Bank ASA, Nordea Bank Abp, Skandinaviska Enskilda Banken AB, Svenska Handelsbanken AB and Swedbank AB, which will provide services based on the "know your customer" procedure

Asters represented Danske Bank A/S; DNB Bank ASA; Nordea Bank Abp; Skandinaviska Enskilda Banken AB; Svenska Handelsbanken AB; Swedbank AB

WND

Merger clearance for the creation of a joint venture by PSA Automobiles S.A. and Punch Powertrain NV.

Asters represented PSA Automobiles S.A. and Punch Powertrain NV.

WND

Merger clearance for the creation of a joint venture by Bosch Limited and Prettl India Private Limited

Asters represented Bosch Limited and Prettl India Private Limited

WND

Merger clearance for the creation of a joint venture by Leoni and Hengtong, which will conduct business in field of production of optical cables

Asters represented Leoni and Hengtong

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Legal Support (Foreign Law)

Value

Table 5

Legal Support (Ukrainian Law)

Transactions

WND

Merger clearance for the acquisition by NPZ UKRAINA LLC of share in SAATEN-UNION Ukraine

Asters represented NPZ UKRAINA LLC and SAATEN-UNION Ukraine

WND

Merger clearance for the acquisition by Christofelo Limited of shares in Master AD LLC

Asters represented Christofelo Limited and Master AD LLC

WND

Merger clearance for the acquisition by Comdata Holding France of control over the Bosch Center de Service SAS

Asters represented Comdata Holding France and Bosch Centre de Service SAS

WND

Merger clearances and concerted practices clearance for the acquisition of The United States Playing Card Company division from Newell Brands Inc

AVELLUM represented Cartamundi NV

WND

Merger clearance for the partial sale by UFUTURE of its stake in LvivTech.City

AVELLUM represented UFUTURE

WND

Two merger control filings relating to acquisition of shares by Sumitomo Mitsui Financial Group in Sumisho Aero Engine Lease and joint control over the latter along with Sumitomo Corporation

Baker McKenzie represented Sumitomo Mitsui Financial Group

WND

Merger control and concerted actions filings relating to establishment of a joint venture by De Heus Animal Nutrition with a Ukrainian producer and distributor of animal feed products

Baker McKenzie represented De Heus Animal Nutrition

WND

Several merger control filings relating to acquisition of GSK's health food and drink business

Baker McKenzie represented Unilever

WND

Merger control filing relating to acquisition by Tieto Oyj of R&D business of Ericsson in Ukraine

Baker McKenzie represented Tieto Oyj

WND

Merger clearance in connection with the sale of three companies of the holding Kyiv Atlantic Ukraine, Atlantic Farms, and Atlantic Farms II to Agrolife and Eridon

INTEGRITES represented Atlantic Agro Holding

WND

Merger clearance in connection with the leasing by PAEK Group of elevator from LLC Buzky Elevator

Pavlenko Legal Group represented PAEK Group

WND

Merger clearance in connection with the acquisition by PAEK Group of elevator from LLC Agroprosperis Trade

Pavlenko Legal Group represented PAEK Group

WND

Merger clearance for the acquisition by Eridon Group of two agricultural companies

Pavlenko Legal Group represented Eridon Group

WND

Merger clearance for the acquisition by TAS Group of shares in Luregio Limited

Pavlenko Legal Group represented TAS Group

WND

Merger clearance for the acquisition by KERNEL Group of assets of PE Ellada

Pavlenko Legal Group represented KERNEL Group

WND

Merger clearance for the acquisition by TAS Group of FE KOSMO PHARMACIES

Pavlenko Legal Group represented TAS Group

Legal Support (Foreign Law)

UKRAINIAN LEGAL MARKET

Transactions in the Antitrust Area

Slaughter & May advised GSK

>> Continued on page 30

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Transactions in the Antitrust Area

Value

Table 5

Legal Support (Ukrainian Law)

Transactions

WND

Merger clearance for the acquisition by PAEK Group of LLC Oiltransterminal and separate clearance for its further sale to Eridon Group

Pavlenko Legal Group represented PAEK Group and Eridon Group

WND

Merger clearance for the acquisition by Eridon Group of LLC Grant-N

Pavlenko Legal Group represented Eridon Group

WND

Merger clearance for the acquisition by individuals of shares in PrJSC Kievtransexpedition

Pavlenko Legal Group represented individuals

WND

Merger clearance for the acquisition by Eridon Group of assets of LLC Spetstekhnika

Pavlenko Legal Group represented Eridon Group

WND

Merger clearance for the acquisitions by VR Capital of 100% stake in Nicken Holdings Ltd, Matlomenius Holdings Ltd, and PVK Energy Investments Ltd

Sayenko Kharenko represented VR Capital and Investment Capital Ukraine

WND

Merger clearance for the acquisition of a minority stake in Dobrobut by Horizon Capital

Sayenko Kharenko represented Horizon Capital

WND

Merger clearance for the acquisition by Steiermärkische Bank und Sparkassen AG of shares in Ohridska Banka AD Skopje

Sytnyk & Partners represented Société Générale S.A.; CMS Reich-Rohrwig Hainz represented Steiermärkische Bank und Sparkassen AG

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Legal Support (Foreign Law)

Transactions in the Antitrust Area

Table 5

Agribusiness

Antitrust Land

he abolishment of the moratorium on sale of agriculture land has been intensely discussed by politicians as well as by experts and business environment for years. Those who support the moratorium’s abolishment, including foreign creditors, expect development of the agricultural industry and economic growth due to the lifting of the moratorium. At the same time, their opponents see a number of threats and negative consequences that the abolishment of moratorium can lead to, including the possible monopolization of the market through its capture by unknown “Chinese” investors who will enter the market and buy up all the agricultural land. This matter has become particularly relevant now as on 31 March 2020 the Ukrainian Parliament adopted the law that would repeal the ban on sale of agricultural lands starting from 1 July 2021.

Sergey Denisenko Partner, Aequo Sergey has 15 years of hands-on experience in antitrust and competition. The main aspects of work include merger clearance and concerted actions, protection against unfair trade practices and competition compliance. Sergey regularly represents clients in abuse of dominance and concerted actions investigations conducted by the regulator. Mr. Denisenko is highly recommended as the leading expert in antitrust and competition by reputable international and local legal rankings such as Chambers Europe 20172019, Best Lawyers in Ukraine. Sergey was named the Lawyer of the year in antitrust and competition according to Best Lawyers 2020

Access to the New Commodity Market If the draft law comes into force, some categories of persons (acquirers) can obtain access to the new commodity market in Ukraine. According to official data, the size of this market is estimated at 42.7 million hectares. Thus, there is a need for state authorities to ensure fair competition on this market and to prevent its monopolization. Probably for these purposes the draft law provides, in particular, for restrictions on the maximum areas of agricultural land that can be acquired by one individual or legal entity.

Control Mechanisms and Role of the AMCU At the moment it is not clear which state body will be authorized to exercise control over compliance by business entities with requirements and restrictions on acquisition of agricultural lands. There is also uncertainty as to the mechanisms that could be implemented for exercising such control. It is likely that the Antimonopoly Committee of Ukraine may act as such controlling state body, based on its tasks, functions and established practice. It is worth mentioning that the AMCU is well aware of the peculiarities, structure and the main players of the agricultural market. In recent years, the largest number of concentrations has taken place specifically on the agricultural market. For example, in 2019, the number of merger clearance permits issued on agricultural markets amounted to 21% (93 permits) out of the total number of issued permits, while in 2018 their number amounted to 24.2% (108 permits) out of the total number of issued permits. The current wording of the Law of Ukraine On the Protection of Economic Competition does not directly treat acquisition of ownership title to agricultural land as a concentration. Consequently, some may argue that potential deals on the sale and purchase of agricultural land do not fall under the control of the AMCU. However, according to the statements of some officials,

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the AMCU has been already involved in developing a draft law capturing deals on the sale and purchase of agricultural lands under merger control (in order to eliminate the mentioned gap in the legislation). Thus, there are reasonable assumptions to believe that transactions on the sale and purchase of agricultural lands will, nevertheless, be subject to merger control by the AMCU. Although the specific draft law has not been published as of the date of this article, we can assume that thresholds triggering a merger clearance event might be one of the most controversial issues of such a draft law. Such thresholds may include: -- the parties’ financial indices; and/or -- the particular total area of the land to be eventually controlled by the acquirer as a result of the deal; and/or -- the particular total market share to be achieved by the acquirer as a result of the deal; or certain other criteria triggering merger clearance events. In addition, in the absence of specific antitrust regulations governing transactions on the purchase and sale of agricultural lands, attention should be paid to the term “single property complex” (the acquisition of which requires a prior permit of the AMCU if the financial thresholds are exceeded by the parties), added to the Law of Ukraine On the Protection of Economic Competition on 19 September 2019. The term “single property complex” includes a non-exhaustive list of property, including rights to land plots. Such a broad concept may allow the AMCU to apply quite flexible approaches to determining whether a particular asset could be treated as a single property complex. Thus, one may not exclude that deals on the sale and purchase of agricultural land would fall under antitrust control even if specific regulations governing this matter will not have been adopted by the date of lifting of the moratorium. Nevertheless, the business environment and experts expect the state authorities to introduce clear rules and a balanced approach to this issue.

Foreign Experience In the EU, the agricultural land market is regulated at the national level, taking into account fundamental principles, such as non-discrimination and free movement of capital. The legislation of several EU countries (Romania, Poland, Hungary, Slovakia) contains rules aimed at preventing the concentration of agricultural land and speculative deals. For these purposes, local laws may provide for a set of restrictions and pre-conditions for deals involving agricultural land, in particular: -- special restrictions/requirements may be applied to potential buyers of agricultural land; -- restrictions as to the maximum area of land plots which may be acquired by one group of related persons; -- a requirement to obtain a prior permit from the relevant state regulatory body as a pre-condition for completing the deal on acquisition of agricultural land plots.

Aequo is an advanced, industry-focused Ukrainian law firm made up of highly-qualified, internationally recommended lawyers who work proactively to help their clients reach their business goals. Backed by solid industry expertise and thorough understanding of business we develop innovative strategies and provide efficient solutions to the most complex and challenging matters. Aequo provides integrated legal support in areas such as antitrust and competition, banking and finance law, intellectual property, corporate and commercial law, mergers and acquisitions, taxation, litigation and international arbitration, and capital markets.

The list of Aequo’s representative clients includes leading Ukrainian and international companies and organizations like Agroprosperis, Apax Partners, Apollo, Bunge, DuPont, EBRD, European Commission, Google, Inditex Group, NCH Capital, Pioneer Hi-Bred International, Samsung Electronics, Sandvik, Synthon, Tetra Laval, Ukrainian Redevelopment Fund, UniCredit Group, Vodafone Ukraine, etc. Aequo has been named among Top 20 most innovative law firms in Europe by FT Innovative Lawyers 2019, recognized as the “Most Innovative Law Firm of the Year 2018” in Ukraine at the IFLR Europe Awards, Law Firm of the Year in Russia, Ukraine and the CIS by The Lawyer

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For example, Latvia’s legislation stipulates, among other things, restrictions on the maximum area of land plots which may be acquired by a group of related persons. Furthermore, foreign purchasers shall prove a certain level of knowledge of the Latvian language. In addition, potential purchasers shall obtain the permit from the authorized local state body to complete the deal. Potential purchasers are exempted from obtaining a permit for acquisition of agricultural lands if, in particular, they will own minor area of land as a result of the deal.

tion of the market and other possible negative consequences. For the time being, priority should be given to the development of balanced legal regulation and control over agricultural land sales transactions. In particular, one expects a list of clear criteria for obtaining a permit and exemptions from obtaining one. The agricultural land market might be opened up before all relevant regulations are introduced. It may not be excluded that parties would carry out the first transactions in the area of legal uncertainty and thus run additional risks. However, it seems that finally the AMCU will exercise control over agricultural land transactions and compliance through undertakings with their respective clearance obligations (as the case may be). The AMCU has extensive experience and knowledge of the agricultural market, and its specialists have been processing data on leased agricultural land plots for years.

Conclusions

Yevgen Blok Senior Associate, Aequo Yevgen has 10 years of experience in Antitrust and Competition area. Yevgen advises on various competition issues, including on merger clearance, concerted actions, abuse of dominance, unfair competition practices. He also has solid experience in conducting antitrust due diligence and competition compliance trainings. Yevgen is recognized as a next generation competition lawyer according to the Legal 500 ranking

In accordance with European practice, the introduction of certain restrictions and control mechanisms over the purchase and sale of agricultural lands are reasonable and appropriate steps for the effective operation of the market. Given there is an appropriate legal framework, such restrictions and control mechanisms can serve as due tools for preventing monopoliza-

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Aircraft and Airports Finance

Dr. Ganna Tsirat Partner, Jurvneshservice, member of International Bar Association, Kyiv Region Bar, Center for International Legal Studies (Salzburg, Austria) She is known as an expert in the field of aircraft financing and author to chapters on Ukraine in The Official Guide to Aircraft Registration and Tax, World Aircraft Repossession Index, Aircraft Liens and Detention Rights and Aircraft Financing both under gen. ed. G. McBain, chapters on Air Transport and Aviation Finance & Leasing in The Getting the Deal Through, International Comparative Legal Guide, Chambers, The Aviation Law Review under gen. ed Sean Gates, etc

he most common types of aircraft financing in Ukraine are backed or secured loan, finance and operating leases that are often mixed to give a financier effective protection. All these types are used in Ukraine though the operating lease is the most attractable. Aircraft-backed loans used in Ukraine for the purchase of business jets and helicopters are usually structured as simple mortgages (asset-based) or finance leases. Private investors or airlines typically put in about 15% of the aircraft’s value with 85% coming in the form of bank financing, including support of an appropriate ECA, if available. In the event that the aircraft is purchased by a foreign leasing company with further aircraft lease to Ukrainian airlines, the leasing companies usually work with leading banks (UMB Bank, DVD Bank, etc.) that may make club or syndicate deals. An aircraft is a valuable asset and can be sold from time to time. If it is leased, the operator is just notified (or acknowledged) that a sale has been made. Change of the owner does not affect the lease agreement as the operator is protected by the quiet enjoinment right, which provides that neither lessor, nor any person claiming by, through or under it, will (provided no event of default has occurred and is continuing) interfere with the quiet possession, use and enjoyment of the aircraft by the lessee during the lease term. The making of an acknowledgement results in a novation agreement and re-registration of the aircraft in the name of the new owner. Before 2019 conclusion of any novation agreement did not raise any issue in Ukraine as the Civil Code of Ukraine provides a creditor the right to sell the asset it owns, or assign its rights out of agreement connected with it in favor of any third party. A local airline, as a debtor under a lease agreement, was just acknowledged about the making of an assignment due to an aircraft’s sale and payment having been made to a new lessor. The situation has dramatically changed due to approval of the Regulation on the procedure for the analysis and verification of documents (information) on currency transactions by authorized institutions, No.8 as of 2 January 2019, as amended, by the National Bank of Ukraine. As stated in the preamble it is designed in accordance with the Laws of Ukraine On the National Bank of Ukraine, On Banks and Banking, On Currency and Currency Transactions in order to prevent local banks from conducting currency transactions of their clients that do not meet the requirements of Ukrainian legislation. A local bank has to provide comprehensive analysis and verification of currency transactions to discover a dubious currency transaction (DCT). Such DCT may be defined due to application of certain indicators listed by the National Bank of Ukraine in the Regulation. When establishing an indicator specified in the Regulation, the local bank has to carry out additional analysis of the documents to the currency transaction in order to confirm or refute its belonging to DCT. If any party to the currency transaction is located in an off-shore jurisdiction, the transaction is treated

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as a DCT and specially verified by the bank. The local bank has the right to use open sources in the Internet to verify the information provided by its client. Ukrainian banks usually treat that right as an obligation. For verification the client has to submit the documents that enable the bank to establish the nature and purpose of the currency transaction; correspondence or inconsistency of its essence with the content of the activities of all its participants, including foreign ones; the presence or absence of the economic feasibility of a currency transaction; study of information about the participants, their activities and business reputation; and to find out the ultimate beneficial owners (controllers) of the participants. Last year proved that, in the main, leasing and investment companies raised aircraft financing through the sale of E notes and E certificates on the stock exchange. The benefits of this technique include, among other things, optimization of the asset structure to meet regulatory requirements and attract new investments and capital. The issue here is so-called ABS transactions, that suppose the use of proceeds from the notes to acquire a pool of aircraft that are used as security to issued notes and certificates. Issued notes and certificates are secured by each aircraft’s future lease payments and residual cash flows. This innovative technique of fund raising is called asset-based transactions (or securitization), which provides for certain structuring and ratings by rating agencies. In order to complete the securitization, a certain pool of aircraft (the assets) are sold by their owner, an originator, to a special purpose vehicle (the SPV). As a result of such sale the assets are fully separated from the assets of the originator and its group of companies. The SPV is not a subsidiary or related person of the originator. The originator should not have any participation in the capital of the SPV or its direct participants (hence, there shall be no “return” of profits from assets in the form of dividends), have no representatives in the executive bodies of the SPV, not give any additional guarantees (other than the ordinary asset quality guarantees in a purchase contract) or loans, in no way be affiliated with the SPV (even by similar name). The SPV has separate financial statements, budget and workflow, management, etc. The sale of assets must be a “true sale”, complying with the separation and other requirements in order for the transaction to be rated and permit the issuing of securities. In addition, the originator should not act as a note underwriter or holder. Securitization features risk transfer, whose main idea is that when securitizing and selling assets the originator does not bear risks of breach of payment or other defaults of lessees for the use of assets divested in the securitization process. This risk passes to the new owner of the assets, namely the SPV. The SPV is set up by a consultant providing trustee services that holds its shares in a trust. It could be A&L Goodbody, Walkers, Maples Group, Masson Hayes & Curran, Matheson, etc. The SPV is created either in an offshore jurisdiction or Ireland, which is the centre of everything

Jurvneshservice was formed in 1987 and since then has been advising leading Ukrainian and foreign corporations on the legal issues of the contemporary Ukrainian market. Jurvneshservice’s attorneys have cultivated the culture, commercial pragmatism and technical and interpersonal skills required to deliver world-class services tailored for the preferences of worldclass clients. Over the years of practice the firm’s attorneys have received numerous awards and written a great number of publications. Jurvneshservice cooperates with such leading law publishers as Kluwer Law International, which issued the Ganna and Gennadii Tsirats monograph Civil Procedure in Ukraine (2012) and Intellectual Property Law in Ukraine (2011). Gennadii Tsirat is an expert in cross-border litigation and has published monographs International Civil Process: Modern Condition and Perspectives of International Unification (2013), International Commercial Arbitration (2002) and International Arbitration as a Means of Disputes Settlement (1997).

As the leading expert on franchising in Ukraine, Ganna Tsirat has published the Guide on Drafting of Franchise Agreements (2010) as well as Franchise and Franchising Agreement (2002). Her studies in aircraft finance are reflected in the monograph International Private Air Law (2018). Ganna Tsirat is the author of numerous chapters on Ukraine that are updated annually. These include The Official Guide to Aircraft Registration and Tax, PWSP World Aircraft Repossession Index, Aircraft Financing, Aircraft Liens and Detention Rights, International Agency and Distribution Law, Getting the Deal Through: Air Transport, Getting the Deal Through: Franchise in 28 jurisdictions worldwide, Getting the Deal Through: License in 28 jurisdictions worldwide, The Aviation Law Review, International Joint Ventures, International Secured Transactions, International Franchising, etc. Jurvneshservice attorneys work as one team with clients, other law firms, advisers and one another. This approach enables the needs of clients to be addressed more efficiently. Clients

retain Jurvneshservice because its attorneys understand their businesses and are committed to finding practical ways to help them to grow and succeed. The main practice areas of Jurvneshservice are aircraft finance, anti-corruption, bankruptcy, corporate disputes, criminal law, cross-border litigation and debt recovery, enforcement of foreign arbitral awards and judgments, intellectual property including franchising protection, international arbitration, project finance, white-collar crime, unfair competition.

connected with aircraft financing. If created in Ireland it is designated an activity of a company, whose constitution outlines the securitization transaction and requires all directors to be residents of Ireland, which stipulates that all taxes are paid by the SPV exclusively in Ireland. Accordingly, the SPV is a tax resident of Ireland, as confirmed by a Certificate of Residence issued in accordance with the bilateral treaty on avoidance of double taxation concluded by the governments of Ukraine and Ireland. In addition, another entity that may be affiliated with the SPV is created. This entity will issue E notes and E certificates and we may call it the Note Issuer. the Note Issuer is also created in an offshore jurisdiction. The setting up of the SPV and Note Issuer in offshore jurisdictions is dictated by the necessity to release the Assets from any obligation but not with the desire to avoid payment of taxes. The main aim of the Note Issuer, which is stated in its constitutional documents, is to issue and sell securities, which should be placed primarily among institutional investors of various jurisdictions identified by the Articles of Association as anchor ones. As a result of the acquisition of ownership of the assets, the SPV becomes empowered to claim and collect debt from former debtors of the originator, including the lessees located in Ukraine. The originator may itself, on the basis of separate agreements concluded with the SPV and Note Issuer, perform the functions of administering these assets, but no longer as a creditor but as a servicing agent on the basis of the relevant agreement and transfer the funds received to the SPV. Though it is planned that payment for the assets is made solely by the SPV at the expense of the proceeds from the placement of the notes, subordinated loans can be provided to the SPV and Note Issuer to secure notes obligations. Due to these features, the credit rating of the Note Issuer and its notes is higher than that of the originator. From an investor perspective, investing in notes is an economically viable operation be-

cause the bankruptcy risks of the originator do not affect the solvency of the SPV and Notes Issuer, which are not related parties and are not liable for each other’s obligations. At least 6 aircraft registered in Ukraine occurred among aircraft pooled to attract financing through securitization in 2019. Correspondingly, appropriate novation agreements were concluded and local airlines requested their banks to remit lease payments under novation agreements. Due to the Regulation local banks defined these novations as DCT and requested appropriate disclosure of the documents to find out the identity of the final beneficiary owners and economic nature of the transaction. As soon as securitization provides for involvement of a lot of participants (originator, SPV, Note Issuer, institutional investors, investment advisors, etc.) local banks have to study many documents. As the documents are in English, they are translated into Ukrainian. The translation and study take a certain, usually considerable time (from 2 to 6 months), within which the local lessee is not allowed to pay under novation. This gap negatively affects the securitization and actually puts the local lessee into default. This situation, of course, lowers Ukraine’s investment attractiveness and local airlines may not hope for a reduction in rent payments for leased aircraft. Though the Law On Ensuring the Large-scale Expansion of Export of Goods (works, services) of Ukrainian Origin by Insurance, Guarantee and Cheapening of Export Lending was directed at state support for large-scale expansion of goods (works, services) of Ukrainian origin to foreign markets was adopted at the end of 2016 and the Export-Credit Agency (ECA) of Ukraine has been the set up, it has not yet begun its fully-fledged work. Though the OECD has improved the assessment of Ukraine’s country risks, taking it from the seventh to the sixth group of the classification of countries that participated in the Arrangement on Officially Supported Export Credits and Ukraine is there with Armenia, Belarus, Georgia, Kosovo, Nigeria, Mongolia, Sri Lanka and Uganda, Ukrainian airlines can still not

hope for any discounts from the “base premium” when acquiring aviation equipment. The situation with implementation of the Cape Town Convention On International Interests In Mobile Equipment and Aircraft Protocol to it, to which Ukraine is a party, has not improved either. The CTC provides for certain mechanisms that protect the lessors’ right in the event of a lessee’s default. The IDERA application is among those mechanisms. Practical problems with IDERA have not been sorted but got even worse due to adoption of the Procedure for approval of Irrevocable Deregistration and Export Request Authorization (IDERA) PR AID REG.A 008 as of 27 June 2019. It is not registered with the Ministry of Justice of Ukraine and has even more drawbacks than the previous Instruction. Though in 2019 the government declared its desire to support local air transportation by reducing the tax burden neither decision has yet been taken. Regional air transportation needs aircraft with low passenger capacity. Such aircraft are not produced in Ukraine, while from 1 January 2021 aircraft with a passenger capacity of 44 — 100 seats will be taxed with VAT when being imported. The government has, since last year, talked about the transfer into concession of certain regional airports. As no formal decision on the issue has been approved different local airports were listed. An Investment Atlas of Ukraine was published on the government site on 26 January 2020. It lists Lviv Danylo Halytskyi, Kherson, Zaporizhzhya, Chernivtsi and Vinnitsya International Airports and Multimodal Cargo Hub Bila Tserkva as objects for which investments are invited. The terms of such participation are still under consideration. All the above-stated is testimony about a range of difficulties in the financing of aircraft and airports as well as of the absence of clear government understanding on how to improve the current situation.

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Alternative Dispute Resolution

Renewable Energy: Will Investors Strike Back?

Viktor Barsuk Senior Partner, EQUITY Law Firm

he year 2019 brought about new milestones for renewable energy in the world. Notably, the share of renewable energy in the EU’s electricity mix hit a record high of 34.6%, with wind power grabbing 13.4%. Ukraine currently lags behind the EU, with a modest achievement of 5.5% in renewables, although the latest figures suggest that installed capacity doubled in 2019. In January 2020, the Ministry of Energy and Environmental Protection of Ukraine presented a draft concept of Green Energy Transition until 2050 aimed at increasing the share of renewables in the national energy mix to 70%. Ukraine seems to be following in the footsteps of EU states in many aspects, with one of them being the painful overhaul of the feedin-tariff (FIT) for renewable energy. We can see the repercussions of similar reforms in Spain to this day, and their takeaways should be carefully considered by the Ukrainian government prior to taking action. In 2009, Ukraine introduced the FIT at one of the highest rates in Europe. Despite the prescribed annual reductions, it’s still a heavy burden for Ukrainian consumers. Last year the Ukrainian Parliament passed a law introducing a new system of green auctions; the very instrument which has proved its efficiency in Kazakhstan in a price reduction of up to 50%. Finding mutually acceptable changes to the FIT is now a key issue. Investors already face prolonged delays in FIT payments. The mounting deficit adds to the rising concern that the government may introduce significant retroactive reductions to the FIT in the near future. Major regulatory amendments, coupled with their abrupt implementation, may then open the way for investors to pursue investment arbitration claims against Ukraine.

Implement, Invest, Scale Back — Repeat

Oksana Varakina Counsel, EQUITY Law Firm

Ukraine is a party to a large number of multilateral and bilateral treaties which have established a legal framework for the protection of foreign investments. Investors are typically offered such substantive protections as fair and equitable treatment, full protection and security, protection from unreasonable or discriminatory measures, expropriation and others. Pivotal regulatory changes by the host state often trigger fair and equitable treatment standard and an important component of it, namely the legitimate expectations of the investor. Claims brought under such instruments are a tangible risk for Ukraine if the government proceeds with non-consensual changes. Similar experience of Spain, the Czech Republic and Italy, which have all been on the receiving end, is demonstrated below. In Spain, basic incentive structure was implemented as early as 1998. Spain later introduced

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a FIT regime for the renewable sector. The effects of the 2008 economic crisis, together with excess generosity of the FIT, accumulated billions of euros in deficit. Solar power was particularly heavily subsidized: in 2009 alone, the solar-power industry received over EUR 2.6 billion though it supplied only 2% of Spain’s electricity. In an attempt to deal with the deficit Spain had introduced dozens of regulatory changes by 2013, including major retroactive changes to renewable energy contracts and a moratorium on new projects. Investors duly brought more than 40 arbitration claims against Spain, mostly under the Energy Charter Treaty. They claimed over 6.7 billion euros in damages. Around 700 million euros have already been awarded, with some cases still pending. In November 2019 Spain was forced to approve new economic incentives aimed at encouraging investors to drop their claims in arbitration. In the Czech Republic, the solar energy FIT introduced in 2005 resulted in a sizable increase in the electricity tariff for consumers. However, the Czech Republic adopted a different approach to that of Spain. In 2010, the government introduced a 3-year levy of 26% on revenues generated by photovoltaic power plants commissioned in 2009 and 2010. Later on, the government abolished incentives for the power plants commissioned in 2014 onwards, while the earlier projects remained intact. The Czech Republic faced 7 arbitration claims and successfully defeated them all, bar one. The approach of the Czech government proved to be reasonable since the changes did not have a retroactive effect and the solar levy was widely reported and discussed. In Italy, the FIT for renewable energy was introduced in 2005. Subsequent regulations that were applied were based on the timing of the commissioning of the power plants. From 2011 the Italian government began to amend the renewables legal framework known as “Conto Energia”. In 2014 investors had to choose either to accept a FIT cut under 20-year agreements, or to accept an extension of subsidies over a longer period, or to sign a new agreement with a reduced FIT for the initial period and an increased one for an increased period. Some 11 arbitration claims were subsequently brought against Italy, with 2 out of 4 awards being rendered in favour of investors whose legitimate expectations proved to be undermined.

Prospects in Arbitration Although the same reforms sparked a large number of similar claims against states, the case law is far from consistent. The crucial issue is whether a government’s incentive programs have created legitimate expectations on the part of investors, and whether those have

EQUITY’s lawyers conduct comprehensive support of projects for clients: from the moment of receiving a task to full implementation of solutions for the client’s benefit. EQUITY established itself as a leading law firm and was recognized by different reputable international and Ukrainian guides in practices like: -- Banking and finance -- Bankruptcy -- Business Protection -- Criminal Law and White-Сollar Сrime -- Litigation -- Restructuring/Insolvency -- Tax

EQUITY Law Firm is one of the TOP-9 leading law firms in Ukraine, which advises clients in core areas of legal practice. Our team possesses profound experience of more than 15 years spanning across practices, including corporate, banking and finance, insolvency and restructuring, tax, real estate and construction, antitrust, intellectual property, domestic and cross-border ligation, international arbitration, and white-collar crime. The EQUITY team consists of commercially-minded lawyers. We encourage our team to broaden knowledge and expertise in business and commerce. Some of our lawyers have degrees in finance in addition to their degree in law. EQUITY Law Firm aims to be the firm of choice for large businesses in respect of their most important and challenging transactions and cases. Our strong team of litigators work proactively to help our clients to reach their business goals and make them feel secure.

We provide legal services for many leading international and Ukrainian companies like: Azovmash Corp., Prizma Beta LLC, UkrinBank/ UkrinCom; Corporate non-government pension

been frustrated either as self-standing protection or as part of fair and equitable treatment. Importantly, there is no consistent interpretation as to what gives rise to an investor’s legitimate expectations. Neither has a unified test been devised to draw a line between a state’s right to regulate and respect towards an investor’s rights. Host states can create legitimate expectations by making explicit representations to an investor. Whether a representation in the form of domestic legislation may amount to legitimate expectations is a subject of debate. Some arbitral tribunals have ruled that such an approach would equate the fair and equitable treatment standard to a stabilization clause. As a result, any changes in domestic laws would be elevated to a violation of international law. There is seeming consensus that investors cannot expect that no regulatory change will occur if the government announces that updates or amendments may, or will, take place. The host state may further argue that before making an investment, investors should fulfil their due diligence obligations. Where an investor knew, or should have known, that certain changes to the incentive regime were expected, no legitimate

expectations could be created. Therefore, the chance of success increases for those investors who invested at the outset of the incentive program. Last-minute investments may be qualified as opportunistic in nature. This factor may be particularly important for Ukraine, as it attracted EUR 3.7 billion worth of investments into renewable energy in 2019 alone. These investments took place in the turmoil of FIT cuts in other countries, thus re-confirming the instability of the incentive. By the time of these investments, the FIT has proved to be unsustainable in the medium and long-term perspectives. At the same time, it’s important to bear in mind that multilateral and bilateral treaties tend to protect investors against total and unreasonable changes. Thus, retroactive radical changes that are profoundly unfair and inequitable, and which significantly affect or even eliminate the underlying investment, may result in an award being rendered against the host state. Renewable energy investors in Ukraine are yet to see what changes the government has in mind. Depending on the approach chosen by the state, the investors’ prospects in any arbitration may vary significantly.

Clients

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fund of the National Bank of Ukraine, etc. We also earned loyalty and provide legal support to well-known politicians, civil servants, business representatives and public figures: Roman Nasirov, Gennadiy Trukhanov, Oleksandr Yefremov, Natalya Ignatchenko and Oleksiy Podolsky (Gongadze case (Pukach-Podolsky)).

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For Ukraine, however successful it may be in defeating claims (if any), the risk is to bear average legal costs to the tune of around EUR 3.2 million per case.

Final Remarks There is a sense of déjà vu in Ukraine amidst the reforms of the expensive FIT regime for renewable energy. Taking into account the ambitious target set for 2050 and the need for ever larger investments in the sector, the state may not risk undermining its credibility. Extensive public discussion and negotiations with market players is a welcome initiative which may culminate in a win-win solution. In the event of major changes, and in the absence of a reasonable alternative regime, investors could be left with no other choice but to resort to investor-state arbitration. At the current stage the prospects of such claims on the part of investors are difficult to gauge. However, for Ukraine, the risks are quite clear. Even if it successful in defeating any claims, it may face spending millions of euros in legal costs.

Anti-Corruption

WCC & Anti-Corruption Trends

Serhii Lysenko Managing Partner, Gracers Law Firm

riminal Law Practice has, for several years now, been leading in terms of its development rate on the Ukrainian legal services market. The segment, which has recently been seen as the exclusive domain of solo practitioners, is at present increasingly turning into a competitive and cooperative area for both field-specific boutiques and WCC units of large law firms. Where there’s demand, there’s supply. Shifting the accusatory accent towards large businesses and public personalities, as well as the added complexity of criminal proceedings, requires comprehensive, high-quality defense, which solo practitioners are usually not able to ensure. There are cases with hundreds of suspects, so how could one person defend them? Each person involved should have a lawyer and the defense should adhere to a universal strategy and a common understanding of what they do and how they should do that.

Shift of Accents In Ukraine, the authorities aspire to satisfy obvious public demand for sensational “spring time imprisonment”. We see an increase in permanent pressure on business, politicians and officials on part of law-enforcement agencies, which often do not follow even basic legislative standards and rules. Unfortunately, the political element often dominates the legal one. Let’s take a simple example, that of the revocation of immunity for MPs. From 1 January 2020, the approval of Parliament to bring a Member of Parliament to responsibility is no longer required. For the first time, a new procedure was implemented in early March. Just one opposition People’s Deputy has been served with charges under Article 346 of the Criminal Code of Ukraine, ’threat or violence against a statesman (the President of Ukraine)’. Without going into the essence and conflicts related to bringing MPs to responsibility, we can predict an increase in the number of politically-motivated proceedings. This could happen not least because it is a great way to meet the aforementioned “public demand”, as the authorities will ensure public entertainment. At the same time, the state continues to consider criminal prosecution as one of the tools to fill the state budget. Subsequently, the share of economic crimes is increasing, including those with a corruption element. Hence the shift of logic of both criminal prosecution and the related defense. When we talk of a criminal case at the present time, we primarily mean theft, embezzlement, tax evasion, all kinds of corruption offenses. It is necessary, both for the investigation and the defense in such cases, to not only be familiar with criminal law and proceedings, but also to be an expert in matters of financial monitoring, taxation, to understand the economic essence of proceedings and activities. All law-enforcement agencies — the National Anti-Corruption Bureau of Ukraine, the Security Service of Ukraine, the State Bureau of Investigation, the Prosecutor-General’s Office, report

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primarily on the prosecution of people who allegedly stole a lot of money from the state. The past year was marked by the serving of charges to politicians and well-known businessmen, beneficiaries and top managers of banks. However, such proceedings are very rarely continued in court hearings and, especially, followed by a guilty verdict. In fact, inefficiency in this area was one of the public reasons for the resignation of the Prosecutor-General.

Anti-corruption Swing It is quite clear that this heightened interest is caused by so-called anti-corruption cases, as the state has for many years been declaring the fight against corruption among its main priorities. A kind of “crown” was the beginning of the procedural activities by the High Anti-Corruption Court of Ukraine. On the other hand, the interdepartmental confrontation between anti-corruption bodies — the National Anti-Corruption Bureau of Ukraine and the Specialized Anti-Corruption Prosecutor’s Office — had a negative effect on the process of preventing corruption. In the part of legislative support for the anticorruption campaign, we should note the reinstatement of the article on unlawful enrichment in the Criminal Code of Ukraine. As we know, in February 2019 the Constitutional Court of Ukraine declared Article 3682 of the Criminal Code as violating the Constitution of Ukraine, which was followed by the closure of a number of headline-making criminal proceedings. On 31 October 2019, the Law of Ukraine On Amending Certain Legislative Acts of Ukraine regarding the Confiscation of Illegal Assets of Persons Authorized to Perform the Functions of a State or Local Self-Government and the Punishment for the Acquisition of Such Assets, No. 263-IX was adopted. In the wording of the new Article 3685, which supplemented the Criminal Code of Ukraine, unlawful enrichment is determined as the acquisition by a person authorized to perform the functions of a state or local self-government of assets worth more than 6,500 tax-exempt minimum incomes of citizens than his/her legal income. At the same time, the definition of “asset” includes both traditional monetary means (including cash, funds held in bank accounts or deposited with banks or other financial institutions) and other property, property rights, intangible assets (in an amount to decrease financial obligations), as well as cryptocurrencies, and works or services provided to a person authorized to perform the functions of the state or local self-government. It is specifically noted that when determining the difference between the value of acquired assets and legal income, assets that are the subject of proceedings related to recognition of assets unlawful and their recovery for the benefit of the state, as well as assets recovered for the benefit of the state within the framework of such proceeding, are not taken into account. Criminal liability for unlawful enrichment is in force along with the institution of civil confiscation, which is applicable if the value of the as-

GRACERS Law Firm is a criminal boutique established by a solid team of highly-qualified experts. Our team’s expertise lies in the field of legal support in the course of criminal and judicial litigation. Our current focus is protecting clients in criminal litigations, as this area is not only the one we are keen on but also one which is in huge demand. White-Collar Crime is our key practice, so we represent interests and ensure defense in criminal proceedings related to economic and official activities, whose complex versatility goes beyond criminal law and proceedings. Therefore, we offer a comprehensive approach, which also includes professional expertise in civil, commercial, administrative and tax law.

Moreover, our team encompasses specialists who will help you solve your problem issues in areas like: litigation practice; banking and financial law; corporate law; criminal law; compliance; business protection; employment law; tax law; land law and real estate rights; family law. Our team’s task of is to find the best way of resolving any legal issues faced by our client. We are aware that each situation is unique and, therefore, we creatively accomplish our tasks and always focus on results. Although we’re still a young company, we’re growing fast and striving to succeed for the benefit of our clients. We always aim to get an effective result for the benefit of a client’s interests.

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sets is less than the “threshold” established in the Criminal Code of Ukraine.

On the whole, it seems that the logic of the activities of law-enforcement agencies is reduced to “first we run so that we see”. It’s their fault, and for this they are justly criticized. Against the background of numerous examples of law-enforcement officers’ “raiding” businesses to obtain improper advantage, cases when law-enforcement agencies act exclusively within their powers and stop real crimes are blurred. Law-enforcement officers do two things wrong: they come to a business, as a rule, without conducting preparatory work, a set of necessary public and non-public search actions proving an offence. Secondly, they do not explain their objectives and tasks. It is clear that they are limited by the secrecy of the investigation, but they still have certain space for communication. As for the actual results of their activities, formalized in the form of an indictment, it often leaves much to be desired. And the issue here is not that the actions of those against whom criminal proceedings are initiated contain no corpus delicti. Quite the opposite, as in most cases they do contain it! But a court, despite its alleged political bias as claimed at all levels, cannot turn a blind eye to gaps and blunders in the work of pre-trial investigation bodies, especially if the criminal case is conducted by a professional and experienced defense team, whose members can easily prove that the prosecution’s position is below criticism. It is important to remember that the earlier a lawyer is “invited” to a criminal proceeding, the easier it is later to competently and consistently build defense tactics and the greater the chances of success. Procedural errors made at any stage of the pre-trial investigation may become a trump card for a lawyer at a court hearing.

What are the Prospects?

Whistleblowers On 1 January 2020, the Law of Ukraine On Amending the Law of Ukraine On Corruption Prevention Regarding Whistleblowers, No. 198-IX of 17 October 2019 came into force. This regulatory act establishes a remuneration mechanism for reporting a corruption or corruption-related offense. The specific amount of remuneration will be determined by the court within 10% of the monetary amount of the subject of a corruption offense or the amount of damage caused by the offence to the state. A guarantees and protection mechanism has also been established for whistleblowers and their relatives. In particular, they will be able to use all types of legal services within the framework of free secondary legal support or find a lawyer on their own, and legal, organizational, technical and other measures aimed at protecting against unlawful inroad as established in the Law of Ukraine “On ensuring the safety of persons involved in criminal proceedings” can also apply.

Chronic Investigation Problems We see that law-enforcement officers have acquired some expertise in WCC cases. At the same time, the law-enforcement system is in no hurry to get rid of chronic problems related to formal approaches to an investigation, especially to headline-making ones, to ignoring basic procedural standards, to lacking proper communication, and to failing to clearly explain their actions.

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Serhii Lysenko — Managing Partner. Denys Solovei — Counsel, Attorney. Maksym Yaroshevych — Head of Criminal Law and Litigation, Attorney. Liudmyla Kusa — Head of Dispute Resolution.

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ADDRESS: 1B Y.Shumskoho Street, Kyiv, 02000, Ukraine Tel.: +380 44 361 0037 E-mail: info@gracers.com Web-site: www.gracers.com

First of all, business today is in need of protection against law-enforcement agencies, and given the speed of the new Parliament’s lawmaking activities, perhaps against lawmakers as well. With such a rapid turbo mode of parliamentary work, even the best intentions can turn out to have a completely different result. Time will prove the viability of all the innovations adopted under the slogan “reducing criminal pressure on business”. In the meantime, while experiments and reforms continue, the demand for the services of criminal lawyers will increase. A logical question arises. What can really improve the work of pre-trial investigation bodies and reduce the criminal risks for business? Since I can assess the situation not only as a lawyer, but also as a former law-enforcement officer, I can claim that the answer should be sought not only and not so much in legislative support. Having worked for many years with the current versions of the Criminal and Criminal Procedure Codes of Ukraine, I cannot say that they are the only problem. Much more depends on establishing clear order for the activities of law-enforcement agencies, starting from the main ones. Reforming prosecution bodies should be indicative in this regard. It is necessary to ensure the real coordinating role of the Prosecutor-General’s Office in relation to other law-enforcement agencies. This has come to nothing in recent years; as every law-enforcement agency did whatever it wanted or liked. If the normal functioning of the law-enforcement system is restored, a dramatic review of criminal legislation will not be required. And a lot of different safeguards, like “stop the mask show”, have already been adopted.

Anti-Money Laundering

Cryptocurrency as Subject of Legalization of Proceeds of Crime: Current Status and Prospects

Oleksii Meniv Partner, Shkrebets & Partners, Attorney Partnership Specialization: white-collar crime, criminal law, tax law, real estate & land, contract law, commercial law. Oleksii Meniv began his career as a practicing lawyer in 2006 while being a student. In 2007, he founded a law firm providing services in corporate, civil and commercial law. From 2010 he started working as a lawyer at Shkrebets & Partners Law Firm. In 2013 became a partner of Shkrebets & Partners Attorney Partnership. Since 2012 he has been performing as an attorney under certificate No. 1779 for the right to practice as an attorney as of 29 August 2012

ryptocurrency-related financial transactions have become increasingly relevant in Ukraine in recent years. While this is a relatively new phenomenon for our country, cryptocurrencies no longer raises any questions in most countries, though it should be noted that in the vast majority of countries, the position of States on the legal status of cryptocurrency is not monosemantic. There is no law in Ukraine which contains provisions that establish the legal status of a cryptocurrency today. In 2017, a joint statement by financial regulators on the status of cryptocurrencies in Ukraine was posted on the official website of the National Bank of Ukraine, which stated the following: “… The National Bank of Ukraine, National Securities and Stock Market Commission and the National Commission for Market Regulation of financial services are convinced that the complex legal nature of a cryptocurrency does not allow it to be recognized either by cash, currency or payment instrument of another country, currency or electronic money or securities or money surrogate. Therefore, due to the lack of a consolidated approach to the classification and regulation of cryptocurrencies today, cryptocurrencies have no determined legal status in Ukraine”. However, analysis of law-enforcement practice in recent years has shown that, despite the lack of legal regulation of cryptocurrencies, cryptocurrency transactions are those for which the actions of individuals may be qualified under the relevant article of the Criminal Code of Ukraine (hereinafter — the Criminal Code), that is, they are a crime and, accordingly, there are grounds for prosecution of persons, as well as all other legal consequences as a result of committing a crime. Considering that during criminal proceedings, the persons against whom they are subjected suffer from a substantial restriction of their constitutional rights and freedoms this problem should, in our opinion, be clarified. Thus, Article 209 of the Criminal Code of Ukraine provides for the composition of the crime, which is part of the criminal legislation and most foreign countries. In particular, it is about the legalization (laundering) of proceeds from crime. A prerequisite for qualifying the actions of persons under the said article is to commit them to other socially dangerous acts provided for by the Criminal Code of Ukraine, which preceded such legalization. The Review of Law-Enforcement Practices provides an opportunity to identify the most common types of crimes that typically precede legalization, such as drug trafficking offences,

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trafficking offences, fraud and more. The increased social risk of such crimes necessitates a detailed consideration of issues related to the legalization (laundering) of proceeds from their commission, as well as the risks that will arise in the event of a lack of legal regulation of the issues outlined. The object of this crime is money or property obtained through crime. Such funds can be obtained both in the currency of Ukraine and in foreign currency. According to Article 99 of the Constitution of Ukraine and Article 192 of the Civil Code of Ukraine, the currency of Ukraine is the legal payment instrument, obligatory for acceptance at nominal value throughout the territory of Ukraine. Foreign currency may be used in Ukraine in cases and in accordance with the procedure established by law. As to the above position of the National Bank of Ukraine and the provisions of the Constitution of Ukraine, when a person attempts to legalize obtained proceeds, for example, from the sale of drugs, then legalization can be incriminated only when such funds have been obtained by it in national or foreign currency, or are subject to the property characteristics specified by the relevant legislation. However, when a person commits a crime in the form of a certain type of cryptocurrency, his/her actions cannot be qualified under Article 209 of the Criminal Code of Ukraine, as in this case there is no object of the crime. By the way, the case law of Ukraine 20182020, as already mentioned, contains examples, albeit solitary ones, of criminal prosecution for the legalization of proceeds in the form of cryptocurrency obtained through crime. This, in fact, comes into direct contradiction with the provisions of the current legislation of Ukraine. In this case, it is advisable to speak about the violation of the principle of the rule of law in terms of the clarity and predictability of the law, as well as the failure to fulfill one of the tasks of criminal proceedings, which is to apply due law procedure to each party. Such criminal proceedings end with the conclusion of a plea agreement between the prosecutor and the accused. This situation is, in our opinion, not accidental. Despite the fact that the conclusion of the plea agreement is a mandatory condition of the voluntariness of such an agreement, the person's understanding of its consequences and lack of coercion by the prosecutor to court its conclusion, a person, understanding the limitations that it will be subjected to, in particular, the application of preventive measures against it during the period of pre-trial investigation and trial, as well as the time of trial, which often do not meet the requirements

Shkrebets & Partners is based at the hkrebets & Partners law firm, which was S founded in 2002. Our team is currently a united team of like-minded people who have reached a high professional level as a result of our copious involvement in resolving disputes in the interests of our clients. The company has 25 members of staff. Major practices: taxation, criminal law and process, energy & natural resources, land and property, commercial law, corporate relations, bankruptcy, representation in courts. Managing partner Evgeniy Shkrebets started the law practice in 1992. In 2002 he founded the law firm Shkrebets & Partner. He has been an

attorney since 2002, and that same year he became a member of the Kharkiv Regional Bar Association. He has been the managing partner of Shkrebets & Partners since 2013. Mr. Shkrebets is also a member of the Kharkiv Region Qualification-Disciplinary Commission of Advocates and a member of the Board of the Association of Ukrainian Lawyers in Kharkiv Region. In 2017 he defended his Ph.D. thesis on the topic of “Advocacy of Ukraine: Administrative and Legal Support of Activity at the Modern Stage”. Specialization: tax law, criminal law and process. Awards in 2019: TOP-50 Law Firms of Ukraine, TOP-50 Largest Law Firms of Ukraine, Top-100 Leading Law Firms of Ukraine, Recognized as Tier-3 Law Firm in White-Collar Crime practice

by Legal 500, Benchmark Litigation (Active Firm), IFLR1000 (Other notable), Regional Law Firm of the Year.

of their reasonableness, chooses for himself/ herself the method of concluding an agreement rather than the opportunity to use their own right to a fair trial. It should be noted that in the second case, such a person must be acquitted by the court regarding the charge under Article 209 of the Criminal Code of Ukraine. The situation is illustrated by 11 sentences (as on February 2020) issued on the basis of a plea agreement between the prosecutor and the defendant in a criminal case for committing a criminal organization of drug trafficking, mainly in the territory of the Russian Federation (hereinafter — Russian Federation), partly in the territory of Ukraine and other CIS countries. One example is the judgment of the Desnyanskiy District Court of Kyiv (Case No. 754/1786/18) of 26 February 2018. Thus, according to the body of pre-trial investigation unidentified persons, who were on the territory of the Russian Federation, at an undetermined time no later than January 2017, committed crimes related to the illegal sale of drugs in particularly large amounts, to an undetermined number of persons on the territory of the cities of the Russian Federation. One of the unidentified persons was searching for Internet users and offered to exchange so-called electronic money of the QIWI Wallet trademark, namely QIWI rubles for the Bitcoin cryptocurrency for a fee of 15% of the amount of QIWI rubles. During the correspondence, the defendant learned from the latter that QIWI rubles, which he must convert to Bitcoins, obtained from drug trafficking on the territory of the Rus-

sian Federation, and the essence of his activity lies in the fact that he is engaged in the sale of drugs in the territory of the Russian Federation. The accused agreed with the proposal on an ongoing basis to exchange QIWI rubles of drugs obtained on the territory of the Russian Federation for Bitcoins for a fee of 15% of the amount of QIWI rubles listed by him, as well as to provide technical support for setting up QIWI wallets and their attachments to special accounts in the Telegram messenger, for a monthly fee of a certain amount of Bitcoin equivalent to USD 300 per exchange date on so-called cryptocurrency exchanges. Thus, from May to November 2017, the accused was in an undisclosed location on the territory of Kyiv and Kyiv Region, knowing that QIWI rubles were obtained as a result of the illegal sale of narcotic substances on the territory of the Russian Federation, being aware of the unlawful nature of his actions, acting intentionally, acting for the purpose of giving the appearance of the lawfulness of owning, using and disposing of QIWI rubles, has undertaken actions aimed at concealing and masking the illegal origin of QIWI rubles obtained as a result of committing a socially dangerous illegal act, possession, and the rights to such property, source of origin, location, movement, change its form (transformation), as well as the acquisition, possession and use of QIWI rubles derived from the commission of a socially dangerous illegal act. Having acquired approximately USD 7,500 in property in this way, and possessing a real opportunity to dispose of it, the defendant spent

it on personal needs, then carried out the acquisition, possession and use of funds and other property obtained as a result of committing a publicly dangerous unlawful act that preceded the legalization (laundering) of income. Therefore, the person was convicted under a plea agreement under Article 209 of the Criminal Code of Ukraine. However, it is worth noting that the sentence under the agreement in criminal proceedings has the so-called truncated object of appeal. That is, the person is restricted in terms of the right of appeal, which is not covered by the content of the agreement, which is used by the bodies of pre-trial investigation, inciting the person to conclude such an agreement. By way of conclusion, it should be noted that not all persons who agree to carry out transactions related to a cryptocurrency are aware of the source of its origin, as was the case in the above example. Current trends in Ukraine in criminal prosecution for the legalization (laundering) of proceeds in the form of a cryptocurrency should be considered even if it not in line with current national legislation. Nevertheless, it is important to keep in mind that cryptocurrency transactions are the subject of close scrutiny by law-enforcement agencies and are, therefore, dangerous in the absence of proper legal regulation in Ukraine. Yes, you may find yourself in a situation where a person will be held liable for actions that, although not criminally punishable under current Ukrainian legislation, but given the state of law-enforcement practice, may well be the basis for a conviction against such a person.

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SHKREBETS & PARTNERS

ADDRESS: 14 Kaplunivski Lane, Kharkiv, 61002, Ukraine Tel./Fax: +380 57 720 9001; 720 9002 E-mail: office@shkrebets.com Web-site: www.shkrebets.com

Anti-Raiding

Preventive Actions Against Attempts at Hostile Takeover

Yevhen Kolomiiets Managing Partner, VDA GROUP Yevhen represents clients in general courts and criminal proceedings. Also, he provides consultations on general matters of Commercial and Civil Law. Specializations: Enforcement of Judicial Decisions, Litigation, White-Collar Crime, Bankruptcy

Serhii Liubenko Junior Associate, VDA GROUP Serhii is permanently involved in real estate transactions. Also, he advises Ukrainian and foreign clients in complex cross-border transactions with distressed assets. Specializations: Corporate, Real Estate, Distressed Assets, Restructuring

n 2019 Ukraine was ranked 64th out of 160 countries in the Doing Business rating of favourable business conditions. Progress has been achieved over the past 5 years. In 2015 Ukraine sat in 84th place, but it’s not as fast as we would like it. Progress has been slowed down, in particularly by the insufficient level of protection of companies from illegal takeover, or so-called "raiding". Until foreign investors are sure that the state will be able to guarantee the protection of their investments such investors will, most likely, choose other jurisdictions for investment. Indeed, hostile takeover attempts or raider attacks remain one of the key external threats to doing business in Ukraine. Moreover, not all companies are equally sensitive to attacks by aggressors. But, with a series of correct preventive actions, business owners can protect their companies from such attempts. It should be noted that defence techniques will not provide a guarantee of the inviolability of business, but may significantly reduce the likelihood of the success of hostile takeovers. First of all, any discrepancy of a company’s activities within the legislation can be used by interested parties as a formal reason for hostile actions through the involvement of relevant government agencies. Special attention should be paid to legal due diligence of all concluded agreements and constituent documents of the company in order to identify all its weak points. One of the most popular and effective ways to protect a company from attacks by "raiders" is to enlist a strong foreign partner into the business through equity participation or debt finance. Such partners may even be international financial institutions. For example, the European Bank for Reconstruction and Development, private equity funds and even sophisticated international banks. By attracting debt finance from a foreign partner, it is also possible to refinance a company’s existing debt to Ukrainian banks. This will remove any existing burdens from a number of company’s assets. Moreover, a company’s assets can be transferred to ensure debt finance provided by the foreign partner. In the event of equity participation of such a partner, the property can be transferred to secure intragroup debt. Another effective preventive measure aimed at protecting a company is restructuring. As a result of the latter, a vertical ownership structure can be created headed by a holding company in a foreign jurisdiction. The advantage is ensuring safer ownership of the shares/stakes of foreign holding companies as well as the clarity of such corporate structure; understandable and attractive for foreign investors. Hostile takeover attempts are often carried out by a ’raider purchase’ of the rights to claim the monetary obligations of the company, initiating a controlled bankruptcy procedure. To mini-

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mize this described risk the business needs to be divided into more than two legal entities. For instance, one of which will carry out operational activities and accumulate all the obligations of the business and the rest will possess the property of the company. For greater protection, so as to prevent the unauthorized alienation of participatory interests (or shares), one also may transfer such participatory interests (shares) in Ukrainian legal entities as collateral in favour of related parties to secure any obligations to such related parties. Thus, the alienation of participatory interests (shares) will be possible by agreement of the corresponding pledge holder and may also be completely prohibited if this is provided for by the pledge agreement. It is necessary to realize that, in practice, such an encumbrance creates solely legal obstacles and unlawful ’physical alienation’ — in violation of the provisions of the agreement — remains possible. In the event of such alienation, it will entail only the violation of contractual obligations. Sometimes there are situations when representatives of a company’s Supervisory Board are involved in a hostile takeover attempt. In order to reduce the risk of the unauthorized transfer of the company’s property, business owners should spell out the decision-making procedures in the company, e. g. in its Articles of Association. When creating a company to own property in the form of an LLC, one should ensure that the holding company also remains free from any monetary obligations to third parties. Also, the property of the company — that will possess the key property — can be protected by encumbering it with collateral to secure obligations of such company for obligations to related parties, e. g. to the holding company. In addition, the commercial agreements of the company that will carry out operational activities and accumulate obligations should entail the following: i. prohibition against the transfer of the rights to claim without the prior consent of the debtor, i. e. the operating company; ii. the right to terminate the agreement by the debtor in the event of change of ownership of the company that lends; and iii. the establishment of a sufficiently long period for the fulfilment of monetary obligations after claiming for debt repayment. Summing up the above, one must note that over the past years, the Ukrainian Parliament has adopted several promising laws aimed at strengthening the fight against ’raiding’ activities. These laws can reduce the risks of the possibility of illegal registration of new — fake — business owners based on falsified documents.

VDA GROUP is a new law firm whose staff members possess extensive experience in providing legal and business support to a number of foreign and Ukrainian companies. We regularly represent and advise our clients on their complex GR, private-public partnerships, debt collection (work with distressed assets), bankruptcy, litigation, white-collar crime, antitrust & competition, corporate matters. Our head office is in Kyiv, and we also have offices in Lviv, Odesa and Kharkiv (Ukraine). Our firm provides legal services for public companies, private firms and financial institutions. Yevhen Kolomiiets is the firmâ&#x20AC;&#x2122;s managing partner. Yevhen represents clients in general courts and criminal proceedings. He also pro-

vides consultations on general matters of Commercial and Civil Law. Specializations: Enforcement of Judicial Decisions, Litigation, White-Collar Crime, Bankruptcy Education: National University Odesa Academy of Law, Master of Law, 2008 Experience: more than 10 years Admitted to Bar in Ukraine from 2012 Serhii Liubenko is a junior associate of VDA GROUP. Serhii is permanently involved in real estate transactions. He also advises Ukrainian and foreign clients on complex cross-border transactions with distressed assets. Specializations: Corporate, Real Estate, Distressed Assets, Restructuring. Education: Institute of International Relations

Taras Shevchenko National University of Kyiv, Master of Law, 2019 Experience: more than 18 months.

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ADDRESS: Leyptytskyi Business Centre, 3A Leyptytska Street, Kyiv, 01015, Ukraine Tel.: +380 44 221 0856 E-mail: office@vdagroup.com.ua Web-site: www.vdagroup.com.ua

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Antitrust

Ukrainian Antitrust Enforcement — the Year 2019 in Review

he outgoing year was, without doubt, an eventful one for Ukrainian antitrust enforcement due to the number of record fines imposed by the Antimonopoly Committee of Ukraine. Over the past year, the AMCU imposed the largest ever fines for cartel conduct, acquisition without prior merger clearance, and bid rigging. Furthermore, 2019 provided a strong signal that in addition to big fines, the AMCU is developing its approaches to structural remedies. For example, via the divestiture of business. Here is a brief overview of high-profile cases in 2019 and our expectations for 2020.

Abuse of Dominance

Timur Bondaryev Managing and Founding Partner, Arzinger

Anastasia Panchak Lawyer, Arzinger

Fertilizer case. In September 2019, the AMCU accused the Ostchem Group, including three nitrogen fertilizer manufacturers — Azot PJSC, Rivneazot PJSC, and Severodonetsk Azot Association PJSC, and its trading company — NF Trading Ukraine of allegedly abusing a dominant market position in the period of 2014-2017. The AMCU found that the companies systematically overpriced intra-group prices for natural gas and suspended the manufacture of fertilizers. The AMCU not only applied the statutory maximum fine of around EUR 3.9 mln. (UAH 107 mln.) on NF Trading Ukraine, but also issued an order to divest the manufacturers. It will be considered a landmark decision since the AMCU has not applied such a remedy since 1995. Gas case. At the end of 2019, the AMCU fined 16 regional gas supply companies for a total sum of about EUR 10.6 mln. (UAH 278 mln.). The AMCU accused the gas companies of allegedly abusing dominance on the market of distribution and supply of natural gas to domestic consumers. The AMCU found that the gas companies overpriced local consumers and, as a result, it obliged these companies to provide consumers with re-calculated volumes of consumption (distribution) of natural gas.

Anti-Competitive Concerted Practice Tobacco case. In October 2019, the AMCU imposed the largest fine in Ukrainian history, for a total of about EUR 240 mln. (UAH 6.5 bln.) for anti-competitive practices. The AMCU found that the four largest tobacco manufacturers — Philip Morris, Japan Tobacco International, Imperial Tobacco, and British American Tobacco and its distributor — Tedis Ukraine — allegedly engaged in collusion aimed at preventing companies from entering the cigarette distribution market. This decision logically followed the AMCU case against Tedis in 2016. To recap, the AMCU imposed a fine of about EUR 15.9 mln. (UAH 429 mln.) on Tedis Ukraine for abuse of its dominant market position in the distribution of cigarettes. It is worth noting that the AMCU

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keeps an eye on the Ukrainian tobacco market, and new recommendations aimed at enhancing vigorous competition between cigarette distributors were issued at the end of 2019. Petrol case. In May 2019, major fuel retailers WOG, OKKO, and Socar were fined about EUR 2.6 mln. (UAH 77 mln.) for alleged parallel pricing. The AMCU found that fuel retailers concertedly set and maintain similar prices on high-octane petrol and diesel fuel. The fuel cartel case is not a new one for Ukrainian antitrust enforcement. A reminder, in 2016 key players on the retail fuel market were fined the largest fine at that time, about EUR 7.3 mln. (UAH 204 mln.) for a similar offense. Furthermore, in 2018 the AMCU imposed a fine of around EUR 1.3 mln. (UAH 41 mln.) for parallel pricing on the LPG market actors. The Ukrainian antitrust regulator pays special attention to the fuel market; therefore, new recommendations were issued by the AMCU aimed at setting justified prices on high-octane petrol and diesel fuel at the end of 2019.

Gun Jumping in Merger Control In 2019, the AMCU imposed the two highest fines in its history for acquisitions without prior merger clearance. The first fine of about EUR 1.9 million (UAH 58 million) was imposed on Senalior Investments LTD, part of the DCH industrial group. The AMCU found that the company acquired one of the biggest manufacturers in Ukraine of cast iron, coal coke, and coke chemical products without prior approval from the Ukrainian regulator. Having imposed the fine, the AMCU then approved the transaction. The second fine of EUR 1.9 million (UAH 55 million) for a similar offense was imposed on Blossom Investments, part of the TAS investment group, for the acquisition of Dniprometiz PJSC, a leading Ukrainian manufacturer of steel wire, nails, fasteners, nettings, etc.

Bid Rigging In 2019, a large part of the AMCU’s enforcement activities were traditionally focused on investigating anti-competitive practices in public sector procurement. In April 2019, the AMCU imposed the largest fine to date, EUR 28.6 mln. (UAH 869.3 mln.) on 22 companies — all participants of food service procurement tenders held by the Ministry of Defence of Ukraine. The AMCU found that companies synchronously withdrew their cheaper tenders, which allowed four firms to receive the highest price contracts for a total of about EUR 66.6 mln. (UAH 2 bln.).

Conclusion and Outlook 2019 in a nutshell. The year 2019 demonstrated that the AMCU follows global antitrust

Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger for over 17 years has been among the legal business leaders providing high-quality legal support to clients throughout Ukraine. Among the firm’s clients are top representatives of international and local business. Arzinger follows high standards of legal services and is a reliable 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, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance, anti-corruption compliance and business ethics. We serve clients operating in the energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other 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 70 seasoned legal professionals led by 8 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognized 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. Arzinger cooperates closely with legal advisors from numerous jurisdictions and is a member of international professional organizations, enabling it to engage colleagues from various

jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

trends, and each new investigation is performed at a high level. The fines imposed by the Ukrainian “antitrust watchdog” reach a record high with each new high-profile case. The sum of penalties imposed by the AMCU in 2019 compared to 2018 varied significantly: EUR 8.74 mln. (UAH 277 mln.) in 2018 and around EUR 329 mln. (UAH 8.7 bln.) in 2019. The AMCU closely monitors compliance with Ukrainian state legislation regulations adopted in Ukraine in 2017. Big cases are absent to date but are expected in the near future since new major probes by the AMCU were initiated recently. Antitrust litigation trends. Compared to recent years, Ukrainian commercial courts are demonstrating more profound knowledge of antitrust law, basics of economics and the business process. The latest trends show that Ukrainian courts adopted decisions mainly in the AMCU’s favor, which is evident when taking care of the welfare of consumers.

Competition Law Reform. The new draft law on reform of competition legislation was registered at the Ukrainian Parliament at the end of December 2019. The most progressive provisions in the bill are establishing the High Court of Intellectual Property and Economic Competition and providing it with powers to analyze the market and its boundaries, determine a dominant market position and reduce or revoke fines imposed by the AMCU. The draft also provides for other significant changes, in particular, settlement procedure, leniency program, class action defense, etc. Once the bill is adopted, Ukraine will have aligned Ukrainian competition law to EU standards. Thus, significant changes are expected soon for Ukrainian competition law enforcement. AMCU market priorities for 2020. We expect the AMCU’s targets to be the energy, oil & gas, transport, retail, and pharmaceutical markets, airport & seaport services, as well as the agricultural sector in 2020.

Recommendations for business. In light of the above, it is increasingly important for both local and international businesses to ensure compliance with Ukrainian antitrust laws. Based on the key lessons of 2019, here are some hints on how to avoid potential antitrust laws violations. Firstly, distribution relationships should be an issue of major attention since the AMCU has been keeping an eye on this for several years. Secondly, before acquiring companies, the appropriate antitrust audit should be performed due to the AMCU’s approach of looking into merger control relationships since the time of its establishment. Last but not least, at the very early stage of investigations, a strong legal position, along with in-depth economic arguments, should be performed before the AMCU without waiting for the regulator’s final decision.

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ADDRESS: Senator Business Centre, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

Banking Disputes

Banking Disputes in 2019

Andrii Datskiv Senior Lawyer, Alekseev, Boyarchukov and Partners

n 2019, the banking sector actually completed its adaptation to the revolutionary changes in jurisprudence that took place in 2018, when the new Supreme Court started its activity and also to new procedural legislation. In implementing the ideas of 2018, the Supreme Court strengthened its legal positions, which made it possible to eliminate any manifestations of “limited interpretation” by creative participants in banking controversies and, in some cases, developed its expertise and extended them to similar legal relationships. Such a consistent approach by the Supreme Court provided some stabilization and predictability of legal enforcement in resolving banking controversies. In particular, the position of the Grand Chamber of the Supreme Court, stated in the decree of 21 March 2018 in case No. 760/14438/15-ц regarding the impossibility of foreclosure on mortgaged property by declaration of title turned out to be immutable. I would like to remind that the court concluded that “in view of the requirements of Articles 328, 335, 392 of the Civil Code of Ukraine in the context of Articles 36, 37 of the Law of Ukraine On Mortgage, the courts are not empowered to foreclose on mortgaged property by the declaration of a mortgage holder title”. Thus, any attempt by banks to push the opposite idea was unsuccessful. At the same time, with regard to mortgaged movable property, the situation is not so straightforward and, in practice, various legal positions exist. On the one hand, the idea contained in the aforementioned decree of the Grand Chamber of the Supreme Court is continuing on the grounds that it is in principle impossible to acquire ownership title via a court judgement because “Article 392 of the Civil Code of Ukraine does not create, but confirms the existing ownership title previously acquired by the plaintiff” (see decrees of the Supreme Court of 26 June 2018 in case No. 904/9931/16, of11 September 2018 in case No. 902/1087/16, of 9 October 2019 in case No. 646/12750/14-c ). Moreover, the Supreme Court even extends the application of legal findings in case the mortgagee sells the collateral to a third party (see the decree of the Supreme Court of 27 November 2019 in case No. 461/5007/15-c), also considering this method of foreclosure as extrajudicial. On the other hand, the Supreme Court delineates legal relations governing the foreclosure on the mortgaged and pledged property (movable property) in the context of the application of such remedy as acquisition of ownership title under court judgement (see the decree of the Supreme Court of 14 November 2018 in case No. 910/2535/18 and of 11 December 2018 in case No. 910/21156/16). The essence of such delineation is that the analogy with Article 392 of the Civil Code of Ukraine in the case of foreclosure on the mortgaged movable property is relevant and inapplicable, since foreclosure on mortgaged property is governed by the special rules contained in Articles 24, 25, 26, 29 of the Law of Ukraine On Securing Creditors’ Claims and Registration of Encumbrances. Thus, the position in this category of cases is not clear and requires the intervention of the Grand Chamber of the Supreme Court.

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A similar stable situation has arisen in controversies where the decisions of state registrars in the field of state registration of real rights to real property and their encumbrances are appealed against. A reminder that the fundamental positions were, in this sense, set out in the decree of the Grand Chamber of the Supreme Court of 4 September 2018 in case No. 823/2042/16, where the court shifted away from the usual criterion for asserting administrative jurisdiction of the controversy — the presence of procedural violations in the actions of the state registrar (including if the claimant is not the applicant for the registration action). The court’s position is that, in this case, there is still a controversy over civil law between the parties, without which the protection of the person’s rights will not be proper and effective. Thus, the controversy should be referred to civil or commercial proceedings (depending on the parties involved). The last hope to renew administrative jurisdiction was buried by the decree of the Grand Chamber of the Supreme Court of 30 January 2019 in case No. 755/10947/17 where, in turn, the court shifted away from the legal positions of the Grand Chamber of the Supreme Court stated in decree of 14 March 2018 in case No. 619/2019/17 that, subject to the actual settlement of a civil law controversy, a controversy with a public officer (in particular, the unlawfulness of the state registrar’s actions) is public and legal and subject to review in administrative proceedings. Thus, no matter what gaps the parties to a controversy find, a similar category of cases will be dealt with in the course of economic or civil proceedings. Herewith, in 2019, as they say, there were no surprises, and we would like to focus upon individual court judgements that have changed or have given a chance for changing the vector of settling banking controversy. Continuing the topic of controversies in the field of mortgage lending, we should pay attention to the decree of the Grand Chamber of the Supreme Court of 29 May 2019 in case No. 310/11024/15-c, where the court shifted away from the opinion of the Supreme Court of Ukraine, stated in the decree of 5 April 2017 in case No. 6-3034ts16, under which the mortgagee has the right to satisfy their claims on the basis of the court judgement on the foreclosure on the mortgage through its sale by the mortgagee to a third party in accordance with Article 38 Law of Ukraine On Mortgage, despite the fact that the parties to the mortgage clause agreed such remedy as being extrajudicial. In other words, specifying in the mortgage agreement the possibility for the creditor to foreclose extrajudicially the mortgage by sale of mortgage property to a third party is also an obstacle to applying this remedy in court. The position of the Grand Chamber of the Supreme Court of 26 February 2019 in case No. 907/9/17 is also interesting, as the Court shifted away from the findings of the Supreme Court stated in decree of 23 January 2018 in case No. 2-340/461/16-c regarding payment of court fees in controversies on mortgage foreclosure, noting that such claims “have value appraisal,

Alekseev, Boyarchukov and Partners, one of the leading law firms in Ukraine, has been operating since 2005. The company is recognized by Ukrainian and international surveys. The firm’s main clients are large Ukrainian and international banks, commercial and industrial enterprises, private individuals. The company is well-known on the market due to its highly professional experience in representing clients in questions of bankruptcy and debt restructuring, corporate management, litigation, settlement of disputes in courts of arbitration, tax and criminal law.

Alekseev, Boyarchukov and Partners has broad experience of representing creditors and debtors in legal cases on bankruptcy and debt restructuring. The team is also actively involved in representing foreign banks with foreign capital on the territory of Ukraine. Thanks to the firm’s lawyers and attorneys a great number of troubled credits with sums running into hundreds of millions of dollars have been successfully returned.

property nature, and the amount of court fees for their filing is fixed by the requirements of Article 4 of the Law of Ukraine On Court Fees, based on the amount of monetary claims the plaintiff to be satisfied thereunder.” I would like to remind you that the position, which the Grand Chamber of the Supreme Court is considered to be false, is that the court fee should be paid as a non-property claim when a lawsuit on foreclosure of the mortgage property is filed to the court. Another progressive position is stated in the decree of the Grand Chamber of the Supreme Court of 16 January 2019 in case 373/2054/16c, where the court stated that “the accrual of 3% per annum provided by part two Article 625 of the Civil Code of Ukraine is compensatory, not punitive, because it is a remedy for protecting property rights and interest, which is to obtain compensation from the debtor. When calculating 3% per annum, the overdue amount specified in the contract or court judgement should be taken as the basis, not its equivalent, in the national currency of Ukraine.” Thus, the court, while shifting away from the legal opinion stated in the decree of the Supreme Court of Ukraine of 2 July 2014 in case No. 6-79цс14, and also in the decree of the Supreme Court of 25 July 2018 in case No. 308/3824/16-c, gave the green light for accrual of 3% per annum in foreign currency, and emphasized that foreign currency can be not only be a currency of liability, but also the currency of its execution. In the context of recovery of monetary liabilities in accordance with Article 625 of the Civil Code of Ukraine, one more decree of the Grand Chamber of the Supreme Court of 8 November 2019 in case No. 127/15672/16-ц should be noted, where the court moved away from the conclusions of the Supreme Court on the application of the limitation period to claims for recovery of funds provided by Article 625 of the Civil Code of Ukraine, having determined that “a debtor’s failure to fulfil a monetary liability is a continuing offence, therefore, the right to lawsuit for money recovery under Article 625 of the Civil Code of Ukraine arises for the creditor from the breach of the monetary liability till its elimination and is limited by the last three years that preceded the filing of such lawsuit.” I would like to remind that in accordance with the opposing position of the Supreme Court, as stated in decree of 18 July 2018 in case No. 331/3787/16-ц, of 5 December 2018 in case No. 754/7151/15-ц, of 19 December 2018 in case No.206/7190/14-ц, the initial date for the commencement of the limitation period is the effective date of the court judgement on debt recovery. Therefore, any ad-

ditional requirements (including in accordance with Article 625 of the Civil Code of Ukraine) may be declared during it and accrued over a period of three years following the court judgement. Separately, we would like to highlight the legal positions that the banking sector has (at least temporarily) managed to circumvent. These are the conclusions stated in the decrees of the Grand Chamber of the Supreme Court of 28 March 2018 in case No. 444/9519/12 and of 4 July 2018 in case No. 310/11534/13- ц. Thus, the court concluded in the mentioned decrees that it was impossible to accrue interest on the use of a loan beyond the loan’s term or in the case the creditor enjoys the right to early repayment of the loan stipulated by Part 2 Article 1050 of the Civil Code of Ukraine. The position of the Grand Chamber of the Supreme Court, which, in my view, is a manifestation of exclusive loyalty to debtors in view of specific contentious legal relationships analysed by the court, has proven to be practically impossible in cases where there are special arrangements between debtor and creditor for interest accrual beyond the term stipulated in the loan agreement (see the decrees of the Supreme Court of 13 December 2018 in case No. 913/11/18, of 10 October 2018 in case No. 910/750/18, of 14 May 2019 in case No. 910/22858/17). And, since the specified “gap” contains, in the opinion of judges of the Supreme Court in case No. 912/1120/16, an exceptional legal problem that had not been finally resolved in available case law, the case was referred to the Grand Chamber of the Supreme Court. The case has now been accepted for consideration by the decree of the Grand Chamber of the Supreme Court of 10 September 2019. The resolution of this “conflict” may, according to the court, place a definitive point in uncontrolled accrual of annual interest after the loan repayment date stipulated in the agreement. By way of conclusion, I would like to mention another exceptional legal problem that has not yet been resolved, but which has a significant impact on many controversies. The issue here is application of Part 4 Article 36 of the Law of Ukraine On Mortgages (revision of 4 February 2019), which stipulates that upon completion of extrajudicial settlement any subsequent mortgagee’s claims to a debtor on fulfilment of the basic obligation are invalid. The variations on speculation are, in this context, quite obvious, and they are very actively used by debtors, especially in cases where according to Article 37 of the Law of Ukraine On Mortgage the creditor acquired extrajudicially mortgaged property, the value of which is not sufficient to repay all the debt. In the majority of such cases, the Su-

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preme Court directly applies the provisions of the said article and considers the obligations to be settled (see the decrees of 15 March 2018 in case No. 927/84/16, of 20 June 2018 in case No.757/31271/15-ц, of 26 February 2019 in case No. 914/355/17,of 2 April 2019 in case No. 873/26/18, of 17 April 2019 in case No. 204/7148/16-ц, of 27 February 2019 in case No. 643/18466/15-ц, of 27 February 2019 in case No. 263/3809/17, of 2 April 2019 in case No. 873/26/18). Moreover, even the debt recovered under a court judgement long before the extrajudicial settlement is considered repaid (in the relevant part, which was not repaid by the mortgage property). An exception to this general, in my opinion, negative rule is a number of the decrees of the Supreme Court (of 14 November 2018 in case No.910/2535/18, of 19 September 2019 in case No. 910/9508/17, of 20 June 2019 in case No. 904/9795/16) where the court considers that, provided there is a mortgage property securing specific monetary liabilities, not yet been forfeited, and on the account of which such liabilities have not yet been settled, there is no reason to consider such monetary liabilities as repaid in accordance with Part 4 of Article 36 of the Law of Ukraine On Mortgage. At the same time, as mentioned above, the situation with unsecured liabilities is frankly pitiful. In their turn legislators, understanding the negative impact of such speculation on credit relations, eliminated the gap with the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine on Resumption of Lending (3 July 2018 No. 2478VIII). Therefore, the problem has partially lost its relevance, if we talk about legal relationships that arose after the law came into effect on 4 February 2019. In other cases, the intervention of the Grand Chamber of the Supreme Court is still required to regulate legal enforcement. Summarizing the analysis of current case law, it is worth noting that the year appeared to be a busy one for the banking sector, despite the stabilization of the legal positions of the new Supreme Court. This is due more to adaptation to last year’s “deviations” from legal positions, which resulted in reorientation of participants to other methods of judicial protection (often effective only in the legal sense of the word). In any case there is, in my opinion, a positive trend: the controversies became more predictable due to the fact that the Supreme Court is fulfilling its key mission, that of ensuring sustainability and unity of case law. This, in turn, made it possible for creditors to plan more accurately a claim settlement in courts and counter protection to debtors.

Bankruptcy

New Bankruptcy in Action. Who Wins? Consequently, the Code is in force, and we live in a new reality that affects the adoption by business and citizens of decisions regarding their solvency, determine the cost and duration of the resolution of insolvency and, at the same time, provide impetus to reformatting the legal market.

Role and Protection of Creditors now Stronger, Length of Proceedings Shorter

Julian Khorunzhyi Senior Partner, ARIO Law Firm Co-developer of the Bankruptcy Proceedings Code of Ukraine, Member of Board of UBA

There’s No Place for Pessimists Here, or How Optimism Triumphs After the election of the new government last year, a large-scale campaign was launched, the purpose of which was to stop the launch of the “new bankruptcy” that was stipulated by the Bankruptcy Proceedings Code of Ukraine. Some representatives of the “new government” explained this as if the Code was not ready for its practical launch. And the result of this could be the collapse of the procedures initiated by the preliminary law (Law of Ukraine On Restoring the Solvency of the Debtor or Declaring it Bankrupt), as well as the impossibility of opening new proceedings. However, the market managed to defend the Code, and the day after the Code came into force, it became clear: the problems that were declared by opponents were far-fetched. Despite some opposition from certain influential groups that have tried (and continue to try) to distort the implementation of individual provisions of the Code, the Code has now been working effectively for six months. The position of the Ministry of Justice deserves special thanks. Even before the Code entered into force, the Ministry recognized that certain provisions of the Code require amendments to eliminate errors precisely. However, the development and implementation of such changes are necessary after more detailed analysis of the practical application of the Code, which requires a certain amount of time.

We can declare the fact that creditors cease to be extras in bankruptcy cases. So, unlike previous legislation (when the arbitration manager could conduct the case practically without consulting with creditors), from now on it is precisely creditors that have a decisive role in the procedure. Especially taking into account the specifics of the situation in the sphere at present (most cases are at the liquidation stage), the decision on issues regarding the nominees of arbitration managers who appoint the case, the procedure for the sale of a property, which is one of the cornerstones of the procedure for today, depends on the position of creditors. Creditors are empowered to dispute the debtor’s transactions by which the debtor hid assets from creditors. In addition, despite the controversy surrounding the norm and the desire of the arbitration managers to change it, the provisions on the right of creditors to “dismiss” the arbitration manager at any time are valid. The specified norm is aimed at eliminating possible conflicts between arbitration managers and creditors that had earlier provoked a significant delay in bankruptcy cases. It is the reduction of the consideration of cases that is one of the goals of this innovation. After all, unreasonably long terms for considering cases are one of the largest imperfections from a business point of view, as reflected in the ’Doing Business’ ranking. Changes that were aimed at reducing the time for bankruptcy cases should also include: setting a moratorium on satisfying creditors’ claims, introducing cassation filters to appeal individual decisions in bankruptcy proceedings, changing the procedure for conducting preliminary court hearings, eliminating unnecessary procedural actions (for example, review of the registry claims of creditors in the liquidation procedure previously took 2-3 months), a change in the procedure for the sale of a property, and so on. Another novelty that affects the maturity of creditors’ claims and the protection of their rights is also worth noting. Namely, the possibility of opening proceedings in a case without the need to present to the court evidence of the indisputability of the claims of creditors.

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This is important because lenders no longer need to spend an extra year to get a court decision on recovering funds from the debtor to obtain the right to initiate the procedure. This should prevent unscrupulous debtors from “hiding” assets from creditors. At the same time, it is worth noting that, indeed, certain procedural issues arise that require changes to the Code. However, such problems are not systemic and do not impede the application of effective Code norms.

Fair Auctions: “War Ticket” Canceled There’s another important innovation of the Code, which fundamentally changed the usual market motivation and logic of actions in bankruptcy cases. At the same time, it affects the effectiveness of the procedure for all parties. This innovation is the new procedure for the sale of property of bankrupt debtors. Under the new Code, the bankrupt property is sold at completely transparent market auctions. The electronic auction system is based on the ProZorro Sale project, which has demonstrated its transparency in the asset market of bankrupt Ukrainian banks, which are sold by the state-run Deposit Guarantee Fund, as well as in privatization procedures to sell state and municipally-owned property. The main advantage of the new property sale procedure is the formation of a market price. Unlike previous sales, from 21 October 2019, it became impossible to sell any property of the debtor in “secret mode”. It is impossible to prevent anyone who would like to acquire the property of the debtor to bid. It is impossible to guarantee anyone the “targeted” sale of a property. It is worth recognizing that, unfortunately, this practice used to be quite widespread and creditors suffered from it. After all, there were cases when a property with a market value of millions of hryvnias was sold at dubious tenders for a few hryvnias. On the one hand, lenders had to spend a lot of time and money appealing against such dubious auctions and protecting their rights. On the other hand, buyers of bankrupt property suffered. After all, even legitimate tenders (according to the previous procedure) were extremely vulnerable to appeal. Therefore, in fact, along with the assets of the bankrupt, a “war ticket” was also sold in the courts with all the consequences that ensued. As of mid-March 2020, about 700 tenders had already been announced under the new procedure. The declared value of a property for sale is almost UAH 3 billion. The first auction has already been held. Of course, it’s too early to talk about judicial practice. However, I can predict a significant decrease in the intensity of appeal against tenders held in ProZorro Sale. It is also too early to talk

One of the most accurate characteristics of ARIO Law Firm is its deep expertise and excellent practical knowledge on how to maximise earnings and minimise losses. Last year we told you about some participants of the Ukrainian law market calling ARIO’s team “wild”. Since that time the team has evolved and now some people call it “Zlawyers”. It means that ARIO Law Firm will not leave any chance to its opponents. And it also a young, smart, professional, experienced, extremely creative, dynamic, effective team for solving the problems of any complexity in restructuring and bankruptcy, dispute resolution, corporate and M&A, business protection and business structuring, white-collar crime, litigation. ARIO Law Firm had a presence in conducting some of the biggest and most famous bankruptcy cases. Like the case of PJSC Mykolaiv Shipyard Ocean LLC, Avtodom LLC, Proletariy

Lysychansk Glass Factory PJSC, and others. Senior Partner Julian Khorunzhyi is co-developer of the Bankruptcy Proceedings Code of Ukraine and member of the Board of the Ukrainian Bar Association. ARIO Law Firm protects Lviv Mayor Andriy Sadovy in criminal proceedings, State Enterprise Pishchanskiy quarry and Moldovan oppositionist Olexandr Balika and others. Our lawyers also successfully defend the interests of the Samopomich political party, Ms. Oksana Syroyid, a former deputy speaker of the Ukrainian Parliament, PJSC Hotel Complex Lybid, the Open Dialogue Foundation and many others in courts. The firm works closely with highly-qualified arbitration managers, private enforcers, factoring companies, the electronic marketplaces of commodities, loans, and arrested assets as well as the assets of bankrupt banks and companies.

Partners Julian Khorunzhyi, Iryna Serbin, Yevhen Hrushovets have received recognition from many Ukrainian and International law ratings, such as Legal Awards, Market Leaders, ULF, The Legal 500, IFLR1000, etc. And this year Chambers Europe called ARIO Law Firm a “Recognised Practitioner” in Restructuring/Insolvency in Ukraine.

about price efficiency, but the issue is the formation in new tenders of a true market price for bankrupt assets.

already has a good lobby in protecting the interests of the professional community at the highest level. Which, of course, is positive.

Professional Community of Arbitration Managers Moves to a New Level

A Chance for Bankrupt Individuals

Firstly, the forgiven amount of the debt forms the basis for personal income tax payable at the time of such forgiveness. This fact alarms potential bankrupt individuals. Another limiting factor is the need to advance funds to pay for the services of arbitration managers, which creates certain obstacles for individuals to enter the procedure. I am glad that these problems are recognized by participants of the legal market, who are trying to eliminate them by introducing appropriate amendments to the law. Another factor that affects a relatively small number of cases on resolving the insolvency of individuals is the hope of the majority of debtors that the moratorium on the collection of mortgages on foreign currency loans will be continued. Due to these factors, we have a lack of judicial practice, which makes it difficult to analyze the effectiveness of the relevant provisions of the Code. Despite all this, more than a hundred citizens have already used the algorithm to solve insolvency. I am aware of the intentions of many legal teams to invest in the development of individual practices and departments for working with individuals who are bankrupt. And especially for citizens who are experiencing difficulties and cannot afford paid legal advice, the Ukrainian Bar Association is implementing, together with USAID, a large-scale free-of-charge consultation project that has already covered the largest cities of Ukraine. Summing up, the market went through a busy and interesting year in the context of bankruptcy reform. Optimism defeated pessimism. Lawyers, arbitration managers, the regulator and MPs managed to lay the foundation for a new quality of bankruptcy procedures, which will become more effective, though time will require lawyers to have a more intelligent approach and continuous professional development.

Along with innovations that increase the transparency and efficiency of bankruptcy procedures, the Code laid the foundations for institutional independence and self-government of arbitration managers. This should lead to the formation of an open community, with uniform rules of the game. We can also expect the emergence of “filters” within the professional community, which would weed out dishonest arbitration managers. Against the background of formation of self-government of arbitration managers, the community began talking about the ethics and prestige of the profession, which will lead to an increase in the professional level of arbitration managers. This means that the risks for all parties to bankruptcy cases will be significantly reduced. At the same time, now it is only hoped, and it is too early to talk about this as fact. Along with the Code coming into force, the process of crystallization of leaders and the formation of teams that rally arbitration managers around themselves has begun. The formation of working bodies of the National Association of Arbitration Managers continues. My hope is that after the completion of these processes this organization will begin to formulate the best practices of arbitration managers, which will improve the quality of the procedures. And considering the fact that some people from the sphere of bankruptcy became members of parliament, the newborn association

All the innovations described above are inherently an improvement to the procedures that existed in the past. At the same time, the Bankruptcy Proceedings Code of Ukraine contains an unprecedented norm for Ukraine — the resolution of the insolvency of individuals. For years, individuals who had colossal debts (before, on mortgages made out in foreign currency, issued during the 2008 global crisis), were deprived of an effective tool to resolve their insolvency. But such a tool exists today. Individuals with a debt burden may declare their insolvency, restructure it and receive forgiveness of a significant part of the debt. The resolution of insolvency under the procedure provided for by the Code should balance the interests of debtors (who found themselves in a difficult situation for objective reasons), creditors and the state. It is important that only bona fide debtors, who will show all their property and reveal their financial position, can use the procedure provided for in the Code to resolve the insolvency of individuals. In exchange for honesty, they will receive the forgiveness of part of the debt and restructuring of the remaining part of the debt on terms that are mutually beneficial for the debtor and creditor. It is worth noting that as of March 2020, there was still no need to talk about a rush in demand for the procedure for resolving the insolvency of individuals. A cautious attitude towards declaring oneself “bankrupt” is observed for a number of reasons.

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ADDRESS: 7 Panasa Myrnoho Street, Kyiv, 01011, Ukraine Tel.: +380 44 247 5577 E-mail: office@ario.law Web-site: www.ario.law

Business Crime

Protecting Businesses and Officials Against Imposition of International Sanctions and Ukraine’s Sanctions

Artem Drozdov Partner, AVER LEX

he topic of sanctions is one of the most discussed topics in the world. The largest players in global politics, such as the United Nations Security Council, the Parliamentary Assembly of the Council of Europe, the European Council, as well as individual states, apply sanctions and other restrictive measures of a diplomatic, economic and other nature as a mechanism of punishment, containment, and a response to “political challenges”. The popular grounds for the imposition of sanctions include, for example, actions of individuals or legal entities, and also states, linked to terrorism or the financing of terrorism, proliferation of nuclear weapons or their components, violation of human rights, violation of territorial integrity or destabilization of sovereign states. The USA and the European Union can be considered the leaders of the application of the sanctions mechanism. Their restrictive measures are also considered the most influential in terms of the economic component and the power of pressure. For example, in the U.S., nearly 15 government institutions have the power to impose their restrictive measures. Among others, the Office of Foreign Assets Control (OFAC USA) holds a special place in terms of imposition of economic sanctions. This is a special financial intelligence and enforcement agency of the U.S. Department of the Treasury that administers and

enforces economic and trade sanctions against states, political regimes, terrorist organizations, individuals and legal entities, imposed in support of U.S. national security and foreign policy. OFAC also administers the sanction lists of the U.S. For example, the special ‘black list’ or SDN (Specially Designated Nationals List) is regularly updated, and, as of today, includes 1,342 pages of small font, three-column text, containing the list of individuals and organizations, against whom the restrictive measures of the U.S. have been imposed. The gravity of the threat of these sanction lists for a business lies in the fact that any individual or entity entering into any commercial or other legal relations with an individual on the U.S. sanction list automatically falls within these sanctions. And this is enough for a business to collapse, as from that moment, it becomes ‘inconvenient’ for all your other contractors, banks or organizations to work with you, because that will automatically lead to imposition of sanctions and restrictive measures against them. By the way, there are even Ukrainian companies on the U.S. sanction list. Another challenge, when an individual or entity find themselves in the cross hairs of the OFAC, is that the law envisages a possibility for individuals or entities, against whom the sanctions have been imposed, to appeal to OFAC with a request to review or cancel restrictive measures. However, this kind of request does not obligate OFAC to take any action or consideration and, in reality, we are unlikely to find an example when such request was successful. The European Council and its member states individually also impose sanctions on a number of other states, including European ones, as well as on their individuals and legal entities, and receive corresponding sanctions in response. It is noteworthy that the procedure of imposition, extension, alteration and cancellation of sanctions is thoroughly regulated in the European Union. For example, there are clear basic principles of imposition of restrictive measures to ensure targeted and individual application of sanctions (Basic Principles on the Use of Restrictive Measures (Sanctions). The principles enshrine a mandatory procedure for regular revision of the imposed sanctions. Furthermore, the EU clearly stipulates that sanctions may be applied exclusively within strict compliance with the guarantees of protection of human rights and the rule of law. Moreover, the EU also has a document containing over 50 pages titled Guidelines on implementation and evaluation of restrictive measures (sanctions) in the framework of the EU Common Foreign and Security Policy. These

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detailed guidelines contain complete provisions about the sanction policy of the EU, including the possibility of appealing restrictive measures in the European Court of Justice. Of course, there have been known cases of appeals against the imposition of sanctions by the European Council and cancellation of the corresponding sanctions. Specifically, the sanctions imposed against the 4th President of Ukraine, Viktor Yanukovych, were recognized by the European Court of Justice as ungrounded. However, it is worth noting that the corresponding regulations of the EU envisage the right to request cancellation or revision of the restrictive measures imposed by the European Council. Nonetheless, there are no examples, when sanctions were lifted solely based on the corresponding request, as, in that case, the EU sanctions authorities would have to confirm their illegal imposition. In any event, the only effective, albeit labor-intensive, way of solving the issue of EU sanctions is taking it to the judicial plane, something which cannot be said about American sanctions. In addition, despite the fact that the cases on sanctions require a customized approach and well-built tactics, tireless and methodical work on substantive communication with the government agencies, governments and inter-government organization is essential. Such communication is often conducted with foreign entities. That is why it is vital to have the respective specialists with the required language fluency among one’s own staff or involve such specialists ‘on site’. When discussing the issue of imposition of sanctions and their cancellation, it is also important to take into consideration the necessity of application of measures for protection against them. Firstly, it is important to bear in mind that the lists of individuals and entities under restrictive measures are publicly available. With regard to business, the minimum measure that will enable minimization of the risk of being put on the sanctions list would be monitoring one’s potential contractors in terms of their being on such lists. If the individual or entity is ‘on the list’, then proceed with caution. Also, it is important to responsibly treat the requirements of the national and foreign financial monitoring and also the laws which are aimed at fighting money laundering, financing of terrorism, etc. With regard to the European Union, the key document in this area is the Directive (EU) 2015/849 (Directive (EU) 2015/849 of the European Parliament and of the Council of 20 May 2015 on the prevention of the use of the financial system for the purposes of money laundering or financing terrorists …).

AVER LEX is the leading WCC boutique law firm in Ukraine, focused on high-profile economic crimes and politically-motivated prosecutions, cases regarding defence of corporate executives in criminal proceedings and corporate security matters. The firm stands out for its mature highly specialized team, and commands unrivalled capacities for being a preferred criminal defense counsel in particular compound and complex WCC litigations in Ukraine. The majority of cases are unique and first-hearing cases that set precedents for the criminal judiciary system in Ukraine and established practice for future hearings. These cases are highly public; require massive, regular and open communication with the entire spectrum of media outlets in Ukraine. The client portfolio includes state officials and high net worth individuals looking for protection from politically-motivated prosecutions, consulting and law firms, big corporate clients from a range of economic sectors.

-- Corruption and Bribery; -- Tax Fraud and Evasion; -- International Criminal Law; -- Extradition; -- Business Crime, Fraud; -- Risk Assessment; -- Criminal Due Diligence, etc. AVER LEX provides for complex legal decisions in corporate security aimed at identifying and minimizing criminal risks in business; defence of legal rights of detained and convicted persons during a provisional arrest; measures to release from custody; comprehensive legal defence during operational search activities and pre-trial investigations by the law-enforcement bodies; successful advocating in court hearings within a criminal proceeding; legal aid to complainants; recovery of damages judgments.

International level

The firm advises on all aspects of criminal law, providing both the traditional services of legal prosecution and defence, and the new requirements of preventive criminal law and corporate compliance. Expertise encompasses: -- White-Collar Crime; -- Corporate Criminal Law;

AVER LEX was recognized as: -- Chambers Europe 2017-2020: the sole leader (Band 1) in ‘Dispute resolution: White-collar crime’; -- Legal 500 EMAE 2019-2020: was announced the best company in White-Collar Crime (Tier 1); -- Best Lawyers 2019: Law Firm of the Year in Criminal Defense; -- Legal Awards 2019: Law Firm of the Year in White-Collar Crime;

As for the USA, the corresponding chapters and sections of the United States Code (the United States Statutes at Large) need to be taken into consideration. In our country, the Law of Ukraine On Prevention and Counteraction to Legalization (Laundering) of Proceeds from Crime, Terrorism Financing and Financing of Proliferation of Weapons of Mass Destruction (Law 1702-VII) is the basic document that regulates these issues. As regards the restrictive measures within the Ukrainian jurisdiction, it is worth noting that compared to the European Union and the U.S., the Ukrainian sanctions policy is regulated quite weakly, imprecisely and dangerously for individuals who could potentially fall under the restrictive measures of Ukraine. In particular, the sanctions and related procedures in Ukraine are regulated by one Law, On Sanctions, No. 1644-VII, which consists of the preamble and six articles, and also the resolution of the Cabinet of Ministers No. 888 of 30 November 2016 titled Several Issues of Preparations of Proposals of the Cabinet of Ministers of Ukraine Regarding the Imposition, Cancellation of, and Amendments, to Sanctions. The law envisages that the proposals on imposition, cancellation and introduction of changes to sanctions are to be submitted for consideration by the National Security and Defense Council of Ukraine, Parliament, the Cabinet of Ministers of Ukraine, National Bank and Security Service of Ukraine. The decisions of the NSDC of Ukraine on the imposition, cancellation or introduction of amendments to the sanctions against a foreign state or a set of individuals are put into force by the issue of a Ukrainian presidential decree and are subject to approval by a Resolution of the Parliament of Ukraine within 48 hours. However, decisions adopted by the NSDC of Ukraine on the imposition of individual sanctions against non-residents and terrorist organizations are put into force by a Ukrainian presidential decree and are not subject to approval by the Parliament.

In terms of imposition of sanctions against an individual or entity involved in terrorist activity, such individual or entity can be, from the NSDC’s standpoint, a non-resident or a resident. Several points of concern, causing doubts regarding fairness and justification of the imposition of sanctions in some cases, need to be taken into consideration. In particular, the grounds for the imposition of sanctions under the Law include: 1) actions of a foreign state, foreign legal entity or individual, other entities, which create real and/or potential threats to the national interests, national security, sovereignty and territorial integrity of Ukraine, facilitate terrorist activities and/or violate human rights and freedoms and rights and freedoms of a citizen, interests of society and state, lead to invasion of the territory, expropriation or restriction of property rights, infliction of property losses, creation of obstacles for sustainable economic development, exercising of rights and freedoms by citizens of Ukraine; 2) resolutions issued by the United National General Assembly and UN Security Council; 3) decisions and regulations of the European Council; 4) facts of violation of the Universal Declaration of Human Rights, UN Charter. While resolutions, decisions and regulations provide some documentary grounds for restrictive measures, the provisions of the Law do not impose a requirement for the availability of some evidence, criminal proceedings, a court judgment, confirming that the individual or entity subject to sanctions did commit the actions under the first and fourth points on the above list. This means that if somebody “thinks” that a legal entity, whether resident or non-resident, is complicit in financing terrorist activity, such entity or individual can fully be placed on the sanctions list. The other danger of the Ukrainian sanctions policy that we have come across in our work is

Complex legal decisions

-- Who is Who Legal 2016-2018: listed among the top firms in Business Crime, etc. To ensure the rights of our clients and to prevent them being violated, the Firm has developed a strong best friends’ network of firms throughout the world (USA, UK, Switzerland, Austria, Netherlands, Portugal, Belarus, Russia, etc), and is well equipped to handle cases with cross-jurisdictional elements. Also, the Firm cooperates with a number of leading worldwide and local human right organizations within the framework of ongoing matters. These include Amnesty International in Ukraine, Transparency International Ukraine, Ukrainian Helsinki Human Rights Union, Ukrainian Human Rights Union, Amnesty International European Institutions Office, etc.

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AVER LEX

www.ukrainianlafirms.com

ADDRESS: 2 Khrestovyi Alley, 5th Floor, Kyiv, 01010, Ukraine Tel.: +380 44 300 1151 Fax: +380 44 300 1153 E-mail: info@averlex.com Web-site: www.averlex.com

imposition of restrictive measures without the grounds, enshrined in the Law On Sanctions. In particular, we learned, as part of providing legal assistance, that the grounds for including an individual in the sanctions list was “synchronization with U.S. sanctions (OFAC)”. The specifics of defending clients against such ungrounded actions is also complex. The nature of these legal relations is administrative-legal, which is why unlawful decisions on the imposition of sanctions must be appealed within the administrative judicial procedure. One should not forget, however, that the decisions of the NSDC on imposition of sanctions are put into force by decrees issued by the head of state, which is why such decisions cannot be a subject of consideration in court separately from the corresponding presidential decrees. At the same time, the decisions made by the president are not subject to appeal in the court of the first instance, only in the Supreme Court (Administrative Cassation Court of the Supreme Court). To prepare a claim and defend a legal position, it is also necessary to form the fullest possible package of evidence, refuting the grounds for putting an individual on the sanctions list, expert findings, collect information about absence of criminal proceedings/or (if there is a criminal case) develop the position of the defense in the criminal proceedings and attach the procedural documents obtained to the claim. All the information mentioned above shows that both Ukrainian and foreign business may, in the event of interfering with somebody’s interests, fall into the risk zone. Even with successful fight and defense, the losses incurred until the moment justice is reestablished are extremely painful and unpleasant. That is why it would good practice to carry out additional checks of contractors, monitor sanctions lists, and get legal assistance from lawyers who are qualified in this field.

Business Immigration

Business Immigration: Pitfalls and Tips Why Does Business Immigration Occur?

W Roman Klymenko Manager, Tax & Law, People Advisory Services, EY Ukraine

e receive more and more requests from international business and businessmen that need to deploy their people around the world or move personally. There are various reasons. International groups may require a particular employee in a particular location for a certain period of time. A family business may require a trusted member to be present at a location where capital is concentrated. A beneficial owner may want to emigrate for personal or economic reasons. Moreover, Base Erosion and Profit Shifting (BEPS) Project initiatives, which Ukraine is implementing on a step-by-step basis, would potentially accelerate the people relocation trend. In particular, so as to satisfy the Principal Purpose Test (PPT) international enterprises will, possibly, need to move their management to intermediary companies to strengthen business presence in those countries and ensure economic substance of transactions between entities of their group. The Controlled Foreign Company (CFC) rules may compel beneficial owners the shift their tax residence status from Ukraine to jurisdictions with more preferential tax rules and, therefore, emigrate.

What is this Article About? Globalization makes the relocation of people simpler and faster. However, individuals and their employers should carefully consider regulatory environment of the home and host country to make relocation compliant, efficient and quick. Besides, different locations may offer lucrative conditions for business immigrants, which one should be aware of. Some common pitfalls and worthwhile opportunities are discussed below.

How do International Companies Structure Relocation of their People? In general, immigration of personnel inside a group of companies can be structured as: (i) secondment — relocation of personnel on the basis of an inter-company agreement, or (ii) direct employment — a host company offers local employment. Both options work pretty well for relocation to Ukraine; out of Ukraine — secondment appears practically unfeasible due to the absence of a legal framework, double taxation and labor law risks. In particular, Ukrainian employment assumes payment of salary in Ukraine, which will most likely be taxed twice: (i) in Ukraine under the pay as you earn (PAYE)

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system and (ii) in host country as in location of income source with priority to tax such income. Thus, multinational companies often terminate employment in Ukraine prior to relocation. This results in a gap in the individual’s Ukrainian social security record for pension purposes, which can be covered by (i) voluntary contributions to the state pension system, or (ii) use of international social security agreement, if available.

Are there Special Requirements for Hiring a Foreigner? It usually takes 2-6 months to gather/submit paperwork and get authorization to work and to reside in the host country. The employee’s profile should qualify for work in a particular country at a particular position (education, expertise), minimum salary requirements must be satisfied. Some countries may offer a fast-track procedure and special immigration regimes. For instance, Cyprus, a popular jurisdiction to incorporate international business structures for tax planning purposes, offers a simplified procedure for the employment of third country nationals in companies of foreign interest. Namely, qualified companies do not need to prove they could not find a local alternative and, therefore, they skip this step and get authorization much faster.

Is it Possible to Make Relocation of Personnel Tax-efficient? A delegate’s family can get a residence permit alongside the main applicant, though one should take into account that the location of family members can influence his/her tax residence status. In particular, many countries give residence for tax purposes to the country of family location and, therefore, the right to tax worldwide income in that country. Foreign tax credit or tax exemption methods exist in the country of residence to eliminate double taxation. However, in the case of Ukraine the country does not grant credit against the military duty liability (1.5% of taxable income). Moreover, the foreign tax credit procedure is itself burdensome in Ukraine (specific supporting documentation, legalization), while the law does not provide for split residence in a year. Thus, one may consider relocation out of Ukraine at the beginning of the year together with one’s family, so that will potentially break the status in Ukraine. For similar reasons, from the Ukrainian taxation perspective, it may be convenient to either come to Ukraine at the very beginning of the year or closer to the 4th quarter.

EY is a global leader in assurance, tax, transaction and advisory services. The insights and quality services we deliver help to build trust and confidence in capital markets and in economies the world over. We develop outstanding leaders who team up to deliver on our promises to all of our stakeholders. In so doing, we play a critical role in building a better working world for our people, for our clients and for our communities. As the world continues to be impacted by globalization, demographics, technology, innovation and regulation, organizations are under pressure to adapt quickly and to build agile people cultures that respond to these disruptive forces. EY People Advisory Services believes a

Why May Business Owners Think of Leaving Ukraine? Immigration to tax-efficient countries has been on the agenda of high net worth individuals (HNWI) for many years. With the implementation of CFC rules in Ukraine, we expect the attention of business owners to this question to rise, as change of tax residence status would be a possible solution to avoid taxation of undistributed business profit in Ukraine. To become a tax resident of a particular country one does not necessarily need to acquire citizenship of that country. Thus, there are more immigration options.

Is there a List of Popular Destinations for HNWI? Currently, tax-efficient reputable jurisdictions include: -- Monaco. Individuals should prove sufficient means to afford the lifestyle in order to receive the residence permit. Residents in the Principality are not liable for income tax. -- Italy. Apart from the investor visa, which requires a minimum investment of EUR 500k, the country offers an elective residence visa. New Italian tax residents may apply for a flat annual tax of EUR 100k on foreign-source income.

better working world is helping our clients harness their people agenda — the right people, with the right capabilities, in the right place, for the right cost, doing the right things. We work globally and collaborate to bring you professional teams to address complex issues relating to organization transformation, end-toend employee lifecycles, effective talent deployment and mobility, gaining value from evolving and virtual workforces, and the changing role of HR in support of business strategy. Our EY professionals ask better questions and work with clients to create holistic, innovative answers that deliver quality results.

-- Switzerland. Individuals who conclude an agreement with Swiss authorities to pay a lump-sum tax get a residence permit. The tax is calculated on the basis of the total annual cost of living expenses incurred by the taxpayer and his/her family in Switzerland and abroad, subject to a minimum taxable amount.

ADDRESS: Khreschatyk Street, 19A, Kyiv, 01001, Ukraine Тel.: +380 44 490 3000 Fax: +380 44 490 3030 E-mail: kyiv@ua.ey.com Web-site: www.ey.com

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umentation of residence abroad would also be required in case an individual needs to defend the non-resident position. Importantly, certain transactions like alienation of Ukrainian property and division of assets between family members may be more beneficial in the status of a tax resident of Ukraine and, thus, prior to relocation.

Is it Possible to Be a Tax Is there a Formula to Change Resident Nowhere? Tax Residence Status? To be a tax resident nowhere may be difficult

In many cases, to become a tax resident of a particular country and break one’s status in the home country, one should actually move to the host country and establish the center of vital interests there. Otherwise, the host country may refuse to grant preferential tax conditions, whereas the home country may claim taxation of worldwide income. Although it is difficult to suggest an irrefutable solution, to break tax residence in Ukraine, an individual should, at least, follow recommendations as described in the previous sections: move together with his/her family and spend less than half of a year in Ukraine, establish a place of permanent residence and economic ties in the host location. To strengthen one's position, the beneficiary and his/her family may complete the procedure of leaving Ukraine for permanent residence abroad. Supporting doc-

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to achieve. Moreover, international banks must identify beneficial owners of each account. Subsequently, banks question the beneficiary’s country of tax residence and request proof of compliance in the tax residence country. Otherwise, international banks refuse to cooperate.

Conclusion Whether people immigrate inside the group of companies or the owner considers relocation, a proper immigration and tax strategy should be developed. This will ensure stakeholders utilize various opportunities provided by laws, achieve time and cost efficiency of the project as well as compliance in both the home and host countries.

Business Protection

The Special Aspects, when Defending a Bank’s Shareholders and Top Managers in Criminal Proceedings

Denys Bugay Attorney-at-Law, Partner, VB PARTNERS

ccording to statistics, the banking sector is the main employer for leading Ukrainian law firms. As a rule, we are talking about supporting litigations, debt restructuring and recovery, and supporting bankruptcy proceedings against bank debtors. However, the number of requests for legal assistance in criminal proceedings has risen significantly recently. Previously, law-enforcement officers looked more toward liquidated banks, taking an interest in their top managers and shareholders. The situation has changed and now successfully functioning banks and even the “holy of holies” — the National Bank of Ukraine — are under the gun. A key provider of cases for law-enforcement agencies is the state-run Deposit Guarantee Fund. According to their statistics, as of 1 December 2019, the Fund sent 5,692 Crime Incident Reports to law-enforcement agencies. According to their estimates, the total sum of losses is UAH 374.925 million. 31 (thirty one) notices of suspicion were served and 39 (thirty nine) cases were submitted to court.

Law-Enforcement Agencies’ “Target Audience” in Banking Sector The key target audience of law-enforcement officers are the top managers and shareholders of banks. The managers involved in investigated transactions, particularly loan managers, experts on pledges, appraisers are also at risk. Particular attention should be paid to stateowned banks, since their status allows law-enforcement officers to talk about misuse (embezzlement) of public funds, when entering into any unsuccessful banking transaction. The circle of their interests varies widely from issues of allocation of refinancing, transactions involving insiders, discounts while entering into assignment agreements, collateral (security) sufficiency and quality to negligence, when finalizing a bank’s active transactions.

Increasing Criminal Law Pressure on Banking Sector Criminal banking cases are at the head of the top news list. The end of 2019 was especially “rich” in such cases. Serving a notice of suspicion to Konstiantyn Zhevago, the top manager and shareholder of Finance and Credit Bank,

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and the seizure of a part of his assets, as well as serving a notice of suspicion to the ex-managers of Vector Bank, Mikhailivsky Bank and Pivdencombank, and this list is much longer. We can highlight as among the most resonant suspicions the serving of a notice of suspicion and gross detention of the Chairman of the Board of State-Owned Ukreximbank and, of course, a high-profile case brought by the National Anti-Corruption Bureau of Ukraine (NABU) against top officials of the National Bank and Oleh Bakhmatiuk, a VAB Bank shareholder. Serving suspicion notices to the National Bank Board’s members is an “innovation” that was not permitted earlier by law-enforcement officers. The last case is evidence of the NABU entering the “banking market.” There are about five large bank cases on their radar, which have been investigated for more than two years. Hundreds of investigative actions and dozens of examples of international probes throughout Europe, from Lithuania, Latvia, and ending with Austria, Switzerland and Luxembourg. The Security Service of Ukraine is not standing on the sidelines either, and is currently investigating a group of cases related to embezzlement at liquidated banks and the use of the correspondent accounts of foreign banks. The cheap loan program, as announced by the Cabinet of Ministers will, in my opinion, become another promising case in a year’s time. The total value of the program is USD 2 billion. To receive a loan, an applicant should submit a business plan which should be implemented at the expense of its own funds (20%), and the remaining 80% may be granted by the state “as a loan” at just 5-9% per annum. Loans will be granted by accredited banks from state funds. And it is these accredited banks that will be responsible if the borrower is unable to repay the funds. If I was in the place of private banks, I would think long and hard whether it’s worth taking part in this program. Participation in this initiative will inevitably result in having communications with the NABU's detectives and Specialized Anti-Corruption Prosecutor’s Office (SAPO) prosecutors in the future. A separate special procedural controller department has been established within the Prosecutor-General’s Office, directly investigating banking crimes. The availability of special “banking” units inevitably provokes new investigations and the serving of new notices of suspicion. A high priority at state level allows investigators and prosecutors to use large resources

VB PARTNERS is a boutique law firm, founded in 2005, with specialization in White-Collar Crime, Investigations and Dispute Resolution. Thanks to this niche, our clients receive the highest level of expertise, an individual approach and personal involvement of partners in projects. VB PARTNERS’ attorneys protect business structures and private clients in criminal proceedings, both in cases of their involvement in criminal proceedings by mistake or the threat of criminal prosecution, and in cases where the client is accused of committing a crime. Our key expertise includes investigation of fraud, money laundering, misappropriation of funds and assets, tax evasion and fictitious bankruptcy, abuse of office, negligence and illegal enrichment. Our team developed practice in the field of compliance and conducts its own corporate investigations, including with the aim of bringing

dishonest partners, contractors and management of companies to account. We have significant experience in representing the interests of clients in anti-corruption bodies. Our attorneys are recognized national experts on cross-border investigations, extradition and Interpol. We can help at every stage, from responding to extradition requests and Interpol Red Notices, bail proceedings, extradition hearings and appearances in courts. Several decades of experience have nurtured unique expertise on the resolution of economic, administrative and civil disputes regardless of the instance and geography. The firm accompanies disputes both in Ukraine and in foreign jurisdictions. Our most recent work includes ICSID cases and challenging sanctions imposed on European companies. Thanks to years of successful practice and implementation of complicated projects, the

firm and partners have been recognized by all international and national professional ratings (The Legal 500 EMEA, Chambers Europe, Best Lawyers, Who is Who Legal, Ukrainian Law Firms. A Handbook for Foreign Clients, etc.). Our clients include shareholders and top managers of large Ukrainian business, global corporations, banks, foreign investors, key government officials and private clients.

and actively develop their own expertise in this category of cases. The present time cannot be compared with five years ago, when such words as a “letter of credit” and “correspondent accounts” frightened investigators. Today, the NABU, police and the Security Service of Ukraine are sufficiently professional and experienced at investigating banking cases. Particular success has been reached in the field of international cooperation. Money “does not see” boundaries. The monetary flow in one case can be simultaneously investigated in five jurisdictions. Law-enforcement agencies have learnt successfully how to disclose bank secrecy, seize documents not only in Ukraine, but also abroad. Their new skill is to seize assets in foreign banks. Banking secrecy has virtually ceased to exist. A key trend is active cooperation between investigators — replacement of the reciprocity principle for one of initiative. If the prosecutor of a European country sees in his/her jurisdiction any assets related to investigation in Ukraine, he/she blocks them at his/her own initiative and informs his/her Ukrainian colleague of this, attempting to help the latter to seize such an asset. Earlier, foreign prosecutors were active exclusively at the request of Ukrainian colleagues.

only in criminal law and process, but also have a good knowledge of corporate law, financial monitoring, and banking legislation. Moreover, large banking cases are inevitably connected with international law, and transactions through several jurisdictions. Therefore, knowledge of English and understanding the mechanism as to how the international banking system functions are extremely important. The key issue in banking investigations remains those examinations which establish a loss and confirm certain facts regarding cash flow. The quality of such examinations is not high. It is worth mentioning the problem of decision-making by collegial bodies. There is an opinion that if a decision is made by a collegial body (board, credit committee), then it removes responsibility from its members. This conclusion is erroneous. Today, law-enforcement officers are ready to serve a notice of suspicion directly to each member of a collegial body if it is ascertained that his/her decision caused damage or was taken in violation of the requirements of the law and internal bank documents. Moreover, the Anti-Corruption Court’s practice in the NABU-VAB Bank case confirms this position.

tion to details and their strict observance is the key to eliminate problems in the future. Secondly, you should regulate the issue of so-called “absentee meetings”, when a collegial adopts a decision without in-person meetings. On the one hand, this is normal modern-day practice in solving problems by means of an inquiry, a telephone call or e-mail. However, if this format is not provided for by the acts and normative documents of the bank in question, law-enforcement agencies will interpret this as a gross violation. Thirdly, it is necessary to exclude from bank's methodological documents any valuation categories without specific criteria. As an example, we can demonstrate an expression like “a body or an official should exercise control over…” If the term under study is not filled with meaning and unless you explain how the above-mentioned expression is manifested, and in what way it is realized, an investigator will interpret it as broadly as possible and, accordingly, will get a reason to accuse a bank’s officials of negligence. Fourthly, your reaction to the National Bank of Ukraine’s separate acts. If the regulator has detected some violations and made some recommendations, it is fundamentally important for you to fulfill these wishes. Otherwise, their non-fulfillment will be interpreted as circumstances contributing to the perpetration of a crime, irrespective of whether or not this violation relates to the regulator’s recommendation. And fifthly, please specially examine the business processes, internal regulations in respect of criminal legal risks. As a result, you should make appropriate amendments in order to exclude them. It would be helpful to deliver mini-training sessions for key officials of banks. Experience shows that the earlier that a potential problem is prevented or absorbed, the more likely it is to be resolved without negative consequences.

Recommendations to Problem Issues of Criminal Minimize Risks of Criminal Proceedings Involving Banks Prosecution of Top Managers and Bankers and Beneficiaries of The so-called “bank crash” in 2014-2016 Ukrainian Banks (mass cleaning and bankruptcy of a large number of banks) provoked a significant increase in the number of criminal cases, never before seen. As a result of this, the competence of law-enforcement agencies has increased substantially in recent years. Among the difficulties, I would single out the complexity. For an efficient investigation or defense, it is necessary to be experienced not

To reduce criminal law risks, you need to follow 5 (five) simple rules: Firstly, you should strictly comply with the formalities provided for by the bank’s articles of incorporation and internal regulations. If there were the slightest violations when entering into transactions the law-enforcement officer will interpret them not in favor of management. Atten-

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VB PARTNERS

ADDRESS: Business Center Bashta № 5, 22 Rybalska Street, Porch 13, Kiev, 01011, Ukraine Tel.: +380 44 581 1633 E-mail: office@vbpartners.ua Web page: www.vbpartners.ua

Capital Markets

Capital Markets in Ukraine: Keeping Abreast of the Times

Volodymyr Vorobiov Managing Partner, Quantum Attorneys

Oleksandr Vygovskyy Partner, Quantum Attorneys

here is every reason to believe that this year may witness a real breakthrough of the Ukrainian stock market, especially for financial debt instruments if contemplated revolutionary amendments are introduced to national legislation. It is no secret that current problems related to the launch of Eurobonds projects, one of the most important mechanisms for raising long-term finance, by Ukrainian issuers in the international market, are caused in the main by drawbacks in the domestic legal field. In particular, we should note the absence of legal rules providing for comprehensive protection of the rights and interests of bondholders, including absence of legislative recognition of the bondholders’ meetings and their resolutions, as well as powers of bondholders’ trustee appointed by the issuer for the benefit of all bondholders. The validity and enforceability of rights created under the English-based concept of trust may appear highly tentative and doubtful. Ukrainian legal acts are also silent on the events of default under such financial instruments which may entail their acceleration. It is no surprise that up to date Ukrainian corporate bonds issuers often preferred the structuring of their deals via the issue of loan participation notes or credit-linked notes by a foreign SPV for efficient raising of capital in international financial markets. Under such schemes, funds obtained by the SPV (a formal issuer of notes) from international investors were transferred to Ukrainian borrowers in accordance with the loan agreement. Redemption of LPNs/ CLNs and payment of interest to the ultimate noteholders were subject solely to repayment of the loan and accrued interest under the loan agreement. Potentially, the SPV platform could become a multi-faceted capital-raising hub making various issues of LPNs and providing underlying loans to borrowers from multiple jurisdictions. However, such schemes might appear to be ineffective in terms of protection of foreign investors, and this risk was starkly illustrated by the bail-in procedure following the nationalization of Privatbank in December 2016, which left investors in LPNs issued by its SPV with empty pockets and making frantic efforts to obtain justice both in Ukraine and abroad. These legislative drawbacks may be eradicated in the short run by adoption of the Draft Law of Ukraine On Making Amendments to Certain Legal Acts of Ukraine Related to Simplification of Attraction of Investment and Introduction of New Financial Instruments (registration No. 2284 of 17 October 2019), which was recently adopted by the Verkhovna Rada of Ukraine in the first reading. Practical implementation of its provisions will harmonize the Ukrainian legal field with the best European regulatory practices related to debt capital-raising. In particular, the Draft Law On Capital Markets (the Draft Law On Capital Markets) establishes bondholders’ meetings as the collective deci-

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sion-making body formed for passing resolutions by a majority vote of bondholders on the most significant issues, such as waiver of acceleration of the bonds and calling an event of default, approval of changes to the prospectus and restructuring plans, conversion of debt into equity, election and removal of the administrator. These resolutions will be binding upon all the bondholders, even those who voted against them or did not participate in the voting. Such bondholders’ meetings will be convened by an issuer or bondholder(s) holding at least 10% of the total nominal value of the issue. The legislator has introduced an enhanced quorum in 75% of the total number of votes for bondholders’ meetings. If there is no such quorum, resolutions passed during such a meeting shall be void. Investors shall vote through the depository system of Ukraine using all or part of their bonds. This remote voting process lasting 10 business days will facilitate participation in the decision-making process by investors from various jurisdictions. The Draft Law On Capital Markets also sets out the events of default, unless they are determined in the securities prospectus. An event of default may be called, in particular, if the issuer has delayed payment of any amount for more than 10 business days or has gone into bankruptcy, or if the issuer has caused severe losses to bondholders. In international practice of Eurobonds issues the rights of individual bondholders to call default, accelerate the bonds and take action against the issuer in court are generally conferred on the bondholders’ trustee, who may exercise them on behalf of the bondholders as a group. Individual bondholders are not permitted to call default or demand acceleration of bonds. Only the trustee is conferred a power by the bond instrument to accelerate the bonds on the occurrence of default. In fact, majority bondholders can pass a resolution on acceleration or waiver of an event of default at bondholders’ meetings. By virtue of an express "no-action" clause bondholders are prohibited from taking any action in a court of law to enforce their rights to principal and interest under the bonds; only the trustee has a primary right to do so. Instead, bondholders acquire secondary rights to proceed in a court of law only where (i) the trustee has become bound to proceed against the issuer, and (ii) the trustee has failed to bring proceedings in court within a reasonable time. Since the concept of trust and trustee is extraneous for continental legal system (including Ukraine), Ukrainian legislators envisaged an administrator as a representative of the interests of bondholders being quite akin to the classic bondholders’ trustee. The issuer will be entitled to appoint such administrator, which is a financial institution or other qualified legal entity (otherwise it will be elected by the bondholders’ meeting). An agreement on

Quantum Attorneys is a full-service law firm based in Kyiv, which advises corporate clients, start-ups, financial institutions, private clients and government bodies. We advise clients in all areas of business law and across key sectors with a particular focus on innovation. Our team is driven by client suc-

cess and always aim to provide the best legal solutions, while remaining innovative, flexible and compliant. Our partners and lawyers are qualified attorneys with high academic credentials from Western universities and extensive work experience gained at international law firms.

appointment of such an administrator will be concluded by the issuer and the selected administrator for the benefit of the bondholders provided for a fee payable to the administrator by the issuer. In fact, no trust will be established in this case: the administrator will provide its professional services under the agreement which can be terminated only upon the consent of the bondholdersâ&#x20AC;&#x2122; meeting. He must act bona fide in the best interests of the bondholders and can be

a party in court disputes related to protection of the rights and interests of bondholders. Upon an event of default bondholders holding at least 25% of total nominal value of bonds can file a request to the administrator on calling default without convening a bondholdersâ&#x20AC;&#x2122; meeting. Unless the meeting has waived such acceleration, the administrator must submit a request on early redemption of the bonds to the issuer and exercise other actions related to acceleration.

ADDRESS: 9-A Pokrovska Street, Office 5, Kyiv, 04070, Ukraine E-mail: office@quantum-attorneys.com Web-site: www.quantum-attorneys.com

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Based on the foregoing, we can conclude that the Draft Law On Capital Markets, even in its present form, establishes an adequate and efficient system of protection of investors in the debt instruments of Ukrainian issuers and, therefore, lays the foundation for improving the capital-raising environment in Ukraine and its overall reputation among international investors.

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Commodities Arbitration

Specialised Standard Contract for Ukraine: GAFTA No.78UA This short article addresses the first ever specialized standard contract form for the sale of grain and feed designed specifically for Ukraine — the so-called GAFTA No.78A. We will first provide a short introduction to GAFTA and its contract forms and then address particular features of GAFTA No. 78A and its importance for the commodity trade in Ukraine.

GAFTA — an Influential Player in Global Trade of Soft Commodities

Yuliya Chernykh Of Counsel, ARBITRADE

Yuliya Chernykh has more than 15 years of practice in the field of international arbitration, litigation and international trade. She is Chartered Arbitrator (Chartered Institute of Arbitrators, UK). Yuliya received her legal education at the National University of Kyiv-Mohyla Academy, the Stockholm University and the University of Oslo. She also has the GAFTA Trade Diploma and served as a member of the GAFTA International Contract Policy Committee in 2013-2018.

The Grain and Feed Trade Association, or GAFTA, is an international trade association that unites over 1,900 members in 98 countries. GAFTA develops and maintains a range of instruments promoting and simplifying international grain and feed trade. The two most important are a portfolio of standard contract forms and industry-based ‘commodity arbitration’. The association enjoys wide support, as about 80% of the global grain trade is carried out based on the GAFTA standard contract forms. GAFTA’s influence has grown over the course of a century. Its foundation was tightly connected with the so-called ‘first wave of globalisation’ in 19th century, which triggered sharp growth in world trade. Supranational legislation was not ready to accommodate and address the new economic realities, which meant traders were left with national legislation and conflict of laws that in turn added complexity, unpredictability and increased costs to international trade. All these factors forced corn merchants to establish the London Corn Trade Association (LCTA) in 1878, which developed trade rules for the whole industry. It is important because it was set up by traders, who transformed trade customs and practice into standard contract forms and established an adjudication body, which enforced these forms. In 1906 the group of traders formed from LCTA founded an association specializing in feedstuffs called the London Cattle Food Trade Association (LCFTA). By 1971, these two trade organizations had merged into GAFTA. Within its long history the association has continuously performed the complex function of creating and regulating the global grain and feedstuffs market. By development of standard contract forms GAFTA has created an industryspecific transnational legal landscape. These standard contract forms have particular value for the trade. The grain market is characterized by high price volatility and once you have shaken hands it is important to fix the deal quickly so as not to miss out on a price advantage. Readymade, updated and adjusted to a particular trade, standard contract forms help to meet this challenge as the parties are often familiar with their terms and need to have express agreement

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on minor specifications (for clarity we shall acknowledge that the parties are not precluded to modify the standard contract form and deviate from some of their provisions). The specially created committees consisted of both trade specialists and in-house legal profes sionals continuously reviewing trade practice and contract forms to make them consistent and properly reflect the needs of businesses in particular regions, or specific market needs as well as developing GAFTA case law. English law regulates GAFTA standard contract forms, whereas the Vienna Convention of the International Sales of Goods (CISG), which is used in Ukraine, is expressly excluded. At the same time, customary rules that have emerged in the trade retain their primacy and visibility. By way of example, the GAFTA default clause, a provision regulating consequences of the serious contractual breach tantamount to repudiation, expressly excludes a possibility to recover lost profits. The provision specifically provides that the recovery of lost profits shall not be available to the innocent party except for a specific circumstance and if so decided just by arbitrators ‘in his/their sole and absolute discretion’.

Ukraine-Tailored Standard Contract Form In September 2019, Ukraine received a speci fic standard contract form — GAFTA No.78UA. A reference to GAFTA No.78 in the title of the standard form shall not mislead. While GAFTA No.78UA is based on the original GAFTA No.78 form, this is a substantially reviewed and amended contract form that attempted to reflect the peculiarities of the grain trade in Ukraine as a so-called "CPT market". In short, the peculiarities of the Ukrainian "CPT market" can be summed up as follows: -- trade involves both rail and road transport; -- physical delivery is made before export customs clearance, which means a seller normally has an extended obligation on export formalities regarding goods that are already transferred to the buyer’s forwarder; -- the name "CPT market" essentially unites a group of delivery terms and include CPT, DAP, DAT, DDP, FCA. As there were no GAFTA forms covering all peculiarities of this "CPT market", each trader essentially created his own modification of the GAFTA No.78 standard form, which most closely fitted that particular purpose. As a result, thousands of non-standard contracts were created and the market was losing important commercial speed and negotiations got stuck around unfamiliar and individually drafted terms. A standard contract form specifically drafted for Ukrainian realities was needed, and the newly-drafted GAFTA No.78UA standard contract form came into existence.

ARBITRADE is a boutique law firm specializing in international trade, international arbitration, litigation and complex negotiations/restructuring. The leading positions of the firm are confirmed by professional awards and achievements of its team, as well as national and international legal rankings, including the Legal 500, Chambers, Best Lawyers and others. ARBITRADE has extensive experience in domestic litigation which covers Ukrainian courts of all levels and specialization. In international

arbitration, the company represents clients before major arbitral institutes. ARBITRADE's lawyers frequently appear as arbitrators in complex international disputes. They also act as experts on issues of Ukrainian law in international arbitration and before foreign courts. ARBITRADE also possesses unique experience in arbitration proceedings under GAFTA and FOSFA arbitration rules.

GAFTA No.78UA Compared to GAFTA No.78 Below we list some of the particular features of GAFTA No.78UA which make it somewhat distinct from the original standard contract form GAFTA No.78. This part of the article bears technical peculiarities which will be of interest for readers involved in the grain trade in Ukraine or readers interested in the development of regional-specific standard contract forms. The major changes in GAFTA No.78 UA span seven major areas:

Modes of transportation extended to road transport

Natalia Pylyptseva GAFTA Qualified Arbitrator, Deputy Legal and GR Director, BUNGE (Ukraine) Natalia Pylyptseva has over 13 years of experience in the legal profession in the agricultural sector, working for the two biggest grain trading and oil processing companies: Cargill and Bunge. She graduated from the Ukrainian National Economic University and the London School of Economics and Political Science. Natalia was a member of the GAFTA working group that worked on the development of GAFTA No. 78UA

GAFTA No.75UA has extended modes of transport to cover both rail and road. By comparison, GAFTA No.78 only covers rail transport. This approach did not match with trade practice in Ukraine where inland deliveries can be made by both rail and road transport.

Included delivery terms specific for the “CPT market” GAFTA No.78UA has excluded DAF, DDU and added DAP, DAT to the existing FCA, CPT and DDP delivery terms.

Aligned quality and condition terms with specific delivery terms GAFTA No.78UA has aligned quality and condition with delivery terms and market practice. Now, for CPT/FCA both quality and condition are final at the time of dispatch, while for the rest of the delivery terms (DAP, DAT, DDP) at the destination. For comparison, GAFTA No.78 provides that the quality shall be determined at loading and the condition is linked to the moment of dispatch regardless of the delivery term.

Amended rules on dispatch instructions GAFTA No. 78UA has modified the rule on dispatch instructions. The characteristic ‘full’ has been excluded from dispatch instructions. The change is made to avoid any speculation on the scope of dispatch instructions. To be valid the instructions shall be just sufficient to allow Sellers to make the delivery.

Adjusted delivery date to delivery terms and introduced evenly spread quantities

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delivery term. For instance, for FCA and CPT it is the date when the goods are dispatched, while for DAP, DAT and DDP it is the date when the goods arrive at their destination. Previously it was always the date of dispatch, and the delivery term was irrelevant. Furthermore, due to long discussions by the drafting committee on the allocation of the risk related to delays by Ukrainian rail, which are not attributed to any party but constitute an economic reality in Ukraine, the balance was found in evenly-spread quantities. In this way, GAFTA No. 78UA puts both parties on an equal footing: for Buyers to ensure availability of terminals/silos space to accept evenly spread lots, and for Sellers to ensure proper transportation planning and avoid last minute delivery.

Excluded option of payment against indemnity Unlike GAFTA No.78, GAFTA No.78UA has a modified payment clause by excluding the subclause obliging Buyers to pay against indemnity if the transportation documents are not available. Such practice was not common for the Ukrainian market, and was excluded because of its impracticality.

Shortened timeline for the deemed date of default While most of the Default clause remains unchanged, GAFTA No.78UA has shortened the period of 10 consecutive days to 5 consecutive days in the sub-clause (e) for the situation when the Seller shall be deemed in default in case the notice of the advice of the despatch is not passed on the Buyer. This development shall bring more discipline to notices on despatch between the parties.

Conclusion As can be seen from this short overview, GAFTA No.78UA is not just a technical adjustment of GAFTA No.78, it is a substantially different contract form specifically created for and informed by the Ukrainian grain market. We see that the standard contract form is well put into practice in the year that has passed following its introduction. It remains to be seen how the particular provisions are tested in real disputes, something which only time will show.

GAFTA No.78UA has introduced a specific indication on the delivery date in regard of each

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Competition Investigations

Algorithmic Pricing Collusion: When does Liability Arise?

Antonina Yaholnyk Managing Partner, CLACIS

he application of pricing algorithms is now widespread in online industries and in traditional businesses. In general terms, a pricing algorithm is a program that monitors and/or sets prices. This can be a program software possessed and applied unilaterally by a business entity, an outsourced software or a simple price comparison website used to monitor the competitive environment, determine pricing policy, plan commercial activities, monitor maximum resale prices, etc. Though pricing algorithms improve dynamic pricing and the matching of demand & supply, which will result in lower prices and the market functioning more efficiently1, such software can significantly increase the risk of a collusive outcome on the market and has already attracted the attention of antitrust authorities around the world. In this light, after successfully prosecuting cases of collusion facilitated by pricing algorithms, antitrust authorities have paid significant attention to the question of liability of business entities using pricing algorithms, especially in cases of potential collusion involving self-learning autonomous algorithms in the absence of evidence of an agreement.

Antitrust Risks of Use of Pricing Algorithms

Anastasia Zeleniuk Associate, CLACIS

Competition authorities believe that pricing algorithms can distort competition by increasing market transparency, simplifying communication between market players and detecting deviations from collusive agreements.2 There are 4 main competition harm scenarios: -- Messenger: algorithms monitor prices and can facilitate maintenance of a cartel by sending messages to participants; -- Hub-and-spoke: cases where companies agree to use the same pricing algorithm to facilitate collusive agreement; -- Predictable agent: cases where entities unilaterally choose algorithms which monitor the pricing behaviour of rivals and react to it in a certain way, and which can potentially be means of tacit collusion; -- Digital eye: cases where companies unilaterally use self-learning sophisticated algorithms which, being programmed, for example for profit maximisation, can autonomously collude on higher prices.3

¹Oxera, ’When Algorithms Set Prices: Winners and Losers’ (2017), Discussion Paper 19 June 2017, 2, <https://www.oxera.com/wp-content/uploads/2018/07/When-algorithms-set-prices-winnersand-losers.pdf.pdf.> assessed 10 February 2020. ²Ibid, 18 ³Ariel Ezrachi and Maurice E. Stucke, ’Artificial Intelligence & Collusion: When Computers Inhibit Competition’ [2017] University of Illinois Law Review 1775,1782-84.

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Liability for "Hub-andSpoke" and "Messenger" Collusion Scenarios It is generally recognised that overt collusion is expressly prohibited by competition laws and collusion facilitated by using pricing algorithms is treated like other concerted actions. Considering that price-fixing agreements are restrictions by object, liability for them is presumed per se. Antitrust authorities had earlier successfully prosecuted cases of both horizontal and vertical collusion facilitated by pricing algorithms. For example, in 2015 the US District Court of Northern California held David Topkins, a director of a company selling posters online, liable for agreement with other merchants on levels of prices and specific algorithms to be used.4 Later, in 2016 the same court found Trod Limited and its director liable for a similar infringement.5 This case triggered similar issues in the UK where the CMA found liable two merchants selling on Amazon for an agreement not to compete on prices and to adjust the settings of a re-pricing algorithm available on Amazon.6 A messenger scenario was considered by CJEU in the E-Turas case, where the Court of Justice of the European Union confirmed that though travel agents did not formally respond to the messages, the fact that they were aware of such messages and continued to use the system such entities will be liable for being part of a price-fixing cartel.7 Certain exemptions can be made for monitoring of recommended and maximum resale prices, but if monitoring of resale prices results in fixing them, such arrangement shall be considered as prohibited by object. In 2018 the European Commission held Asus, Denon&Marantz, Philips and Pioneer liable for resale price maintenance, which was facilitated by the use of price-comparison websites and special pricing program which helped producers to trace the prices of resellers, detect deviation and maintain the level of retail prices.8 At the same time, in view of the increasing use of pricing algorithms, certain non-EU jurisdictions consider amending their antitrust legislation to treat the use of pricing algorithms as an aggravating factor in cases of administrative liability of officials for anticompetitive concerted actions and abuse of dominance. This approach can be explained by the fact that the use of pricing algorithms significantly simplifies collusion, which in the absence of algorithms would much more complicated to engage in. 4US v Topkins [2015]. 5U.S. v. Daniel William Aston and Trod Limited [2016]. 6Trod Ltd/GB Eye Ltd (Case 50223) CMA’s Decision as of 12 August 2016. 7C-74/14 “Eturas” UAB and Others v Lietuvos Respublikos konkurencijos taryba [2016] ECLI:EU:C:2016:42. 8See for example Asus (Case No 40465) Commission Decision C (2018) 4773 as of 24 August 2018.

CLACIS is a boutique law firm, founded in 2015 by Mrs. Antonina Yaholnyk, a law expert with more than 20 years of legal practice, and more than 15 years of experience handling antitrust and regulatory matters. CLACIS focuses on competition law and regulatory matters in Ukraine and the region and due to its specialization and regional coverage is a unique law firm. CLACIS services include all aspects of competition law (investigations, audits, infringement cases, preparation of defense files, leniency, merger control approvals, competition law legal due diligence, antitrust litigation, distribution and contract related antitrust issues, public procurement, conducting trainings for clients (marketing, sales experts, lawyers, managers) on competition) and regulatory.

Both founding partner Antonina Yaholnyk and CLACIS have been for many consecutive years highly recognized (Band 1, Band 2) by international and local legal directories such as Chambers Europe, Legal 500 EMEA, Best Lawyers, ULF. Antonina Yaholnyk is also an author and co-author of numerous publications and books on competition and trade law, which are recommended as manual for students by the Ministry of Education of Ukraine. The client portfolio includes well-known global corporations like PepsiCo, British American Tobacco, MasterCard, COSCO, Glencore and other. In addition to professional skills the CLACIS team plays a very active role in the community and social activities, in particular, is actively involved in pro-bono work.

Languages: English, German, Polish, Russian, Ukrainian

Liability for "Predictable Agent" and "Digital Eye" Cases

To hold entities liable in the event of ’predictable agent’ and ’digital eye’ scenarios, antitrust agencies will have to link the commercial decisions of entities to algorithmic prices, which will be challenging in the absence of explicit evidence of collusion.12 To do so antitrust agencies will have to investigate longer periods preceding the alleged collusion to track historical functioning of the algorithm so as to identify whether the price alignment is a result of self-learning or manual adjustments.13 German and French antitrust authorities noted that antitrust authorities already have at their disposal the means to efficiently investigate price alignment by self-learning autonomous algorithms, namely, information requests, dawn raids and interviews.14 For example, they can request business entities to provide a description of implementing principles, explanation of inputs and outputs, usage patterns of the algorithm, frequency of learning, recalibration or manual adjustments, etc.15 Also, an antitrust authority can ask for internal documents like the specifications for algorithms, user manuals or code used in the development phase.16 It is already known that self-learning algorithms must include a code that reveals an in-

tent to collude.17 The antitrust authorities might investigate the functioning of an algorithm to reveal such code. The authorities can also request a source code of the algorithm to approximate or recreate the algorithm in controlled conditions to understand whether the algorithm was programmed to collude.18 Taking into account the fact that such a measure would require significant technological resources and competences, it is expected that such measures will be applied as a measure of last resort. It means that unlike in the ’messenger’ or ’hub-and-spoke’ scenarios, where the liability of business entities arises from the fact of direct collusion, the issue of liability of business entities in case of autonomous collusion by software is still an open question. Though there is still no case of liability of business entities for the autonomous actions of algorithms, antitrust authorities send out warnings to companies that they can be found to have breached competition laws when prices are aligned between competitors by independently using self-learning algorithms, which would be treated as the actions of any human employee.19 Needless to say, Ukraine is part of global business and its consumers use both global and local sales platforms. Ukrainian competition law also has all the same basic concepts for prosecution of concerted actions; hence businesses using pricing algorithms shall assess their compliance with such local competition rules, as with time the competition authority may well focus on analysing such matters.

The possession and unilateral use of pricing algorithms shall not be considered an antitrust infringement.9 Competition law of most jurisdictions provides that business entities can be held liable for anti-competitive concerted actions only when there is evidence of an agreement to collude.10 However, under ’predictable agent’ and ’digital eye’ scenarios pricing algorithms can distort competition without any explicit agreement to do so between their users. Yet, antitrust authorities emphasise that companies shall be liable if their pricing algorithms autonomously collude on prices. Parallel pricing is not itself prohibited by antitrust laws and is considered illegal only if it cannot be explained by any reason other than collusion.11 Although prosecuting parallel actions is challenging and is not yet widespread in the EU, it does not mean that it is not possible. In Ukraine the practice of prosecuting parallel actions is already established. 9Bundeskartellamt and Autorité de la Concurrence, ’Algorithms and Competition’ (2019), 59, < https:// www.autoritedelaconcurrence.fr/sites/default/ files/algorithms-and-competition.pdf>, assessed 10 February 2020. A. Ezrachi & M. E. Stucke,’Algorithmic Collusion: Problems and Counter-Measures’ (OECD Roundtable on Algorithms and Collusion 21-23 June 2017) para 71, <https://www.oecd.org/officialdocuments/ publicdisplaydocumentpdf/?cote=DAF/COMP/ WD%282017%2925&docLanguage=En> , assessed 10 February 2020; see also Article 6 of the Law of Ukraine “On Protection of Economic Competition” No № 2210-III as of 11 January 2001.

Case 48/69 ICI v Commission [1972] ECLI:EU:C:1972:70, para 66.

Monopolkommission, ’Shaping Competition Policy in the Era of Digitisation’ (2018), para 29 < https://ec.europa.eu/competition/information/digitisation_2018/ contributions/monopolkomission.pdf> assessed 10 February 2020.

Ibid, para 28.

Bundeskartellamt and Autorité de la Concurrence (no 9), 69.

Ibid, 65-66.

Ibid, 66.

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ADDRESS: Leonardo Business Center, 17/52 Bohdana Khmelnytskoho Street, Kyiv, 01030, Ukraine Tel.: +380 44 391 2021 E-mail: info@clacis.com; yaholnyk@clacis.com Web-site: www.clacis.com

Charley Connor, ’When robots collude’, 27 September 2019 <https://globalcompetitionreview.com/ insight/gcr-q3-2019/1202826/when-robots-collude>, assessed 10 February 2020.

Ibid, see also Bundeskartellamt and Autorité de la Concurrence (no 9), 67.

Charley Connor (no 17).

Compliance

Regulation of Compliance Matters in Ukraine

Mariana Marchuk Counsel, Baker McKenzie — Kyiv

he term "compliance" in its current sense emerged in the US business environment over the last 30-40 years and refers to the system of internal regulations and measures implemented by entities to ensure adherence to laws, as well as to specific industry standards, trade customs and regulations. In international business this term also currently covers the system of control an entity uses to ensure that its directors, managers and other employees, as well as contractors and authorized representatives, adhere to all regulations applicable to a business, whether local, foreign or specific to a company. In Ukraine, this term has not been widely used, as legislative and practical efforts are focused very narrowly. In particular, the principal statute in the area — the Law on Prevention of Corruption (adopted in 2014 and regularly amended) — is aimed primarily at counteracting corruption and eliminating the impact of conflicts of interest on business and government decisions. However, like in many other aspects of the Ukrainian economy and business over the last quarter of a century, Ukrainian companies will inevitably follow the path chartered by multinational companies in the area of compliance and adopt the best practices that have been developed, which cover a much broader range of issues. The main driver for this will be the demands of international and certain foreign legislation (US Foreign Corrupt Practices Act, UK Bribery Act, etc.) because global companies are introducing their worldwide standards into their Ukrainian operations, causing their Ukrainian business partners to adopt the relevant standards. In particular, the best clients of Ukrainian companies — multinational and big foreign companies — demand that their suppliers either adhere to the customer's compliance policies or that they have their own compliance policies which are satisfactory to the customer. Ukrainian legislation, although not perfect, has been drafted along the lines of the most significant international anti-bribery conventions. For example, now, any bidder in a government or municipal tender must have an anti-corruption program and a designated company employee responsible for its implementation. Certain specific legislation has been adopted to regulate interaction with healthcare practitioners and that has had a major impact on the pharma industry in Ukraine. Also, as of 1 September 2014, all companies in Ukraine may face criminal liability for corruption offenses committed by their employees (not only by management!). Therefore, to survive and develop, any large or mid-size Ukrainian business must build an effective compliance system that takes into account both best international practices (which have emerged in response to certain foreign laws) and Ukrainian legislation.

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Key Compliance Issues and Protections Each company operating in Ukraine must build its own system of compliance depending on its specific features and the issues it encounters in its business. Generally, however, any effective compliance program includes the following elements: -- a compliance policy and compliance officer -- internal audits -- evaluation of compliance risks -- measures preventing violations by third parties authorized to act on behalf of the company -- communication channels for reporting offenses or possible violations (including whistleblower hotlines) -- measures taken by the management in response to violations or whistleblower reports -- protection for whistleblowers -- internal investigation procedures -- rules for interaction with law-enforcement authorities authorized to investigate corruption and other violations of the law -- rules for resolution of conflicts of interest Additional elements of the compliance system depend on the area of business and the level of corruption risks in the environment (industry, geographic area and interaction with the authorities). For example, the risks for a transportation company will significantly differ depending on whether it performs cross-border carriage and, in any case, its risks will be different from those faced by a pharmaceutical manufacturing company (and, again, there will be different risks for domestic and foreign manufacturers).

Identification and Evaluation of Compliance Risks Copying a compliance policy or program from another company is not effective. Instead, each company must identify which of its particular business processes carry high risks of non-compliance and corruption. Note that in some cases employees act corruptly for their own benefit but, in many cases, they will do so trying to obtain or retain business for the company, thereby exposing it to liability under many foreign laws in addition to Ukrainian laws. In Ukraine, traditionally, the most risky processes are those related to obtaining or renewing a license or permit (e.g., for construction or renovation), import and export (customs clearance), audit by a government authority, and reimbursement of export VAT. A risk assessment must be conducted before the compliance program for the Ukrainian office is put in place. However, it should also be repeated periodically to ensure that the compliance system is up to date and to identify any changes

Baker McKenzie helps clients overcome the challenges of competing in the global economy. We solve complex legal problems across borders and practice areas. Our unique culture, developed over 65 years, enables our 13,000 people to understand local markets and navigate multiple jurisdictions, working together as trusted colleagues and friends to instill confidence in our clients. Baker McKenzie was one of the first foreign law firms to open an office in Ukraine. Currently, multinational companies, financial institutions, and large Ukrainian enterprises look to Baker McKenzie for legal representation in Ukraine.

Our clients have come to rely on the substantial capabilities of the Kyiv office and enjoy the benefits of being able to access the global resources of the firm. With 28 years of experience in Ukraine, we work closely with our offices around the world to offer domestic and cross-border advice. No matter the business or legal issue, we provide the guidance and support clients need to achieve their commercial objectives. Every year the Kyiv office confirms its top positions in leading international and national legal directories, namely Chambers & Partners, Legal500, IFLR1000, World Trademark Review

1000, International Tax Review, Ukrainian Law Firms, Ukrainian Legal Awards, etc. as a top-tier firm across different practices.

that may be needed to ensure the continued effectiveness of the program. The assessment should identify the job positions that are most exposed to corruption risks, the methods by which violations may be committed and the circumstances that facilitate such violations. Employees in high-risk positions may be required to undergo the relevant training and review more often than other company employees. To minimize the risks such employees may be required to follow relevant standard operating procedures. Also, the relevant job duties may be allocated among several employees or to the most suitable employee based on their personality traits and/or skills and experience. Other measures that help to lower the risks should also be used (e.g., electronic declaration forms that do not require personal interaction between the employee and the government official responsible, and establishing thresholds and reporting requirements for gifts and payments received or paid by the employee). The company should always keep the identities of whistleblowers secret and otherwise protect their rights. In particular, retaliation or discrimination against such employees should be prevented or stopped.

Anti-Corruption Programs under Ukrainian Law

The obligation to comply with the anti-corruption program must be included in the employment agreements of employees. This requirement may also be present in agreements with the contractors of a company, which provides solid legal grounds for protecting multinational businesses from questionable Ukrainian contractors.

Conflicts of Interest A conflict of interest is a relatively new concept in Ukrainian law and is defined in the Law On Prevention of Corruption. Thus, all company employees should be trained on how to identify and resolve such issues, and what harm can be caused to the company if this is not done. It is better if the conflict of interest policy is communicated to all employees (and to contractors), even if they are not in a conflict of interest situation at the time. Particular attention should be devoted to the procedures for disclosure and the resolution of conflict of interest situations because the privacy and labor laws need to be taken into account when such actions are implemented.

An anti-corruption program regulates a much narrower set of issues than the compliance policy or the code of ethics. Nevertheless, those companies that must have such a program as a separate policy (e.g., those that bid in government tenders) should observe some key requirements. First, the anti-corruption program needs to be preliminarily discussed with employees before it can be formally implemented. In addition, it must be accessible to the employees at all times. For Ukraine, this means that a policy in English (or another foreign language) uploaded somewhere on the company’s intranet will not satisfy this requirement. Ukrainian law does not contain a full list of the issues that must be addressed in its anti-corruption program. However, the following specific items must be included: 1) the range of persons to whom the program applies 2) a list and description of the anti-corruption measures, standards and procedures, and the manner of their application, including the corruption risk assessment 3) the ethics standards for employees 4) the rights and obligations of the employees and company owners in the anti-corruption field 5) the rights and obligations of the compliance officer and subordinates (if any) 6) the procedure for regular reports by the compliance officer to the owners of the company 7) the procedure for monitoring compliance with the anti-corruption program and evaluation of the measures envisaged in it 8) the terms of confidentiality for employees providing information to the compliance officer about attempted bribery or the solicitation of bribes 9) the procedures for the protection of employees who have provided information about corruption or related offenses

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ADDRESS: Renaissance Business Center, 24 Bulvarno-Kudriavska Street, Kyiv, 01061, Ukraine Tel.: +380 44 590 0101 E-mail: kyiv@bakermckenzie.com Web-site: www.bakermckenzie.com/ukraine

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Compliance Challenges in Ukraine The relative novelty of the concept of compliance in the Ukrainian business environment means that there is little awareness and an acute shortage of qualified candidates for the position of compliance officer. As a result, non-compliance risks have been largely ignored, even by foreign managers of Ukrainian divisions of multinational companies. This has created significant potential (and actual) exposure to enforcement actions against companies and their management in their home countries (especially in the US), which in some cases led to loss of market share and dismissal of the relevant top managers. In our experience, the lack of compliance policies (or of their proper enforcement) in Ukrainian offices has led to the flourishing of costly corporate fraud, low morale and a lack of loyalty from staff, and significant effort and legal expenses required to clean up the consequences of non-compliant acts. This includes the cost of dismissing the relevant top managers and other employees, expenses related to the recovery of stolen assets, full investigations of violations in Ukraine and millions of dollars to defend the company in the US. Accordingly, managers of international businesses in Ukraine must pay prompt and constant attention to ensure that the business activities of their companies comply strictly with Ukrainian legislation and global best compliance practices.

Contract Law

Contract Law in Ukraine: Regulatory Framework for Financial Leasing

Alexey Pokotylo Partner, Konnov & Sozanovsky

or many people in Ukraine, 2019 was a year of high expectations. Still, with a major shake-up of the country’s government and loud promises made at the highest level to improve the overall business climate and offer better investment opportunities, there is still a long road ahead. There has certainly been notable progress made in terms of digitalization, but trade reforms are yet to demonstrate the importance of cross-border cooperation in ensuring easy customs clearance procedures, harmonization of compliance rules, and border control efficiency. Improvement of court efficiency and judicial reforms targeting the quality, speed, and access to justice should be another important area where we have to demonstrate tangible progress. Other than that, in order to demonstrate how things are going at the moment in terms of contract enforcement, let us take financial leasing as an example. So why financial leasing, exactly? Leasing is generally regarded as a solution that enables difficulties arising from an inappropriate economic environment to be overcome. Namely, expensive and limited funding, the bureaucracy of the banking system, enabling businesses to obtain the right to use, with minimal initial financial efforts, machinery, equipment, technological equipment, that will generate increased productivity, profitability and increased profits. Talking of Ukraine, there is undoubtedly great demand for industrial engineering vehicles locally, and with not enough money to purchase machinery outright, many prefer to spend less in the long run by owning it, building equity through ownership. This is especially true for machinery that will be owned for five to ten years or more. That is where financial leasing arrangements step in. The legal framework for financial leasing in Ukraine was established in 2008, and has not undergone any major changes since then. The main piece of legislation that governs financial leasing in Ukraine is the Law of Ukraine No. 723/97-ВР On Financial Leasing (the Financial Leasing Act), and the truth is it does have many drawbacks. For instance, some provisions of the Financial Leasing Act are vague and can be interpreted in different ways. What is more important is that it offers inadequate legal protection to contracting sides, both the lessor and the lessee. For the lessee, the challenge is often due to the fact that almost any violation of a typical leasing agreement, as it is presented by the lessor, allows for termination of the agreement without granting the right to remedy the breach, however insignificant the violation might seem. That said, termination of a leasing agreement means that the lessee loses the right to receive

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ownership of the leased asset, as well as all leasing payments accrued before termination. On the other side, the lessor, when concluding a financial leasing agreement, wants to be sure that he/she is safe from or is able to effectively mitigate any unforeseen emergencies and potential risks, and can reasonably expect to receive what he/she is entitled to under the agreement. At the same time, on many occasions vague and ambiguous provisions of the law have made it possible for dishonest lessees to dispute the validity of a financial leasing agreement and, in case of a favorable court decision, to escape their payment obligations under such agreements. Article 16 of the Financial Leasing Act can serve as an example of a legal rule that offers lots of room for abuse. In particular, it provides that leasing payments may include: (a) payment to compensate for a part of the price of the leased asset; (b) remuneration due to the lessor for the leased asset; (c) compensation of interest on the loan; and (d) other expenses of the lessor directly in connection with the performance under a leasing agreement. Such wording of the law enabled courts to interpret it in various ways. In some cases, the courts stated that the types of leasing payments, as listed in the agreement, must be in strict correspondence with the provisions of the law. In other cases, the courts regarded this provision as a non-binding, advisory statement. As a result, despite the fact that prices and payments under the majority of leasing contracts in Ukraine were historically pegged to a foreign currency, Ukrainian courts were until recently quite consistent in their unwillingness to award the currency exchange difference to lessors. Hence, leasing companies were not able to compensate their losses under the existing leasing contracts caused by the rapid devaluation of the Ukrainian national currency. That’s not to mention the financial burden of loans taken to provide operational financing for day-to-day operations, often denominated in foreign currency. That said, in the last 2-3 years court practice has gradually become more consistent. With regard to disputes regarding the validity of and performance under financial leasing agreements, Ukrainian courts tend to rule that: (1) it is legal to denominate leasing payments in a foreign currency; (2) if a financial leasing agreement is terminated and a leased asset is returned to the lessor, the lessee is liable to pay the leased payments accrued prior to such termination, lower payments to compensate for the price of the leased asset (but if such payments have already been paid by the lessee, they shall not be reimbursed); (3) a rule that allow the lessor to

Konnov & Sozanovsky was established in 1992, and has been among the leaders of the Ukrainian legal services market for many years now. The firm’s main office is located in Kyiv. The firm also has a regional office in Chernivtsy (Western Ukraine), an office in Moscow (Russia) and a representative office in Nicosia (Cyprus). Konnov & Sozanovsky provides comprehensive legal assistance to national and foreign clients doing business in Ukraine. The firm’s clients represent various sectors of the economy, including telecommunications, IT, alternative energy, technologies, real estate and construction, agriculture, banking, financial services market, pharmaceuticals, trade and distribution. Although Konnov & Sozanovsky is a full-service law firm, we focus in the main on the following key practices: commercial, corporate and M&A, investments, legal support of investments

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claim lease payments at double rate in case of late return of the leased asset, may not apply to financial leasing. Over the last few years, companies that operate in the financial leasing sector have encountered many challenges. Some of those were due to the rapid downfall of the Ukrainian economy, and thus were common for other companies doing business in Ukraine, while others were specific to the leasing business. Apparently, the country, which is de facto at war (although the conflict was more or less dormant in 2019), cannot offer a favorable business environment. Many businesses, especially in heavy machinery and the construction industry, have fallen dramatically since 2014. Taking into account the fact that industrial companies have always been key clients for financial leasing companies, the general effect on the leasing business was severe. The blow was worsened by legal restrictions that followed the occupation of Crimea in 2014 by Russia and war in Eastern Ukraine. Among those were mobilization (in particular, military duty) and international sanctions prohibiting certain transactions with respect to Crimea. As to the military transport duty introduced by Article 6 of the Mobilization Law, its purpose was to satisfy the transport needs of the Armed Forces and other military formations during a special

period for vehicles and technical equipment. For leasing companies providing for the operation of industrial engineering vehicles (especially in Eastern Ukraine) and their clients this military transport duty resulted, on many occasions, in temporary expropriation (but for an uncertain term) of their property for defense needs. In this respect, there was big concern among the business community that total nationwide mobilization means, for many participants, the risk of bankruptcy and liquidation. Luckily, this scenario did not happen, but there was much work for legal specialists to ensure that the military transport duty was enforced in accordance with established legal regulations. Warfare and occupation, which resulted in de facto loss by the leasing business of key clients operating in Crimea and Ukraine’s eastern industrial regions, also generated international sanctions. Some of those backfired on Ukrainian leasing companies, and it was a peculiar example of how globalization may influence private business in different jurisdictions. In the main, it was about Executive Order No.13685 of 19 December 2014 by which the President of the United States of America ordered prohibiting measures with respect to the Crimean peninsula of Ukraine. Consequently, US shareholders forced their Ukrainian subsidiaries to terminate all contracts

with customers registered in Crimea despite this causing huge losses. Although many other legal options had been discussed, including novation of such contracts to other lessors, primarily in Russia, or assignment of proceeds thereunder, the schedule was very tight and many chose to simply forgive all the debt owed to them by their Crimean clients and give away the leased machinery. It is interesting that those Crimean lessees who formally moved their businesses to mainland Ukraine and acquired new registration, as required by the Law of Ukraine On Establishment of the Free Economic Zone Crimea and Special Aspects of Economic Activities on Temporarily Occupied Territory of Ukraine, were therefore unable to benefit from the US prohibiting measures with respect to Crimea. Their leasing contracts remained valid and binding. Overall, there is huge demand for positive changes in the industry. A new law on financial leasing has been in the pipeline for many years, waiting to be adopted by the Ukrainian Parliament. Many experts believe that it should improve state regulation of leasing activities, step up protection of the rights of consumers of financial services, and bring Ukrainian legislation into line with European practice and best world experience.

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Corporate

Corporate Legislation Reform: Back to the Past or a Leap into the Future?

Ernest Gramatskiy President, Gramatskiy & Partners Attorneys at Law

he current processes of democratization, liberalization, integration of Ukraine into Europe and the world define the present stage of development of the national legal system. The signing of the Association Agreement between Ukraine and the European Union of 27 June 2014 undoubtedly played a significant role for all those things, which resulted in rapprochement between Ukraine with the European Community in recent years. These factors substantially affect the legal regulation of corporate relations. At the same time, the growing interest of foreign businessmen and investors in Ukraine can be explained not only by the country’s extremely favorable geopolitical location, but also taking into account the positive dynamics of legislative reform highly appreciated by strategic partners and international organizations (for instance, Organization for Economic Co-operation and Development, etc.), giving a gradual increase in the ’Doing Business’ ranking. It is worth mentioning the changes regarding improvement of corporate governance in joint stock companies and reform of limited liability and additional liability companies’ legislation which took place in 2017-2018. However, not all the changes in national corporate legislation deserve a positive assessment. More corporate legislation reform was launched too; it is still impossible to carry out unambiguous assessment of it. On 5 December 2019 the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine on Counteracting Raiding (hereinafter — Law No.340-IX) aimed at introducing a number of anti-raiding measures and establishing effective safeguards to protect property owners from unlawful encroachment was adopted. On 20 September 2019 the Verkhovna Rada of Ukraine adopted the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine to Stimulate Investment Activity in Ukraine (hereinafter — Law No. 132-IX), which detailed the provisions regarding model Articles of Association of a limited liability company. The last of a number of laws that should be considered is the Law of Ukraine On Amendments to Certain Legislative Acts of Ukraine on Property Rights Protection, adopted by the Verkhovna Rada of Ukraine of 3 October 2019 (hereinafter — Law No.159-IX). The purpose of the law mentioned above is to provide additional guarantees for the protection of property rights in Ukraine by amending a number of legislative acts which contain outdated and inefficient regulations. It is worth stressing that the large number of regulatory changes introduced by the above

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laws are not only incomprehensible in terms of their purpose and necessity, but also require further detailed regulation. Nonetheless, some of them require special attention.

Notarization: For or Against? Initially the draft law On Amendments to Certain Legislative Acts of Ukraine on Property Rights Protection stipulated that a contract whose subject is alienation (transfer) of a share (part of it) in a company’s authorized capital, shall be entered into in writing and must be notarized. Undoubtedly, the said requirement of legislation is not only unclear, but also dangerous in terms of ensuring turnover of corporate rights. Thus, introduction of notarization for contracts of sale of shares in limited liability companies could significantly increase the costs to enter into a contract for the parties involved and deprive them of the legal possibility to apply foreign law in relevant contracts. That is directly related to the fact that a notary in Ukraine may perform notarial actions only in accordance with the provisions of national law, which excludes the opportunity to notarize a contract containing regulation of corporate relations under foreign law. In our opinion, it is obvious that all these aspects indicate a return to the forgotten and unnecessary atavisms of corporate regulation. The corporate practice of many legal systems, including Ukraine's, justifiably proves that the existence of notarization of contracts that ensure circulation of corporate rights is not a sufficient guarantee to protect the corporate rights and legal interests of participants of corporate relations. On the contrary, it puts a great deal of burden on them. Fortunately, professional discussions and debates resulted in exclusion of the relevant rule regarding obligatory notarization from draft law No. 159-IX. To date, Law No. 159-IX only states that the contract on alienation of property, the subject of which is a share (part of it) in the authorized capital of the company, shall be concluded in writing (relevant changes have been imposed to the Civil Code of Ukraine). It should be outlined that Law No. 340-IX will come into force completely on 14 July 2020 and will provide some amendments to Law of Ukraine No. 2275-VIII On Limited Liability and Additional Liability Companies of 6 February 2018 (hereinafter — Law No. 2275-VIII). Thus, Article 5 of said Law No. 2275-VIII contains the list of rights of company participants which now provides that a participant of a company may establish a requirement of

Gramatskiy & Partners is known as a trustworthy law firm, which has been successful in providing legal assistance to its clients in various areas of law since it was founded. Gramatskiy & Partners is recognized as one of the leading law firms in Ukraine due to introduction of high standards of legal services and performance of exceptional proficiency. From the time it was founded in 1998, Gramatskiy & Partners has acknowledged business legal practice as its own professional vocation and the mission for its serving the public. The unique experience of a vast legal practice enables the firm to advise today more than a hundred 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. As a universal law firm, Gramatskiy & Partners has made its name as a qualified provider of comprehensive legal service. Combination of scrupulous approach and customer-centered orientation in terms of rendering legal assis-

tance enables the firm to individualize a wide range of its services for the business of every client. For over 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 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 to work 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 is involved in; the firm bears responsibility for every memorandum and for every legal opinion presented to a client. Gramatskiy & Partners structures and describes every legal procedure, as if the firm itself were to implement it in practice. Gramatskiy & Partners also pays special attention to issues of confidentiality of the projects in which it assists, because the law firm realizes the importance of confidentiality for clients.

notarization of his/her own signature's authenticity when making decisions on the activity of the respective company and/or the requirement of notarization of a contract whose subject is a share of this participant in the company’s authorized capital. Information about establishing or cancelling the mentioned above requirements must be stated in the Unified State Register of Legal Entities, Individuals — Entrepreneurs and Public Formations. It is worth taking into account the fact that such a requirement of a participant of the company (or cancelation of this requirement) is unilateral action, which must be notarized. Moreover, a similar legal provision was enshrined in Article 21 of Law No. 2275-VIII, which regulates the procedure of alienation of a share in the authorized capital of a company to other company participants or to third parties. To date, a participant of a company may establish a requirement of notarization of a contract of alienation or pledge of such participant’s share in the authorized capital of the company or cancel this requirement. Information about that must also be stated in the Unified State Register of Legal Entities, Individuals — Entrepreneurs and Public Formations.

ments in electronic form for state registration of the LLC, which acts under the model articles of association. The founders of the company can define the name of the company, the list of the founders (participants), the size of the authorized capital, the size of the shares in the authorized capital of each participant, the method of making their contributions (in monetary and/or non-monetary form) in the model articles of association. Being multivariate, model articles of association of a company provide the possibility of various editions of them being chosen, including the default edition, which is formed from provisions recommended by the Cabinet of Ministers of Ukraine. Generally speaking, it means that the electronic form for submission of documents for registering a LLC gives an opportunity to choose a variant of the model articles of association which is more acceptable for a certain LLC (selecting various options offered by the form approved). Due to interaction with an applicant in a question-and-answer format, all the necessary documents for state registration of the establishment of LLC, including application, model articles of association, decision of the founders, are automatically formed by the system taking into account the answers provided. The founder only has to sign the formed package of documents with his/her qualified electronic signature. The service mentioned above was introduced on 9 July 2019 as the On-line House of Justice project. Its main aim was to facilitate and minimize the time and cost of setting up a limited liability company. Enshrining similar provisions, Law No. 132-IX also stated that the company is entitled to change the version of the model articles of association at any time by choosing other alternative provisions from those provided by the Cabinet

of Ministers of Ukraine. If the General Meeting of participants (shareholders) adopts a decision to change the edition of the model articles of association under which the company operates, the provisions of the new edition of the model articles of association shall apply from the date of state registration of the respective changes.

Model Articles of Association for LLC On 27 March 2019 the Cabinet of Ministers of Ukraine adopted Resolution No.367 On Certain Issues of Deregulation of Economic Activity (hereinafter — Resolution No. 367), which approved model articles of association for limited liability companies. Resolution No. 367 states that the version of model articles of association is independently determined by the founders of the company by selecting the options by default or the corresponding provisions of the model articles of association, when submitting docu-

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Protection of Creditors Rights Article 55 of Law No. 2275-VIII states that within 30 days from the date of the adoption of the decision to terminate, the company is obliged to notify all known creditors in writing. Certainly the above provision is not perfect and does not guarantee that creditors will be able to exercise their rights in the proper way. Taking into account the fact that Law No. 159-IX imposed a new mechanism on securing the rights of creditors during termination of the company and stated that the announcement about termination of the company, the deadlines for the creditors to make a claim must be placed automatically via the Unified State Register of Legal Entities, Individuals — Entrepreneurs and Public Formations in real time.

Personal Viewpoint It is worth noting that current corporate legislation reform is characterized by selectivity and inconsistency. Despite some positive expectations from the implemented changes, they are unlikely to be sufficient to eradicate the raiding of companies in Ukrainian corporate law. At the same time, it is difficult to overestimate certain significant steps like state registration of limited liability companies in electronic form and the new mechanism for protection of creditors rights.

Corporate Disputes

Recent Trends of Corporate Disputes in Ukraine Point Towards Increasing Investor Confidence

kraine has made considerable progress in recent years in the reform of its corporate legislation, particularly by stepping up the protection of companies and shareholders. Domestic courts play a central role in this process. They appear inclined to enforce claims for damages against fraudulent directors and, at the same time, to preserve contracts concluded in good faith. Additionally, the courts will soon scrutinise novel legal issues regarding shareholders' agreements, as the first disputes over this instrument are coming into play.

Disputes with Dishonest Directors: Et tu, Brute?

Danylo Volkovetskyi Senior Associate, Kinstellar

Viktoriia Dobrynska Senior Associate, Kinstellar

Court disputes involving dishonest business practices by management have increased in number lately. They feature transactions with affiliates, contracts signed without approvals, and forged documents. Companies and shareholders frequently discover improper dealings only when the consequences are not easy to reverse. In this respect, Ukrainian law offers several legal remedies. As a starting point, shareholders cannot sue directors for damages merely because a company has suffered losses. This is because Ukraine recognises the "no reflective loss" rule, as the Supreme Court of Ukraine confirmed on 8 October 2019 in case No. 916/2084/17. The rule explains that a shareholder does not suffer a personal loss because the shares remain unaffected directly by wrongdoing. Therefore, it is only for the company to bring a claim. What if the director or other shareholders are opposed to the company initiating litigation? The Supreme Court shed some light on 3 December 2019 in case No. 904/10956/16. A shareholder, acting independently or together with fellow shareholders, can convene an Extraordinary General Meeting to appoint a loyal director and instruct them to sue those involved in the wrongdoing. In contrast, minority shareholders often do not have sufficient leverage. Therefore, Ukrainian law allows certain shareholders to bring a derivative claim on behalf of the company. A shareholder whose stake in a company exceeds 10% can sue the director for a breach of their duties to recover company's losses. Importantly, any sum recovered goes to the company, and not to the claimant shareholder. The company can bring a claim against an errant director if it has suffered a loss. It must show that the loss resulted from a breach of the director’s duties. Historically, Ukrainian law recognised only the duty of a director to act within their powers. A breach of this duty occurs when a director exceeds their authority, fails to obtain

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corporate approvals, or submits false information to receive such approvals. However, on 26 November 2019, the Supreme Court confirmed in case No. 910/20261/16 that a director also has fiduciary duties, which form a relationship of trust between the director and the company. Accordingly, directors are additionally required to act in the best interests of the company, to exercise skill and care, and to avoid conflicts of interest. A breach of fiduciary duties may give the company the right to claim damages from the director. On the other hand, the director may not have sufficient assets to pay compensation. This makes it difficult, if not impossible, for shareholders to restore the status quo. In this case, the company may try to return assets from fraudulent third parties by initiating litigation to invalidate contracts of the company.

Claims for Invalidation of Contracts: A New Hope Dishonest directors commonly misuse contracts to divert assets from a company. These contracts are usually signed without the approvals that are often required for transactions exceeding a certain amount or concerning valuable assets. When these transactions become known, companies can, and usually do, ask the court to invalidate such contracts. The invalidation results in the parties being restored to the position that existed before the conclusion of the contracts. These claims, however, are not very successful in practice. As the Supreme Court put it on 24 December 2019 in case No. 910/12786/18, the mere fact that a director signs a contract outside their powers is not sufficient to invalidate a contract. That powers of a director have limitations is an internal company matter and, therefore, is not necessarily known to a third party. For this reason, the company must prove that the third party knew, or could have known, that the director did not have powers to sign the contract. On the other hand, the Supreme Court recently took a progressive step towards the effective protection of defrauded companies. Article 232 of the Civil Code of Ukraine permits the invalidation of a contract when the contract results from a conspiracy between a "representative of one party" and another party. This remedy was for years not effective in practice because courts did not include management into the notion of a "representative of one party". However, on 22 October 2019 in case No. 911/2129/17, the Supreme Court finally extended Article 232 of the Civil Code to company directors, declared the contracts to be invalid on

Kinstellar is a leading independent law firm in Emerging Europe, Turkey and Central Asia, with 11 offices located in Almaty, Belgrade, Bratislava, Bucharest, Budapest, Istanbul, Kyiv, Nur-Sultan, Prague, Sofia and Tashkent. We rank among the leading law firms in each of our jurisdictions. Our representation of major international and domestic market players active across diverse industries gives us insight into the commercial drivers and challenges facing numerous sectors, both locally and across the region. The firmâ&#x20AC;&#x2122;s clients include leading international and regional corporates, banks and other financial institutions, state bodies and state companies, multilateral institutions, and international law firms with clients that require top-quality legal counsel in Kinstellar jurisdictions. Operating as a single fully-integrated firm, Kinstellar is particularly well suited to servicing complex transactions and advisory requirements spanning several jurisdictions. The Kinstellar Kyiv office was launched in 2016 with a team of highly-skilled legal pro-

fessionals with long-term experience handling major transactions for leading international and domestic clients in Ukraine across a wide spectrum of business sectors. Kinstellar Kyiv is a fully-integrated Kinstellar office, fully aligned and committed to the same quality and consistent service one may expect from Kinstellar.Â Today, Kinstellar Kyiv operates as an internationally oriented full-service practice focused on Antitrust/Competition, Banking & Finance, Capital Markets, Corporate/M&A, CRSI (Compliance, Risk & Sensitive Investigations), Dispute Resolution, Energy and Real Estate. The expertise of Kinstellar lawyers also enables the firm to make a shift towards industry focus, offering complex advisory to agriculture, aviation, FMCG, energy/ oil&gas, industrials, infrastructure, real estate, pharmaceutical, IT/telecommunications sector clients. Kinstellar Kyiv has one of the most diversified Dispute Resolution practices on the market, with an impressive track record in handling landmark disputes for Ukrainian and foreign clients. Our experienced team handles all types of cross-bor-

der and domestic litigation proceedings, international arbitration, assets tracing and recovery, fraud investigations and white-collar crime. Kinstellar Kyiv has been top-ranked in its core practice areas according to major international legal directories, including Chambers & Partners, IFLR1000, Legal 500, Whoâ&#x20AC;&#x2122;s Who Legal, Global Investigations Review and Best Lawyers International. Most recently, Kinstellar has been named Law Firm of the Year: CEE 2020 by Chambers & Partners at the annual Chambers Europe Awards 2020.

the basis of a conspiracy between the director and other parties, and ordered the defendant companies to return the assets in question to the claimant company.

Many questions, however, remain unanswered. What happens if one party breaches the obligation to transfer shares under the shareholders' agreement? Should an affected shareholder ask the court to order the breaching party to make this transfer? Alternatively, should the affected shareholder seek invalidation of a contract under which the breaching party transferred shares to a third party? Considering the recent approach of the Supreme Court, courts would invalidate contracts with third parties only in exceptional circumstances. The affected shareholder would need to prove that the third party knew, or could have known, that the contract was concluded in breach of the shareholders' agreement. Hence, the challenged contract is likely to be preserved unless there is a conspiracy between the breaching shareholder and the third party. To avoid these difficulties, parties might want to include a liquidated damages clause in their shareholders' agreement. This clause would enable the affected shareholder to claim damages in a predetermined amount or calculated in the manner stated in the shareholders' agreement.

Shareholders' Agreements: Forewarned is Forearmed

Oleksandr Plachynta Associate, Kinstellar

The reality of the Ukrainian market has long been that parties conclude shareholders' agreements by choosing a foreign governing law. Ukrainian legislation used to offer market players little room to regulate the relationship between shareholders as they wished. Recent reforms to the rules governing shareholders' agreements may well shift market practice towards choosing Ukrainian law for such contracts, at least for small and medium-size M&A transactions and joint ventures. Domestic businesses and foreign investors can now regulate such aspects as share transfers, corporate governance, deadlock resolution, etc., with shareholders' agreements governed by Ukrainian law. Nevertheless, this should be done with the utmost caution, at least until courts develop consistent practice on enforcement of shareholders' agreements. Although consistent court practice in this area is still to come, certain legal issues are currently unfolding in court disputes. For example, in case No. 916/1444/19 a court of first instance had to decide under which circumstances a shareholders' agreement can be declared invalid due to misrepresentation. The court made a valuable point, namely that a shareholders' agreement can be grounds for the transfer of shares even if the agreement does not involve the sale and purchase of shares. This is an important first step in the enforcement of shareholders' agreements because Ukrainian law allows parties to freely decide how the transfer of shares should occur.

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Concluding Remarks Recent developments in Ukrainian corporate litigation will certainly be of interest for existing and potential investors in the Ukrainian economy. Domestic courts are successfully enforcing the legal instruments recently introduced in Ukrainian law. Disputes involving claims for damages from company management or for invalidation of non-arm's length contracts firmly exemplify this point. While it remains to be seen how higher courts will approach shareholders' agreements, the pilot test seems to be reassuring.

Corporate Governance

Ineffective Business with Partners: Reasons and Solutions

Olexiy Kharytonov Partner, ILF

artnership is a profitable form of financial and management cooperation. However, the risk exists of being involved in ineffective business decisions taken by partners. The most vulnerable are those business owners who are not actively involved in a company’s activities. There are two big reasons why a business may work ineffectively and without profit. They are the following: -- The first reason is the bad faith of partners who are involved in company management. Fraudulent activity without notifying the investor is able to significantly damage a company’s market power and financial status. -- The second reason is other internal and external negative impact on a company. For example, a company’s financial and management problems, which are the reasons for no profit. Many instruments can help a company to overcome a critical state. However, it is a huge challenge to define the real reason for a crisis within a company.

Company Screening

Arsen Buchkovskyi Partner, ILF

In both cases, of a fraudulent partner’s activity and other business-related difficulties, it is necessary to collect information about company activity and the activities of its business partners. Such information can be received from internal and external sources. These are the following stages of preliminary screening, when all information is collected from external sources: 1. Verification of all associated entities. This may include physical and legal entities’ relationships, among which may influence the results of each other’s activity and the activity of their representatives. Such verification helps to understand whether or not the created companies aim to decline the indicators of the main company without the investor’s knowledge. Verification also helps to understand whether there are any transfers of the main company’s funds to personal accounts. 2. Inspection of state-managed real estate registries. Such inspection is reasonable when the company has real estate in its assets. It also helps to understand the current status of such assets and if one of the partners tried to transfer real estate into other ownership or use it illegally without the investor’s knowledge. 3. If the company has had court disputes with a state authority, its inspections help to receive information about the revealed company’s activity. The investor can receive information about the number of employees, money turnover, existence of company debts, details of money flows, etc. at this stage.

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After information is received from external sources, it is necessary to hold a deeper inspection based on the company’s internal information. The beneficiary owner of more than 10% of a company has the right to request data on company activity in full. The owner needs to specify the details of the request as much as possible and to include the most detailed and complete list of documents in such a request. All information received from external sources can help to detect the documents which reveal useful company information. Otherwise, it could be hard to understand what information needs to be examined.

Solutions to Crisis in a Company The most likely reason for a company’s low productivity is within internal or external risks the company has encountered if requested documents and information received from external and internal screening on the due date provide reasons to trust such information. If a company is, in actual fact, indeed in a crisis and the investor’s activities can help to solve it, he/she should alter the role of a passive participant by taking a more proactive position in corporate governance. The beneficial owner who wants to take control of a situation can use the following management tools: -- The General Meeting. This is a meeting of participants who manage the company. During the meeting the investor may submit specific cases to discuss anti-crisis measures. -- Establishment of a Supervisory Board. It can include both the investor and any person whose actions he/she trusts. The main purpose of the Supervisory Board is to monitor the actions of the company’s director. Also, the Supervisory Board may consist of a team of experts (more experienced managers) who can strengthen the company’s position and lead it out of crisis. -- Consolidation of global business development strategies into a corporate agreement. This document sets out the rights and obligations of each of the partners regarding the company’s activities, as well as its tasks and KPI — numeric indicators of activities that help to increase effectiveness indicators. Such a document enables a global strategy to be raised, to be flexible regarding current plans, and to avoid unnecessary distrust caused by the changed position of an investor in the business. The suggested tools allow the beneficial owner to take up more active participation in the company’s processes and optimize the company’s ecosystem.

ILF (Inyurpolis Law Firm) is an independent Ukrainian law firm whose core focus is on litigation and business support (business setup, transactional support, regular advisory support). The firm has been operating on the market for 24 years through its two offices located in two major cities, namely Kyiv and Kharkiv. Among ILF’s strong points is the ability to follow up on court decisions and attain tangible results. This is due to years of experience dealing with debt recovery for banks and insurance companies (USD 500 million recovered in 20072017) as well as deposit recovery from liquidated banks for companies and individuals. We perform business support through our commercial, corporate, M&A, tax and other teams, that follow an industry-minded approach. The team’s diverse expertise ranges from business structuring and high-profile contracts to corporate acquisitions and asset deals. We’re known for our successful business structuring record in the IT sector, support of sophisticated technology contracts, and public-private partnership work in the field of healthcare and pharmacy. We help our foreign clients to get a clear understanding of the Ukrainian business environ-

How do you Deal with Dishonest Partners? If you, as an investor, request information about the company’s activities from partners, and they delay the response, provide an incomplete set of documents or you’ve received information that does not match the data collected from external sources, you may well have encountered dishonesty from your partners. Artificially raised accounts payable, illegal transactions on property alienation and other similar facts are additional indicators of fraud. If an investor understands that his/her partners “are cheating him out of money”, first, then he/she is advised to freeze the assets (arrest them). This action allows you to secure assets, preventing withdrawal of potential assets from the business, which is possible in the near fu-

ment, based on our knowledge and experience in medicine and pharmacy, agribusiness and alternative energy, IT, banking and finance. Our regular clients include Avon Products, Volvo Ukraine, BASF Ukraine, Malteurop Group, Ecostar/DISH, SPS Commerce, EGGER, American Jewish Joint Distribution Committee and Amcor Tobacco Packaging. Our industry-oriented approach enables us to find legal solutions for business as well as manage projects dealing with institutional changes. In 2016-2017 ILF lawyers working together with an expert team from the Ukrainian Ministry of Health and supported by the World Bank and UNICEF designed legislation on primary healthcare reform. The ILF team includes 47 highly-qualified lawyers, attorneys, tax, investment and business consultants.

Reputation For seven consecutive years ILF has been in the TOP-15 law firms in the national rating 50 Leading Law Firms of Ukraine by Yuridicheskaya Practika Weekly. The Ukrainian Law Firms. A Handbook for Foreign Clients 2017 publication named ILF one

ture. The arrest of assets can be organized via a court. After the assets are secured, the company’s beneficial owner needs to decide whether to leave the company or remain in it. In most cases, the investor cannot optimize company management without access to operational activities. In this case, it is more appropriate to leave the business. The calculation of the value of the investor’s share takes place from the moment the beneficial owner applies to leave the partnership (the price of the share directly depends on the company’s balance of assets). Then, the company has 30 days to calculate the value of this share. The investor may agree or disagree with the calculated price (if the investor disagrees, he/she applies to a court to decide regarding the price of a share). After a share price is established, the

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of the leaders of the Ukrainian legal market and places the firm’s partners among key experts in respective fields of expertise: litigation, medicine and pharmacy, IT and labor law.

Areas of practice:

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Public-private partnerships and privatization, corporate law and M&A, land and real estate, labor and employment, debt recovery.

ADDRESS: 22 Shovkovychna Street, Kyiv, 01024, Ukraine Tel.: +38 050 339 2307 E-mail: office@ilf-ua.com Web-site: www.ilf-ua.com

company has 1 year to pay the set money to the investor. If the company does not pay the share price to the investor in the course of one year, the investor has the right to apply to a court on collecting the value of his shares in the form of assets or cash.

Summary Ineffective business is a problem that can be solved in two ways. If information about a company’s activities is hidden from the investor, it will be more appropriate for him to withdraw his share and leave. If the partners act in good faith towards the investor, but their measures to overcome the crisis are ineffective, the investor may help the business to survive difficult times by being more actively involved in managing the company.

Corporate Intelligence

Pavlo Verkhniatsky Managing Partner, COSA Pavlo is an expert in sophisticated integrity due diligence with an international component. He also leads research on country risks, conducts cross-border investigations and asset tracing for the benefit of global corporate players. Pavlo provides COSA’s clients with in-depth understanding of behind-the-scenes particularities of business relationships and country specifics in the FSU region

hat is it that a lawyer might often lack when it comes to preparing for a legal dispute, or even structuring a business proposal to a client? Or what is it that an international businessman or a company might need when entering a new market or on-board a new partner? And what is it that an investment fund wants to have in order to apply the money it handles in the most beneficial way? Most of the time it is information. Sounds simple, but the reality is that it is usually some very specific information, often not very easy to obtain, comprehend and analyse. And this is where professional corporate intelligence firms’ expertise is required. Corporate intelligence, despite its clear fields of application, is not yet in big demand in Ukraine. However, Ukrainian entities tend, on the contrary, to be among the most frequent subjects of research in the FSU region together with Russia and Kazakhstan as leaders among requests on risk assessment. But those requesting such research are usually businesses from countries with strict regulatory frameworks and specifically compliance-related regulations. Ukrainian businesses also resort to corporate intelligence, but mostly when it comes to cross-border investigations and asset tracing, and in rare cases market entry strategic intelligence. All in all, corporate intelligence is intended to help businesses navigate through uncertain environments with minimum losses and maximum gains. The classical application of corporate intelligence implies such fields as: 1. due diligence-related aspects, including third party compliance screening, pre-M&A due diligence, counterparty verification; 2. cross-border investigations and asset tracing; 3. strategic intelligence that helps understand new environments, political risk, market conditions, etc. When we look into due diligence-related aspects more carefully, we can see that most of the due diligence carried out around the world is driven by compliance regulations, including the infamous US FCPA for example. Against the backdrop of globalisation and integration of economic processes, joint ventures with international elements, and the precarious geopolitical equilibrium, there comes a time when we realise that we can no longer ignore matters of transparency in the operations of our contractors and partners, as well as our own. Market integration and the extraterritorial effect of anti-corruption laws of such powerful players as the United States, Great Britain, and France makes any company that wants to be a part of the global business structure understand that it must build compliance systems and reduce compliance risks for itself as well as its contractors. While building compliance systems third-party compliance policies and protocols pop up. And it is up to a particular business to decide whether it will apply automated intelligence tools, build internal analytical teams or outsource this aspect to professional corporate intelligence firms. Usually it is a mix that considers the quality and depth of information, speed of research, cost-effectiveness, data privacy and other important factors.

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And in today’s integrated economic environment the lack of care in the aspect of due diligence and specifically integrity due diligence might lead to quite negative chain reactions due to the so-called "toxic effect". Every company is a system that becomes part of a bigger system when it interacts with other entities or individuals, which is why it can no longer be perceived as a separate firm during compliance checks, and the risks associated with its contractors apply to it as well. This is exactly what is called the "toxic effect" in the compliance industry. This "toxic effect" can be illustrated using bank payments as an example. When a bank executes a transaction involving two persons, namely the payer and the recipient, complex transaction monitoring systems track the contractors of these two actors as well. This process, called Know Your Client’s Client (KYCC), and not just simple KYC, means checking for compliance risks not only at the base level but potentially ad infinitum or as far as the capabilities of the monitoring system would allow. Without access to bank systems, corporations check their contractors for compliance risks using automated tools for information analysis and methods that employ human resources to search for data in publicly available sources and carry out HUMINT (i.e. collect information from human sources). By the way, even banks resort to professional corporate intelligence providers to dig into high-risk clients, as automated tools and banks’ financial monitoring systems are helpless in the face of sophisticated ownership structures full of nominees, hidden ultimate beneficial owners (UBO’s) and foreign jurisdictions. It is worth noting that even though anti-money laundering and countering terrorism financing rules oblige companies to declare their UBO’s, according to banking experts in Ukraine, nearly 50% of them do not provide the real owner when opening accounts. Regulatory-driven due diligence, however, is often quite a procedural thing. The most significant value of corporate intelligence emerges when not only compliance, but also security and business-driven aspects arise. It is very well seen within pre-M&A due diligence, which is usually conducted for the sake of a clear understanding of a business, minimizing the risk of adopting another company’s problems and securing your deal. This is where in-depth research and extensive human intelligence is required. Enhanced due diligence implies getting to the backbone of the subject entity, its beneficiaries, affiliated entities and any unseen risks related to them. If your subject company is a part of a larger group of companies, it is worth noting that those companies are not always connected with each other in a legal sense, meaning that they could be registered to nominees and appear to be separate entities and yet be controlled by a single entity or individual. It is possible, however, to obtain information on the beneficiaries of such a company, even though the process is admittedly rather complicated, as it makes automated tools and special software aimed at iden-

COSA is a professional corporate intelligence firm. We help our clients to stay informed, safely develop their business in risky markets, to preserve their reputation, cope with compliance issues, and be aware of the changing environment. Our system analysis method, international source coverage and full dedication to every project allow our clients to receive the most accurate and verified information to support their short-term and strategic goals. Our mission is to help businesses navigate uncertain environments and provide companies with information that enables them to grow successfully and confidently, regardless of any changes in the environment.

-- Asset tracing -- Consulting in the field of compliance

Facts

maceuticals, media and information, law firms and world-renowned consulting companies.

COSA is a member of: -- American Chamber of Commerce (ACC) -- International Chamber of Commerce (ICC) -- Ukrainian network of integrity and compliance (UNIC), established with the initiative and support of the Business Ombudsman Council, EBRD and OECD. COSA’s Managing Partner is a member of the Ethics Committee at UNIC.

-- Country/industry risk assessment -- Integrity due diligence research and investigations -- Compliance checks and pre-employment screening -- Cross-border and corporate investigations, litigation support

COSA has already conducted research, investigations, compliance checks and risk assessment in the following regions and countries: CIS (all countries), CEE including the Balkans and Baltic States, other European countries, Kenya, Nigeria, DR Congo, Angola, Brazil, Peru, China, India, Vietnam and others. We complete over 1,000 compliance checks on legal entities and individuals located in more than 60 countries on an annual basis. We also carry out over 120 full-scale integrity due diligence projects every year using open-source data analysis methods as well as source enquiries and on-site observations. We are proud to be the leading regional corporate intelligence team for international companies operating in such industries as banking, telecommunications, IT, energy, industrial goods manufacturing, mining, food processing, phar-

tifying corporate ties useless. Every business found within an ownership structure is checked against blacklists, watchlists, and sanction lists. In-depth analysis involves checking the subject’s contractors for the presence of sanctions-related entities. That is, companies connected to entities that are subject to sanctions. Thus, even if the company itself is not under sanctions but it interacts with sanctioned entities, it should be considered as a high risk, and not only due to compliance reasons, but also business-wise, as if a firm cannot survive without dealing with sanctioned entities it might not be a sustainable business. It is also important to conduct detailed analysis of the background, participatory interests and political exposure of every key principal of the subject company, as the presence of PEPs (politically-exposed persons) does not only increase the corruption risk, but also possible hostile actions after the company is acquired. It is not a rare case when this question is asked: “Is this person powerful enough to help us enter the market, and is there the risk that he could turn his power against us?” Naturally, cooperation between businesses continues in the industries

where interactions with PEPs are unavoidable, but the activity and connections of such persons while in office are studied in detail and any available information capable of causing reputational damage is reason enough to initiate a deeper investigation if cooperation is still considered after such incidents are detected. Some of the mentioned targets of corporate intelligence work are also required during sophisticated investigations or asset tracing, as most of the time lawyers responsible for recovering those assets or building up a court position need to be fully equipped with verified information with regard to the background of opponents, real ownership and organizational structures, asset profiling, jurisdictions of operations and overall business activities. It goes without saying how important it should be to obtain information legally and to handle all the private data accordingly. Apart from the aforementioned risks, potential partners of Ukrainian enterprises pay attention to a wide range of issues related to the environment where those enterprises operate. This means assessing the entire range of country risks, including those associated with politics,

security, specific industry, legal framework, technology protection, etc. Industry risk assessments have been getting more frequent over the last few years. On the one hand, this shows that foreign companies believe there have been positive changes in Ukraine. On the other hand, despite the increased interest in a country that has great potential in terms of technology, production and its labour force, concerns typical of post-Soviet countries still remain. And it is very important to see the benefits behind the risks. Understanding the particularities of doing business not only in a specific country, but also a specific sub-region of that country, analysing competition mechanisms, authorities’ impact, and overall business traditions, brings those paying attention to than ahead of other investors operating in risky markets worldwide. And the corporate intelligence toolset is something that assists them in getting there in a much smoother way. If you believe in playing it safe and building relationships of trust, make sure that trust is based on thorough intelligence and due diligence.

Our main business lines are:

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ADDRESS: 6 Yaroslavska Street , 3 Floor, Kyiv, 04071, Ukraine Tel. : +380 44 364 8310 E-mail: info@cosa.solutions Web-site: www.cosa.solutions

Counterfeiting and Piracy

Ukraine’s Border Protection of IP Rights is Approaching the EU Level

n 14 November 2019 the Law of Ukraine No.2020-IX of 17 October 2019 came to force introducing amendments into the Customs Code of Ukraine with regard to enforcing intellectual property rights during transportation of goods across the customs border of Ukraine. These amendments were aimed at fighting against the transportation of goods suspected of infringement of intellectual property rights across the customs border of Ukraine, and particularly fighting against counterfeit and pirated goods.

New Definition of Basic Terms and Concepts

Alexander Pakharenko Alexander Pakharenko is an Attorney-at-Law, registered Patent Attorney and a Partner with Pakharenko & Partners in Kyiv, Director of the Ukraine Alliance Against Counterfeiting and Piracy. Graduate of the Kyiv Polytechnic Institute, Kharkiv Institute of Intellectual Property, Law Faculty of the Interregional Academy of Personnel Development in Kyiv, Academy of Advocacy of Ukraine. His 20 years of practice in the field of IP which encompasses consulting on all aspects of IPR protection, licensing and enforcement, representing clients in law enforcement and customs agencies, civil and commercial courts, legal counseling on anti-counterfeiting and anti-piracy measures and developing anti-counterfeiting and antipiracy strategies. Alexander takes an active part in conducting trainings for law-enforcement and customs officers

First of all, the definitions of counterfeit goods and IPR objects have been amended: “Counterfeit goods” mean: а) goods, which are the subject of infringement of intellectual property rights to a trademark in Ukraine and which bear without authorization a sign, which is identical to the trademark validly registered in Ukraine in respect of the same type of goods or which is misleadingly similar to such a trademark; b) goods, which are the subject of infringement of intellectual property rights to a geographical indication in Ukraine and bear or are described by, a name or term protected by that geographical indication; c) any packaging, label, sticker, brochure, operating instructions, warranty document or other similar item, even if presented separately, which is the subject of infringement of intellectual property rights to a trademark or a geographical indication, which includes a sign, name or term which is identical to a validly registered trademark or protected geographical indication, or which is misleadingly similar to such a trademark or geographical indication, and which can be used for the same type of goods as that for which the trademark or geographical indication has been protected in Ukraine (para. 17, part 1, Article 4 of the Customs Code of Ukraine). Objects of intellectual property right now include objects of copyright and related rights, inventions, industrial designs, geographical indications, plant varieties, semiconductor products (para. 46, part 1, Article 4 of the CCU). Thus, such an IPR object as a utility model is excluded from those objects which can be included in the Customs Register of IPR objects for protection. The following new terms have been introduced: pirated goods, measures for facilitation of enforcement of intellectual property rights; goods suspected of infringement of intellectual property rights; genuine goods; perishable goods; small consignment of goods. In particular: -- “pirated goods” (para. 38-1, part 1, Article 4 of the CCU) means goods, which are the subject of infringement of a copyright and/ or related right or intellectual property right to a design validly registered in Ukraine and

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which are, or contain copies, made without the consent of the holder of a copyright or related rights or a design, or of a person authorized by that holder in the country of production; -- “goods suspected of infringement of intellectual property rights” (para. 57-1, part 1, Article 4 of the CCU) mean: a) goods bearing the features of infringement of copyright and related rights, intellectual property rights to inventions, industrial designs, trademarks, geographical indications, plant varieties, semiconductor products and the rights granted by supplementary protection certificates for medicinal and plant protection products; b) devices, products or components which are primarily designed, produced or adapted for the purpose of enabling or facilitating the circumvention of any technology, device or component which, in the normal course of their operation, prevent or restrict acts which are not authorized by the holder of any copyright or any related right; c) any mould or matrix which is specifically designed or adapted for the manufacture of goods infringing intellectual property rights; -- “genuine goods” (para. 1, part 3, Article 397 of the CCU) mean goods, which were manufactured with the consent of the right holder, or goods manufactured by a person duly authorized by the right holder for manufacture of a certain quantity of goods, including in excess of the quantities agreed between that person and the right holder; -- “small consignment of goods” (part 2, Article 401-1 of the CCU), to which the destruction procedure can be applied, means goods which are transported (dispatched) across the customs border of Ukraine in one postal dispatch from one sender in international mail items, in one consignment of an express courier from one sender in international express mail items, in an amount of no more than three units per each subcategory pursuant to the UKTZED (Ukrainian Classification of Goods for Foreign Economic Activity) or has a total gross weight of less than two kilograms.

Applying Measures Aimed at Facilitation of Enforcement of Intellectual Property Rights The following measures are applied to goods suspected of infringement of intellectual property rights (part 1, Article 397 of the CCU): -- suspension of customs clearance of goods on the basis of the data of the Customs Register of IPR objects pursuant to Article 399 of the CCU; -- suspension of customs clearance of goods at the initiative of the state body for reve-

IP and Law Firm Pakharenko & Partners was established in 1994 and has offices in Kyiv and London. As a firm providing full IP service coverage we are keen to develop 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, plant breeders’ rights both at national and international levels. 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 anti-counterfeiting and anti-piracy activities since the introduction of relevant provisions on IPR enforcement in Ukrainian legislation. Our staff also possesses expertise in pharmaceutical law, competition law, media law, corporate and commercial law, commercial litigation.

nues and charges pursuant to Article 400 of the CCU; -- destruction of goods, the customs clearance of which is suspended on suspicion of infringement of intellectual property rights pursuant to Article 401 of the CCU; -- suspension of customs clearance and destruction of small consignments of goods, which are transported (dispatched) across the customs border of Ukraine as regular international and express courier mail items pursuant to Article 401-1 of the CCU; -- change of labelling on goods and their packaging pursuant to Article 402 of the CCU. Such measures are applied in cases of suspicion of infringement of intellectual property rights in relation to (part 1, Article 397 of the CCU): -- goods transported by citizens, into or from, the customs territory of Ukraine; -- goods during their importation into, or exportation from, the customs territory of Ukraine (including for the purpose of transit); -- goods, which are placed under the customs regimes of import, re-import, export, re-export, temporary importation, temporary exportation, customs warehouse, free customs zone, processing within the customs territory, processing beyond the customs territory. As one can see, four other customs regimes set out by part 1, Article 70 of the CCU, namely duty-free trade, abandoning in favor of the state, destruction or demolition and transit are absent in the list of measures applied in cases of suspicion of infringement of intellectual property rights. Measures aimed at facilitation of enforcement of intellectual property rights envisaged by part 1 of this Article shall not be applied to: genuine goods; personal belongings; goods imported

We are able to service our clients’ needs 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.

Ukrainian Bar Association, Ukrainian Advocates’ Association and a number of other associations. The company is a co-founder of the Ukraine Alliance Against Counterfeiting and Piracy which is part of the Global Anti-Counterfeiting Group (GACG Network), encompassing 24 national and regional organizations.

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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 of organizations: The company and its members are actively involved in the operation of 28 national and international non-governmental organizations, such as: AIPPI, INTA, PTMG, IBA, Ukrainian Patent Attorney’s Association, ICC Ukraine, American Chamber of Commerce in Ukraine, German-Ukrainian Chamber of Industry and Commerce (AHK Ukraine), European Business Association, Ukrainian Trademark Association,

by citizens into the customs territory of Ukraine in hand luggage and/or accompanied baggage for personal use and not designated for manufacture or other business activity (part 3, Article 397 of the CCU).

Destruction of Counterfeit Goods In case of suspension of customs clearance of goods suspected of infringement of intellectual property rights during their transportation across the customs border of Ukraine, such goods can be destroyed under customs control without the necessity to establish any infringement of intellectual property rights (Article 401 of the CCU). Such destruction is possible under the following conditions: the right holder informs the customs in writing that there are features of infringement of his intellectual property rights and that he intends to apply the procedure of destruction of such goods; and the declarant submits to the customs the consent of the owner of such goods to their destruction or he does not submit any objection by the owner of such goods to their destruction (tacit consent). In case of suspension of customs clearance of a small consignment of goods suspected of infringement of intellectual property rights during their transportation (dispatch) across the customs border of Ukraine as regular international and express courier mail items, such goods can be destroyed under the procedure set out by Art. 401-1 of the CCU, if the following conditions are observed: there is a suspicion that such goods are counterfeit or pirated; the goods are not perishable; the information on an IPR object, goods bearing such object and consent of the rights holder for applying the procedure of destruction of small consignments are entered in the Customs Register of IPR objects. In case of actual destruction of goods, where customs clearance has been suspended based

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

on suspicion of infringement of intellectual property rights, the owner of such goods shall be released from administrative responsibility, as envisaged by Art. 476 of the CCU.

Reimbursement of Costs In case of suspension of customs clearance of goods under Art. 399, 400 and 401-1 of the CCU, reimbursement of costs related to storage of such goods shall be imposed on the rights holder, who has the right to demand compensation of such expenses from the owner of goods which are the subject of infringement of his intellectual property right or from other persons in accordance with Ukrainian legislation (part 6, Art. 397 of the CCU).

Future Plans The implementation of the Law of Ukraine No. 202-IX of 17 October 2019 will involve the adoption of subordinate laws to implement Regulation (EU) No. 608/2013 on customs enforcement of intellectual property rights of 12 June 2013 and Commission Implementing Regulation (EU) No. 1352/2013 of 4 December 2013 which set out the forms of documents provided for in Regulation (EU) No. 608/2013. It is expected that the legislative framework should improve the procedure for registration of IPR objects and create a new Customs Register for IPR objects and its testing, particularly the testing of a new IT-tool for electronic submission of applications for inclusion of IP objects in the Customs Register. The following will be introduced via the new web portal: submission of all applications for assistance in enforcement of IPR to the Customs Register of IPR objects; electronic messaging between the Customs Service and right holders; publication of information from the Customs Register.

Criminal Process

Restrictions on Property Rights in Criminal Proceedings

Taras Poshyvanyuk Partner, EQUITY Law Firm

Olexandr Lysak Partner, EQUITY Law Firm

s prescribed by the current Criminal Code of Ukraine, any criminal proceeding is aimed at keeping citizens and the state safe from criminal offenses, protecting rights, freedoms and lawful interests of all parties to a criminal proceeding, ensuring prompt, complete, unbiased investigation and trial so that everyone who has committed a criminal offense can be held liable to the extent of his or her guilt. However, given the specifics of the criminal process, authorized bodies often find it rather difficult to perform their duty of respecting rights and freedoms of parties to a criminal proceeding. As a matter of fact, there is always a temptation “to tighten the screws” on those who, as alleged by representatives of pre-trial investigation bodies or a prosecutor, might be linked to a committed crime. It is worth noting that during criminal proceedings it is of primary importance to ensure steadfast observation of individual rights and freedoms under the requirements of the Constitution of Ukraine and international agreements, in particular in regard to procedural coercion measures. As usual, measures of procedural coercion in criminal proceedings are associated with certain limitations of the non-property rights of an individual which are mostly related to personal “inconveniences” such as prohibition of free movement, restrictions on communication, etc. However, along with the non-property “burden” imposed on a defendant in a criminal proceeding, pre-trial investigation bodies or prosecutors quite often use additional limitations related to restrictions on property rights and freedoms of an individual. Undoubtedly, the inviolability of the right to property, as envisaged in the current legislation of Ukraine, is one of the fundamental principles of a democratic society and law-bound state. For example, Article 41 of the Constitution of Ukraine imperatively prescribes that “No one shall be unlawfully deprived of his or her ownership right. The right to private property is indefeasible.” At the same time, the aforementioned norm of the Main Law has been implemented into the criminal procedural legislation of Ukraine. Thus, Article 16 of the Criminal Procedure Code of Ukraine describes conceptual approaches to inviolability of the ownership right, which are specified in a number of other norms of the Criminal Code of Ukraine regulating provisional restriction or deprivation of the ownership right of an individual. In particular, it relates to search, examination, investigative experiment, seizure of property, attachment of property, transfer of the seized property to ARMA (Asset Recovery and Management Agency), etc. Thus, given a larger number of cases when the property right is restricted, such right no lon-

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ger seems to be as stable and absolute as the Constitution of Ukraine establishes. Moreover, in the present-day Ukraine restriction, or even deprivation, of the ownership right of an individual before a court judgment becomes effective is, unfortunately, practiced on a daily basis. Consequently, unsubstantiated attachment of assets, limitation of the flow of funds in banking accounts have become an acute problem businesses are currently facing. Also, of special concern is the legal ambiguity which has arisen in connection with the formation and operation of the Asset Recovery and Management Agency (ARMA). It is worth noting that existence in the system of public bodies of institutions like ARMA is not a novation. Almost every European state has a public body authorized to keep and manage property referred to as an exhibit, used as a tool to commit a criminal offence or acquired as a result of the latter. However, adopting a specialized law, members of the Ukrainian Parliament made a number of mistakes, due to which the aforementioned body became a hostage of the current situation. Thus, in accordance with prescriptions of Article 100 of the Criminal Procedure Code of Ukraine ARMA is authorized not only to manage property, but also alienate it. At the same time, cases in which alienation of property is admissible and permissible have not been outlined. In turn, representatives of the law-enforcement bodies make use of these legislative loopholes and, in fact, force ARMA to alienate attached assets. Thus, representatives of pre-trial investigation bodies and prosecutors, enjoying a sufficient scope of powers, evidently abuse their rights to restrict property rights. Consequently, it ends up with absolutely unreasonable restriction of the right to property of individuals who have nothing to do with a criminal offense. To illustrate the aforementioned, we will consider a particular case: having learned that the property of our client who had not been interrogated within a criminal proceeding even as a witness (not to mention the status of a suspect), has been attached, we sought to have the respective ruling of an investigative judge reversed. After considering the lawyers’ complaint, the panel of judges concluded that the property had been attached ahead of time. As a result, the attachment was withdrawn. However, the triumph of justice and supremacy of law did not last long. On the next day, the prosecutor filed a motion for attachment of property with a court of first instance. Miraculously enough, the investigative judge granted the motion on the same day warranting a new attachment. Criminal practitioners know from their experience how much effort it takes to have an investi-

We provide legal services for many leading international and Ukrainian companies like: Azovmash Corp., Prizma Beta LLC, UkrinBank/ UkrinCom; Corporate non-government pension

gative judge consider an ordinary motion or complaint of the defense within a reasonable period of time (at least two or three weeks). At the same time, motions filed by prosecutors or detectives (including those relating to attachment of property) are considered, as usual, within a short period a time. Even more surprising is the fact that if a lawyer happens to know about consideration of such motions filed by a prosecutor and intends to attend the hearings, the desire to promptly consider them evaporates for some reason. The aforementioned facts lead to the quite pessimistic conclusion that in the present-day system of criminal justice of Ukraine the norms of the Criminal Procedure Code of Ukraine, which introduce the principle of equality of parties to a criminal process, are absolutely inoperative. This is just a small illustration of the gap which has arisen in the relations between “court-prosecutor” and “court-lawyer.” As to the problem of uncontrollable attachment within criminal proceedings of property owned by individuals who have not gained the status of suspects or defendants, it can be solved by introducing simple changes into the Criminal Procedure Code of Ukraine. To do this, it is enough only: a) to limit the number of motions for attachment of property prosecutors and detectives can file with the investigative judge; b) obligate investigative judges to notify property owners of consideration of motions for attachment of their property (only notices excluding compulsory participation). Such simple changes will immediately liquidate numerous abuses

on the part of pre-trial investigation bodies and prosecutors. Another, but no less acute problem for property owners who have encountered the law-enforcement system, is the return of property which is no longer attached. What problem would there seemingly be if there is a court decision to return the property to its owner? In practice, however, the lawyer and the owner of the attached property have to pass through seven circles of hell to return the acquired property. We would like to draw attention to a number of ready-to-use answers that detectives or prosecutors give to the lawyer’s request to execute the court judgment and return the property: -- We have not received the original of the ruling of the investigative judge to withdraw the attachment and obligation to return the property. -- Let the owner come in person and take it back. Besides, we have something to discuss with him. -- The property of your client has been transferred for examination, which will last for a certain number of months. It means that there is nothing to return at the moment. -- The ruling of the investigative judge does not state a period of its execution and, for this reason, there are no grounds for its immediate execution. -- The ruling of the investigative judge is not a court decision in the understanding of the Criminal Procedure Code of Ukraine and, therefore, there is no point to refer to

Clients

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its immediate execution and threaten with a criminal proceeding for non-compliance with it (Article 382 of the Criminal Code of Ukraine). -- Your property has been lost during move/ transfer to another division/another body of pre-trial investigation. -- Your property has been sold in auction/ tender in connection with impossibility to manage it properly. This gives rise to the logical question “Is it possible to break the vicious circle?” The answer we can confidently give is “Yes!” In the course of many years of practice in the area of criminal law and process the lawyers of our firm have elaborated a clear mechanism to solve the problem of groundless attachments and liens of their clients’ assets. Apart from this, while solving this problem, we are not limited to solely judicial mechanisms of protecting the rights of our clients. The combination of several actions at the same time, for example, challenging actions of prosecutors or representatives of law-enforcement bodies in court, making the process which involves the media, public, taking measures to hold law-enforcement officers responsible for abusing their authority, is quite effective. Thus, it is only this complex approach that makes it possible to effectively protect the lawful rights of the client and to reduce abuse on the part of investigators and prosecutors.

Cross-Border Debt Restructuring

he majority of Ukrainian corporate non-performing loans capable of restructuring have been restructured within the space of the last few years. At the same time, the current global economic situation, which is not favorable for Ukrainian exporters, gives reasonable grounds to expect new defaults in the corporate sector, especially in export-oriented industries. This creates new challenges for creditors as well as new opportunities for debt investors active in the region. It is important, in this regard, to understand the peculiarities of local legislation and debt restructuring practices so as to accommodate appropriate measures and avoid unnecessary risks. This article focuses on certain factors to be considered by foreign creditors and investors before entering the Ukrainian market.

Oleksander Plotnikov Partner, Head of Banking & Finance and Debt Restructuring practices, Arzinger

Out-of-Court Restructuring Until October 2019 Ukrainian legislation did not provide efficient instruments for court-approved restructuring, which allowed the cramming down of dissenting creditors. Thus, consensual restructuring was considered a more preferable solution for both creditors and debtors as it gave greater certainty of outcomes and flexibility in terms of realization of contractual arrangements between parties to the restructuring process. However, consensual restructuring creates some risks for participating creditors which have to be addressed properly. The main issue is the activity of dissenting creditors whose aggressive actions may destroy the restructuring process. In this case, it is important to understand the real possibilities for dissenting creditors at each stage of restructuring, and to what extent dissenting creditors may be pushed beyond the perimeter of restructuring. It should be noted that the position of some dissenting creditors is predetermined by their status and applicable laws, leaving for them no options other than enforcement. For instance, the National Bank of Ukraine or the state-run Deposit Guarantee Fund may not participate in restructuring, as it is not provided for by the legislation regulating their activity. Thus, despite the restructuring initiated by their debtor, they have to opt for enforcement, causing complications for the restructuring process involving other creditors. The existence of such entities in the creditors pool should be taken into account and addressed respectively before the restructuring commences. Another important issue is to what extent a restructuring agreement is binding on and enforceable against a debtor and the creditors who signed it. In the course of voluntary restructuring a separate standstill agreement is often concluded to pervert uncoordinated actions by creditors. However, the essence of the obligations of parties under this kind of agreement is such that its enforcement is not secured by Ukrainian law. In the vast majority of cases such an agreement is governed by English law, and disputes are referred to commercial arbitration. The practical

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enforceability of its provisions is rather vague. Therefore, the main focus in such case is on the reputational consequences for the offender and the possibility to claim damages in international arbitration.

Securing Obligations The issue of securing the debtorâ&#x20AC;&#x2122;s restructured obligations deserves particular attention. Various options are used in practice, but the most popular are the following: (1) each creditor retains its existing security and the new additional security is registered in the name of the security agent; (2) all of the security is transferred to a security agent. In the first case, a mechanism of distribution of the enforcement proceeds by each secured creditor among all secured creditors is normally set out in the restructuring agreement. At the same time, it is worth taking into account the fact that due to the specifics of Ukrainian currency control legislation Ukrainian creditors may be limited in their ability to make such payments to foreign creditors. The issue of selection of a security agent and the legal basis for its appointment very often causes debates in practice. The point is that the most common legal concepts used for appointment of a security agent are the concepts of trust and parallel debt. Neither of these concepts is recognized by Ukrainian law and both are rather doubtful in terms of prospects for judicial protection in Ukraine. At the same time, the joint and several creditor concept is recognized by Ukrainian law and is the safest one for creditors in terms of legal protection. However, it is not always exercisable in practice, especially in projects involving multiple creditors from various jurisdictions. Therefore, in practice creditors often have to accept the risk associated with the first two options.

Court Restructuring and Cram Down Mechanisms The aggressive actions of dissenting creditors often become a major problem in the course of a restructuring. The English scheme of arrangement and U.S. Chapter 11 have become quite popular in global restructurings, largely due to the possibility to cram down dissenting creditors, which enables subordination of the interests of a small group of creditors to the interests of the debtor and the majority of creditors. As mentioned above, the cram down mechanism was not available in Ukraine until October 2019. However, such a mechanism has emerged with the coming into force of the new Bankruptcy Procedures Code. Article 5 of this code provides for the financial rehabilitation mechanism which may be initiated by a debtor prior to commencement of bankruptcy proceedings. Financial rehabilitation is carried out under the financial rehabilitation plan, which may provide for (i) dividing creditors into categories depending on the type of claims and security, (ii) different conditions for satisfaction of creditorsâ&#x20AC;&#x2122; claims

Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger for over 17 years has been among the legal business leaders providing high-quality legal support to clients throughout Ukraine. Among the firmâ&#x20AC;&#x2122;s clients are top representatives of international and local business. Arzinger follows high standards of legal services and is a reliable 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, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance, anti-corruption compliance and business ethics. We serve clients operating in the energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other 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 70 seasoned legal professionals led by 8 partners. All of them are acknowledged among leading experts on the Ukrainian legal market and are recognized 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 clientâ&#x20AC;&#x2122;s expectations. Arzinger cooperates closely with legal advisors from numerous jurisdictions and is a member of international professional organizations, enabling it to engage colleagues from various

jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

in different categories, (iii) obtaining loans for financing current activities, (iv) extension, deferral or forgiveness of a debt (a part thereof) etc. A financial rehabilitation plan must be approved by the creditors involved at a meeting of creditors called by a debtor. If secured creditors take part in the restructuring, the financial rehabilitation plan must be approved in each category by the secured creditors holding at least 2/3 of the total amount of the secured claims included in the financial rehabilitation plan in the respective category. In addition, the financial rehabilitation plan shall be approved by unsecured creditors holding at least 50% of the total amount of unsecured claims included in the financial rehabilitation plan in the relevant category. An important condition is that the terms and conditions of the financial rehabilitation plan for creditors who either did not vote or voted against the rehabilitation plan should be no worse than the conditions for creditors who voted in favor of the financial rehabilitation plan. At the same time, the law provides for the protection of creditors from concerted actions

by the debtor and its related parties. Thus, the votes of creditors affiliated with the debtor shall not be taken into account when approving the financial rehabilitation plan. The financial rehabilitation plan approved by creditors shall be ratified by the commercial court at the debtorâ&#x20AC;&#x2122;s place of registration. The court must adopt its decision within one month from the receipt of the application from the debtor. The financial rehabilitation plan approved by the court is binding on all creditors, whose claims have been included in the financial rehabilitation plan. As we see, this mechanism is rather similar to the English scheme of arrangement and may well become an alternative in the debt restructuring of Ukrainian companies.

ing loans are in retail debt and uncollectible debt in the corporate sector. While it is still possible to make profit in retail, subject to a proper approach to the collection process, the chances in the corporate segment are extremely limited. At the same time, a new round of defaults and restructurings may eventually bring interesting assets to the market. On top of that, foreign exchange legislation, which has previously been one of the main sources of problems in the structuring of distressed debts sale, has been substantially amended and now provides for many more options to the parties in the ways through which they can fulfill their commercial arrangements. Despite positive changes in local legislation, Ukraine still remains a country with developing economic and legal systems, which in practice materialize into risks for creditors and investors. These risks cannot be eliminated in the short term, but clear identification of respective risks and understanding of their implications allows a sober and well-balanced decision to be made.

Selling Debt Destressed debt has always been an interesting asset as it attracts a lot of investors. However, despite the large amount of non-performing loans in Ukraine there are hardly any really interesting assets left. The majority of non-perform-

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ADDRESS: Senator Business Centre, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

Currency Regulation

Currency Liberalization in Ukraine: What Changes in Currency Regulation Took Place in 2019 and What Changes should We Expect in Future

Nina Bets Lawyer, Ilyashev & Partners

new currency regulation system was launched in Ukraine in 2019. Laws of Ukraine No. 2473-VIII On Currency and Currency Transactions, which introduced significant liberalization of currency transactions and capital movements, came into force. The basic principle of the new currency legislation of Ukraine is now “everything which is not expressly forbidden by law is allowed”, i.e. it provides an opportunity to carry out any currency transactions that are not directly prohibited by the laws of Ukraine. Currency control has been replaced by currency supervision as a system of measures aimed at ensuring compliance by the subjects of currency transactions and authorized institutions with the currency legislation. The foundations for transition from the system of total currency control in each transaction to currency supervision, built upon the principle “greater risks — more attention, smaller risks — less attention”, are being laid. The following major currency restrictions, which put foreign investors off Ukraine, have been lifted: 1. The dividends repatriation limit has been abolished. It is now possible to transfer foreign currency abroad in order to pay dividends to the non-resident founder without any restrictions. 2. The procedure of obligatory registration of loan agreements with non-residents has been canceled. According to the latest amendments, instead of registering, the servicing banks are only required to submit information to the National Bank of Ukraine about the conclusion of such an agreement for statistical purposes. To this end, a special automated information system of the National Bank of Ukraine, called Cre dit Agreements with Non-Residents, was created. 3. The restriction on early repayment of interests under the loan agreements with non- residents has been canceled. According to the rules applied before, the early repayment of interests under the loan agreements with non-residents was not previously possible. 4. The requirement for mandatory sale of currency received under agreements concluded with non-residents has been abolished. The canceled rules required the business to carry out mandatory sale of 30% of the foreign exchange proceeds. 5. The currency supervision over the following transactions has been canceled: -- export and import transactions up to UAH 150,000;

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-- import of goods under state defense contracts; -- import of services or medicines under agreements of the Ministry of Health of Ukraine with specialized organizations, as well as import of services for treatment of rare diseases; -- import of goods used for the production of space and aviation equipment and units; -- export and import of goods within the framework of production sharing agreements; -- export of works, services (except transportation and insurance services and works) and intellectual property rights. This means that all of the above transactions are not subject to currency supervision by Ukrainian banks, are not subject to a payment (settlement) deadline, and no penalties can be applied by the Ukrainian tax authorities for breach of such payment deadlines. 6. Sanctions in the form of termination of foreign economic activity for violation of payment deadlines are abolished. 7. Currency forwards for the hedge of export, import and debt transactions are allowed. 8. Transactions on the accounts of non- resident legal entities opened in Ukrainian banks are now allowed. Previously, non-residents were allowed to open only so-called investment accounts in Ukrainian banks, which was a rather difficult procedure. Foreign companies are now allowed to open current accounts and make payments using these accounts. 9. The buying and accumulating of foreign currency in the external borrowings’ accounts is allowed. Previously, the possibility of buying and accumulating foreign currency in the accounts was denied. In addition to Laws of Ukraine No. 2473-VIII On Currency and Currency Transactions, the new system of currency regulation of Ukraine consists of eight major resolutions of the Board of the National Bank, which replaced the previous regulatory base consisting of 56 regulatory acts: -- Resolution No. 1: On Approval of Regulation on the Structure of the Foreign Exchange Market of Ukraine, Terms, Conditions and Procedure for Trade in Foreign Currency and Precious Metals in the Foreign Exchange Market of Ukraine; -- Resolution No. 2: On Approval of Regulation on Transactions with Currency Assets; -- Resolution No. 3: On Approval of Regulation on Cross-Border Movement of Currency Va lues;

Founded in 1997, Ilyashev & Partners is one of the most prominent and authoritative full-service law offices in the CEE region with the largest network representation in Ukraine. We have achieved this by employing leading experts in various areas of law practice, innovative thinking and strict compliance with ethical standards in relationships with clients. Ilyashev & Partners provides services in almost every practice area to well-known inter national companies, leading Ukrainian companies and financial institutions, government agencies, law offices and consulting companies. With offices and representatives in Kyiv, Moscow, Tallinn, Dnipro, Kharkiv, Odesa, Simferopol, the firm employs over 50 highly professional lawyers. Ilyashev & Partners offers its clients legal support and counseling in the field of currency reg-

ulation at all stages of the investment process and foreign economic activities. The firm’s services in currency regulation include: -- Advising on currency restrictions appli cable to all foreign currency transactions; -- Advising on foreign currency aspects of debt restructuring; -- Licensing of foreign currency transactions; -- Advising Ukrainian residents on the procedure of making investments abroad. Given many years of experience, our team has a thorough understanding of all the nuances of currency regulation in Ukraine and, thus, is able to help foreign investors to invest successfully in Ukraine, as well as to Ukrainian businesses to make investments abroad without any difficulties whatsoever.

The rules of currency regulation in Ukraine are constantly changing and every year brings certain amendments to legislation. However, this does not prevent our lawyers from being aware of all changes, responding quickly and effectively when addressing the issues of our clients. The high professionalism of our team helps in solving problems of any complexity and offering the best possible option for our client.

-- Resolution No. 4: On Approval of Regulation on the List of Safeguard Measures, the Procedure and Criteria for Their Introduction, Extension and Early Termination; -- Resolution No. 5: On Approval of Regulation on Safeguard Measures and Determination of Procedure for Carrying Out Certain Transactions in Foreign Currency; -- Resolution No. 6: On Approval of Regulation on the Procedure for the Provision by Banks to the National Bank of Ukraine of Information on Contracts, which Envisage the Performance by Residents of Their Debt Obligations to Non-Resident Creditors on Loans and Credits Received by the Residents; -- Resolution No. 7: On Approval of Instruction on the Procedure for Currency Supervision by the Banks over the Residents’ Com pliance with the Payment Deadlines in Export and Import Transactions; -- Resolution No. 8: On Approval of Regulation on the Procedure for Conducting by the Authorized Institutions of the Analysis and Verification of Documents (Information) on Currency Transactions. Resolutions No. 1-3 will be in force until the National Bank has the need to apply foreign exchange market safeguards to prevent circumstances threatening the country's macro-financial stability. Resolutions No.4 and 6 define the general list of possible safeguards and the criteria for their application in the foreign exchange market, and also establish a procedure for maintaining statistical records of credit agreements with non-residents. Resolution No.5 is of a temporary nature and defines specific safeguards introduced by the National Bank. These measures will be lifted with the improvement in the macro-financial situation. Resolution No.7 also temporarily determines the procedure for the banks to exercise currency supervision over compliance with the payment deadlines within a framework of export and import transactions, until such requirement is completely abolished. Regulation No. 8 is one of the key documents in implementing a risk-based approach to currency supervision. The currency restrictions that may affect the interests of foreign businesses in Ukraine and still remain in force are specified below. The National Bank sets the deadlines for payments in the goods export and import tran sactions. These restrictions imply that, in accordance with a foreign trade contract concluded between a resident of Ukraine and a foreign company, the

funds should be credited to the accounts of residents in Ukrainian banks within the terms specified in the contracts, but not later than within 365 days. The term of debt payment is calculated from the date of customs clearance of the exported products. As regards the import of goods, their delivery must be made within the terms specified in the contract, but not later than within 365 days from the date of advance payment. Failure of a resident to meet the payment terms entails a penalty for each day of delay in the amount of 0.3% of the unpaid amount under the contract (cost of non-delivered goods). The suspension of payment deadlines may take place in case of force majeure or in case the court or international commercial arbitration accepts the resident’s claim for debt recovery from non-resident. Also, upon a resident’s request and subject to proper grounds, the payment deadlines may be extended on the basis of a special opinion of the Ministry of Economic Development and Trade of Ukraine. Another restriction affecting the interests of foreign business in Ukraine is the prohibition imposed on Ukrainian banks from conducting cash withdrawals in foreign currency from the customers’ accounts in the territory of Ukraine. However, such relaxation in currency regulation does not mean that Ukrainian banks do not exercise control over foreign currency transactions. The procedure for currency supervision is set forth in the Resolution of the National Bank of Ukraine On Approval of the Regulation on Currency Supervision No.13 of 3 January 2019. The Regulation defines the basic principles of implementation by the National Bank and the authorized institutions of currency supervision in Ukraine, the grounds and the procedure for application by the National Bank of the enforcement actions to the authorized institutions for violation of currency legislation requirements. Banks are the authorized foreign exchange supervisors responsible for monitoring compliance with currency laws by residents and non-residents during transactions. Such supervision involves establishing the compliance of foreign currency transactions of the clients (residents and non-residents) with the requirements of Ukrainian currency legislation, preven ting clients from conducting through the bank of foreign exchange transactions that do not meet the requirements of foreign exchange legislation, and/or timely informing — as an authorized institution — the National Bank in accordance

with the procedure established by the laws of Ukraine, including by the normative legal acts of the National Bank, of the currency transactions that do not meet the requirements of currency legislation. The absence of documents with the banks (in hard/soft copy) confirming com pliance of their clients’ currency transactions with currency legislation, provided that no more than five years have passed since the date of these currency transactions, qualifies as the banks’ failure to exercise or improperly exercise currency supervision as related to non- fulfillment of their obligation to prevent their clients from conducting currency transactions that do not meet currency legislation requirements. In addition, the National Bank conducts financial monitoring to prevent the use of the banking system of Ukraine for legalization of proceeds of crime. Financial monitoring means the acti vity of detecting illegally obtained the proceeds and preventing the financing of terrorism. The National Bank establishes requirements for banks and non-banking institutions to counteract the laundering of illegally obtained proceeds and checks their compliance. When conducting financial monitoring, banks and non-banking financial institutions audit clients and analyze their financial transactions. In case of suspicious transactions, the banks inform the State Financial Monitoring Service and law-enforcement agencies of Ukraine. In the aforesaid activity the National Bank acts in accordance with the International Re commendations on Combating Money Laundering and the Financing of Terrorism and Proliferation of Weapons of Mass Destruction (FATF). The National Bank, together with experts of the International Monetary Fund, have developed a further Currency Liberalization Roadmap, which envisages a step-by-step lifting of all currency restrictions with the improvement of macroeconomic conditions in Ukraine. The lifting of currency restrictions will be preceded by an assessment by the National Bank of such macroeconomic indicators as GDP growth rate, inflation dynamics, currency market conditions, financial stability, foreign markets situation, etc. At the same time, the currency liberalization foreseen by the Roadmap has no timeframe. Accordingly, the sooner macroeconomic and financial conditions become favorable, the faster the National Bank of Ukraine will remove restrictions on the foreign exchange market, and vice versa.

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Customs

Customs IP Questions in Ukraine: Latest Changes to Legislation

Victoria Sopilnyak Partner, Doubinsky & Osharova

Olga Sopilnyak Attorney-at-Law, Doubinsky & Osharova

n 17 October 2019, the Verkhovna Rada of Ukraine adopted amendments to the Customs Code of Ukraine (hereinafter - the Code), which were embodied in the Law of Ukraine No. 202-IX On Introducing Amendments to the Customs Code of Ukraine regarding Enforcement of Intellectual Property Rights during Movement of Goods Across the Customs Border of Ukraine (hereinafter - the Law). On 14 November 2019, the Law On Introducing Amendments came into force. The Law was adopted for the purpose of implementing the provisions of directives and Regulation (EU) No. 608/2013 in order to establish general rules for the effective fight against the illegal market of counterfeit and pirated goods without impeding the freedom of legal trade. The amendments are aimed at strengthening the customs protection of intellectual property rights and accelerating the movement of original goods across the customs border. Currently, the Law stipulates that the customs register may include objects of copyright and related rights, inventions, industrial designs, trademarks, geographical indications, plant varieties, topographies of semiconductor products. The measures to promote the enforcement of intellectual property rights can be applied exactly to these objects. Objects such as a utility model are excluded from the mentioned list. The industrial design remains. Although the mentioned object is an instrument of “patent trolls” to receive remuneration from real business for them to be able to use the industrial design, which is entered in the customs register, by prohibition of import or export of goods that have long become commonly used articles, it has the right to exist in the customs register. Other means should be used to combat patent trolling. The Law On Introducing Amendments also distinguishes between the concepts of “counterfeit goods”, “pirated goods” and “goods suspected of infringement of intellectual property rights”. A new version of the Code defines counterfeit goods as not only being those goods that contain objects of IP rights, the import of which into the customs territory of Ukraine or export from this territory is an infringement of the intellectual property rights protected by law, but also, in particular, any package, label, sticker, brochure, operating manual, warranty or other document of this type, even if presented separately, which are subjects of infringement of the intellectual property rights to the trademark or geographical indication, which contain any designation, name or term identical to a trademark or geographical indication protected in Ukraine, or which are confusingly similar to the mentioned trademark or geographical indication, and which may be used in relation to the same type of goods, in relation to which the trademark or geographical indication is protected in Ukraine.

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The amended Code has been updated with the terms "pirated goods" and "goods suspected of infringement of intellectual property rights". From now on, measures to promote the enforcement of intellectual property rights are not applied, in particular, to original goods, that is to say, those goods manufactured with the right holder’s consent or the goods manufactured by a person duly authorized by the right holder to manufacture a certain quantity of the goods, including the quantity exceeding the quantity agreed between this person and the right holder. Moreover, such measures will not be applied to personal belongings and goods imported in the hand luggage and/or accompanied luggage to the amount of up to EUR 1000 through the customs station at an airport and up to EUR 500 at other customs stations and weighing up to 50 kg. In fact, the updated Code permitted parallel import, which is in essence the import of original goods that are legally purchased outside Ukraine and are imported into Ukraine by importers, which are not authorized by the right holder. According to the WTO glossary, parallel import is an operation when a product that was legally manufactured (that is to say, which is not counterfeit, not pirated) abroad is imported without the permission of the owner of the intellectual property rights (for example, the owner of the trademark or the patent). As a rule, the right holder is not satisfied with the possibility of certain business entities (which are not authorized by the right holder) to perform parallel import into a certain territory of the original goods purchased outside the territory of importation. However, the possibility of "fighting" against parallel import and the availability of appropriate countermeasures depends directly on the principle of exhaustion, which is in force in a certain country. This is: -- either the international principle of exhaustion, according to which the owner's right to prohibit the use of a trademark is exhausted after the sale of the goods, regardless of the fact, in which country the goods were put into civil circulation. That is to say, in the event of putting the goods bearing a certain trademark into civil circulation in any country by the owner of this trademark, the subsequent resale of these goods in any other country, where the rights thereof are also protected, may no longer be limited or prohibited by the owner; -- or the national principle of exhaustion, which provides for the exhaustion of rights for each country individually. That is to say, if the goods were put into circulation in the territory of other states, their import and sale in the territory of the state that follows the national principle of exhaustion may be carried out only with the consent of the trademark owner or an authorized person.

Doubinsky & Osharova is one of the most respected Ukrainian IP boutiques. The firm has a highly-skilled team, whose professionalism is based on deep knowledge of global practice and their own experience. Doubinsky & Osharova delivers a full range of IP services to big local and foreign corporate clients, including: -- developing corporate IP strategies, programs and use policies; -- trademark and patent prosecution (search, preparation of patent and trademark applications, IP portfolio audit and optimization); -- drafting various types of IP contracts, including licensing and assignment; -- drawing up and deploying IP protection strategies for various types of businesses; -- IP in pharma; -- copyright; -- plant variety; -- conducting investigations, including monitoring violations (corporate, IP);

-- IP litigation, including trademarks, patents, copyright disputes, and related unfair competition matters; -- protection of IP rights in the Media & IT sphere, including domain disputes and copyright; -- supporting IP cases at the Customs Service, including counteracting parallel imports and border control, etc; -- IP crime & Anti-counterfeiting. Doubinsky & Osharova partners and associates are members of the International Trademark Association, International Association for the Protection of Intellectual Property, Pharmaceutical Trademark Group, Ukrainian Trademark Association, Ukrainian Bar Association, Ukrainian Association of Patent Attorneys. The firm’s leading position in the area of IP has been continuously recognized by numerous reputable national and international rankings

such as Chambers Europe, The Legal 500 EMEA, The World Trademark Review 1000: The World's Leading Trademark Professionals, Managing Intellectual Property IP STARS, IAM Patent 1000: The World’s Leading Patent Professionals 2020, Best Lawyers, Ukrainian Law Firms. A Handbook for Foreign Clients, Top 50 Leading Law Firms in Ukraine, The Top 100 Best Lawyers of Ukraine. The Client’s Choice, Leaders of the Market.

Ukraine has not yet found its position. We do not have a legislative enshrinement of either of the above-stated principles of exhaustion. Although we all understand that the international principle of exhaustion is de facto in force in Ukraine. The new version of the Code also changes the approaches to the destruction of goods, the customs clearance of which is suspended on suspicion of the infringement of intellectual property rights. The Code establishes the destruction of the mentioned goods as a result of so-called “tacit consent”. This means that in the event of suspension of the customs clearance of goods on suspicion of the infringement of intellectual property rights, the right holder has the right to initiate the destruction of the goods. The declarant agrees either to the destruction of the goods or submits an objection to the mentioned destruction. In the event of untimely submission by the declarant to the customs authority of the owner's objection to the destruction thereof, the customs authority has the right to consider that the consent of the owner of the goods to the destruction thereof is thereby granted. The simplified procedure for the destruction of the goods, the customs clearance of which was suspended on suspicion of the infringement of IP rights has been harmonized with the procedure defined by Regulation (EU) No. 608/2013. If the owner of the goods does not object to the destruction within an established period, the customs officers destroy the goods (tacit consent). Previously, the simplified procedure was only possible subject to the existence of an agreement in writing between the right holder and the owner of the goods. The Code also individually defines the peculiarities of the suspension of the customs clearance and destruction of small consignments of goods (up to 3 units or weighing up to 2 kg), which are moved (shipped) as international postal and express items. In this connection, small consignments of goods (up to 3 units in one parcel or weighing up to 2 kg), which

are moved as international postal and express items, may also be destroyed. For example, if the order of the goods is made on the web site AliExpress or on a similar web site and the customs officer suspects that the mentioned goods may be counterfeit or pirated, they may be destroyed and, as a result, the customer will not receive the order. According to the Code, all costs related to the storage of the suspended goods (which is payable from the next calendar day after the day of placement thereof in a warehouse) shall be borne by the right holder. At the same time, the right holder may request from the customs authorities information on the amount of the mentioned costs and, in future, has the right to demand compensation for the mentioned costs from the owner of the goods. Thus, recovery of compensation is supposedly possible, but the problem is how all of this can actually be done. Another innovation is the possibility of a preterm release of the goods, the customs clearance of which is suspended on suspicion of infringement of intellectual property rights (Article 4001 of the Customs Code of Ukraine). The problem point is a matter of notifying the right holder of the suspension and providing the relevant decision. Thus, according to the Code, the customs authority notifies the right holder of the suspension of the goods by sending a notification by facsimile and/or electronic communication. The date of receipt of the notification shall be the day when the mentioned notification was sent by the customs authority. At the same time, the customs authorities reckon on a 10-day period for submitting a decision of the right holder on the suspended goods from the date of the suspension of the goods. As a result, the right holder supposedly has a 10-day period established by law. In reality, the time limit for submitting a response is much shorter. In the event of the right holder being a non-resident of Ukraine, the submission to the customs authority of a court decision on the suspension of the customs clearance of goods within the time

limits established by the current customs legislation of Ukraine is practically unrealistic. Furthermore, from now on if, due to improper performance of the duties, the customs authorities permit counterfeit or pirated goods to cross the border of Ukraine, the right holder has no right to get compensation for material damages and to bring the customs authorities to responsibility. The final provisions of Law On Introducing Amendments state that, within 3 months from the date of entry into force of this law, the Cabinet of Ministers of Ukraine should develop and approve regulatory legal acts necessary for the implementation of this law. The draft procedure for taking measures to promote enforcement of intellectual property rights and interaction of customs authorities with right holders, declarants and other interested parties and draft procedure for registration in the customs register of intellectual property rights protected in accordance with the law is currently being discussed. The procedure for interaction between customs offices in the implementation of customs control and customs clearance of goods containing subject matters of intellectual property rights approved by Decree of the Ministry of Finance of Ukraine No. 647 of 30 May 2012 is in force. However, the mentioned Procedure does not contain answers to the following questions: how will the customs authorities ascertain the authenticity of the goods, what is the amount of costs for storage of the goods in the warehouse of the customs authority, the term and methods of payment of such costs, and how will the destruction of the goods take place? We hope that with the adoption of the regulatory legal acts necessary for the implementation of the Law all controversial issues that are still unclear today will be resolved, and that one of the most important tasks of the customs authorities, which consists of the prevention of counterfeit and pirated goods from entering the domestic market of Ukraine, will be attained.

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DOUBINSKY & OSHAROVA

ADDRESS: 110 Zhylianska Street, Kyiv, 01032, Ukraine Tel.: +380 44 490 5454 E-mail: info@iplaw.com.ua Web-site: www.iplaw.com.ua

Due Diligence

Due Diligence of IP Rights

Nataliia Riazanova PhD in Law, IP Attorney, Managing Partner, SION Patent Law Firm

odern business realities are forming new rules and opportunities for strengthening our positions and security on the market. The anticipation and prevention of risks associated with the loss of a company’s intangible assets or their non-liquidity are vital tools of protection. That is why the due diligence of the IP rights procedure is performed. It takes in the following set of measures: -- verification of the legality of obtaining protection documents in Ukraine for inventions, utility models, industrial designs, trademarks, copyright objects with a mandatory description of the due diligence of protecting the rights of the authors of these intellectual property objects, establishing no conflict of interests between the authors; -- verification of know-how and trade secrets protection; -- study of the list of IP objects used by the company under licensing agreements; -- verification of the actual use of IP objects by the company and protection of such rights; -- identification of innovations in the company and recommendations for their protection; -- identification of legal disputes and claims of infringement of intellectual property rights; -- other activities that are necessary for achieving the purpose of conducting due diligence of IP rights. Practice has shown that due diligence of IP rights is necessary in the event of buying/selling intellectual property rights, mergers and acquisitions of businesses, attracting finance, optimizing taxes, optimizing the company’s innovation potential and identifying the most promising innovations, which in the future provides opportunities to create and implement the company’s management system for intellectual property rights and forms a reliable, transparent intellectual property portfolio. Depending on the purpose for performing due diligence of IP rights, the strategy and tactics of the conduct and the experts involved in this procedure are determined. Enterprises that use objects of IP rights shall protect exclusive rights to their intangible assets. In order to keep a strong position on the market and to use effectively competitive positioning in relations with third parties regarding intellectual property rights, the senior management of a company shall always have access to objective and up-to-date information, namely: -- innovative activity of the company and the number of employees involved in this process, as well as the internal legal documents of the company; -- quality and quantity of intellectual property rights and their use in the company’s activities, degree and duration of their protection; -- licensing agreements of the company; -- encumbrances, violations or possible viola-

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tions of the rights to the objects of intellectual property rights of the company; -- assessment of the value of intellectual property rights, taxation, listing in registers, etc. One of the most important tasks in conducting due diligence of IP rights in the company is to identify unused intellectual property rights that entail unreasonable expenses and to get rid of them. The owners of trademark certificates and patents are granted a monopoly on their use, but there are situations when owners do not apply and do not use registered intellectual property rights in their business activities. This may hinder the operation and development of other businesses that want to use such a trademark, invention, utility model, or industrial design, but cannot obtain the consent of their copyright holder. According to Ukrainian legislation, if the owner does not use the trademark within the period established by law, then any person has the right to apply to the court for early termination of the certificate in full or in part, and if the requirements are met, to then register the mark and to legally use it. The situation is somewhat different for inventions, utility models and industrial designs. One can invalidate a patent only if it does not meet the requirements of the law. If the patent is not used for three years from the date of publication or the date when its use was discontinued, any person can apply to the court for permission to use such an invention, utility model or industrial design. It should be noted that the courts pay attention to the reasons for the non-use of the registered object. For example, the owner of a trademark certificate can assert their rights if the fact of non-use is due to valid reasons, which may include: circumstances that prevent the use of the trademark regardless of the will of the certificate owner, such as restrictions on export/import or other requirements for goods and services established by law, and the possibility of misleading a person who produces goods or provides services. The next important task is to check the timing of maintaining the protection of intellectual property rights. Thus, it is not only important to register and obtain protection documents, but to also extend the term of protection for inventions, utility models, industrial designs, and trademarks. The final term of inventions’ protection is the 20th year of the patent and the 10th year for industrial designs and utility models. At the same time, the term of the patent for an industrial design can, in some cases, be extended to 15 years. The trademark certificate shall be renewed every 10 years. The above-mentioned deadlines shall be continually monitored as these are the most frequent causes of loss of intellectual property of a company due to lack of attention on the part of the persons responsible, which is why such control is entrusted to a professional in outsourcing. Another important consideration in the process of conducting due diligence of IP rights is that internal documentation and internal regu-

International company SION Patent Law Firm has been providing advisory and legal services on patents since 2011. The company is a member of the Ukrainian Chamber of Commerce and Industry and has headquarters in Kyiv, Kharkiv, London (UK). The company provides quality support to foreign business in Ukraine and helps to enter our market quickly and safely. Our regular customers include top players in pharma industry, IT business, fashion industry, catering, energy, higher education institutions, as well as private innovators and inventors. The highly-skilled lawyers, attorneys, patent attorneys of the SION team specialize in providing professional services in IP rights, tax, financial and investment law. We offer a comprehensive bundled legal service, pre-conducting deep due diligence of s client's business, which is a unique service for the Ukrainian market. Our experience in conducting due diligence prevents financial and business risks that could damage clients' reputation. Our experts: -- develop a comprehensive business protection strategy; -- provide tax planning and implementation of legal tax optimization schemes; -- provide risk analysis of new product management when entering the market of Ukraine; -- deliver registration of trademarks and other IP objects with the Ukraine IP Office and other countries; -- enter client IP objects into customs registers of intellectual property;

-- act on behalf of clients, defend their rights and represent their interests in court; -- reveal the location of production facilities and points of sale of counterfeit products, ensure prosecution; -- provide interaction with law-enforcement and other government agencies. SION employees are members of the Ukrainian Bar Association, All-Ukrainian Association of Patent Attorneys; they participate in the development of draft bills, workshops and seminars for lawyers. Our prestige and trust depend on the success and reputation of our clients. Nataliia Riazanova, a PhD in Law, Patent Attorney of Ukraine No.484, is a SION Managing Partner. She has 15+ years of experience in due diligence of IP rights. Nataliia masterminds SION in the registration of IP rights, intellectual property audit, development of strategies for protecting business intellectual property, following customs procedures, revealing forgery, counterfeiting, trafficking in counterfeit products and commercialization of intellectual property. Nataliia works with national, foreign and international companies to protect their interests in Ukraine, the United States of America, Czech Republic, Russia, Canada and the United Kingdom. She puts forward an innovative and progressive approach in finding solutions for complex legal cases to defend the position of clients. Ms. Riazanova works actively with state authorities, participates in discussion of draft laws in the field of intellectual property and acts as a speaker at conferences and specialized seminars. She completed internships in the USA,

Germany and the United Kingdom in the field of commercialization of intellectual property. She joined the team of lead educators in two programs, Business and Intellectual Property and Entrepreneurship and Hi-Tech Laws. In cooperation with SION and EX1P, a British venture accelerator aimed at the development of innovative start-ups via training, mentoring, expert support and investments, Nataliia conducts comprehensive due diligence of innovative start-ups to obtain investments for development. Nataliia enjoys recognition among field professionals and has law and business awards: grand prix of the all-Ukrainian competition (2019 Super Ukrainian Lady in the Profession), WOW Successful Awards (2018 Breakthrough in Innovative Business), 9th place in the WOMAN 500 rating based on research by the European Association for Business Development (2017 Great Business, Great Personality).

lations are carried out based on the process of creating intellectual property, innovations are managed, and know-how and trade secrets are protected. I will focus in more detail on the service objects of intellectual property rights that were created in a company during the performance of any official tasks or research work, or exclusively in the course of labor relations. Thus, the entire chain of documents is analyzed from the moment of the first mention of the innovation in question to the moment of obtaining rights to the object of intellectual property rights. This is necessary to confirm the legitimate grounds of ownership, confirm the authenticity of authorship and to avoid any conflicts of interest between authors. Thus, according to Article 9 of the Law of Ukraine On Protection of Rights to Inventions and Utility Models, the rights to an invention created in the course of labor relations between the inventor and the employer belong to the employer, unless otherwise provided by relevant written agreements between the em-

ployer and the inventor. At the same time, Article 430 of the Civil Code of Ukraine provides for joint ownership of intellectual property rights between the customer (legal entity) and the inventor unless otherwise provided by relevant written agreements between them. Given the complexity of the legal settlement of this issue in Ukraine, this aspect requires careful verification in the process of conducting of due diligence of IP rights. When it comes to an upcoming transaction for the purchase/sale of intellectual property rights, the main focus of due diligence of IP rights is on the choice of tactics for conducting the procedure. So, if the customer of the service is the owner of the rights to the object of intellectual property rights they will, as a rule, choose the “protective”, “defensive” tactics of conducting due diligence of IP rights, while the buyer of the rights, accordingly, “attacks”. Therefore, the use of “protective” tactics for the seller of intellectual property rights enables legal purity to be

proven, competitiveness in the market, the best quality in terms of possible disputes of rights and, as a result, it is a reliable foundation for justifying the highest possible price for the rights of intellectual property rights for the sale. At the same time, when ordering such a service, the buyer of such rights conducts a similar set of measures to clarify and confirm the “strength” of the object of intellectual property rights being put up for sale. However, the result of this due diligence of IP rights is the search for evidence of pressure on the seller to reduce the cost of selling an object of intellectual property rights. These examples of areas of due diligence of IP rights show how important it is to know the state of affairs in this area in the company, first of all, by its owner or top manager so as to avoid and prevent financial, reputational, and business risks. After all, intellectual property is the foundation of any business and a strong and reliable intellectual portfolio is its tool.

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SION PATENT LAW FIRM

ADDRESS: 12 Romena Rollana Street, Kharkiv, 61058, Ukraine Tel.: +380 95 629 6663 E-mail: info@sion.ua Web-site: www.sion.ua

Energy

Ukrainian Green Energy: Obstacles to Opportunities

kraine has become a perspective market for large-scale construction of "green" energy power stations, which marks the inflow of a large amount of investment into the industry. At the beginning of 2020, global investors reconfirmed their readiness and willingness to invest in the development of the Ukrainian renewable energy sector. Considering the inevitability of a gradual global transition towards renewable energy, significant legislative and political processes in Ukraine are under way to establish effective regulation in this area. Nevertheless, Ukraine’s "green" energy market is now seeing the appearance of barriers for RES producers. Below is a short summary of the non-exclusive risks that RES investors need to be aware of when planning investment in RTB projects.

Iaroslav Cheker Counsel, Head of Energy and Natural resources, LLM (Cantab), Arzinger

Bohdan Shmorhun Associate, Arzinger

Restriction (Curtailment) of Electricity Production Considering the precedents set this year and last of forced curtailment of electricity production and increased construction of new SPPs and WPPs, the Integrated Power System of Ukraine has shown its inability to operate with such amounts of overproduced energy. Therefore, cases of restrictions of green electricity will allegedly become more frequent. According to the Electricity Market Law in the event of a threat to the operational security of modes of the Integrated Power System of Ukraine, the Transmission System Operator (NEC Ukrenergo) can restrict electricity production. Undoubtedly, this leads to significant financial losses for RES producers. Thus, full (green tariff equivalent) compensation of the electricity which was curtailed is statutorily envisaged. However, due to the absence of a mechanism for compensation in the law, actual compensation is not paid out. The above demonstrates the need to develop a more flexible power system, as production volumes grow faster and faster each year and consumption and exports decrease, as well as amending primary/secondary legislation to define who (TSO or Guaranteed Buyer) should compensate for losses and under which methodology such losses will be calculated.

Guaranteed Buyer Balance Deficit The viable work of the sole buyer of electricity of RES producers, i.e. SE Guaranteed Buyer, has proven to be a significant issue. Due to the largescale growth of alternative electricity generation in Ukraine, the payment discipline of the Guaranteed Buyer is becoming rather poor. Currently, due to the lack of a sustainable and sufficient source for "green" tariff payments, the Guaranteed Buyer is unable to pay all guaranteed payments to RES producers (the debt is over

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UAH 7.5 billion), which harms the electricity market of Ukraine and its reputation in the eyes of foreign investors. In this regard, it is necessary to find new sources for the Guaranteed Buyer’s income or amend existing ones.

Memorandum of Understanding between Government and RES Investors On the last week of May or so it is expected that the Ministry of Energy and Environmental Protection of Ukraine will finally sign the Memorandum of Understanding with the two associations of renewable energy producers after a rather lengthy mediation process under the supervision of the Energy Community Secretariat. The final version of the memorandum, although not publicly available, is widely discussed and criticized for the majority of RES producers (medium and small) not involved in the mediation process. The memorandum will most probably serve as a base for further legislative changes in Ukraine governing relations in renewable energy production and related areas. The new legislation will impact all renewable energy producers as well as solar panels/wind turbines producers, EPC contractors, creditors of RES projects, and other related stakeholders. Thus, without the final details, it is understood from public sources that -- RES producers will be asked to ’opt into’ the voluntary restructuring process and decrease the feed-in tariff. Those who opt out of the restructuring process will most likely lose the priority right to payments from the Guaranteed Buyer (whose payment discipline is already rather poor and payment deficit is expected to grow massively). -- There will be acceleration in the liability for non-balances (for those who opt out of restricting liability it will increase immediately). -- There will be acceleration in cut-off dates for projects with valid pre-PPAs. -- A solution will be proposed to the curtailment issue. Expected changes will inevitably lead to a decrease in cash flow for RES producers, which will further affect their loan repayment plans. Moreover, the mere fact of reduction in the feed-in tariff will most likely be treated as a Material Adverse Effect and constitute an Event of Default under loan agreements. Thus, it is expected that RES producers and their lenders will have to negotiate restructuring of outstanding debt. In this respect, we expect that RES producers need to closely watch the developments of proposed changes and assess the risks associated with it, and assess the possibilities of arbitration and restructuring of loans received for the RES

jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

projects. We note that Ukraine has, in the past, already cut the feed-in tariff and changed the rules of the game.

Such submission has not yet been registered with the Constitutional Court of Ukraine, and we assess the chances of its registration by 49 MPs as being low. Nevertheless, critical assessment of the aforesaid submission should be carried out. Declaring the establishment of the GT to be unconstitutional would undoubtedly severely impact the investment climate in Ukraine.

declarations named April 2020 as a scheduled timeline for the holding of green auctions. But this did not happen, and it seems impossible in the near future taking into account the pandemic. Green auctions seem to serve as a good instrument for future regulation of granting state support, but the current situation requires clear and constructive measures to be taken. Today, the initiatives are not clear enough on the changes to be undertaken for implementation. One can observe that state executives make feasible endeavours to have dialogue with business and to figure out workable solutions. Before the COVID-19 collapse, the Ukrainian energy market faced a lot of working meetings and public events involving major stakeholders and decision-makers in the alternative energy market. Moreover, delays by the Guaranteed Buyer with making payments even worsen the situation, generating additional stress for existing players on the market and forcing new players to reconsider their options for investing in the market. A sound approach to the establishment of clear rules for the payment of existing debts is vital for overcoming the existing situation and saving the market’s attractiveness for international investors. We hope that a balance between the interests of the investors and the state will finally be found and formalized, and that this will serve as a key source for sustainable development of renewable energy in Ukraine.

Submission to the Constitutional Court of Ukraine Several media outlets recently circulated news that MPs have prepared a submission to the Constitutional Court of Ukraine seeking to declare unconstitutional a number of legislative provisions on the establishment of "green" tariffs. The main arguments of these MPs in the submission are as follows: 1. The Parliament of Ukraine (Verkhovna Rada of Ukraine) acted ultra vires and had no power to set up the GT value, as this power is vested in executive authority (Cabinet of Ministers of Ukraine) 2. The GT is too high, and thus: -- the title of the Ukrainian people to its resources is infringed; -- the GT is not aimed at social justice; -- the GT does not meet the requirement of the state budget to be balanced (i.e. the reimbursement for green energy constituted 7.9% of total produced energy value, while the share of RE in total energy production was only 1.9%); - - the protection of competition is not respected due to the favourable GT regime.

Switch from the GT Automatic Granting to Green Auctions Parliament decided to introduce green auctions in order to have a lower price for RES-produced electricity. Their aim is to get fair distribution of state support (via auction prices) based on the quotas determined by the Cabinet of Ministers of Ukraine upon the submission of Ministry of Energy and Environmental Protection of Ukraine. Such quotas are established once every five years. As now envisaged by the Alternative Energy Sources Law the auctions should be conducted twice a year. However, despite the changes adopted almost a year ago, no auctions have been held yet. Even a pilot auction, which was linked to the adoption of the Government Procedure for the Conduct of Auctions has not been held yet, and the market is totally unaware of the planned amount of quotas. The fulfilment of the obligations of the government and state bodies regarding green auctions is currently very slow and ineffective. The latest

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ARZINGER

ADDRESS: Senator Business Centre, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

Energy Efficiency

Energy Sector of Ukraine: Problems and Opportunities

Alexander Burtovoy Partner, ANTIKA Law Firm

Alexander Tretiakov Senior Associate, ANTIKA Law Firm

he critical problems of the energy sector caused by the inconsistent policy of the state have been going on for decades. Despite the fact that the need to develop a strategic general approach to the development of the energy sector as a whole and the development of some of the most "problematic" sectors has been repeatedly raised, for many years the state's policy in this sector was target-focused. It was only about separate questions, which emerged from the political conjuncture at the time, and were required by international obligations of Ukraine or lobbied by certain political forces.

Such policy has led to the fact that each time the decisions made by the state did not take into account the general state of the energy system, or possible problematic consequences for it in the future, or the impact on other sectors of the economy. The issue of "green" energy has become another one, the solution of which was carried out by the state in the above-mentioned targeted regime and, accordingly, one more among many other problems of the energy system of Ukraine. In the previous year, after more reform of the energy market and due to the slowdown in economic development, these problems only worsened, as it became clear that the energy sector in Ukraine is on the verge of collapse. Today, green energy has gradually created an enemy, the main problem of the current state of the energy system. In fact, solving the problem of feed-in tariffs is associated with solving the problems of the energy sector as a whole. Is that really so? The problem with feed-in tariffs, which are currently inflated in relation to the state of the market, certainly exists. The state, trying to solve the problem, adopted changes in 2019 that introduce green auctions and quotas. Theoretically, this should lead to the size of feed-in tariffs to be competitive. World experience, in particular in Germany, Denmark and China, shows that the introduction of a system of green auctions has led to a significant reduction in the average size of the feed-in tariff without reducing the amount of investment attracted by the industry. That is, such approach is a very effective "intermediate" solution between full state support in the form of a sustainable feed-in tariff and the operation of RES stations on fully market-related, competitive conditions. However, this does not solve the problem. Ukraine has already established a significant number of RES stations, the vast majority of which are solar. Moreover, before the entry into force of the new rules in 2019, there was a real boom of investors in this industry, who tried to "catch the last ride". For example, as of today, prePPA contracts for the construction of about 5,500 MW have already been planned and signed in Ukraine, which is more than was put into operation by 2019. Of course, it should be noted that given the economic downturn in Ukraine and the world after the pandemic and the problems with the feed-in tariff, it is expected that most of the contracted capacity will not be constructed - especially those that are only allocated land and construction design. However, construction has already begun on many objects and the question of the economic feasibility of its continuation is becoming very acute for investors. On the one hand, stopping construction will definitely lead to losses, on the other hand â&#x20AC;&#x201D; continuing construction in the current conditions can only further increase these losses, especially if the state solves the problem of feed-in tariff only via administrative bans and forced reduction of its cost.

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At the same time, the beginning of state support for green energy in Ukraine is quite specific, when the feed-in tariff for solar energy was many times more favorable than the tariff for other types of RES, the structure of RES production capacity in our country is extremely unbalanced. The number of solar stations is almost half of all generating green capacity, and this is taking into account the generation from hydropower. If we talk about the new stations â&#x20AC;&#x201D; the solar is more than two-thirds of the total number of other RES constructed stations. And with this, solar energy is the most difficult to connect to the general Ukrainian network - because energy is not exclusively generated only during the day, but also the generation capacity is difficult to predict and strongly depends on weather conditions. This creates additional problems with balancing the connected capacity in the network. These problems are additionally exacerbated by the fact that the country has almost no balancing and maneuvering capacity. There is no legal basis for their normal and, most importantly, profitable operation. Therefore, there are no plans to build storage stations in Ukraine that could reduce the imbalance of networks. According to Ukrenergo's calculations, shunting and energy storage capacities of up to 1.5 MW are required for the effective integration of renewable energy sources (RES) into the unified energy system of Ukraine and its safe operation by 2021. The irony of the situation is that Ukraine cannot even balance its network by importing/exporting electricity, which, by the way, is one of the most effective and widely-used measures in the world. Ukraine's energy system, which we mostly inherited from the USSR, is connected to Russia's networks. But today our country should not and has no right to make the dependence of the stability of its energy network on relations with Russia. Connection to the single power system of Europe was carried out on only one pilot project, with a capacity of 600 MW, after which all relevant plans were traditionally frozen for Ukraine for many years. Therefore, we cannot cooperate with Europe technically, with Russia (as it was before) â&#x20AC;&#x201D; politically. Currently, the balancing and coverage of peaks is carried out thanks to depreciated coalfired power plants, which do not meet modern requirements for harmful emissions. No type of modern shunting generation can compete on the price with such electricity, and there are no negative consequences for the owners of "dirty" power plants. Investors will not invest in the construction of shunting facilities in such conditions. There is a paradoxical situation when the introduction of RES production facilities leads to an increase in the total amount of harmful emissions due to the need to balance their work at the expense of old extensive stations. That is, without building such facilities, Ukraine would have cleaner air.

ANTIKA Law Firm has been providing legal services to corporate and private clients since 2010. During this time the firm has achieved a competitive advantage on the legal market, and been recognized by reputable international and Ukrainian guides like The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, IFLR1000 Financial and Corporate, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, Client Choice. The Top 100 Best Lawyers in Ukraine. The firm received Legal Award 2012 in the nomination of “Law Firm — a Breakthrough of the Year”. The Firm is the Finalist of the Legal Award 2013 in the field of Antitrust, Litigation and Real Estate, and in 2014-2019 in the field of Energy. The firm’s partners have more than 20 years experience of providing business law advice. ANTIKA’s team includes 15 highly-qualified lawyers who possess significant experience in various fields of legal practice. The key practices of the firm include corporate, M&A, Banking and Finance, Arbitration, Energy, Antitrust, Private Clients, Land law & Real Estate, Competition Law, Dispute Resolution, Legal expertise, Infrastructure and Logistics, PPP & Government relations.

The firm’s main principles are high quality legal services provided in a timely manner, strict confidentiality and a bespoke approach to every client’s project. Having a good understanding of today’s challenging business requirements and a deep knowledge of legal environment we bring an innovative, creative and practical problem-solving approach to all of our work. The firm’s clients are Ukrainian and international companies doing business in various industries, including telecommunications, heavy, chemical, food, automotive industries, subsoil use, complex development, real estate and construction, wholesale and retail, media and sports, banks and financial services market. The following are representative clients: AWT Bavaria, Association of International Automobile Carriers of Ukraine (AsMAP), Cadogan Petroleum, Chornomornaftogaz, Esan Eczacıbaşı Industrial Raw Materials, Energobank, Ghelamco, Heitman, Henkel Ukraine, Henkel Bautechnik Ukraine, Ibis Group of Companies, Imperial Tobacco, International Resources Group, Lantmannen Axa, Nadra Ukrayny, Nasosenergomash, ViDi Group, Ukrnafta, insurance company Persha. The firm also advises the World Bank, European Bank for Reconstruction and Development, USAID,

TACIS, UNDP, KfW, NEFCO on energy efficiency, utility and the implementation of other projects in Ukraine. The firm’s partners have many years of experience providing business law advice. They are members of national and international professional legal organizations, particularly the International Bar Association. ANTIKA is a member of the Ukrainian Chamber of Commerce and Industry, the Kyiv 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.

What Changes Awaited Green Energy in 2020?

Feed-in Tariff Reform — What are the Prospects?

According to the amendments to the Law of Ukraine On Alternative Energy Sources, adopted in April 2019, solar power plants with an installed capacity of more than 1 MW and wind — more than 5 MW, were to win the auction for the allocation of state support quotas. According to the results of the auction "for reduction", from the starting price (the size of the feed-in tariff) companies will have the right to enter into contracts of sale of electricity for 20 years from the date of commissioning of the station. The total annual amount of state support quotas (installed capacity of the power plant) should be determined by the Cabinet of Ministers. On 13 December 2019, the National Energy and Utilities Regulatory Commission of Ukraine made appropriate changes to the regulatory acts governing the work of the State Enterprise Guaranteed Buyer and approved a standard form of contract to be concluded based on the results of the auction. And on 27 December the Cabinet of Ministers approved the Procedure for holding auctions for the distribution of support quotas. The procedure for holding auctions stipulates that land plots for the construction of renewable energy facilities with certain technical parameters and technical conditions for connection to the electricity grid may be offered for bidding. The land auction is held separately from the general auction. The procedure for holding auctions also determines the rules for depositing and returning the bank guarantee of the bidder and the winner of the auction. Auctions were to begin in the ProZorro system by April 2020. However, they were never started. The main reason for not launching green auctions is the lack of annual quotas that determine the total capacity of green energy, which claims a favorable incentive tariff. The Ministry of Energy planned to develop a tariff after negotiations with businesses to reduce the so-called feed-in tariff. However, due to the introduction of quarantine, negotiations were suspended, and as a result — the launch of auctions as well.

The financial condition of the state and, in particular, the State Enterprise Guaranteed Buyer currently does not allow to ensure the fulfillment of the state's obligations under the feed-in tariff, even for current stations. The existing debt to producers has already reached about UAH 3 billion and by the end of the year may reach UAH 19 billion. What should be done next is unclear, or when the facilities of 2019 will be put into operation. Negotiations between the Ministry of Energy and investors and renewable energy producers began in October 2019, but the issue remained unresolved for quite prolonged period of time. The state proposed a "hard" option — a significant forced reduction of the tariff and the introduction of liability for imbalances, while at the same time, investors and producers point out that the tariff proposed by the state will make energy production unprofitable and threatened to go to court. Such rhetoric had taken more than half a year to finally reach a compromise solution. In June the state and biggest RES investors signed a memorandum regarding the further fate of the RES sector in Ukraine. The final decision is that the green tariff will be lowered by 15% for solar and by 7.5% for wind generation and energy producers will be held liable for the energy balance. The term of the “green” tariff is not extended, however. So, is the situation on the energy market solved by this? Unfortunately, no, since, as we have mentioned before, green energy production is not the main problem of the market. Moreover, the energy situation is significantly exacerbated by the coronavirus pandemic. Due to the introduction of quarantine and shutdown of enterprises, the demand for electricity has fallen significantly, and therefore the problematic issues of network imbalance. The question of whether the government will have the funds to pay the lowered green tariff also remains. At present, a number of nuclear power plant reactors are being shut down due to the lack of need to generate these facilities. At the same

time, thermal power stations are 100% loaded. Under such conditions the increase of the energy price on the market is almost inevitable — which under the current situation may lead to further energy savings and mass non-payments. I.e., it is hard to expect that the energy market will rich stability in the near future — and the further “negotiations” with the “evil” RES producers will probably begin by the end of the year. All this may likely to be lead to a repetition of the Spanish scenario in Ukraine. It should be noted that in Spain, due to inefficient policies, the country was forced to reduce the feed-in tariff due to the impossibility of paying it, after which investors began to apply en masse to arbitration. Today, virtually any further development of this industry in Spain is blocked for several years, and the fate of many already constructed stations remains unknown. In anticipation of the economic crisis in the country due to the consequences of overcoming the pandemic increase in electricity tariffs, which will inevitably happen if you transfer the main generation to RES and thermal power stations, may be the last nail in the coffin of many industries in Ukraine. Obviously, the solution must be sought in reaching a compromise for all market participants, possibly with a proportionate and fair distribution of quotas. And such a dialogue should take place not only with the participation of RES investors, but also representatives of all types of generation. Unfortunately, history shows that such a decision is unlikely to be possible in Ukraine. Currently, some experts fear that in the absence of a systemic solution, the energy market will be regulated manually. In particular, by instructing the dispatchers of the integrated power system to stop generating for "foreign" stations and repay the debt at the feed-in only to "their" privileged companies. It should not be forgotten that the existence of concluded contracts in Ukraine does not guarantee the receipt of funds. In the past, there have been precedents when certain state-owned companies, which had significant debts, received legally established immunity from lawsuits for recovery of funds, seizure of property, etc.

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Enforcement of Foreign Awards

Enforcement of Foreign Awards: How to Save Both Time and Money

Aleksandr Lugovskyi Partner, Eterna Law

n recent years, more and more interna tional businesses and foreign investors are choosing arbitration as a way to settle their disputes. There are many reasons why arbitration has become so popular. One of the most significant advantages is the possibility to recognise and enforce arbitral awards almost everywhere around the globe in accordance with a procedure that is efficient both in terms of time and cost. Such a procedure emerged with adoption of the Convention on the Recognition and Enforcement of Foreign Arbitral Awards (or commonly referred to as the New York Convention). The parties to the Convention undertook to recognise and enforce awards within a simple and fast procedure with limited grounds for refusal. The list of grounds to refuse recognition and enforcement prescribed in the New York Convention is exhaustive and cannot be extended. Ukraine is amongst 164 parties to the New York Convention. It implemented the procedure, prescribed in the Convention into its national legislation. Nevertheless, until recently, parties seeking recognition and enforcement of foreign arbitral awards in Ukraine faced certain obstacles, some of which related to the unfamiliarity of courts with international arbitration and its procedure, or broad interpretation of the grounds for refusal of recognition and enforcement of arbitration awards. Court practice has now changed and Ukrainian courts usually have a pro-arbitral approach.

General Procedure

Roman Syniuta Junior Associate, Eterna Law

The party applying for recognition of an award should file an application accompanied with the duly authenticated original award (or its duly certified copy) and the original arbitration agreement (or its duly certified copy). If those documents are not in Ukrainian, the party also shall provide the translation. The general rule is that the party should file the application for recognition and enforcement of the award within 3 years from the day when such award was made. The court, upon receipt of such application, checks if the application was filed within the 3-year term and if it meets requirements in terms of form and content. In addition, the court shall verify on its own initiative two grounds to refuse recognition and enforcement: 1) if the subject matter of the dispute is not capable of settlement by arbitration under the law of Ukraine and 2) if recognition or enforcement of the award would be contrary to the public policy of Ukraine.

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Ukrainian courts1 point out that a court may verify other grounds to refuse recognition and enforcement prescribed in Article V of the New York Convention only at the request of the party. Such party should prove those grounds with sufficient evidence. Furthermore, the courts2 emphasise that groundless refusal to enforce the award is absolutely unacceptable and violates the rights of the party seeking enforcement. Duration of the whole procedure of recognition and enforcement of foreign awards in Ukraine may vary significantly. If the opposing party files no objections, the procedure usually includes no more than two hearings and lasts up to 2 months. However, if the opposing party files its objections and tries to delay the process, the procedure may last longer. If the application meets all formal requirements and there are no grounds for refusal, the court issues a ruling to recognise and enforce the award. Once the award is recognised it has the same power and may be enforced as a judgement of a Ukrainian court.

Positive Developments in Case Law Recent court rulings on recognition and enforcement of awards indicate that Ukraine is implementing the world’s best traditions and practices in this area. Dishonest debtors may still try to delay the process, but it is almost impossible to frustrate the recognition and enforcement of a valid and binding award. When the law is unclear whether the recognition and enforcement is possible, the courts tend to choose pro-arbitral approach and interpret law in favour of arbitration.

Restrictive Measures (Sanctions) May Not be a Ground for Refusal of Recognition and Enforcement of an Award In Normetimpex JSC v Zaporozhtransformator PJSC3, Russian-based company Normetimpex filed an application for recognition and enforcement of an arbitral award to recover debt from Zaporozhtransformator. The debtor ¹Pelagia AS v Laran-07 LLC, Supreme Court, 9 December 2019, No. 796/41/2018, http://reyestr.court.gov. ua/Review/86435489 ²Moston Properties Limited v Ukrgasvydobuvannya PJSC, Supreme Court, 17 April 2019, No. 761/41709/17, http://reyestr.court.gov.ua/Review/82001379 ³Normetimpex JSC v Zaporizhiatransformator PJSC, Supreme Court, 19 March 2020, No. 824/146/19, http://reyestr.court.gov.ua/Review/88749651

Eterna Law is a full-cycle European law firm possessing strong expertise in Ukraine and the CIS region. Founded in 2002 in the Ukrainian capital, the firm has grown rapidly. We are continually named among market leaders for quality, responsiveness and reliability of service as well as for the depth of our expertise. We are a dynamic, client-oriented and solution-focused 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 within Ukraine and 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. It’s for this reason that we consistently act in some of the most high-profile matters in Ukraine and 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. We are an exclusive member of four lawyers association — First Law International, PLG International Lawyers, Libralex, AIEL which gives us the possibility to cover more than 80 jurisdictions for the needs of our clients.

objected to the application, asking the court to refuse the recognition based on the ground that two UBO’s of Normetimpex are listed in the Ukrainian sanctions list passed by the Decision of the National Security and Defence Council of 2 May 2018 On imposition and termination of personal special economic and other restrictive measures (sanctions), approved and enacted by Presidential Decree No. 126 of 14 May 2018 and, hence, recognition and enforcement of the award would be contrary to the public policy of Ukraine. The Supreme Court held that neither the Sanctions Law nor other regulations provide that Ukrainian entities may be released from their contractual obligations. Sanctions in certain circumstance may only delay their fulfilment. Hence, even if Normetimpex itself was on the Ukrainian sanctions list, it would not be a ground to refuse recognition and enforcement of the award in favour of Normetimpex.

proceedings of the debtor did not prevent a civil court from considering an application on recognition and enforcement of the award against the debtor. Furthermore, the Supreme Court held that if the award was made before the initiation of bankruptcy proceedings, bankruptcy proceedings should not be a ground to refuse recognition and enforcement of such award.

Bankruptcy Proceedings of a Debtor do Not Prevent a Civil Court from Considering an Application for Recognition and Enforcement of an Award According to the Bankruptcy Law, if a debtor is under bankruptcy proceedings, the only court competent to consider claims against such debtor is the commercial court that considers those bankruptcy proceedings. At the same time, commercial courts do not have jurisdiction to hear an application on recognition and enforcement of foreign arbitral awards as this is the exclusive jurisdiction of civil courts. In Dalmond Trade House Limited v Yenakievo Ironworks PJSC4 the Supreme Court (acting as a court of appeal instance) upheld the decision of the court of first instance that bankruptcy 4Dalmond Trade House Limited v Yenakievo Ironworks PJSC, Supreme Court, 16 January 2020, No. 824/125/19, http://reyestr.court.gov.ua/Review/87052957

Local Courts are Willing to Grant Conservation of Evidence or Interim Measures in Support of Arbitration Ukraine is party to the European Convention on International Commercial Arbitration. The Convention prescribes that a request for interim measures or measures of conservation addressed to a judicial authority shall not be deemed incompatible with an arbitration agreement, or regarded as a submission of the substance of the case to the court. Furthermore, this provision was implemented in the Ukrainian Civil Procedure Code and is recognised by Ukrainian courts. In Fidobank PJSC v Person 45, the respondent asked the court for a forensic examination in support of local arbitration. Despite the fact that this case concerns local arbitration, the court pointed out that forensic examination as well as other measures for conservation of evidence in support of either local or international arbitration should not be considered as interference in the competence of the tribunal and should, therefore, be allowed. As reconfirmed in Softcommoditiec Trading Company SA v Elan Soft LLP6, the court may grant interim measures in support of arbitration,

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provided that the applicant can establish that (i) there is a dispute before the arbitration tribunal and (ii) there is a real risk that unless the interim measures are granted the enforcement of the award would be impossible or complicated. It is worth noting that a Ukrainian court may grant interim measures only with respect to ongoing arbitration. Obtaining such an order before initiation of any arbitration proceedings is impossible.

Summary According to the 2019 Foreign Investor Survey by the European Business Association, for the fourth consecutive year the lack of trust in the Ukrainian judiciary is No. 2 amongst the most decisive obstacles to investing in Ukraine. Nevertheless, a positive approach with respect to recognition and enforcement of foreign awards as well as measures in support of arbitration mean that businesses and foreign investors can now rely on Ukrainian courts when it comes to international arbitration and subsequent recognition and enforcement of foreign awards in Ukraine.

5Fidobank PJSC v Person_4, Supreme Court, 1 November 2018, No. 23/17, http://reyestr.court.gov.ua/ Review/77590093 6Softcommoditiec Trading Company SA v Elan Soft LLP, Supreme Court, 24 September 2018, No. 785/1018/18, http://reyestr.court.gov.ua/Review/76812069

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Factoring

Problem Issues with the Return of Assets to Insolvent Ukrainian Banks

Dmytro Furman Сounsellor, MORIS GROUP

t the start of 2014 there were 180 active banks in Ukraine, but in the early part of 2020 just 75 active banks remained. 105 banks ceased their activities in the last 6 years. Most of them were declared insolvent by the state-run National Bank of Ukraine, and the Deposit Guarantee Fund commenced the procedure of their withdrawal from the market thereafter. Most of these banks went into liquidation and, as a result, in the period of 2014-2019 34 banks were liquidated by the Fund, and as of the start of 2020 61 banks found themselves in the process of liquidation. At the time when banks are declared insolvent they usually do not have liquid assets, and existing assets are booked at an unreasonably high value. The liabilities of such banks are normally much higher than the value of their assets, which makes it impossible to meet creditors’ claims out of the assets available in these banks. Therefore, the main objective of the Fund with regard to all such banks is to return the assets illegally withdrawn from them, in line with the Fund’s powers set out by the Law of Ukraine No. 4452-VI On Individuals’ Deposits Guarantee System of 23 February 2012. For this purpose, in addition to the usual measures of collecting debts from borrowers and other debtors of insolvent banks, the Law provides the Fund with special permits, namely: -- Identification of void contracts entered into by insolvent banks and application of the consequences of their nullity; -- Claiming damages from persons related to insolvent banks subject to certain conditions. The first measure provides for identification of void contracts, concluded by a bank within one year prior to the date of introduction of temporary administration in the bank, and application of the consequences of nullification of such contracts, in particular: reclaiming the bank’s property (funds) transferred under such contracts, or claiming indemnification of the property’s value. The Fund is obliged to reveal void contracts within the period of temporary administration of the bank, and has the right to apply the consequences of nullity of contracts during the entire period of a bank’s liquidation. Inter alia, the contracts are considered by the Fund to be void in the following cases: -- The bank pledged its highly-liquid assets to ensure fulfillment of the bank’s obligations under previously concluded bank deposit or bank account agreements with subsequent acquisition of such assets by the pledgee subject to extrajudicial procedure provided for in pledge agreements; -- The bank assigned to third parties its claim rights under credit agreements, secured by

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highly liquid assets, with a significant discount or significant delay in payment for the assigned claim rights, or with setting off payment against the funds of third parties within the bank when the bank did not have sufficient funds in its correspondent accounts in the other banks. After void contracts are identified, the Fund begins the procedure of application of consequences of their nullity, which means returning the assets withdrawn from the bank under such contracts. With regard to real estate the Fund approaches the respective state registrar of rights to real estate requesting restoration of the bank’s right to ownership to certain objects of immovable property in the relevant state register. But in most cases it appears that the owner of this property has been repeatedly changed, and the state registrar refuses to restore the bank’s ownership rights. If this is the case, the respective dispute regarding title to the property arises, which becomes the subject-matter of long legal proceedings, and in many cases court decisions do not go in favor of the bank. This means that the procedure of return of assets, withdrawn under void contracts, does not work properly due to gaps in legislation and it’s time to carry out a substantial review of legislation. The second measure used by the Fund to return illegally withdrawn assets from insolvent banks stipulated by paragraph 5 of Article 52 of the Law, according to which the Fund has the right, in the event of insufficient assets in an insolvent bank, to claim indemnification of damages from the bank’s related persons whose actions or inaction resulted in the bank’s or bank creditors’ losses, and/or from the bank’s related persons who directly or indirectly materially gained due to such actions or inaction. The filing of a claim for damages against an insolvent bank’s related persons whose actions or inaction caused damage to the bank and/or bank creditors is not a very successful measure for ensuring the return of assets that have been illegally withdrawn from a bank. The issue here is that the related persons of such a bank are usually bank officials, and with regard to illegally withdrawn assets they normally fulfill verbal instructions given by the bank’s beneficial owners, do not receive real benefit from the withdrawn assets, except for salaries and other remuneration (very often unofficial), and are not able to indemnify the damages. It is much more effective to claim damages from a bank’s related persons who gained materially, whether directly or indirectly, due to the actions or inaction of bank officials. But even in this case the Fund faces certain difficulties. The issue here is that the ultimate debtors of

MORIS GROUP is one of the leading law firms in Ukraine, which provides high-quality legal services with a special focus on Dispute Resolution, Tax, Banking and Finance, Corporate and M&A, Investment and Business Support, IT law, White-Collar Crime and Sports Legislation. We offer a wide range of legal solutions for our clients. The full scope of the firm’s legal services makes it proficient at such industries as banking and finance, agriculture, real estate and construction, technology and communications, FMCG and retail. MORIS GROUP, with its extensive expertise, is recognized as a reliable and trustworthy partner on the Ukrainian legal market. Our clients implicitly trust our competence and experience in the resolving of any legal matters. Our lawyers have been confirming this status through successful legal practice and recognition among the leaders of the legal market of Ukraine since the company was established back in 2004.

Professional, secure and efficient application of legal solutions for attaining the business goals of clients is a significant advantage held by MORIS GROUP. The search for the most convenient ways to solve and carry out clients’ legal tasks is the main peculiarity of MORIS GROUP, as is comprehensive defence and understanding of the business interests of clients. Every year the firm confirms its high positions in the national and international legal directories, namely The Legal 500 EMEA, IFLR1000, Tax Director’s Handbook, Best Lawyers, TOP-50 Law Firms of Ukraine by Yuridicheskaya Practika Publishing, Client’s Choice. 100 best lawyers of Ukraine by Yurydychna Gazeta, etc. We provide high-quality services for both international and domestic companies, banks, financial institutions, public organizations and unions. Our clients include: Hyundai Ukraine, Bombardier Transportation, Ukrlandfarming,

Ivanofrankivsk-cement, Persha Pryvatna Brovarnia, Football Association of Ukraine, Deposit Guarantee Fund, Karpatnaftokhim, NAFFCO, Radomyshl, CemInWest SA, DTEK.

an insolvent bank are usually fake legal entities, which were specifically set up to hide the illegal withdrawal of assets from the bank. Granting loans to such legal entities without their intent to repay the funds they received or alienating the bank’s property for the benefit of such entities are the so-called “last events” of illegal withdrawal of assets from the bank, due to which the bank becomes insolvent. However, subsequently such assets (money or other property) are repeatedly transferred or alienated respectively to other persons, and through a series of transactions such assets are finally used by concrete persons to repay their indebtedness to the bank and release liquid assets pledged to the bank to secure this indebtedness. By acting in this way such persons hide the so-called “first events” of assets withdrawal from the bank in the form of initially received funds and materially gain by using these funds. In practice it goes like this: -- Person 1 receives a loan from the bank and uses it for certain purposes (first event); -- At the time of repayment of this loan the bank grants a new loan to Person 2, which is not legally related to the bank (last event); -- Person 2 transfers the received funds to Person 1 as payment for investment certificates or shares of fake legal entities or under any other VAT-free transactions; -- Person 1 uses funds received from Person 2 to repay the debt owed to the bank. As a result respective funds were withdrawn from the bank, the debtor under the outstanding loan is legally an unrelated person to the bank, and a potentially related person to the bank materially gained from these funds, because he/ she used borrowed money for a specific purpose and repaid debt owed to the bank out of funds received from the bank by another borrower.

The described case is very straightforward; it is not difficult to identify the person who materially gained from funds withdrawn from the bank. But in practice such simple cases of funds flow from the last event to the first one are almost non-existent. Bank-related persons use much more complicated schemes involving a lot of legal entities, including fake ones. The flow of funds from the last event to the first one usually takes quite a long time (1-5 years), the number of transactions with funds is huge, operations are complicated, funds are transferred to other banks, split up into small amounts and transferred many times to various persons in different banks, both in the form of financial transactions (financial aid, payment for shares, investment certificates, etc.), and in the form of payments for goods and services. The bank itself may be taking an active part in transactions not only in the form of granting loans but also in the form of payments for promissory notes and other securities in fake legal entities. Having traced the flow of funds from the last event to the first one it is possible to identify the persons who actually materially gained out of these funds, but it’s not enough to claim indemnification of damages from such a person. By Law such claims must be addressed to the person who is legally related to the bank, though in practice it is very hard to prove such relationship. The beneficial owners of insolvent banks do their best to break the legal relationship to the bank of those persons who materially gained from the assets withdrawn from the bank. Therefore, even having identified the persons who materially gained from the assets withdrawn from the bank, very often all attempts to trace the legal relationship of these persons to the bank fail and, finally, it appears that these persons are not legally related to the bank, al-

though it is quite clear that the connection of these persons with the beneficial owners of the bank exists, though such connection is informal without the possibility to prove it. In this case it is not possible to apply the provision in paragraph 5 of Article 52 of the Law and claim indemnification of damages caused to the bank from the bank’s related persons. Therefore, it seems that the provision stated in paragraph 5 of Article 52 of the Law is somehow outdated. Due to this situation an insolvent bank’s related persons, who materially gained from assets illegally withdrawn from the bank, can easily escape respective liability. Amendment of this provision of the Law stipulating that claims for indemnification of damages, caused to an insolvent bank, can be addressed to any persons who materially gained out of assets, illegally withdrawn from a bank, is long overdue. At the same time, certain exclusions to this rule should also be introduced to eliminate the responsibility of those persons who received withdrawn funds on a legal basis as payment for goods and services that really were supplied. Investigation of the circumstances of first events, tracing the flow of funds withdrawn from insolvent banks and identification of persons related to an insolvent bank who materially gained from funds withdrawn from the bank is one of the main objectives of carrying out forensic audits of insolvent banks, which are in the process of liquidation by the Fund. Such an audit is carried out at the Fund’s request by a group of independent specialists including, but not limited to, bank auditors, lawyers, forensic investigators, property evaluation experts and IT specialists. The results of forensic audits are used as much as possible by the Deposit Guarantee Fund to recover losses incurred by insolvent banks.

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Family Law

Sharing Business Assets Between Spouses

ompanies (share in authorized capital or stock) owned by spouses, like other joint property, are subject to division. In turn the process of such property division has its own characteristics, since courts proceed not only from the general principles of property division, including the legal regime of joint property of spouses. They also consider the rights and interests of other persons (shareholders, company members). The existence of an agreement between the spouses on property division between them greatly simplifies the procedure, but in practice it is rarely concluded. Disputes around this issue are a usual practice.

General Principles for Sharing Business Assets between Spouses Oleg Golubnichyi Аttorney, Head of Family and Inheritance Law Practice, Head of the Family Law Committee (UAA), Attorneys of the Year 2019 (UAA) (2019), MITRAX

The current legislation of Ukraine does not contain clear requirements that apply to the division of corporate rights belonging to one of the spouses. This causes additional difficulties in the division of a business, since the spouses do not fully understand the characteristics and principles of the process. Each separate type of such property (LLC, JSC, Private Enterprise), as well as the property of an individual entrepreneur, requires a separate approach and has its own features. All that leads to the need for a separate study of each type of corporate rights and the procedure for their division. Judicial practice also has significant differences. In accordance with clause 1 of Article 61 of the Family Code, any property acquired in marriage can be considered common (except what was withdrawn). Business assets, regardless of their type (stock, share in authorized capital), can also be recognized as jointly acquired. Legislation does not contain any restrictions, excluding shares or stocks, as well as dividends from them, from the list of matrimonial assets. Thus, when they are divided, the general rules of law apply. However, it is worth considering certain characteristics. For example, the rights and interests of third parties and the special procedure for registering such rights.

Joint-Stock Company Shares also relate to civil rights objects (Article 177 of the Civil Code). Accordingly, such property is not excluded from circulation and can be recognized as jointly acquired if acquired in the course of a marriage using common funds. A joint stock company is a legal entity divided into a number of shares. Each such share has the same value. The rights of participants are confirmed by stocks which determine the shares of ownership and rights to organize (p. 1

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of Article 3 of the Law of Ukraine On Joint Stock Companies). The action determines not only the right to an appropriate share in the company, but also the right to receive dividends. In the event of liquidation of the company, its property will also be distributed in accordance with the shares held by shareholders. Another point — stock determines certain non-property rights in accordance with Part 1 of Article 6 of the Law of Ukraine On Securities and the Stock Market. Any shareholders may alienate their stock without the consent of the other participants (part 1, Article 7 of the Law of Ukraine On Joint Stock Companies). Accordingly, even if a block of stock is executed for one spouse, but was acquired in marriage, he/she can transfer the required part to the other spouse. The only condition is compliance with the principle of indivisibility of each individual share established in Part 1 of Article 6 of the Law of Ukraine On Securities and the Stock Market. When dividing stock, spouses should take into consideration certain points: -- not only is the stock itself subject to division, so are the dividends received from it; -- it is necessary to determine either the value of each share separately, or the value of the block of shares. In turn, if the stock was sold by one spouse without the knowledge of the other, the latter has the right to demand: 1. Compensation of the stock value, or 2. Rescission of contract.

Limited Liability Company The general rule is that if a share in the authorized capital of a LLC was acquired during the marriage period, it is taken into account when dividing property. However, there are some peculiarities that should be taken into account. The plenum of Supreme Court of Ukraine in clause 28 of Resolution No. 11 of 21 December 2007 indicates that contributions to authorized capital are not recognized as common property. This is due to the fact that according to Article 12 of the Law of Ukraine On Business Entities, the relevant company is the owner of the property or funds, which was transferred to it by the founders as a contribution to the authorized capital. Thus, initially, on any jointly acquired object, the right to common property is formed. But if it was included in the company, the other spouse is deprived of the right to own it. He/she receives the right to claim half of its value in the event that the total funds or property was not used in the interests of the family (para. 3 clause 28 of the Resolution of the Plenum of the Supreme Court of Ukraine). In turn, if the contribution to the authorized capital was made at the expense of the common property of the spouses in the interests of the family, then the other spouse

MITRAX is one of the leading law firms in Ukraine, which specializes in providing legal services in non-standard, complex cases in various business areas, and is focused on medium and large Ukrainian enterprises, as well as foreign and international companies having business interests in Ukraine. Among other things, MITRAX lawyers are often involved in legislative work with government agencies. MITRAX was founded in 2010. Since then, the company has maintained the status of one of the key players on the Ukrainian market of lawyer services. In its work, the MITRAX team counts upon the concentration of deep knowledge and practical experience in individual branches of law, and namely, dispute resolution, business protection, family and inheritance law, criminal law, distressed debts and combating raiding.

The MITRAX lawyers and their partners are noted by the authoritative periodicals conducting research in the Ukrainian legal market, including the following nominations: 'Best Family Law Attorney' in Lawyer of the Year 2019 and 'Best Family Law Firm of the Year' in Legal Awards 2019 according to 'Legal Practice' publishing house, and 'Lawyer of the Year in Banking and Finance 2018' according to the Ukrainian National Bar Association. Besides, MITRAX entered the TOP-50 of the best law firms in court practice considering family and hereditary disputes in 2019, as well as the Bronze League of the leading law firms of Ukraine in 2018 according to 'Legal Practice' publishing house. The company headquarters is located in Kyiv, and representative offices are open in Odesa and Zaporizhzhia.

has the right to share the income received (para. 2 of clause 28 Plenum of the Supreme Court of Ukraine). In fact, the spouse receives the right to compensation, which satisfies his/her rights and retains the rights of the company and its other members. The Grand Chamber of Supreme Court adheres to this position in a decision of 13 March 2019, which was adopted in case No. 756/10797/15-ц (proceedings No. 61-40676св 18): “Thus, if one of the spouses is a participant in a business company and contributes property acquired at the expense of matrimonial common capital into its charter capital, then such property becomes the property of this enterprise, and the ownership of the property is transformed into the right of claim from the other spouse (mandatory right), the essence of which is the right to claim half of the value of the contributed property in the event of division of matrimonial property or the right to demand half of the income received from the activities of the enterprise.” The above-mentioned provides the basis for conclusion that when dividing a share in the authorized capital of a company, the following principles should be adhered to: -- from the time the common property is transferred to the authorized capital of the company, it loses the signs of being joint matrimonial property and becomes the property of the company; -- the spouse receives the right to demand compensation of half the cost of the share in the authorized capital or income received from the activities of the company, depending on whether property (funds) was transferred to the charter capital of the company in the interests of the family.

Private Enterprise and Individual Entrepreneur Resolution of the Plenum of the Supreme Court of Ukraine No. 11 of 21 December 2007 in clause 29 determined that the property of private enterprise cannot be an object of joint ownership. A spouse is entitled only to a share of the income of such an organization. Significant changes were made after the decision of the Constitutional Court of 19 December 2012 established the opposite; if the property of a private enterprise was formed at the expense of the common property of the spouses, it is also subject to division in accordance with standard rules. Despite the fact that the clarification was primarily related to a private enterprise, in practice, IE property has also become the subject of a common joint ownership right. However, not all, but only the property, the source of acquisition of which were the common means of the two spouses. If the IE was able to prove in court that the property was purchased at the expense of an individual entrepreneur and was acquired for the purpose of conducting business, then it was not uncommon to recognize such property as the personal property of the IE. However, in the future, judicial practice was reformatted in such a way that only the source of its acquisition remained the criterion for classifying IE property as the joint property of the spouses. That is, if the property of the IE was acquired for entrepreneurial activity, but at the expense of the common means of the spouses, then such property is subject to division. The most current and recent practice of the Supreme Court confirms this. Thus, in the decision of the Supreme Court of 10 April 2020 issued in case No. 734/2887/17, the following

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was stated: “Therefore, the property of an individual entrepreneur, which is used for their economic activity, is considered the common property of the spouses, as well as other property acquired during the marriage, provided that it is acquired at the expense of funds belonging to the spouses. The use of the specified property by one of the spouses for carrying out entrepreneurial activity can be considered when choosing the method for division of this property. Thus, a systematic analysis of the above substantive law enables us to conclude that the property of an individual entrepreneur can be the subject of joint property of the spouses and the subject of division between each of the spouses, considering the general requirements of the law regarding the criteria for determining the legal regime of common property of spouses and its methods of division between each of the spouses.” Thus, when dividing IE and PE property, in fact, only the source of funds for which the property was acquired has a significant role. If it is acquired in marriage, then it is divided according to general rules. If not, then only the income from it is divided.

Conclusion The regime of joint ownership of spouses is also applied to business assets, including shares and stocks in authorized capital. However, the process considers the rights of other persons, including the organizations themselves, as well as the sources of capital for which such objects were acquired. In some cases, a spouse does not have the right to a share in the right of ownership, but to compensation, which he/she must demand under standard conditions. That is, through a court in the event of refusal of voluntary satisfaction of the claim by the spouse.

Financial Restructuring

Loan Relationships During and Beyond the Pandemic

Serhiy Chorny Managing Partner, Baker McKenzie – Kyiv

Stepanyda Badovska Associate, Baker McKenzie – Kyiv

usinesses in various domains will continue to experience negative effects from the COVID-19 pandemic beyond the long-awaited termination of quarantine measures introduced by the Ukrainian Government. This article is a brief overview of government initiatives aimed at maintaining and restoring the liquidity of Ukrainian borrowers', as well as certain recommendations on how to maintain loan documentation in good order.

op legislation imposing a broader ban on mortgage foreclosures, no such legislation has yet been passed. In addition, no express ban on the enforcement of pledges during the quarantine period exists. However, it can be argued that, in respect of consumer loans, the prohibition on the imposition of liability for failing to perform payment obligations during the quarantine may be interpreted as a restriction of foreclosure if triggered by such payment default.

Ban On Interest Rate Hikes

National Bank Encourages Restructuring

The Verkhovna Rada of Ukraine has forbidden raising interest rates (except for floating rates) on consumer loans initially until 31 May 2020 and, subsequently, till the end of the calendar month following the month of expiry of the quarantine period. Parliament also introduced a general temporary ban on Ukrainian financial institutions increasing interest rates under any loan agreements concluded with Ukrainian borrowers. This ban will remain in force for the duration of the restrictive measures introduced by the Ukrainian Government in response to COVID-19.

Another initiative to ease the financial burden of Ukrainian borrowers was launched by the NBU via the adoption of Regulation No.39 da ted 26 March 2020 (Restructuring Regulation). The Restructuring Regulation liberalized certain regulatory requirements related to credit risk assessment, purporting to stimulate Ukrainian banks to enter into debt restructuring arrangements with their clients suffering from the consequences of the pandemic. The NBU clarified that the restructuring should be made available for debtors that were not in default as of 1 March 2020. Loan agreePenalties for Failure ments should be restructured by September to Perform Payment 2020. The carrying out of restructuring is also subject to conditions that (i) it is necessary, in Obligations view of financial difficulties caused by the quarThe Ukrainian Parliament also prohibited antine and restrictive measures introduced by lenders from applying negative measures, inthe Ukrainian Government, and (ii) the bank in cluding fines and penalties, for failure to perform question is able to justify the launch of either a payment obligations under consumer loans till short-term or long-term perspective restructurthe end of the month when the quarantine peing based on evaluation of the debtor. To this riod ends. It also obliged the Ukrainian Governend, corporate debtors applying for the restrucment to prepare legal acts aimed at the deferturing should provide banks with evidence of a ral of payments under financial arrangements significant decrease in their revenue levels or secured by a mortgage (see Law of Ukraine No. termination of their business activity. 530-IX On Amending Certain Legislative Acts of As per the NBU recommendation, banks are Ukraine Aimed at Prevention of Emergence and encouraged to elaborate special programs on Expansion of COVID-19 (530-IX Law)). However, restructuring for small businesses and individno such legislation has yet been adopted. Aluals and to automatize the process as much though by its letter of 22 March 2020, the Naas possible. In each case, banks consider the tional Bank of Ukraine obliged banks to notify restructuring of debts of medium and large borrowers that payments for loans secured by businesses on a case by case basis. So as to mortgages would be deferred for the duration take a decision on restructuring, banks should of the quarantine, neither 530-IX Law nor any assess, among other things, whether a debtor other piece of Ukrainian legislation unambiguwill be able to restore its sound financial standously requires such a deferral. Later in June, the ing in future. Ukrainian Parliament passed amendments to There is no exhaustive list of restructuring the Civil Code and the Commercial Code that almeasures; in each particular case, the bank and low borrowers not to pay fines and penalties for its client can negotiate the set of such meafailure to perform monetary obligations under sures. However, the NBU recommended that credit (loan) agreements which occurred within banks make use of the measures provided for the quarantine period and thirty days thereafter. in the NBU regulations, including the deferral of principal instalment repayments and extension of maturity dates, introduction of PIK interest Foreclosure on Collateral option, decrease of instalments and other payUkraine’s Law No.530-IX strictly prohibits the ments amounts, etc. enforcement of residential property in discharge of debts on utility services. Although the same law obliged the Ukrainian Government to devel-

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Restructuring Stimulated by State Programs

However, the authorities have not yet developed a comprehensive program of liquidity support for Ukrainian companies of various scales of business and industry sectors, which would resemble, for example, the KfW Special Program 2020 and Economic Stabilization Fund in Germany or COVID Corporate Financing Facility and the Coronavirus Large Business Interruption Loan Scheme in the UK.

defaults in the performance of underlying contracts may affect the existence and value of the security involved. Verify the provisions on contractual liability and force majeure events in all project-related contracts so as to assess whether your counterparties are able to claim force majeure and how this would affect your project.

Ukrainian authorities introduced a number of measures (including exemptions from certain tax liabilities) to support businesses suffering from the introduction of restrictive measures. Thus, the Ukrainian Government has tailored the existing "5-7-9% affordable loans" state program (loans for up to UAH 3 million (≈EUR 100 thousand) at reduced rates) to address the needs of small businesses in light of the negative effects of the pandemic. The "5-7-9%" loan may now be obtained by eligible businesses with annual revenues not exceeding UAH 100 million (≈EUR 3.33 million) specifically to prevent or overcome the negative consequences of the virus. Such loans are provided through approved banks and may be supported by the state through the provision of a partial guarantee to secure loan obligations or partial financing of interest payments. In June, the Ukrainian Government decided to loosen certain requirements to eligible borrowers and loan projects, including the limitation on maximum amount of a loan extended under the program. Such amendments are yet to be implemented. In addition, the updated program provides an opportunity for certain Ukrainian borrowers to refinance their existing indebtedness to Ukrainian banks, including via restructuring. The state supports the refinancing of such indebtedness through the compensation of interest payments and is available for entities with annual revenues of up to EUR 10 million. The amount of refinancing is not limited as long as the amount of state support assigned to the refinancing does not exceed EUR 200,000. In June, the Ukrainian Government decided to loosen certain requirements to eligible borrowers and loan projects, including the limitation on maximum amount of a loan extended under the program.

Provisions of Loan Documentation Affected by Pandemic The measures described above to maintain the liquidity of borrowers as well as to restructure their indebtedness apply in the main to loan arrangements with Ukrainian lenders. Although loan arrangements with non-residents are not subject to the restructuring encouraged by Ukrainian authorities, undertaking the necessary measures in relation to loan agreements with both foreign and national lenders in a timely manner would help to maintain friendly and productive relationships. Review of loan and related documentation to determine the extent to which the pandemic and related measures imposed by the authorities may affect the discharge of borrowers obligations in both the short and long-term is also recommended. The set of provisions in loan documents with national and foreign lenders may differ. So, in the first instance, pay attention to the following: payment schedule, drawdown provisions, repeated representations, financial covenants, project completion covenants, material adverse effect (MAE), force majeure, events of default (EOD), etc. It is also worth investigating the provisions of related security documents and material (project) contracts to figure out how disruptions or

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Protective and Remedial Actions On the basis of review of documentation, the borrower may decide to make waiver requests (in respect of actual or potential defaults or specific negative consequences of breaches), seek amendments or restructuring to mitigate risks or remedy breach. Amendments may purport to provide carve-outs to MAE and material adverse change clauses, extension of maturity dates and payment schedule changes, introduction of interest holidays, adjustments of financial co venants, etc. If the coronavirus outbreak has a significant impact on your business and ability to perform payment obligations, then financial restructuring should be considered.

Conclusions The measures to loosen liquidity tension for Ukrainian borrowers and incentives for restructuring, as introduced by the state authorities, are aimed at resolving issues of indebtedness before domestic lenders only. In these circumstances, large Ukrainian corporates may suffer from a lack of support to tackle negative effects resulting from the pandemic. Regardless of whether a company is in loan relationships with local or foreign lenders, it is important to monitor a company’s financial standing and to negotiate issues in a timely manner.

Financial Services

Financial Monitoring: Opportunities for Outsourcing

Andriy Segal General Manager, Lawyer, L.L.M., AMBER Law Company

e live in a world that imposes terms of coexistence on us. In order to become part of that civilized community we should accept these rules. Currently, the core global development trends are the rise of digital technologies (cryptocurrencies, contactless payments, Apple and Google Pay), countering illicit enrichment (AML, KYC, OECD, BEPS plan) and, as a result, close attention to ultimate beneficiaries. These days, companies can be successful only if they try to implement as many modern technologies as possible and not waste resources on irrelevant functions. One of the most dynamic and fast-changing markets is the financial market. The main criterion for achieving success is the initial cost reduction in relation to the proposed product. For example, outsourcing transportation of monetary funds or valuables to independent companies led to cost optimization in banks (employees’ salaries, car fleet maintenance, security). Any activity elicits certain risks. It is due both to the specific features of the banking system and clients. And any activity is inherent to the conditions affecting it, and which are independent from the features of the banking system or clients. This idea reflects one of the essential tasks of management, namely preventing transformation of risks into challenges, let alone into threats. One of the most “lenient” international control standards is KYC, aka Know Your Client. It is a rule, whose conventional translation into Russian is “Знай своего клиента!” Upon its practical application, the more accurate translation of this principle into Russian should be “Правила отбора клиентов (Rules for selecting clients)”. Its essence can be narrowed down to the requirement towards a potential client of a financial organization to provide a set of documents containing regulated information about his/her personality. The main threat to banks is the clients themselves. History is full of examples where the reason for a bank leaving the market has been a single transaction performed by a client. The KYC client identification policy is a kind of protective mechanism both for clients and for business entities supporting the former’s activities. It clearly establishes the acceptability structure in relation to the relevant financial transactions and protects both parties from possible penalties. In the current survival mode, the compliance system comes first for the bank. Unlike common high-flying talk and official state rhetoric, we would like to note the most important points. Currently, the main compliance objective is to protect a bank (a company) from possible unprofitable transactions due to numerous losses. Of course, by losses we mean not only operational losses, but also the same related to repressive measures, fines, deprivation of license,

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reputation risks, legal expenses, etc. Therefore, we should develop an effective system for carrying out a rapid risk assessment of each transaction and client, and, accordingly, adopt the right decisions. In other words, a compliance system is a risk assessment system. We have determined our own scale of risks which, in our opinion, meets the challenges of the time in a fuller, more proper and comprehensive way than that described in countless laws and regulations. 1. The risk of non-payment (partial payment) of taxes by a bank (a company) or their clients, the risk of low-income clients. To begin with, we assess the income these transactions or this client could generate. And this is a basic starting point. If the amount is low, then such transactions or such client is not interesting at all, regardless of the risk exposure under the classical source. As odd as this may sound, any transaction, any client carries risks that are hidden and difficult to evaluate, and that a bank (a company) sees no sense to carry the responsibility for. If the profit is relevant, the following issue arises: whether the transaction is an attempt to legally minimize taxes through completely legal activities. If this is the case, then we begin to increase the risk scale of such transactions, depending on the tricks used by clients. If it is real supply, then the client will be more favorably disposed to the necessary increase in service fees (increase in bank profitability) than a financial intermediary who economically (primarily) will not cut the price increase. 2. Real independence in decision-making is a “standing pat” technique. Each bank (company) tries to make decisions by compliance as independent as possible. It is structurally independent and reports directly only to its CEO. The law placed personal responsibility on compliance officers for decision-making. Compliance never communicates with a client directly. And the issue here is not even about bribery or anything similar. The main issue is a psychological one. The client can make a good impression during a personal meeting and, therefore, interfere with the independence of the assessment. If the documents were collected by another person, then the compliance officer has only the papers in hand, and can “keep company” exclusively with the documents. The bank compliance officer has no choice but to adopt a cold-hearted decision, weigh the risk acceptability, profitability level, and interim measures. For example, a personal account, frequency of inspections and control, additional procedures like audit reports, etc., that can be regularly requested. 3. Risks from PEP clients (politically exposed persons). Whatever country a PEP comes from, it is always a black mark. The general recommendation here is not to accept, if only there is such an opportunity. Such a client is always a ticket to a war, and, what is more, to someone else’s war. Even if he/she is a 100% honest politician

AMBER Law Company is a full-service law firm founded in 2013 and based in Kyiv, Ukraine. The deep specialization of our professionals and understanding of our client’s needs, in unison with excellent knowledge of the Ukrainian and international legal and regulatory environment, are the cornerstones of our well-tailored advice and services. Our lawyers, graduates of prominent Ukrainian law schools, pursued further education and training in Europe and North America and are, therefore, able to talk the same language with international clients in terms of legal profession standards accepted in the West. The key advantages of AMBER Law Company on the legal market are as follows: the firm’s partners are personally involved and dedicated to the inquiries of clients; the firm’s advice is not just aimed at solving a client’s imminent problem, but also identifying all possible risks

and mitigating adverse effects in the future (a comprehensive approach); our lawyers propose unique options to clients for solving their issues; we always establish a high level of trust in our relationships with clients. AMBER Law Company always maintains fundamental values widely accepted in the civilized world, such as partnership, professionalism, drive for results, punctuality, justice, and social responsibility. AMBER Law Company assists its domestic and foreign clients on doing business in Ukraine, providing advice and support on corporate and personal matters (such as business consulting, tax optimization, offshore and international companies, personal assets management, etc.). Our corporate clients come from a wide range of industries and business sectors, including IT, technology, media and telecom, pharmaceuti-

cals, agriculture, energy and natural resources, real estate, construction and building materials, retail, raw materials, transport & infrastructure.

or an official from the most respectable jurisdiction, the day will come when his/her political opponents will start fighting for power and the bank might find itself on the battleground. While law-enforcement officers and investigators can ignore any other ordinary client, here this is not the case. You could ask, then, what should such clients do? I would say that this is their problem. By and large, PEPs are themselves guilty of what the financial system is like today. 4. Risks from own personnel. Desperate times call for desperate measures. Business is war, and the army requires a counterintelligence business unit. The HR department, counterintelligence, internal compliance, or any other business unit should constantly analyze lifestyle, personal relationships, work, motivation of the largest possible circle of employees. To put it mildly, it is work, which is unpleasant and despised by everyone, but someone has to it in the interests of shareholders. 5. Risk of money laundering related to terrorism, arms and human trafficking. I put these risks in second to last place. Such obviously illegal business does not last long if it is not hushed up by the authorities of entire states. But for such a business, the authorities of these countries create specially established banks where they can control everything to the fullest extent. The same applies to arms and human trafficking and, in many cases, money laundering. 6. Risks related to a bank’s assets and its credit policy. Oddly enough, but we put this risk in last place, and not because of its insignificance, but

rather because of the limited ability to control it. Regulatory requirements of central banks, assessment methodologies and the activities of credit committees practically relieve the bank of a significant number of toxic assets. The main problem here is underlying risk like collateral depreciation and solvency fall following state economic policy, wars and cataclysms but, most of all, following a lame judicial system and enforcement system. To reduce risks and optimize the process of client analysis, it is proposed to consider the possibility of outsourcing this function to AMBER Law Company. Through the method of study our company applies, we consider the client as a system with a specific set of criteria, and conduct our check in three stages. The level selection at the very initial stage allows us to exclude clients that may cause risks to the bank in future. At the first step, we check the client’s family ties (parents/ spouse/children/siblings), education, criminal record, health. At the second step, we assess the client’s assets (work/business, accounts/ insurance/ credits/ deposits, property, courts/ fines, business partners, contracts/transfers/ payments) for their toxicity. At the third step, we check the client’s participation in social and political life (membership of a party/social movement). This is important! We should keep a balance: avoiding any abusive checks or causing excessive inconvenience to a client. Admissibility criteria are regulated by banks based on an individual approach to each client following interest and economic feasibility criteria.

Depending on the goals and objectives the client sets for the bank when opening an account or conducting a transaction, the issue of security collateral in relation to possible unforeseen difficulties will also be considered. This set of checks is applicable from the moment of establishing business relations with the client and remains due for the next five years after their completion. Checks are carried out at least once every 3 months, and for clients undergoing significant changes in evaluation tables the frequency is at least once a month. The necessity to check the client after the completion of cooperation implies reduction in reputation risks. The company’s employees visit and conduct visual supervision at the client’s place of registration or actual location to confirm the fact of activity being carried out as per the documents filed. Conclusions about the client and proposed ways of cooperation are drawn up in the form of recommendations. The bank always retains the right to have the last word. We are ready to bear responsibility along with the bank. Therefore, we offer risk insurance when making particularly important decisions. As rude as it may sound, first of all, it is you who need to have protection against money laundering so that your client does not set you up.

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FinTech

Entering the New Decade: What Trends should be Expected in FinTech in the Near Future

Artem Afian Advocate, Managing Partner, Juscutum Law Firm Artem Afian is a co-founder of Juscutum Law Firm, which he has chaired as managing partner for over ten years. One of the leaders who supports innovation and actively develops the legal practice of the new generation. Artem Afian supports innovation at state level. He’s a member of the working group on protection of the rights of actors of Internet relations under the Ministry of Internal Affairs of Ukraine. Artem Afian is Assistant to the Chairman of Verkhovna Rada Committee on Science and Education. Co-author of the Draft Law on Prohibition of Removal of Servers by Law-Enforcement Bodies. Artem advocates legalization of cryptocurrencies in Ukraine. Juscutum’s services can be paid for using Bitcoin since July 2013. Artem Afian is engaged in introducing innovations in the field of legal services and asserts freedom of information dissemination on the Internet.

ith the growing popularity of mobile devices and a gradual stabbing of technology into all spheres of our lives, the financial sector is also reliant on it. We hear the word "fintech" more and more, which is positioned as a consolidation of technology and financial services. The word “fintech” (short for “financial technology”) is used to describe technologies aimed at developing and automating the delivery and use of financial services. At its core, fintech is a tool that helps companies, business owners, and consumers better control their financial transactions, processes, and lives using specialized software and algorithms that are installed on computers, though lately more and more often on smartphones. USD 50 billion is invested in this industry on an annual basis and more than 550 companies appear inside this sphere. Quite often these companies do not require licensing of their activities by the state and due to the rapid implementation of the latest solutions, provide significant competition to classic large banks, especially on the retail financial services markets. And although Ukraine also takes a significant part in the development of this area and shows quite good results, there are many trends that our country and the whole world have yet to see and accept. Fintech began to evolve with the Internet in the late 1990s. The iconic companies of this era like PayPal and Ant Financial are now the world's largest fintech corporations. According to the Bank of England, by 2023 the development of fintech could reduce the total revenue of British banks by 1.1 billion pounds. Given this trend, world-famous banks like Goldman Sachs, JP Morgan, Barclays and BNP Paribas have begun to actively invest in fintech start-ups. This could help banks to reduce costs and provide customers with new services. In this brief overview you can discover what other changes will come to our lives via the rapid development of this area and, most importantly, what trends are dictated to the world fintech today. All these trends are no longer completely new and unknown today, and some of them are already quite actively associated with our daily lives. Here are some predictions for the future of the fintech industry:

1. Mobile Payments Online transactions have definitely captured the world! According to research by consulting companies Deloitte, McKinsey, BCG, two thirds of all financial transactions are now conducted online. There are several reasons for this, the main ones being that it’s fast, convenient and safe. Well-known banks, recognizing the challenges of the times, are also creating

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multifunctional digital systems that enable them to conduct transactions that could only be performed in their branches yesterday. In 2020 more than 1 billion people around the globe will use a mobile payment app to pay instore at least every six months. HSBC in the United States claims that the average person visits a bank branch about 10 times a year, while a mobile application is opened 300 times a year. According to the 2019 Mobile Payments Market — Growth, Trends, and Forecast, which were made for 2020-2025 reported by Mordor Intelligence, the use of mobile payments is set to continue its inexorable rise with a compound annual growth rate of 26.93% between 2020 — 2025 as mobile payment applications like PayPal, Samsung Pay, Apple Pay, AliPay, WeChat Pay are used to accept payments. Mobile payments have come out as a discretion to cash and cards in many countries. That’s why governments, banks, payment service providers and e-commerce distributors are working together to expand mobile-based payments. The introduction of mobile POS terminals and QR-based payment acceptance has further accentuated this shift. In industrial countries, the existing infrastructure sedates acceptance. Cards are ‘gummed’ and this results in mobile payments in the West finding the greatest success with younger consumers. The gradual generational shift will, therefore, be a major force in the adoption of mobile payments in the West in next 2-3 years.

2. Expanding the Range of Services and the Appearance of Hybrids Fintech projects, which were born as single products, are fighting for the main role in the entire financial market, which is available to the user. To make this possible, such projects create multi-solutions. So, the American MoneyLion, which has 5.7 million users, plans to add brokerage services, high-yield savings accounts and its own credit cards to its already existing products. For the user, the value of hybrid products is that such solutions help to take the first step towards savings. In particular, hybrid solutions help to use a current account more competently and, at the same time, not to save too much. For this, different mechanics are used: rounding purchases and transferring “change” to a digital account, robotic investment, etc. We can say that in coming years innovative banks will expand the digital product line, become more universal and offer such hybrid products as investment cards and smart deposits like Acorns or Robinhood.

Juscutum Law Firm is a team of experts that practice the most up-to-date jurisprudence, where everything is targeted at efficiency, quality and the result. We consult clients both in Ukraine and abroad. The partnership network includes Great Britain (London), USA (New York) and Cyprus (Nicosia). Our team consists of 70 persons, 62 of whom are lawyers. In our approach, we follow technologies and leading management methods. Our priority is to provide a client with more than just legal advice, as we aim to develop the solution to a client’s prob-

lem. That is why we represent absolutely new legal practices in addition to standard ones: management of conflicts, business security, taxation and business performance, TMT, blockchain projects support. This is connected with the development of related competences by our lawyers, which enable us to get a broader view of the tasks set by our clients. Juscutum is actively developing product-orientated jurisprudence. We develop our own technological solutions and offer products which are not typical for consulting companies (SudoBot, Legal Alarm, ReporTax Bot, PatentBot).

3. Internet of Things and Voice Control

duced. An ordinary expert in information security is not able to analyze all the transactions of his organization, but the machine — can do this. Identification systems can protect clients of financial, insurance and other organizations. And this market is also actively developing. Its volume could well exceed USD 50 billion by 2024. The Chinese company SenseTime Group alone attracted over USD 3 billion worth of investment. And it seems to me that this is not the extreme point of increasing the need for customer safety.

Our smart gadgets can become a fully-fledged link in financial services. The above-mentioned consulting companies claim that more than 20 billion such things are potential "clients" of banking services. PwC believes that in the next few years, more than 50 billion smart devices will be connected to the network, and the Internet of Things revenue will reach USD 3 trillion. By offering financial solutions related to the Internet of Things, banks and other financial companies can increase the number of transactions through user convenience and secure customer personal data. Voice assistants, who have already become part of the ecosystem, also join the Internet of Things. For those who use Siri, Google Assistant and Alexa, there is reason to be delighted. After household appliances and car infotainment systems, voice technologies with elements of artificial intelligence also enter the financial market. Banks have already begun and will continue to implement such technologies to improve the work of call centers and conduct secure transactions. Already this year (and most likely in the next 2 years those who haven’t done this will “catch up”), voice recognition will become a reliable authorization method for managing personal accounts. We will be able to pay a loan, make transfers and find out the cash balance and all this in a voice.

4. Cybersecurity and User Authentication According to the statements of experts, by 2021, cybercriminals will cause global economic losses in the amount of USD 6 trillion. Moreover, if large banks can establish their own cyber defense infrastructure, it is not always available to smaller organizations to the same extent. Therefore, the market for information security technologies and ready-made solutions that can be built into your own infrastructure is actively developing. Predictive analytics, Big Data, and machine learning technologies are being intro-

5. Digital Banks Over the past few years, a whole group of new generation banks has appeared in the world; fully digital structures that rely only on remote interaction with customers. Banks of this new type usually offer higher interest rates, lower fees, and a higher class of service and support. Among them, one of the most famous is the Ukrainian digital bank Monobank, whose service is provided through mobile apps. To use the service, you only need to download the app from Google Play or App Store, take a picture of your internal ID and personal tax reference number and pick up your card at special bank points around the city or have it delivered. Monobank resulted from collaboration between Universal Bank JSC with Fintech Band, an IT consulting firm providing consultancy and web-development services to retail banks, There are now many examples of this type of bank around the world, and I am sure that their number will grow. Such digital banks allow you to manage finances using chatbots in Telegram, Viber, WhatsApp, Line and Messenger from Facebook. You can use one of the messengers or switch between them whenever you want. Need to bill? Just give the command to the assistant directly in the chat. This can be done both in voice and written communication, in free form. You give a command, your digital bank instantly creates an account, immediately sends it to your customer, monitors the status of the account and informs you about the receipt of funds. At the beginning, traditional financial market players reacted to digital banks with

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obvious skepticism. Only a few took them seriously. However, the digital-only format almost immediately became profitable and is growing rapidly, continuing its expansion into all segments of the financial market. As I said before, the huge interest in it is confirmed by studies, which showed that most young people in the United States (approximately 92%) do not trust the traditional banking system and are increasingly attached to new fintech services. About 68% of respondents believe that banks do not sufficiently understand their needs, and the modern financial system is inefficient and does not correspond to new realities. Some 45% are ready to switch from the traditional banking system to alternative fintech solutions. Speaking about future development of digital banks, it is worth noting that while fintech projects cannot independently obtain a banking license, the situation will not seriously change. In the short term, the scenario will look like collaboration between start-ups and banks. Projects will provide banks with various innovative solutions, and banks will provide access to their client base. Customers of fintech start-ups launched on the basis of licenses of existing banks formally remain the customers of these banks.

Conclusion In view of all of the above, a new and quite interesting era is now starting in fintech. The digitalization phase of the classic bank is over and traditional business models have simply adapted to the existence of digital channels. And now we see digital scenarios that are born in a world where a person lives his own digital experience, and businesses are built among platforms and ecosystems. In this new world, companies got the opportunity to influence user behavior in a quicker and more effective way, and in the coming years it will be very interesting to observe how fintech projects use their own potential, which the new decade gave them.

101

Fraud

If not to Overcome — then at Least Harness

s it possible to overcome the massive manifestations of fraud in Ukraine? Spoiler now, no it is not. But you can fight them.

From Rhetoric to Reality

Yevhen Hrushovets Partner, ARIO Law Firm

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The eternal rhetorical questions. Why does such a thing as fraud flourish in Ukraine, why is it becoming more widespread, how can it be overcome, and what is needed for this? My answer. An intolerant and even aggressive environment against thieves and scammers will be able to halt the spread of such a phenomenon in society. By environment we mean: -- The legal awareness of citizens; -- A responsible attitude on the part of society towards its civic responsibilities; -- The quality of the law-enforcement system; -- Its technical capabilities to quickly respond to manifestations of fraud; -- The quality and speed of the judicial system; -- Effective mechanisms for holding individuals accountable; the preventive function of state bodies aimed at preventing manifestations of fraud, etc. To avoid any subjectivity, I will not evaluate how each of the above points works in Ukrainian realities. However, I suggest readers use an evaluation scale of 1 to 10 on their own (where 1 is the worst, unacceptable state of things, and a 10 is an ideal indicator) opposite each of these positions. For some reason, I am sure that not one of them will even gain half. In my opinion, the reasons for this situation are on the surface. These are weak motivation and material support of law-enforcement agencies; delay of court cases, including due to the huge workload of Ukrainian courts; poor communication between law-enforcement officials and society; the almost complete absence of interaction between law-enforcement agencies and the public; the low efficiency of prosecution often through the component of corruption; and from this — directly lower rates of punishment for those responsible. Separately, among other things, turbulence in the work of Ukrainian law-enforcement agencies should be singled out at a time when one Ukrainian Cabinet of Ministers is replacing another with promises of “changing the law-enforcement and judicial systems for the better.” Thus, Ukraine finds itself in almost a continuous mode of so-called reform of these areas. This rapid legislative work has commonly been called “turbo mode.” As a result of the lack of a unified model of work developed over the years, as well as a result of massive personnel changes in law-enforcement agencies that occur every time a new president is elected in Ukraine or when a “reset” of the government takes place, we are faced with the situation where, instead of fighting criminals the law-enforcement system fights

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against itself, thereby opening up unlimited possibilities for all types of fraudsters.

The Reality of the Absurd What can we say about it (after the “lesson” of the infamous financial pyramid of the late 1980s and early 1990s with millions of victims under the name MMM), when in civilized European Ukraine of the 21st century, where citizens are in no way limited in access to information, an organization that has every chance of becoming the new MMM or even surpassing it, arises? Despite numerous journalistic investigations about the organization’s work, its popularity among the population does not fade, as Ukrainians (mainly of retirement age) continue to carry their savings there and entice friends, colleagues, and relatives. The essence of the pyramid is that you can get 400% per annum both in hryvnias and in dollars and euros for the purchased certificate supposedly for the purchase of jewelry. At the same time, not even a receipt issued to the buyer, not to mention any other guarantees. People simply invest in a piece of cardboard on which this certificate is printed. Large-scale advertising campaigns and legal ignorance of “investors in cardboard certificates” will make a scam running into tens or even hundreds of millions of dollars possible. This frankly fraudulent scheme contradicts all the laws of the economy, but it works quietly right in front of the eyes of law-enforcement agencies. They should have been ahead of schedule because, without high-quality documentation of the circumstances of a possible crime, there will be almost no chance of redress. In my informal conversations with representatives of the law-enforcement system, some people say that it’s almost impossible to bring the organizers of this scheme to account while there is no corpus delicti, people, due to their legal ignorance and low awareness, part voluntarily with their own money and do not assess all the risks. Simply put, until a disaster strikes, no-one will file a complaint with law-enforcers.

Law-enforcement Officers to the Rescue of Criminals There are frequent cases in our practice when law-enforcement agencies themselves become an instrument for combating competitors if one of the parties to a conflict has access to administrative resources. So, one of our clients, the former director of a state-owned quarry in Vinnytsia Region, where at the beginning of the 2000s minerals were mined, is charged with illegal mining of limestone and misappropriation of funds from the sale of minerals. I’d like to note that the Ministry of Agrarian Policy and Food of Ukraine appointed our client

to the post of director of this quarry after a twoyear search. None of the candidates was ready to head a dilapidated state-owned enterprise. In 2003, electricity was turned off for this company for debts, which made it impossible to process already mined raw materials, and in 2008, it was deprived of its license to extract limestone altogether. The material and technical base were stolen during this time and the documentation lost. On taking office, our client immediately set about restoring a non-working enterprise. He cleared the territory, improving the infrastructure and selling limestone screenings used in industry and agriculture. Moreover, he began to pay off the debts owed by the enterprise, which had accumulated over the years. But such activity on the part of our client did not suit the local elites, because previously they had conducted a profitable (however illegal) business, for years plundering the limestone screenings from the quarry for sale. We managed to discover that all of this happened under the auspices of the head of the local authority, and thanks to his ties with representatives in the local prosecutor’s office. By the way, these ties themselves became the basis for opening criminal proceedings against our client, who was the legal director of the quarry. In court we defended the removal of arrest from the quarry, helped our client to avoid detention and initiated the opening of criminal proceedings on the theft of the quarry by the persons described above. But we should not forget about the time that was spent on the fight in the courts, and not on restoring the enterprise and creating new jobs. Another egregious situation that occurred with our client, a farmer from Luhansk Region. At one time he was a captive of terrorists of the so-called Luhansk people’s republic and, after being released from captivity, fled with his family to create an agribusiness in Zhytomyr Region. So our client and his son signed lease agreements with shareholders and the local village territorial community in Zhytomyr Region, cleared abandoned land and, since 2015, have been conducting a rather successful business.

Before the 2019 harvesting campaign, criminal proceedings were opened against them, allegedly because land plots that they rented were not registered. Having misled the investigating judges, in September 2019 law-enforcement officers secured the seizure of land and agricultural machinery. We, lawyers of ARIO Law Firm, defended the interests of our clients. The arrests of land plots and agricultural equipment were revoked and the seized equipment and documents were returned to the owners. Furthermore, the decision by the State Fiscal Service of Ukraine to collect and sell the harvest owned by our clients was canceled. But this is not a story about a fair and logical “happy ending”. When our client’s laborers came to inspect the released land, they saw a completely gone field. A crop worth about 1 million UAH had been stolen. Now let’s analyze the situation in sequence. Law-enforcement officers open criminal proceedings, for example, not in summer or spring when the sowing campaign is in progress. They do it exactly when it is time to harvest. While blocking the work of farmers, this crop strangely disappears. We assume that in this case, most likely, the actions of law-enforcement officers were carried out in the interests of unscrupulous competitors. The Security Service of Ukraine, a subdivision of the National Police called KORD, the State Labor Department and other state bodies were involved.

mers. These fraudsters were employees, those selling his wares in his jewelry stores. The participants in the crime have been identified, but for more than 5 years the case cannot reach its logical conclusion due to the protracted process taking place in the courts. Due to the constant replacement of prosecutors, changes in the panel of judges (several times in 5 years) and the systematic failure of prosecutors to appear at court hearings. In addition, the work of the pre-trial investigation body was of poor quality, in particular the examination. So, the features of the stolen jewelry were incorrectly submitted — name, weight, and fineness. So now the perpetrators are being charged to an extent that is less than they actually stole. In this regard, the qualification of the crime is under a softer article (of law) than it actually is. This, of course, makes it impossible to bring the persons responsible to real responsibility and get redress. Also, one should not miss such a detail that from the moment a crime is committed to the moment a person is sentenced, years, sometimes decades, pass. At this time, the chances of receiving compensation for a crime that was committed are reduced, and the devaluation of the national currency occurs even with regard to whatever is possible to receive. The absence of punishment is the door to new crimes.

And a Bit About Quality of Law-Enforcement System Another reason why such a shameful phenomenon as fraud in Ukraine is developing almost unhindered. I am sorry to see how the state’s protection of businessmen stops halfway, and does not bring to its logical conclusion the mechanism for bringing criminals to justice. So, we have a client who sells jewelry. At the beginning of the 2000s, his property — jewelry — worth over USD 100,000 was taken by scam-

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P.S. By carefully analyzing and realizing current Ukrainian realities, I would recommend: A) for individuals — to increase the level of their legal awareness and understanding of Ukrainian legislation; B) for businesses — to enlist the support of a competent and experienced legal consultant who understands the trends in law-enforcement at a specific period of time. Today, unfortunately, only under such conditions is it possible to protect oneself and one’s business from all types of fraud and scams.

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Free Trade Agreements

Free Trade Britain

Olena Omelchenko Partner, Attorney-at-Law, Head of International Trade Practice, Ilyashev & Partners

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n 17 October 2019 at the EU Summit the EU and Great Britain considered and approved the Agreement on the Withdrawal of Great Britain and Northern Ireland from EU and European Community (Brexit). The EU and GB also agreed on the Political Declaration setting up the framework for further relations between the parties by, i.a. by proclaiming the UK policy on ambitious, comprehensive, deep and flexible partnership on trade and economic cooperation. Such cooperation is supposing to be framed by a trade agreement between the parties. Another important document agreed as part of Brexit is The Declaration of Her Majesty’s Government of Great Britain and Northern Ireland On Application of the Protocol on Ireland and Northern Ireland called “Democratic Consent in the Northern Ireland”. The document declares the preservation and continuation of the peaceful process between Ireland and Northern Ireland in the issue of border demarcation after Brexit. On 24 January 2020, the Union and Euratom, and the United Kingdom signed an Agreement setting out the arrangements for the withdrawal of the United Kingdom from the Union and Euratom. This withdrawal establishes a general framework which will allow companies to plan and ensure a smooth switch over to new market rules. This particular Agreement stipulates that: -- any goods and services legally placed at the EU or UK market shall enjoy the following rights until the expiry of the transitional period: shall remain at this market until reaching the final user; -- customs formalities initiated before the expiry of the transitional period shall be considered as those carried out on the territory of the EU; -- special customs regimes applied before or during the transitional period shall remain in effect until the expiry of its application, release of goods or whenever such goods are leaving the territory of UK; -- EU VAT rules, including access to relevant electronic tools (Directive 2006/112) shall be applicable to the goods and services within the EU and UK in case the period of its placement started before the transitional period and ends after its expiry. This withdrawal undoubtfully has a meaningful effect to all out-of-EU countries. The Brexit Agreement means that from 1 January Great Britain is withdrawing from the EU free trade agreements with third countries. Formally, until the full Brexit, GB wasn’t eligible to conclude trade agreements with any of the countries, because the EU Treaty foresees that this competence falls within the exclusive competence of the EU. Nevertheless, in parallel with negotiations on the Brexit agreement, the UK conducted a number of bilateral negotiations. The UK has already concluded the agreements with Andean countries, CARIFORUM trade bloc, Central America, Chile, Eastern and Southern Africa (ESA) trade bloc, Faroe Islands, Georgia, Iceland and Norway, Israel, Jordan, Kosovo, Lebanon, Liechtenstein, Morocco, Pacific states,

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Palestinian Authority, Southern Africa Customs Union and Mozambique (SACUM) trade bloc, South Korea, Switzerland and Tunisia. These agreements will take effect after full withdrawal of the UK from the EU. It is of particular interest that the UK has already signed separate agreements with such EEA countries as Liechtenstein and Switzerland, which indirectly witnesses that the UK is not going to conclude a unified agreement between EEA countries or otherwise validate its relations with EEA in a bilateral format. Also, negotiations are still in process in particular with the US, Canada, Turkey, Egypt, Balkans (Albania, Serbia, Northern Macedonia, Montenegro, Bosnia & Herzegovina), Ukraine and Moldova, Japan. If negotiated, these agreements might enter into force already on 1 January 2021. The UK has also signed a transitional agreement on mutual recognition of compatibility assessment of industrial products with the US, New Zealand, Australia and Japan. In the US-UK case such mutual recognition covers the telecommunications sector, electromagnetic compatibility, pharmaceuticals. The agreement with New Zealand covers sectors of electromagnetic compatibility, low voltage equipment, machinery medical devices, pressure equipment, telecommunication terminal equipment, pharmaceuticals. The agreement with Australia covers the same sectors as New Zealand, supplemented only with automotive products. So a minor effect on bilateral trade between the UK and these countries in goods covered by these sectors is expected. Other non-EU countries such as Eastern Europe and Balkans should pay particular attention to the issue of mutual recognition. Countries of this region have the association and accession agreements with the EU and oblige to alien legislation and practices with the EU system of technical regulation and market surveillance. For example, Ukraine has been struggling to conclude the mutual recognition agreement (so called ACAA agreement) for already three years after the Ukraine-EU Association Agreement came into force and considers itself as a country which guarantees the safety of industrial products in line with EU legislation and practice. Thus, conclusion of the UK-Ukraine mutual recognition agreement might be a less politicized step, but also a good precedent which might rediscover the new markets of Eastern Europe and the Balkans and contribute to diversification of trade in industrial products in Europe. Despite the fact the UK conducts rather intensive trade policy in negotiating free trade agreements it is unlikely to compensate the negative effect of withdrawal related to the freedom of movement of goods and services. The scope of trade liberalization between the UK and other non-EU countries would significantly depend on the wording of a future EU-UK trade agreement and the time frame of its signing. The withdrawal agreement stipulates that the transition period starts on 1 February 2020 and ends on 31 December 2020, but the Withdrawal Agreement foresees the possibility of adopting

Founded in 1997, Ilyashev & Partners is one of the most prominent and reliable full-service law offices in the CEE region with the largest network representation in Ukraine. We have achieved this by employing leading experts in various areas of law practice, innovative thinking and strict compliance with ethical standards in relationships with clients. Ilyashev & Partners provides services in almost every practice area to well-known international companies, leading Ukrainian companies and financial institutions, government agencies, law offices and consulting companies. With offices and representatives in Kyiv, Moscow, Tallinn, Dnipro, Kharkiv, Odesa, Simferopol, the firm employs over 50 highly professional lawyers. Ilyashev & Partners is known as a major International Trade force. The firm provides the full range of legal services in the international trade area aimed at increasing the clients’ business value and mitigating the risks when conducting import and export activities.

The firm’s services in particular include: -- Markets access support (including certification and registration procedures); -- Legal compliance; -- Technical regulation and market surveillance rules; -- Investments support; -- Economic sanctions; -- Export control; -- Permits in foreign economic activity; -- Anti-dumping, anti-subsidy and safeguard investigations; -- Customs regulations; -- Free Trade Agreements; -- Dispute resolution in international trade regimes; -- EU Law and World Trade Organization (WTO) rules; -- Drafting, analysis and assessment regulatory acts.

The team is widely known for its extensive dispute resolution practice, protection of companies’ interests in safeguard and anti-dumping investigations on free trade, application of WTO and EU rules.

a single decision extending the transition period for up to 24 months. Such extension will depend on two key factors: state of play with signing of the EU-UK trade agreement and bilateral trade agreements. Meanwhile, the WTO should have remained as a basic standard of trade relations between its Member States, unless otherwise provided by the bilateral agreements. However, the only certainty in the context of UK membership in WTO is determined by the withdrawal transition period. According to the UK notification to the WTO, goods schedules, tariff data and services data of the European Union will continue to apply to the United Kingdom during the transition period. The same approach is taken towards participation of the UK in the dispute settlement where the EU is involved. There are a lot of discussions in the legal community about a potential impact of the Brexit to the UK legal system. Brexit is unlikely to have a significant impact on the classical English legal system, especially as regards dispute settlement.

However, Brexit opens a totally new framework for development of court practice. After the ending of the transitional period EU acquis will not be applicable on the territory of the UK as well as jurisdiction of The Court of Justice of the European Union. So, we find ourselves in the situation when a judicial system of a non-EU country whose legislation is based on EU acquis will acquire a right of interpretation of EU acquis-based legislation. So far the Withdrawal Agreement and declarations agreed between the parties do not give clarity about the proportion of competences between national courts and The Court of Justice of the European Union after the transitional period. Only Article 86.2 stipulates that The Court of Justice of the European Union shall continue to have jurisdiction to give preliminary rulings on requests from courts and tribunals of the United Kingdom made before the end of the transition period. Formally, COVID-19 didn’t have any legal implications on the withdrawal process. It is also positive that despite travel restrictions, the UK

and EU managed to preserve the dynamics of bilateral dialogue on the implementation of the Withdrawal Agreement. It is also worth noting that the UK adopted a package of measures targeted at supporting UK businesses, particularly those involved in international trade. The mentioned state aid is mostly related to favorable credit conditions for UK companies which, amongst other things, guarantees covering 80% of loan facilities for SMEs with a turnover of up to GBP 45 million in order to cover their working and investment capital needs and direct grants to support SMEs affected by the coronavirus. Despite the rather transparent free trade policy declared by the UK, the WTO membership format still remains unclear. However, it is unlikely to imagine a more favorable situation for UK negotiations with the WTO. The UK may use the upcoming world economic crisis due to national measures introduced to combat COVID-19, as a solid argument in its negotiations with the WTO both on tariffs and, which is more important, on reservations where it might be needed to protect the national economy.

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Government Relations

GR Management as a Way to Influence Decision-Making

he GR trend is fairly new in Ukraine; though it has been actively developing over the past 5-7 years. The interaction of private business entities with the government has always attracted major players with a desire to influence regulatory decision-making. When a business reaches certain scale and significance, every CEO faces the issue of advancement to a new level, building bridges with state (municipal) bodies so as to promote the interests of the company at the highest government levels. If this is the case, how can this be done with the highest efficiency, and who should be enlisted to do it?

Alexander Strokan Partner, Attorney, Head of Dispute Resolution Practice, MITRAX

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Lobbyist + PR manager = high level GR: a Paradox or Common Sense Formula? In the context of clear (total or partial) absence of legislative regulation of GR, PR and lobbying in Ukraine, companies take the matter into their own hands, using industry experts to face tactical challenges and reach strategic goals within the existing legal framework. Some CEOs of quite successful companies, learning about the novel GR field, mistakenly believe that holding a couple of PR campaigns a year or hiring a lobbyist would be enough for effective interaction with the government. However, even a superficial analysis is enough for one to understand the fallacy of this perspective. Expressing the company’s position, an expert in public relations is able to change the ideas of others about its activities in the desired direction. Public relations can be an operational and very serious tool for a communications strategy. A PR expert, adhering to the company’s policy in its relations with the public, can quite successfully influence specific officials holding certain posts in government bodies in purely legal ways. There are many ways in which to implement long-term strategic tasks to maintain the corporate reputation, network and consolidate the company’s interests. Thus, a PR expert convinces specific target groups. Their main “domain” is the public and its opinion about the company, while the additional target is government structures as an opportunity to make a statement, gain good graces and support. A lobbyist can ensure that the desired decision is approved by influencing, directly or indirectly, public authorities or local self-government. To achieve their goal, a lobbyist may use various methods, such as submitting petitions or individual appeals to state authorities, initiating expert reviews of various bills, draft resolutions, decisions, conducting an information campaign to influence public opinion, partial financing of an election campaign for a specific promising politician, participation in charity and other related projects.

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But the priorities for a lobbyist are networking, outreach with a specific government structure or an official. At the same time, they often address specific, clearly posed issues such as adoption of a particular law or getting funding for a project, etc. instead of certain strategic long-term tasks. A GR manager, being an expert in effective interaction with public authorities, supports the promotion of the company in a political environment, communicates with the authorities and public organisations. As you can see, all three of the above types of experts are generally united by common functions, tasks and desired results. However, they occupy separate niches. If so, rather than replacing one expert with another, the option exists of professional reorientation if there is an urgent need to do this. However, there are two significant points to take into consideration. First, one has to understand that neither a PR expert nor a lobbyist will completely cover those functions and tasks that are performed by the GR manager. They are in no way interchangeable. A common goal does not mean using the same methods to attain it. Moreover, by virtue of their trade, each of them has specific knowledge and skills. Secondly, unlike public relations or lobbying, a company cannot outsource development of its GR strategy. An expert (at least one, although major companies may create entire departments to promote GR services) should be a regular full-time employee. We believe that in the vast majority of cases, it is more profitable to use a company’s own resources to carry out GR tasks, while engaging third-party experts as needed to enhance the desired effect. By the way, in this case, we can make another reservation: this is beneficial if there is a need for constant, systemic interaction with regulatory institutions.

What do Companies Need GR Policy For? The primary goal of a company practising GR policy is not to make a profit in its purest form. This is just a consequence rather than the pursued #1 goal. What benefits can this trendy field offer, and why is it becoming popular? 1. Improving the status of the company. Recognition in political circles undoubtedly creates an image of trustworthiness. Decision-makers recognise the expert opinion of company professionals. 2. Development and expansion of the client base via direct partnering with government bodies (local authorities) as counterparties or with private business entities through indirect mediation of authorities. 3. The stability of a company actively employing GR. This is a result of the successful implementation of the first two components. The

use of various methods and means of influence (see below) ensures the constant presence of representatives of the company in the activities of the regulator. By trying to be in the public eye as often as possible and becoming a household name, the company can become indispensable in certain aspects and be in high demand. 4. The possibility of influencing regulatory decisions, while not directly but still indirectly affecting the company itself. Note that, in comparison with the activities of a lobbyist who seeks to influence decision-making from the outside, a GR expert is able to co-opt the regulator from the inside. That is, the secondary impact is replaced by primary, direct control over reality, thereby reducing regulatory risks. As a result, the company gets the loyalty of the regulator, raising its value, including on the international level, in interactions with foreign business partners, good public relations, and the ability to sell the product to several customers (the latter depends on the specific nature, functionality and purpose for using this product).

fairly effective move by any government. “New blood” can bring in fresh perspectives, ideas, innovative solutions, which, again, will lead to a decrease in regulatory risks and an increase in the efficiency of regulatory activities.

Benefits for the Regulator Interaction with an expert company undoubtedly provides specific benefits to the regulator as well. The unspoken, time-tested law of “you scratch my back, I’ll scratch yours” can only work when it is mutually beneficial. This is not about bribing individual officials, although, in fairness, it must be said that our mentality increases the risks in this context. First of all, it is safe to talk about assistance in the policy-making process, since those who make regulatory decisions usually have neither enough time nor resources for that. The ability to draw up and replenish the pool of candidates is another bonus of cooperation. To find qualified experts “from outside” and, if necessary, enlist them as part of your team is a

Most Effective Forms of Implementation of GR Management When implementing GR policy, do not “put all your eggs in one basket”, but use a variety of methods and ways instead. Never get fixated on any one type of interaction with the government (albeit time-tested). A company can use the following forms of implementation (but not limited to): 1. Participation in specialised associations. Pros: there is a collaborative amplification of the promotion of ideas and legislative developments through the work of like-minded people as a single team. Cons: in case of a difference of interests and views, like-minded people of yesterday can become competitors in one niche group, which will inevitably lead to a conflict of interests. 2. Work on the public council under the regulator. Pros: the company is involved in internal decision-making. Cons: often the opinion of the public council is more declarative, background in nature, and a decision can be adopted without the proposed options, amendments. 3. To join an expert group or, even better, to become a sole narrow-focused expert. Pros: immediate direct influence on decision-making, an opinion to be regarded and taken into account. Cons: getting into this kind of a group of experts under specialised committees is an extremely difficult task due to the high level of competition. All of the above contributes to the establishment of dialogue.

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Legal GR: Development Prospects The practice of not involving stakeholders, including for drafting bills, is gradually becoming a thing of the past. Best practices in EU countries have proven that public administration benefits as much when stakeholder participation is ensured to consider the whole spectrum of the issue: potential advantages, risks, other issues. In 9 out of 10 cases, the company interacts with the regulator when drafting or amending regulatory documents. Therefore, legal GR has great potential for successful cooperation. The existing regulatory framework is quite often so outdated that it falls behind (and sometimes runs counter to) the basic principles of regulation in a market economy. Therefore, the main emphasis is on updating existing legislation, taking into account the legal framework of EU countries. In this regard, GR cooperation is even more important in the context of the growing pace of implementation of Deep and Comprehensive Free Trade Areas. It is no secret that such interaction between the state and business communities, as represented by reputable law firms, can change the regulatory environment, mitigate internal and external contradictions and... obtain lawful mutual benefits. Ultimately, the implementation of effective practices in industry regulations with a business-oriented approach through the development and adoption of bills and other regulatory documents is a win-win for all sides. By the way, drafting legislative amendments is a very specific product. And a law firm can offer such an exclusive service by virtue of it possessing the necessary specialised knowledge in legal studies, audit, analysis with the available relevant know-how.

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Infrastructure

New Life of Concession Agreements in Ukraine

Maksym Maksymenko Counsel, Head of Real Estate and Infrastructure practice, AVELLUM

Rostyslav Mushka Associate, AVELLUM

he Law of Ukraine On Concession No. 155-IX came into effect on 21 October 2019. This new piece of legislation finally enabled the Ukrainian model of a PPP to get an update. It took more than two years to adopt the Law on Concession and its final version had a few minor changes compared to the first draft submitted to the Ukrainian Parliament in early 20181,2. A month before this new law came into force, in September 2019, the Ukrainian Government announced two pilot tenders for concession of the Olvia and Kherson Sea Ports. In January 2020, the Qatar port operator QTerminals, and Risoil-Kherson, the consortium of Peter Oil and Chemicals and Risoil S.A., were granted concessions for Olvia and Kherson Sea Ports, respectively. QTerminals reportedly intends to invest about USD 124 million in the first five years, while Risoil-Kherson intends to invest around USD 11 million within the first four years of the project’s implementation. As of now3, both companies have received permits from the Antimonopoly Committee of Ukraine and entered the concession agreement negotiations stage. In this article, we will analyse the general framework for the Concession Agreement and delve into some peculiarities of land allotment for concession purposes, title to a real estate concession object and liability for failing to commission it, social development contributions, and movable assets.

Land Allotment

Pursuant to the Law On Concession, when the object is transferred into concession, the asset holder of the object automatically loses its title to the land plot beneath the object. The Draft CAs go one step further, providing that the grantor should (i) facilitate this procedure by approving the Asset Holder’s waiver of the title to the land plots and (ii) ensure that the Asset Holder complies with legislation while waiving the title to the land plots. A concessionaire may obtain the lease right to the state and municipal land plots needed for the concession project without an auction. On the one hand, the Law On Concession obliges authorities responsible for the allotment of Land Plots to transfer the Land Plots into the concessionaire’s lease. Moreover, according to the Draft CAs, the grantors will request these authorities to lease out the Land Plots to the concessionaires. On the other hand, the authorities may still, at General Framework their own discretion, either provide the concesThe Draft CAs for the Olvia and Kherson Sea sionaire with the lease right to the Land Plots Ports had been prepared before the Law On Con- or not do so. According to Ukrainian laws, the cession was adopted. Thus, the Government authorities are not held liable for failing to fulfil prepared the Draft CAs based on the previously the obligation to transfer the Land Plots into the effective laws on PPPs. concessionaire’s lease, thereby turning such an According to the Law On Concession: obligation into a declarative one. -- the CA must include 18 mandatory proviThe grantor (save for the cases when the sions, absence of which may lead to the grantor disposes of the Land Plots) cannot influCA’s invalidation4; ence the decisions of the authorities to allot the -- the parties to the CA have the right to in- Land Plots to the concessionaire. Therefore, it dependently choose the venue and the prois highly unlikely that the concessionaire will be able to unilaterally terminate the CA in the event of failure to obtain the lease to the Land Plots within one year from execution of the CA since the grantor cannot be held responsible for this. ¹M. Maksymenko, R. Khmelnytskyy. Will the New Draft Law On Concessions Trigger a Flurry of Investment into Ukraine? / Ukrainian Law Firms 2018. A Handbook for Foreign Clients // [Electronic source]. — Access mode: http://ukrainianlawfirms.com/reviews/ infrastructure/ ²M. Maksymenko, R. Khmelnytskyy. Implementation of Effective Concession Mechanisms / Ukrainian Law Firms 2019. A Handbook for Foreign Clients // [Electronic source]. — Access mode: http://ukrainianlawfirms.com/reviews/infrastructure/ ³Our analysis was conducted on 3 April 2020. 4The concession laws effective when the Draft CAs were prepared contained a different list of mandatory provisions for a CA than the one set out in the Law On Concession.

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cedure for dispute resolution5. Additionally, Ukraine may, as a state, waive its sovereign immunity with regard to any arbitral awards or court judgements passed against it under the CA6; and -- the CA may be governed by foreign law7. Given that provisions of the Law On Concession may apply to Draft CAs, we anticipate that the parties to Draft CAs will amend them respectively to ensure their compliance with the Law On Concession.

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Title to the Object and Liability for Failing to Commission IT Transfer of the object to the concessionaire and its further reconstruction or improvement 5Parties to Draft CAs agreed to resolve their disputes through arbitration in accordance with the Rules of Arbitration of the ICC. 6Ukraine waived its sovereign immunity under the Draft CAs. 7Draft CAs are governed by the laws of Ukraine.

AVELLUM is a leading Ukrainian full-service law firm with a special focus on finance, M&A, dispute resolution, tax, real estate, and antitrust. The firm covers banking and finance, capital markets, competition, corporate/M&A, dispute resolution, employment, energy and natural resources, real estate and infrastructure, intellectual property, IT, international arbitration, international trade, litigation, private client matters, restructuring and insolvency, and tax. AVELLUM aims to be the firm of choice for large businesses and financial institutions in respect of their most important and challenging transactions. The firm builds lasting relationships with clients and makes them feel secure in new uncertain economic and legal realities. The firm incorporates the most advanced Western legal techniques and practices into its work. The team of 40 professionals at AVELLUM seamlessly cooperate with leading international law firms in the course of multijurisdictional

transactions. The partners take an active role in every transaction. AVELLUM’s clients include international and domestic companies, governmental authorities, financial institutions, investment funds, and investment banks seeking specialized legal advice and transactional skills from legal experts in the above practice areas. To be more specific, AVELLUM’s clients list includes Black Sea Trade and Development Bank, Caterpillar LLC, CHG Healthcare, Citigroup Global Markets Limited, Dragon Capital, DTEK Renewables, EBRD, J.P. Morgan Securities Plc, Morgan Stanley, Raiffeisen Bank International AG, Kernel S.A., MHP Lux S.A., the Ministry of Finance of Ukraine, Metinvest B.V., Uber, UFUTURE, Van Leeuwen Pipe and Tube Group, and many others. AVELLUM is recognized 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, Who’s Who Legal, World Trademark Review, and others.

does not change the fact that the state or the territorial community continues to own such object. Any new objects built by the concessionaire will be owned by the state or municipal authorities, respectively. According to Draft CAs, the concessionaires will build a number of objects and commission them. Consequently, the concessionaires will: -- register the state or municipal authorities' ownership right to the newly-built objects in the State Register of Proprietary Rights to Immovable Property and -- register their right of use and possession over the above objects in the Register. The concessionaire records the object on its balance sheet and returns it to the grantor once the CA is terminated. Under Draft CAs, if the concessionaires use constructed objects without commissioning of the same, the grantors will be entitled to claim 500% of the concession fee applied to the revenue received from operation of such objects. And if the concessionaires fail to commission the constructed objects within 360 calendar days from the date they should have been commissioned, the grantors may terminate the Draft CAs early.

Social Development Contributions

At the same time, a joint inventory commission composed of representatives of the grantor, concessionaire, Asset Holder and Ukrainian Sea Port Authority conducts an inventory check of all the property owned by the Asset Holder. If such inventory check spots assets, which are not listed in the annexes to the Draft CAs, the concessionaire is obliged to purchase them at the price determined by the inventory commission. The Draft CAs establish that upon termination of the CA, the concessionaire must return all movable assets into state ownership without any compensation. This means that all the machinery, transport, instruments, software, furniture, etc. purchased by the concessionaire will, in order to implement the project, be transferred into state ownership for free.

Developers are obliged to contribute to the development of social infrastructure in order to commission the constructed object. Local self-government authorities set the amount of such contributions which: -- prior to 1 January 2020, could not exceed 10% of the construction value for non-residential real estate; -- in 2020, may not exceed 4% of the construction value for non-residential real estate. Social development contributions for developers will be abolished from 1 January 2021. However, Draft CAs prescribe that the concessionaires will pay 5% of the construction value as a contribution to the development of social infrastructure irrespective of the above legislative changes.

Movable Assets According to the annexes to the Draft CAs, concession objects consist of hundreds of real estate and movable property items. These assets were transferred to the concessionaire for a symbolic price of UAH 1,000 (approx. USD 35).

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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

Conclusion Summing up the above, we would like to note that it is a great achievement for Ukraine to hold two pilot concession tenders in a transparent manner and in line with best international practices. Once the parties execute the CAs, they will send a clear message to the business community encouraging it to invest in Ukrainian infrastructure. We recommend that you keep an eye on further PPPs developments in Ukraine.

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International Arbitration

The Principle of Iura Novit Curia in International Arbitration

Olexander Droug Partner, Sayenko Kharenko Olexander specialises in dispute resolution and restructuring with a focus on international arbitration and cross-border commercial litigation. His experience includes advising local and foreign clients at all stages of complex multijurisdictional proceedings, as well as commercial and investment arbitration under the arbitration rules of all major international arbitration institutions (LCIA, ICC, SCC), CIS-based arbitration institutions, ICSID Arbitration Rules and ad hoc arbitration rules. Mr. Droug also advises clients on obtaining and implementing interim relief, as well as on recognition and enforcement in Ukraine of arbitration awards and foreign court judgments. Mr. Droug is a regular contributor to key legislation in the areas of arbitration, litigation and restructuring

arty autonomy is one of the fundamental cornerstones of international arbitration. This principle has many dimensions. One of the basic and most important rules is that the arbitral tribunal should resolve the dispute based on the submissions of parties. The tribunal has the task of evaluating evidence submitted by each party and deciding which position should prevail. However, most arbitration disputes are not resolved solely based on facts. Another crucial element is the law applicable to the relationships between the parties in a dispute. For that reason, in practice, almost all acting arbitrators are qualified lawyers. The issue we aim to discuss in this article is whether the application by a tribunal of particular legal provisions is an integral part of party autonomy, or is the tribunal actually free to make its own legal reasoning by invoking legal provisions ex officio. What are the limits of the tribunal’s discretionary powers in applying law? This issue is not new. It is often discussed as the principle of iura novit curia (“the court knows the law”) in international arbitration. Courts in various states have developed practical approaches to this legal concept. At the same time, in emerging arbitration jurisdictions, and especially those with rather inquisitorial judicial traditions (Ukraine being one of them), iura novit curia still provides an area for discussion.

Approaches to Iura Novit curia in Different Jurisdictions

The Swiss Federal Supreme Court in its decision of 9 August 20181 considered an application on setting aside of an ICC arbitral award which dealt with a dispute arising out of a contract between an Algerian public company and a Canadian construction company. The contact was governed by Algerian law. The contractor challenged the award on the basis that the ICC tribunal applied the principle of equity under Algerian law. However, the contractor alleged that neither party to the dispute directly argued application of the principle of equity in the course of arbitration. The court dismissed the challenge. In its reasoning, the court inter alia stated that the principle of equity forms part of Algerian law. Furthermore, the court concluded that the tribunal is responsible to determine and apply the law, and hence the parties should not have been surprised by the application of the mentioned principle by the tribunal. Therefore, in this case, the Swiss Federal Supreme Court ruled that arbitrators had broad authority in the application of legal provisions to the facts of the dispute. Another example is from Sweden. Back in 2009, the Svea Court of Appeal rendered a decision in Systembolaget AB vs Vin & Sprit AB2. This case concerned the setting aside of the SCC arbitral award due to excess of arbitrators’ mandate. The underlying dispute arose out of allegedly unjustified partial termination by Systembolaget AB of purchasing agreements concluded between the parties. Vin & Sprit AB brought the case to arbitration seeking damages in connection with termination of the mentioned agreements. The SCC tribunal upheld the claim and awarded damages to Vin & Sprit AB. In finding that termination of the purchasing agreements was unlawful, the tribunal concluded that the parties had contracted out the right to terminate the agreements according to the general principles of law. Vin & Sprit AB, however, did not raise such an argument during arbitration. The Svea Court of Appeal set aside the award. In particular, the court ruled that Vin & Sprit AB had, indeed, never claimed that there was an agreement between the parties to exclude application of the general legal principles. At the same time, the court noted that during arbitration, Vin & Sprit AB relied upon contractual provisions regarding termination of the agreements only. Therefore, the Svea Court of Appeal demonstrated a high level of respect towards party autonomy and decided that arbitrators

There are a sufficient number of publicly available court decisions rendered by courts of higher instances in various states, addressing the balance between the arbitrators’ mandate granted by the parties and the need to duly apply law to the facts of a case. The principle of iura novit curia has also been addressed in the national legislation of certain states as well as arbitration soft law. The courts deal with the principle of iura novit curia usually in the context of proceedings on recognition and enforcement of arbitral awards, as well as in the event of setting aside proceedings. The reason is that the parties can bring an argument that an ex officio application by the tribunal of legal provisions, which were not argued and/or mentioned by the parties in their submissions, constitutes an excess of arbitrator mandate, which is a ground to refuse the arbitral award’s recognition and enforcement under Ar- ¹Text of court decision in the French language ticle V(1)(C) of the New York Convention 1958. is available at: https://www.bger.ch/ext/euroA similar argument could also be raised in the spider/live/de/php/aza/http/index.php?highsetting aside of proceedings. Below we briefly light_docid=aza%3A%2F%2F09-08-2018-4A_5252017&lang=de&type=show_document&zoom=YES&. discuss several relevant court decisions. ²Unofficial translation of court decision into English is available at: https://www.arbitration.sccinstitute. com/views/pages/getfile.ashx?portalId=89&docId=1147059&propId=1578.

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15 Years of Leadership in Law Sayenko Kharenko is one of Ukraine’s largest law firms offering comprehensive support in all major sectors of the economy. In order to manage the rapidly evolving Ukrainian legal and business environment, the firm embraces innovation through new products, out-of-the-box thinking and creative solutions. The emphasis on innovation brings services that allow the clients to excel in what they do. Sayenko Kharenko has been recognized over 100 times as No. 1 law firm in key practice areas and named “Best Law Firm in Ukraine” more than 30 times by the most prestigious professional excellence awards.

Andriy Stetsenko Senior Associate, Sayenko Kharenko Andriy has over 8 years of experience of consulting clients on international arbitration and cross-border litigation matters. His expertise includes representing clients in international commercial arbitration proceedings under ICC, SCC, ICAC and LCIA Arbitration Rules. He also participated in a number of investment arbitration proceedings, representing clients in disputes with the state, in particular under UNCITRAL as well as ICSID arbitration rules. Andriy is equally experienced in representing clients in Ukrainian courts in commercial disputes, bankruptcy proceedings and cases related to recognition and enforcement of foreign arbitral awards in Ukraine

The firm has provided legal services to over 1700 clients from more than 60 countries around the globe and recognizes that every single client has unique business needs. Sayenko Kharenko tailors its services to best fit the individual profile of each and every client. Sayenko Kharenko designed an innovative project called Neworld Lab to anticipate developments in the new economy and place the firm and its clients at the cutting edge of the changes shaping the collective future. The firm analyses global trends in science and economics and identifies effective instruments to manage fast-evolving relationships and implement inno-

have rather limited powers to apply legal provisions ex officio. The above narrative of two cases demonstrates that there is no uniform approach to the principle of iura novit curia in arbitration. Thus, the question arises as to whether it would be reasonable to address it in codified legislation. This might indeed be beneficial for the uniformity of arbitration practice, and this could decrease the vulnerability of certain arbitral awards to challenges. However, rather few states implemented relevant rules in their national legal systems. In particular, the UNCITRAL Model Law is silent on this matter. Article 28 of the Model Law merely states that the tribunal shall decide the dispute in accordance with the law chosen by the parties. This rule does not clarify to what extent the tribunal is permitted to invoke legal provisions ex officio, if at all. The positive exception is English Arbitration Act 1996. Its Article 34(2)(g) provides that the tribunal should decide “whether and to what extent the tribunal should itself take the initiative in ascertaining the facts and the law”. Hence, although the English Arbitration Act 1996 does not extensively clarify the limits of iura novit curia, it at least recognizes the tribunal’s power to establish applicable legal provisions on its own motion. In relation to soft law, the most extensive and clear rules are provided in the recently-adopted Prague Rules, which aim to provide guidance on the efficient conduct of international arbitration proceedings. Article 7 of the Prague Rules establishes the right of arbitrators to “rely on legal authorities even if not submitted by the parties if they relate to legal provisions pleaded by the parties”. However, the tribunal may exercise such power only “provided that the parties have been given an opportunity to express their views” in relation to legal authorities in question. This approach set out in the Prague Rules became, in fact, the universally accepted approach with respect to iura novit curia in arbitration proceedings. Recent arbitration practice and legal doctrine clearly uphold the balanced correlation between party autonomy and the duty of arbitra-

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tors to apply proper legal provisions to the facts of a case. The parties remain the drivers of any arbitration proceedings, but the tribunal should sometimes take a proactive stance to ensure the lawful resolution of a dispute.

What about Ukraine? As noted, Ukrainian judiciary primarily follows the inquisitorial legal tradition. Judges in Ukrainian courts regularly apply substantive legal provisions which were not raised or even mentioned by the parties. Although the majority of arbitrators are not former judges, judicial traditions seem to influence the approaches taken by tribunals in arbitration cases with the seat in Ukraine. This is particularly evident from the publicly available arbitration awards rendered by the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry (the ICAC). For instance, in several recent arbitration awards3, the ICAC tribunal applied the CISG to the facts of the dispute, although, according to available texts of arbitration awards, neither party argued the application of the CISG. This approach does not seem to raise concerns with the parties to arbitration. Our analysis of the available decisions of Ukrainian courts on setting aside of arbitration awards did not reveal cases regarding the challenging of an award on the basis that the tribunal exceeded its mandate by applying certain legal provisions ex officio. The parties tend to accept the situation that arbitrators in Ukraine have broad discretion to apply any legal provisions on their own motion. At the same time, further development of arbitration law and practice in Ukraine can bring new tendencies, and the parties may soon start questioning the rather limited respect of Ukrainian-seated tribunals towards party autonomy that exists today.

³ Arbitral award of 6 October 2016 in case No. 71

and arbitral award of 29 October 2013 in case No. 36.

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International Civil Procedure

International Civil Procedure (Cross-Border Litigation) matters, entered into by Ukraine with 30 countries, and many regional conventions, including CIS Conventions (1993 Minsk Convention and the 1992 Kyiv Agreement) and Bilateral investment treaties (BIT)) (around 50 agreements). In the event of parallel proceedings, the Ukrainian court applies the rule lis alibi pendens, which is enshrined in PIL. That is, it refuses to open proceedings if there is a dispute between the same parties, on the same subject matter and grounds in a court or other body of jurisdiction of a foreign country.

Choice of Court in CrossBorder Litigation in Commercial and Civil Matters Gennadii Tsirat Partner, Jurvneshservice

Cross-Border Disputes Resolution The most relevant and significant issues traditionally referred to in international civil procedure are: (a) The jurisdiction of an appropriate (Ukrainian or foreign) court regarding commercial and civil matters where Ukrainian parties are involved (namely, foreign-related cases); (b) equal access for persons, including foreigners, to justice (national regime), equal treatment of parties and a fair trial; (c) judicial cooperation and international legal assistance to serve judicial documents and take evidence abroad; (d) execution of judicial orders of foreign courts to deliver judicial documents in Ukraine and receive evidence at the request of foreign courts; (e) recognition and enforcement of foreign judgments and arbitral awards in Ukraine.

International Jurisdiction The jurisdiction of Ukrainian courts in cross-border disputes in commercial and civil matters is provided by the Law on Private International Law (PIL) if the defendant in the case has a place of residence or location, or movable or immovable property, which can be levied, or there is a branch or representative office of a foreign legal entity in Ukraine. Ukrainian courts consider foreign-related disputes if they were determined by bilateral treaties on legal assistance in civil and commercial

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Ukrainian court practice shows broad use of choice of court agreements by Ukrainian companies and their foreign partners in their commercial contracts (Art.75 of PIL). While Articles 75 and 76 of PIL provide the possibility of choice of merely Ukrainian courts, and adoption of new procedural codes resulted in the broadening of application of choice of court agreements in civil and commercial disputes as Article 22 of the Civil Procedure Code and Article 23 of the Commercial Procedure Code directly grant the parties the right to refer consideration of disputes to foreign courts. These changes reflected a new Ukrainian approach to the choice of court agreements in the sphere of cross-border litigation since the time of Ukraineâ&#x20AC;&#x2122;s accession to the Hague Convention of 30 June 2005 on Choice of Court Agreements in 2016.

Judicial Cooperation in Cross-Border Litigation Issues of judicial cooperation are regulated by international conventions, bilateral agreements on legal assistance in civil and commercial matters and local rules. Ukrainian courts choose to use this or that international instrument depending on the state from which the order was received, or in whose territory the service or evidence is to be served. Ukraine is a party to the Hague Conventions, including of 1 March 1954 on Civil Procedure, of 15 November 1965 on the Service Abroad of Judicial and Extrajudicial Documents in Civil or Commercial Matters, of 18 March 1970 on the Taking of Evidence Abroad in Civil or Commercial Matters. These Conventions provide that the central body in Ukraine is the Ministry of Justice of Ukraine through which the serving is made and cooperation takes place. Every year the Ministry of Justice of Ukraine receives hundreds of requests for the service of judicial documents to Ukrainian companies and individuals as de-

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fenders as well as letters of request for legal proceedings (on obtaining evidence, interviewing witnesses, acquiring information on foreign legislation, etc.). A lot of letters of request come from Germany, Italy, Portugal and many other countries. The jurisdiction of courts and procedure for execution by Ukrainian courts of foreign court orders for service of court documents and obtaining evidence on the territory of Ukraine are regulated by procedural codes: they establish competent courts, the procedure for carrying out appropriate procedural actions and procedure for cooperation with the Ministry of Justice of Ukraine. A similar procedure is envisaged for Ukrainian courts to apply for legal assistance to foreign states in resolving disputes involving foreign citizens and companies.

Recognition and Enforcement of Foreign Judgment A foreign judgment may be enforced in Ukraine if its recognition and enforcement is stipulated by an international treaty, including a bilateral one on legal assistance, the CIS and Hague conventions on various family and related issues or is based upon the principle of reciprocity where the existence of reciprocity is presumed. Foreign judgments in civil and commercial matters are enforced after the procedure of recognition and obtaining a permit for enforcement (exequatur). These cases are considered by local general courts at the place of residence (stay) or the location of the debtor or its property as courts of first instance and, accordingly, may be subject to appeal and cassation. If the debtor does not have a place of residence (stay) or location on the territory of Ukraine, or his place of residence (stay) or location is unknown, the issue of granting permission to enforce the decision of a foreign court is considered by the court at the location of the debtorâ&#x20AC;&#x2122;s property in Ukraine. Courts have the right to refuse to grant permission to enforce a foreign judgment if there is at least one of the grounds present, as provided for by the international treaties and agreements or by Ukrainian law. It should be noted that different international treaties contain different grounds for refusal to recognize and enforce foreign judgments and, therefore, it is important that the rules of a treaty should be applied by a court in recognizing and granting the procedure. The main grounds for refusal to recognize and grant permission to execute a foreign court judgment in Ukraine are: (Đ°) if the foreign court judgement did not come into force under the law of the state in whose territory it was issued; (2) if the party to whom the foreign court judgement

Jurvneshservice was formed in 1987 and since then has been advising leading Ukrainian and foreign corporations on the legal issues of the contemporary Ukrainian market. Jurvneshserviceâ&#x20AC;&#x2122;s attorneys have cultivated the culture, commercial pragmatism and technical and interpersonal skills required to deliver world-class services tailored for the preferences of worldclass clients. Over the years of practice the firmâ&#x20AC;&#x2122;s attorneys have received numerous awards and written a great number of publications. Jurvneshservice cooperates with such leading law publishers as Kluwer Law International, which issued the Ganna and Gennadii Tsirats monograph Civil Procedure in Ukraine (2012) and Intellectual Property Law in Ukraine (2011). Gennadii Tsirat is an expert in cross-border litigation and has published monographs International Civil Process: Modern Condition and Perspectives of International Unification (2013), International Commercial Arbitration (2002) and International Arbitration as a Means of Disputes Settlement (1997).

has been ruled has been deprived of the opportunity to take part in the trial due to the fact that he was not properly informed of the case in a timely manner; (3) if the decision is made in a case, whose consideration falls exclusively within the competence of a court of Ukraine; (4) if there is a decision of the court of Ukraine in a dispute between the same parties, on the same subject matter and on the same grounds, which has already come into force, or if there is a dispute between the same parties, on the same subject and on the same grounds that has been instituted in Ukraine before the opening of the proceedings in a foreign court; (5) if the enforcement term is omitted; (6) if the subject matter of the dispute under the laws of Ukraine is not subject to judicial review; (7) if implementation of the decision would threaten the interests of Ukraine; (8) if another foreign court judgment between the same parties, on the same subject matter and on the same grounds as the decision sought for enforcement was recognized and granted permission for execution earlier in Ukraine. Irrespective of the numerosity of listed grounds the practice of Ukrainian courts proves that the majority of foreign judgments are enforced in Ukraine.

of state courts. The purpose of such pro-arbitration approach is to create conditions for the widespread use of international commercial arbitration as a means of resolving commercial disputes by eliminating the possibility of parallel judicial and arbitration proceedings, and granting to arbitration a primary right to resolve issues of its own competence. This purpose is ensured by the use of the institute of inadmissibility (the protest against the jurisdiction of a state court to consider the case if there is an arbitration clause; no jurisdiction of the state court to consider a case on invalidity of the arbitration clause, etc.). The functions of judicial control over international commercial arbitration are governed by the Law of Ukraine On international commercial arbitration (ICA Law) and the Civil Procedure Code. These include the procedures for setting aside arbitral awards and procedures for granting of permission to enforce arbitral awards. Applications for setting aside arbitral awards are considered by the appellate general court at the place of arbitration as a court of first instance only in respect of arbitral awards if the place of arbitration is located in Ukraine, in particular the awards of the International Commercial Arbitration Court at the Ukrainian Chamber of Commerce and Industry or ad hoc arbitration. The exhaustive list of grounds for setting aside an arbitral award is established in ICA law (Art. 34) and CPC (Art. 454-460). The Supreme Court is an appellate instance for the setting aside of cases of awards.

Arbitral Awards and the Model Law of UNCITRAL on International Commercial Arbitration with regard to the application of grounds for refusal to recognize and enforce arbitration awards. The New York Convention regulates specific issues of recognition and enforcement of foreign arbitral awards, particularly the list of documents to be submitted to a competent court, and a comprehensive list of grounds for refusing to recognize and enforce the arbitral award and on whom the burden of proving such grounds lies. Issues of procedure, competent courts, time limits, etc., are governed by CPC (Art. 474482). Arbitral awards that are not considered foreign. That is, decisions made by arbitration held on the territory of Ukraine for enforcement purposes are subject to the same judicial procedure as foreign arbitral awards. Requests to recognize and grant a permission to execute arbitral awards are considered by the Court of Appeal of Kyiv as the court of first instance regardless of the location of the debtor or his property. The Supreme Court acts as an appellate instance in such cases. Notably, the most common reason for refusing enforcement is absence of due notification of the defendant of arbitration proceedings, or flawed (improper) notification of the defendant, and, consequently, non-participation of the latter in arbitration proceedings, or the existence of a competing judgment made by a Ukrainian court rendered prior to, or even after, the judgment that enforcement is being sought for (e. g. when there is a judgment by a state court regarding the invalidity of an arbitral award).

Functions of Ukrainian Courts of Assistance and Judicial Control over International Commercial Arbitration The Setting Aside of Arbitral Awards The foundation of interplay between state courts and international commercial arbitration is a pro-arbitration approach on the part

Recognition and Enforcement of Arbitral Awards

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ADDRESS: 46/11 Turhenevska Street, Suite 2, Kyiv, 01054, Ukraine Tel.: +380 44 239 2390 E-mail: a.tsirat@jvs.law Web-site: www.jvs.law

One of the tasks set to accomplish in order to create a pro-arbitration approach in Ukraine was introduction into Ukrainian judicial practice of generally-recognized world approaches to the application of the New York Convention of 1958 on the Recognition and Enforcement of Foreign

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113

International Tax

Anti-Offshore Rules Affecting Cross-Border Taxation in Ukraine from 1 January 2020

Valeria Tarasenko Tax Advisor, Dentons

t is common for Ukrainian businesses to shift profit created in Ukraine to another country, often with the purpose of achieving favorable tax treatment of this profit and reduce tax obligations by applying legal loopholes and misusing tax treaty provisions. The Ukrainian Parliament has decided to adopt international standards that prevent misuse of tax law loopholes and secure the taxation of profits in Ukraine. Below we provide a summary of recent Ukrainian tax law developments restricting base erosion and profit shifting to low-tax jurisdictions that businesses will have to consider when doing business across borders. In 2019, the Ukrainian Parliament ratified (1) a number of protocols amending bilateral tax treaties with certain countries as well as (2) the Multilateral Convention to Implement Tax Treaty Related Matters to Prevent Base Erosion and Profit Shifting (the MLI). All these measures should limit abuse of bilateral tax treaties and the taxtree transfer of Ukrainian source incomes to low-tax jurisdictions.

Amendments to Cyprus/ Ukraine Tax Treaty The Protocol amending the Convention between the Government of Ukraine and the Government of the Republic of Cyprus for the avoidance of double taxation and the prevention of fiscal evasion with respect to taxes on income envisaged the increase of withholding tax rates and taxation of capital gains in Ukraine.

Tax Increase Dividends payable from Ukraine are subject to a 5% tax rate if a Cypriot recipient of such dividends is a beneficial owner of the dividend and is a company (other than a partnership) which: (1) Directly holds at least 20% of the capital of the company paying the dividends; AND (2) has invested in the acquisition of the shares or other rights of the company the equivalent of at least EUR 100,000. Otherwise, a 10% tax rate is applied. The preferential 2% tax rate applicable to interest payments is raised to 5%.

New Rules of Capital Gains Taxation The Amendments to the Cyprus/Ukraine Tax Treaty significantly alter taxation of the sale of Ukrainian companies via Cypriot holding companies. Capital gains derived from the sale of shares or other corporate rights that derive (i) more than 50% or (ii) a large portion of their value directly or indirectly from immovable property

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located in Ukraine shall be taxed in Ukraine at a rate of 15%, unless the following exemptions are applicable: -- the shares are listed on an approved stock exchange; -- the gains are derived in the course of a corporate reorganization; -- the immovable property from which the shares derived their value is property in which the business is carried out; -- the shares are of a public company; -- the capital gains are similar to those of interests in real estate funds; -- the seller is listed on an approved stock exchange; -- the seller is a public company; -- the seller is a pension fund, a provident fund or a similar entity. Accordingly, if a seller or a target meets at least one of the above criteria, capital gains shall only be taxed at the level of a Cypriot holding company. At the same time, capital gains derived from alienation of any other property (including shares and other corporate rights in Ukrainian companies that do not derive their value, directly or indirectly, from immovable property) are subject to taxation in the seller’s state provided that such gains are taxable in the seller’s state. Taking into consideration the fact that capital gains derived by Cypriot companies are exempt from taxation in Cyprus, Ukrainian 15% withholding tax shall apply. Accordingly, if the sale of shares (corporate rights) in a Ukrainian company or other property located in Ukraine is carried out between a Cypriot seller and another non-resident buyer, proceeds received from such a sale is subject to taxation in Ukraine. Although capital gains of a Cypriot company shall be taxed in Ukraine, there is currently no mechanism for such withholding of tax in Ukraine. Therefore, until the relevant law is adopted and a withholding mechanism is introduced, such gains will continue to be taxable at the level of a Cypriot recipient and, accordingly, exempt.

MLI Ukraine has already implemented the MLI and intends to automatically modify all existing bilateral tax treaties with countries that also ratified/ will ratify the MLI and extended/will extend it to bilateral tax treaties with Ukraine.

Principal Purpose Test One of the key amendments is the introduction of the PPT applicable to transactions with a foreign resident eligible for tax benefits under a relevant tax treaty.

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with us to help you manage the prevailing economic conditions and understand new reforms in Ukraine. Tap into a pool of lawyers that have been serving foreign companies and their local subsidiaries for more than 25 years, ever since Ukraine began attracting foreign investment in the 1990s. With Dentons you will benefit from a partnership that enables you to identify and resolve risks at the earliest possible stage. Dentons provides intuitive thinking to spot commercial opportunities and resolve your problems. Let our Ukrainian and Western lawyers advise you on doing business, from setting up branches to debt and corporate restructuring, from employment to dispute resolution matters. When you’re looking for assistance on international

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In a nutshell, the PPT aims to deny tax treaty benefits in the event of treaty abuse and prove that obtaining the benefit was one of the principal purposes of any arrangement or transaction that resulted directly or indirectly in that benefit. This means the Ukrainian tax authorities will be able to examine the purpose of establishing a company abroad and the solid grounds for making payments to such a company, and may decide on whether the PPT is satisfied or it is evident that the respective arrangement was put in place exclusively for the purposes of tax minimization.

Cyprus has ratified the MLI, which comes into force on 1 May 2020, and automatically amends the tax treaty between Ukraine and Cyprus. Starting from 1 January 2021, a Ukrainian-resident company that is distributing dividends, royalties, interest, lease payments and other incomes from Ukraine to a Cypriot tax-resident company must prove that the benefits obtained under the Cyprus/Ukraine Tax Treaty were not the only purpose (or one of the principal purposes) for the Cypriot company to receive such incomes if it wants to be able to continue to apply relevant reductions or relief of the withholding tax in Ukraine. In order to be able to prove the above, the Ukrainian distributing company will need to provide evidence that the Cypriot company has sufficient substance (office, staff, on-going business expenses, etc.) to carry on certain activities/operations (e.g., management, marketing, sales etc.) or has a business purpose for being set up in Cyprus (e.g., logistics benefits, import/ export facilitation, a market entrance, optimization of procurement procedures or sales, etc.). Accordingly, ratification of the MLI by Cyprus will significantly affect all companies that are structured via Cyprus and/or distribute incomes to Cypriot companies and will restrict obtaining benefits under the Ukraine/Cyprus Tax Treaty, unless the activity/operation of Cyprus companies are restructured to address Principal Purpose Test requirements.

individuals and legal entities) that controls such CFCs; -- Introduction of a “business purpose test” in transactions with non-residents for the purposes of corporate income tax and transfer pricing; -- Implementation of three-tiered TP reporting in accordance with the OECD BEPS Action Plan: In addition to local filing, multinational groups would be required to prepare a master file if an annual consolidated income of a group exceeds EUR 50 million and a country-by-country report if an annual consolidated income of a group exceeds EUR 750 million; -- Some payments to non-residents of Ukraine, after being adjusted to arm’s length prices, could be equated to the distribution of a constructive dividend and, therefore, subject to 15% withholding tax and 18% advance corporate income tax. -- The concept of a beneficial owner is narrowed and a look-through approach will be allowed for the purposes of application of tax treaty benefits; -- The domestic definition of a PE would be amended to align it with the updated definition under the OECD Model Income Tax Treaty, and a new administrative procedure would be introduced to examine non-residents that carry on business operations in Ukraine while avoiding proper tax registration; -- The mutual agreement procedure for resolution of cross-border tax disputes under tax treaties would be implemented in domestic legislation. Although the president can veto Anti-BEPS Law No.1210, the principal amendments will (subject to certain adjustment in line with the Ukrainian president’s right of veto) be adopted at short notice during parliamentary proceedings. Therefore, multinational corporations and Ukrainian companies will, to some extent, have to adapt their business structures according to new tax regulations, which will reduce their profit levels.

Taxation of Capital Gains from Immovable Property The majority of tax treaties to which Ukraine is a party envisage that gains derived by a resident of a contracting state from the alienation of shares in an entity that derived more than 50% of its value from immovable property situated in the other contracting state may be taxed in that other contracting state. At present this rule applies if the relevant value threshold is met at any time during 365 days preceding the alienation.

Extended Permanent Establishment Status Permanent establishments are often used to avoid taxes. The main issue of the current PE definition are the exemptions under which certain economic presence is not deemed a permanent establishment and, therefore, not taxable in Ukraine. The MLI introduces changes to tackle common tax avoidance strategies used to prevent the existence of a PE, including through agency or commissionaire arrangements, establishing related distributors, splitting-up of contracts, limiting specific activity exemptions and fragmentation rules. The PPT and other provisions of the MLI are already applicable in respect of the bilateral tax treaties executed by Ukraine with the UK, Canada and Cyprus, and prevent the use of tax treaties to achieve a double non-taxation effect or the creation of indirect benefits for residents of third countries.

Anti-BEPS Law No.1210 Draft Law No.1210 On Amendments to the Tax Code of Ukraine on Improvement of Tax Administration, Elimination of Technical and Logical Inconsistencies in Tax Legislation has been adopted by the Ukrainian Parliament, and if it is signed into law by the president it will implement the following amendments which will affect cross-border transactions of the Ukrainian business community: -- Introduction of controlled foreign companies (CFC) rules in Ukraine, which will lead to taxation of undistributed profit of CFCs at the level of the Ukraine resident (both

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DENTONS

ADDRESS: 41 Naberezhno-Khreshchatytska Street, 9th Floor, Kyiv, 04070, Ukraine Tel.: +380 44 494 7474 E-mail: kyiv@dentons.com Web-site: www.dentons.com

115

Investigations

Legal Privilege in Cross-Border Investigations

Kateryna Gupalo Attorney-at-Law, Partner, Head of WhiteCollar Crime, Arzinger

n March 2017, the legal community was agitated by news about a search that had taken place in the German office of Jones Day, a well-known US law firm. As it turned out, the search was closely linked to a client project. Thus, Jones Day was retained by Volkswagen after the so-called “diesel gate” scandal had erupted about the installation of special devices that distorted the results of emission tests. The law firm had, since Autumn 2015, been working on conducting a proper internal investigation into the allegations that had been brought. The case was specific due to the fact that the above circumstances were investigated by both US law-enforcement agencies and the German prosecutor’s office (Munich). According to the press, Jones Day had prepared a preliminary report as early as Spring 2016. It was expected that the internal investigation report would be made public. At the same time, it appeared that the client chose not to release that report because of a number of sensitive issues but provided a summary of the facts and findings of the respective internal investigation to the US Department of Justice. German law-enforcement agencies decided to obtain access to the relevant materials through a series of searches, including those at the German office of US law firm Jones Day. The search gave rise to lengthy court proceedings regarding the further possibility to use the documents seized by law-enforcement agencies at Jones Day in Germany, until Germany’s Federal Constitutional Court ruled on 6 July 2018 that the search at the German office of the US law firm as well as the seizure of a number of documents were not unconstitutional.

Implications for CrossBorder Investigations It is worth noting that a move like a search at a law firm whose employees are not suspected of complicity in a crime is not typical for such jurisdictions as EU countries or the US. At the same time, this situation has raised debate on professional secrecy in internal investigations, especially in cross-border internal investigations. Thus, after the mentioned events, the legal community began to increasingly discuss professional secrecy, including legal privilege, in internal investigations. Thus, there has been separate panel discussion on legal privilege in cross-border investigations at almost every white-collar crime and anti-corruption international conference I have visited since then. I have also had the privilege of presenting the specifics of legal privilege regulation, or rather attorney-client privilege, in Ukraine at several international conferences. In addition, when working with colleagues from foreign jurisdictions on internal investigations with a Ukrainian element, one of the first

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issues discussed is the regulation and protection of legal privilege in Ukraine. Advisors understand that an internal investigation can bring to light many sensitive facts. Accordingly, there are concerns that investigation results may get to third parties, including local law-enforcement agencies.

Protection of Legal Privilege in Ukraine The concept of legal privilege is widely used in Anglo-Saxon law jurisdictions to protect client-advisor communications. The basic idea behind it is to enable the client to fully disclose information to its legal advisor without being afraid that the information may be disclosed to third parties in future and, therefore, harm the client. Prior to the searches at Jones Day, the US and UK lawyers felt protected by the concept of legal privilege, even when working in other jurisdictions. However, the developments described have shown that it is far from it. Thus, Germany’s Federal Constitutional Court issued a rather broad press release regarding its decision. In the document, in the context of the ban on using the material, which the US and UK lawyers considered to be protected by legal privilege, the court stated that it “considerably restricts effectiveness of law enforcement as required under constitutional law1”. The court further noted that “such absolute prohibitions are only feasible in exceptional cases, such as, in particular, where an investigative measure would constitute an interference with the scope of protection of human dignity2”. There has so far been no plan in Ukraine that addresses the issue of protecting the legal privilege of information and documents obtained by US and UK lawyers. However, we can try to address this situation in terms of the criminal process of Ukraine within which Ukrainian law-enforcement agencies operate. In this regard, our legislation is quite conservative. Thus, in terms of the client-advisor relationship, it actually protects only client-attorney privilege, i.e. the secret between a client and an attorney admitted to the Bar in Ukraine. We discuss this in more detail below. In other words, a client’s correspondence with US or UK lawyers, the results of their work kept for certain reasons in Ukraine (at a subsidiary’s or client’s place) or other received information that is subject to legal privilege, will not be protected against access by Ukrainian law-enforcement agencies. This means that the concept of legal privilege is not sufficient for the protection of information, including the results of internal investigations, in Ukraine. ¹https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2018/bvg18-057.html ²https://www.bundesverfassungsgericht.de/SharedDocs/Pressemitteilungen/EN/2018/bvg18-057.html

enabling it to engage colleagues from various jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

Professional Secrecy

Attorney-Client Privilege in Ukraine

Talking of searches, special rules apply to an attorney, unlike to other persons. Thus, an attorney’s search can be initiated by a very limited number of individuals. In particular, according to Article 23 of the Law On the Bar and Practice of Law an attorney may be searched only with the permission of a court at the request of the Prosecutor General, his deputies, the prosecutor of the Autonomous Republic of Crimea, region, the city of Kyiv, and the city of Sevastopol. At the same time, the article expressly prohibits the examination, disclosure, obtaining on demand or seizure of documents related to the practice of law. In this regard, it is important to note that attorney-client privilege applies to attorneys. Therefore, if an internal investigation is conducted by lawyers who have no certificate as an attorney, and are not employees of an attorneys association, then the above guarantees do not apply. The issue of protecting information through professional secrecy is extremely important in conducting cross-border internal investigations. Thus, before deciding on where and how to transmit and process information, it’s important to determine the rules for protecting such information in each jurisdiction involved at the very outset of an internal investigation. In Ukraine, the information obtained through internal investigations as well as the results of such investigations is protected by attorney-client privilege. Therefore, it is important to involve attorneys in this process.

We often see in practice that audit firms are retained for internal investigations. In particular, audit firms provide inter alia forensic services. But will they receive the documents and the work results protected in terms of the criminal process? On the one hand, Article 11 of the Law of Ukraine No. 2258-VIII On Audits of Financial Statements and Auditing Activity obliges auditors to maintain confidentiality of information and not to disclose the information received in the course of their activities. On the other hand, the current Criminal Procedure Code of Ukraine does not contain any guarantees for audit secrecy. For instance, Article 65 of the Criminal Procedure Code of Ukraine provides for the impossibility of carrying out interrogation on information that constitutes notarial secrecy, attorney-client privilege, confidential professional information of journalists, secrecy of confession, etc. However, no such rule is enshrined in the law for auditors. In practice, we know of cases of temporary access to the possessions and documents of audit firms within criminal proceedings. This is practical proof of the fact that audit secrecy, as a form of professional secrecy, does not give protection from the unwanted attention of law-enforcement agencies in Ukraine. Therefore, information and documents, including the results of internal investigations that will be kept at audit firms in Ukraine, can be quite easily accessed by Ukrainian law-enforcement agencies.

In the above context, it is worth paying attention to the regulation of attorney-client privilege in Ukraine. In particular, Article 22 of the Law of Ukraine No. 5076-VI On the Bar and Practice of Law contains a fairly broad definition of attorney-client privilege, which includes any information about the client “that has become known to an attorney, attorney’s assistant, trainee, a person who has a working relationship with an attorney as well as issues on which the client (a person who has been denied a legal assistance agreement on grounds stipulated by this Law) turned to an attorney, law firm, Bar association, the content of advice, consultations, attorney’s clarifications, documents drawn up by the latter, information stored on electronic media, and other documents and information obtained through the practice of law.” This definition alone shows how broad the concept of attorney-client privilege is. After all, the attorney-client privilege regime protects not only the information provided by the client and the documents drawn up in the course of the attorney’s work, but even the client’s own information that was provided to an attorney. Furtherwore, the current Law On the Bar and Practice of Law and the Criminal Procedure Code of Ukraine establish a number of guarantees that protect attorneys and attorney-client privilege. As stated above, an attorney may not be interrogated as a witness regarding any information that constitutes attorney-client privilege. As mentioned above, this is a fairly broad scope of information.

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ARZINGER

ADDRESS: Senator Business Centre, 32/2 Moskovska Street, 10th Floor, Kyiv, 01010, Ukraine Tel.: +380 44 390 5533 Fax: +380 44 390 5540 E-mail: mail@arzinger.ua Web-site: www.arzinger.ua

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Investments

2020: New Opportunities for Investments and Mechanisms for Protection of Investors’ Rights

Andriy Kolupaev Partner, Lexwell & Partners

Olena Tregubova Senior Associate, Lexwell & Partners

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nhancement of the investment climate has been announced one of the key priorities for the current Ukrainian Government today. Certain measures aimed at attracting new investors and improving mechanisms for protection of investments have recently been taken and are planned to be taken in future, including at the legislative level. A part of such measures is aimed at creating new investment opportunities for businesses by opening new and extending existing, spheres of investments. While the other part of such measures is expected to ensure improvement of the investment climate in general, by making it easier to do business and making it more transparent, and providing investors with more reliable mechanisms for protection of their rights. Below we’ll analyze some innovations, which have already been launched and are planned to be implemented in the near future.

Accelerating Investments by Facilitating Privatization of State-owned Enterprises It is well known that a large number of Ukrainian enterprises, including those with significant property complexes, have been used inefficiently for a long period of time due to various reasons. Experience has proven that the state’s resources and its bodies were not sufficient to organize effective management of those enterprises, given their number and absence of respective system to have them recorded. Therefore, the need for implementation of active and transparent procedures for transferring them to private investors has been discussed for quite a long time; however, active steps in this direction have started to be taken not long ago. Thus, starting from early 2020, the arrangements for and commencement of a large-scale initiative on privatization of state-owned enterprises, which was launched by the Government is being actively pursued in Ukraine. More than a thousand state-owned enterprises are awaiting privatization, 500 of them have already been prepared for privatization and transferred to the State Property Fund of Ukraine for commencing privatization procedures. In order to make privatization processes more transparent, limit the risks of corruption to the maximum extent possible, and enhance protection of investors’ rights the New Law of Ukraine No. 2269-VIII On Privatization of State and Communal Property was adopted as far back as 18 January 2018, which underwent several amendments during the first year after its adoption; all amendments were aimed at improving the same.

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In general, the most notable innovations introduced by the New Law include cancellation of complex multilevel classification of targets (objects) of privatization, which provided for six groups and two types, instead two-groups classification was introduced — the targets of minor and major privatization with simple criteria for differentiation of the same. The targets of major privatization include objects of state and communal property with their assets value exceeding UAH 250 million according to their financial statements for the last reporting year. The remainder are treated as being targets (objects) of minor privatization. The said Law also classified, simplified and unified the procedure for privatization of state and communal property, making them more transparent for investors. Thus, the targets of minor privatization are sold exclusively through e-auctions, which are regulated by the Cabinet of Ministers of Ukraine. The targets (objects) of major privatization may also be sold only through auctions in accordance with established procedure, except for cases expressly contemplated by the law, where an investor shall be entitled to purchase the respective object without participating in competitive (auction) procedures. E.g., it is possible if an investor has rented the object of investment prior to privatization of the same and has improved it significantly — in such a case the investor shall be entitled to purchase the same without participating in competitive (auction) procedures, in accordance with procedures as contemplated by the law. At the same time, the procedures for conclusion of sale and purchase agreements with investors who are going to purchase the targets (objects) of privatization and procedures for amending the same do not lack normative regulation. All information pertaining to all targets of privatization as available for sale — both major and minor privatization — are published on the publicly available official web site of the State Property Fund and e-platforms for respective auctions. Therefore, the legislative foundation has been created in order to reduce corruption risks and significantly simplify privatization procedures.

Simplifying Procedures for Leasing the State and Communal Property Starting from 1 February 2020 the new Law of Ukraine On Lease of State and Communal Property No. 157-IX of 3 October 2019 entered into force, which replaced the previous law in respective field, and which was adopted to enhance

Lexwell & Partners is a Kyiv based Ukrainian law firm which offers high-end professional legal services to major international and leading Ukrainian companies since 2005. We focus on a complex and high-profile national and cross-border matters and have a strong expertise in foreign investments, M&A, tax, real estate, litigation and international arbitration. We earned an excellent reputation which is highly ranked by the Legal 500, Chambers and Partners, IFLR1000, Ukrainian Law Firms, Kyiv Post, Legal Practice, Legal Newspaper. Among our achievements: -- No.1 by gross revenue (Yuridecheskaya Practika Publishing, 2018); -- No.1 by revenue per lawyer (Yuridecheskaya Practika, 2018);

-- No.1 in high-value disputes (Yuridecheskaya Practika, 2016); -- Tier 1 for dispute resolution (The Legal500, 2018); -- Tier 2 for tax, real estate, commercial, corporate and M&A (The Legal500, 2018); -- Recognized Practitioner in Dispute Resolution: Arbitration (Chambers & Partners, 2019). Lexwell & Partners key clients are multinational and leading national companies, including 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), PwC, Rabobank, Red Bull, Marubeni, Millhouse, Morningstar, Naftogaz (National Oil & Gas Company), Schenker, Sojtz, Subaru, Sumitomo, Suzuki, Toyota, VS Energy.

the efficiency of lease relationships, to simplify the procedure for leasing state and communal property and make it more up-to-date, to ensure competitiveness of state and communal property in terms of lease-related relationships. The new law is aimed at enhancing economic development processes, attracting additional investments, improving protection of lessee’s rights, etc. Law No. 157-IX introduced new mechanisms for transfer of property to the lessee by holding an e-auction, determined the means to prevent abuses during the leasing of state and communal property, etc. The adoption of Law No. 157-IX is also expected to reduce corruption risks in the respective sphere and improve the investment climate in the sphere of lease of state and communal property.

on introducing auctions for the sale of special permits for subsoil use through e-auctions. Such practice on the sale of special permits for subsoil use through public auctions is expected to be continued in future, and to turm into a permanent one instead of being an experiment. One positive innovation is that all information on all special subsoil use permits available for purchase is now publicly available.

protect their rights, as announced by the President of Ukraine, and is to be launched shortly. The initiative provides that each investor who invests USD 100 million in Ukraine or more shall have a separate contract with the state pursuant to which a personal manager shall be appointed to assist the investor (Investment nanny), who will be available 24/7 and who will act as the investor’s advisor, and who will assist in maintaining a dialogue with competent authorities and settling the investor’s issues within the legal framework.

Granting of Special Permits (licenses) for Subsoil Use on a Competitive Basis A significant step has been made towards increasing the transparency in the sphere of granting, by the State Service of Geology and Subsoil of Ukraine, of special permits (licenses) for minerals extraction (subsoil use). Thus, an experimental procedure (initiative) according to which special permits (licenses) for subsoil use are sold by the State Service of Geology and Subsoil of Ukraine exclusively through auctions held in the ProZorro system, which was launched in 2018, has been extended to 1 October 2020. For these purposes, the Cabinet of Ministers, by its Regulation No.960 of 23 October 2019, renewed and restated the Temporary procedure for implementation of the experimental project

Measures Taken to Enhance the Protection of Investors’ Rights and Improve Investment Climate When attempting to simplify the procedures for attracting investments and making them more transparent, the State is also planning to undertake certain steps to improve the investment climate and strengthen guarantees for protection of investors’ rights. Thus, an independent Temporary Special Commission of Verkhovna Rada of Ukraine for Protection of Investors’ Rights is planned to be established under the Verkhovna Rada of Ukraine shortly (respective draft law has been registered and is pending review by the Verkhovna Rada of Ukraine). The aim of the Commission shall be reform of legislation in the sphere of investment activities, systematization of the same, as well as creating a reliable system of protection of investors’ rights at legislative level. At the same time, a number of draft laws that provide for additional tax benefits to be granted to investors, including income tax benefits, is being developed and are planned for adoption. The Government is also involved in active discussions regarding an Investment nanny initiative designed to assist investors and

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LEXWELL & PARTNERS

ADDRESS: Sophia Business Centre, 6 Rylsky Lane, 5th Floor, Kyiv, 01001, Ukraine Tel.: +380 44 228 6080 E-mail: lexwell@lexwell.com.ua Web-site: www.lexwell.com.ua

Efficiency of Legal Protection of Investments The above-listed legislative measures expand investment opportunities substantially, enabling investors to purchase or lease (on a competitive basis) new objects for conducting their business. It is also expected that the said measures, that have been launched and planned by the Ukrainian Government, shall really result in enhancement of the investment climate. At the same time, it should be understood, that taking such specific measures in the short run, even though they are positive, may, in our view, be still regarded by investors as an additional incentive for them to accelerate their activities, whilst the need for stability of laws and practice of their application, as well as for giving real effect to the rule of law remains a priority. When pointing out certain positive developments in this area, it is worth noting, that there is still a great need for comprehensive legal support in doing business, making and implementing decisions on launching new and developing existing investment projects.

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IT Law

How to Properly Set Up an IT Project, Make it Attractive to Investors and Increase its Capitalisation: Practical Advice

Oleh Malskyy Partner, Head of Corporate and M&A, Eterna Law

Philip Taranenko Associate, Eterna Law

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he start-up trend observed in recent years has spread all over the world, considerably changing the understanding of the mechanisms behind the development and operation of business projects. It is not uncommon for start-ups (that have just reached maturity and begun to generate operating gains) to face challenges, and sometimes crises, that result in substantial financial losses or lead to business failures. The reason for such adverse scenarios is usually disregard for actions taken by founders at different stages of project development because those actions, seemingly insignificant at first, prove to be very important. Let us consider (a) a number of reasons that are likely to lead to adverse scenarios due to defects in corporate documents, pitfalls in website regulations and flaws in a company’s tax planning efforts, and (b) the ways to avoid adverse scenarios that came to life because of those reasons.

Corporate Relationships Start-up founders and investors usually sign a Term Sheet at the stage when agreements reached between the parties are being laid down. A Term Sheet is a rather standard document that sets out the key terms for investments and further cooperation. A Term Sheet, when executed, binds the parties to take specific actions on particular terms. Subsequently, based on the provisions of the Term Sheet, and depending on the transaction structure, the main documents to govern the legal relationships between the investors, the founders and the start-up itself will, under Ukrainian law, be: -- an Incorporation Agreement (IA) describing the relationships between the parties in respect of the incorporation; -- a Shareholders Agreement (SHA) that will apply to the legal relationships between the start-up founders; and -- a Charter that will be a constitutional document on the start-up, setting out the key legal principles of its operation. Start-up founders, seeking to obtain investor financing quickly, often fail to pay due attention when the documents mentioned above are being drafted and executed. Every so often, such a careless attitude towards the provisions of the documents that apply to legal relationships between the parties and govern the start-up operations leads to conflicts and crises.

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As the IT project develops, no serious investor will invest in a company without an appropriate structure and well-built legal framework, which also includes matters regarding proper transfer of intellectual property rights (codes, TMs, and so on) to the start-up. To mitigate potential adverse scenarios, it is necessary to determine and set out in detail (before the documents are executed) the provisions pertaining to, and addressing matters that arise in: -- the start-up’s incorporation: the parties may, in addition to the Term Sheet, use the IA to set out how the company will be incorporated, the terms of their joint activities related to the incorporation process, the amount of share capital, the amount of shares to be held by each of the founders, and the time limits and manner of making capital contributions; -- the application of finances and the distribution of profits: stages, purposes and plan for the application of the finances raised should be set out in the Term Sheet, while the terms and manner of paying out dividends should be specified in the Charter; -- the corporate governance of the start-up: the basis for its corporate structure (whether the company will be managed by a CEO or collective governing body and have a Supervisory Board) should be laid out in the Term Sheet, while the method of appointment of, and the matters reserved to, the said bodies should be set out in the SHA and the company’s Charter; and -- a founder’s withdrawal from the start-up: options for how the founders will deal with deadlock situations should be described in the SHA beforehand, setting out the terms (or way to determine the terms) under which a founder will have a right or obligation to purchase or sell his/her shares (or a fraction of his/her shares), and specifying when such right or obligation will arise.

Website Regulations A website, as the calling card for any start-up, gives the first impressions of the project and, depending on the project’s essence, offers various services and opportunities to users. Apart from the site’s stability and functionality, another important condition that allows a start-up to avoid adverse reputational effects is that website regulations be in line with national and international law.

Eterna Law has an extensive history and experience within Ukraine and 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. It’s for this reason that we consistently act in some of the most high-profile matters in Ukraine and 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. We are an exclusive member of four lawyers association — First Law International, PLG Inter-

national Lawyers, Libralex, AIEL which gives us the possibility to cover more than 80 jurisdictions for the needs of our clients.

The key documents that should be prepared and published on a start-up project’s website are: -- Terms of Use that set out general terms and conditions for accessing and using the website and its services; -- a Privacy Policy that contains grounds for personal data processing and protection and specifying the personal data rights of users; -- a Cookies Policy that sets out how the website will use cookies files and technologies; and -- a Copyright Policy that specifies protection requirements for intellectual property available on the website. Every so often companies fail to pay due attention to the sound drafting of the above-mentioned documents with a view to cutting costs when their start-up websites are being developed. Such a botched-up approach and the resulting non-compliance of those documents with legal requirements give rise to numerous complaints and legal actions brought by users and lead to penalties and fines imposed by government authorities. In order to avoid adverse effects, at least the following should be done: -- the said documents should be drafted clearly and unambiguously, and describe the entire website functionality, as well as liability limitations and user rights and opportunities;

-- the scope, purposes and reasons for processing personal data and their storage period should be set out, especially as far as sensitive personal data are concerned; -- it should be specified which classes of user cookies will be gathered and when such gathering will take place during website use; and -- rules should be set out in detail for how intellectual property available on the website (trademarks, material, algorithms and other elements that make the website unique) may be used.

report the ownership of foreign companies in Ukraine and pay income tax assessed on such companies in Ukraine), the following should be done to mitigate potential risks: -- the best form of presence in Ukraine should be chosen; -- it should be determined whether or not the Ukrainian activities of several non-residents can be treated as a permanent establishment where such activities constitute, as a whole, the complementary functions of a cohesive business operation (because the chances are that the engagement of sole proprietor contractors may be a permanent establishment factor and, consequently, subject to taxation in Ukraine); -- it should be ensured that substance is in place at foreign company level (a series of measures should be taken to prove that the company has a physical presence in its country of incorporation); and -- relocation options should be considered for moving the business to European jurisdictions with acceptable tax burdens. To sum up, it should be noted that the proper legal finalisation of agreements between founders and investors, as well as the subsequent proper preparation of constitutional documents, the sound and detailed drafting of website regulations and the building of the best tax model, are critical success drivers for a start-up as far as its development and normal operation are concerned.

Tax Planning Start-up tax planning is one of the integral components to be included in the business plan with a view to identifying the tax system that would, on the one hand, minimise costs and, on the other hand, mitigate the risks of penalties imposed by controlling authorities. It should be noted that the conduct of business rules changed in Ukraine on 23 May 2020 — the effective date of Tax Administration Improvements and Technical and Logical Tax-Law Inconsistencies Elimination (Tax Code Amendments) Law No. 466-IX. Its novelties and provisions should be borne in mind for start-up tax planning purposes. In view of the provisions of the Tax Administration Law that deal with the introduction of the Controlled Foreign Companies rules (which now require that controllers of foreign companies

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121

Jurisdiction Issues in Commercial Procedure

Andrii Kubko Ph.D (Law), Partner, Salkom

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he importance of jurisdiction issues in a commercial procedure lies in their direct connection with mechanisms used for the protection of rights and legitimate interests. It is generally acknowledged that protection of rights is a priority of the modern state. This principle is enshrined in the Constitution of Ukraine and also embedded in international commitments undertaken by Ukraine. These international commitments are set out, for instance, by the European Convention for the Protection of Human Rights and Fundamental Freedoms as well as a number of bilateral investment treaties protecting the rights of foreign investors. The key factor in the protection of rights is the existence of efficient procedural mechanisms. The protection of rights is also important for a commercial segment because it is indispensable for the improvement of the investment climate in the state, increasing its â&#x20AC;&#x153;attractivenessâ&#x20AC;? for both domestic and foreign investors, and reducing risks faced by the state when it is found liable for failing to fulfil its international commitments. The jurisdiction-related issues in a commercial procedure play a material role in a mechanism available for the protection of rights of a person engaged in a commercial segment. In relationships with foreign persons (including foreign investors), this issue often means making a choice between a competent Ukrainian court and a foreign authority (court, arbitral tribunal, etc.) as an instance where the parties can seek protection of their rights and legitimate interests. In turn, such a choice has a number of theoretical and practical aspects concerning, for instance, the recognition and enforcement of foreign judgments and arbitral awards in Ukraine, the involvement of a Ukrainian party in proceedings in a foreign court as well as involvement of a foreign party in Ukrainian domestic litigation. This is why itâ&#x20AC;&#x2122;s important to describe the trends in legislation governing the issues of jurisdiction in a commercial procedure from the standpoint of drawing a line between the jurisdiction of Ukrainian domestic courts and foreign judicial (arbitral) bodies over commercial disputes where at least one of the parties is a foreign company. Generally speaking, there has been a trend in modern Ukrainian law of departing from the domination of the jurisdiction of national courts over such disputes. It appears that legislators are striving to give the parties involved in a commercial processes wider leeway in submitting disputes between them to foreign jurisdictional authorities. For example, the current wording of the Commercial Procedure Code of Ukraine expressly provides for the rights of parties to proceedings to submit a dispute between them to a foreign court. Pursuant to Article 23 of the CPC, a dispute may be submitted to a foreign

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court by agreement between the parties. Disputes may also be submitted to a foreign court for consideration whenever such an opportunity is provided for by applicable law or an international treaty. A comprehensive analysis of Law of Ukraine No. 2709-IV On Private International Law shows that disputes with a so-called foreign element may be submitted for resolution to a foreign court by agreement between the parties involved. A dispute with a foreign element is a dispute when at least one of the parties of which is a foreign individual or a legal entity (a body corporate registered or otherwise incorporated in a foreign jurisdiction); a dispute the subject matter of which is located outside Ukraine; or a dispute where a legal fact that gave rise to disputed relationships took place in a foreign jurisdiction. Surely the possibility of submitting such a dispute to a foreign court is not unlimited. The PIL Law provides for an exclusive jurisdiction of certain categories of disputes with a foreign element. Those disputes falling in such specific categories may not be submitted to a foreign court as Ukrainian courts have exclusive jurisdiction over them. These categories, in particular, include disputes in connection with real properties located in Ukraine, disputes in connection with the formalisation of intellectual property rights that require registration or certification in Ukraine; disputes regarding the issue or destruction of securities issued in Ukraine, etc. However, some trends towards certain liberalisation of regulation of jurisdiction-related aspects have recently become a noticeable event in this area. For instance, the initial language of the PIL Law that came into force in 2005 absolutely prohibited the submission of disputes in connection with real properties located in Ukraine to foreign courts. In 2015, legislators made an exception to this rule for disputes concerning the execution, termination, and performance of agreements made within the framework a public-private partnerships by the Cabinet of Ministers of Ukraine provided that the real property in question is the subject matter of the partnership and further provided that a dispute does not concern the accrual, termination, or registration of property rights to such real property. The rule about exclusive jurisdiction of Ukrainian courts stopped applying to such disputes, and they can also be submitted to foreign courts. Pursuant to changes that were made in the PIL Law in October 2019, the scope of disputes concerning real property that do not fall within the exclusive jurisdiction of Ukrainian courts was further extended. From now on, not only agreements made by the Cabinet of Ministers of Ukraine within the scope of public-private partnership but all agreements on public-private partnerships, including concession agreements, are not subject to the exclusive jurisdiction of Ukrainian courts. Similarly to the 2015 wording of the PIL Law, the current wording of this Law

The 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 practising 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 employ ees speak English and other languages, which enables them to work efficiently with foreign clients. The firm’s clientele take in 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 long-standing cooperative relationships with international law and consulting firms in the United Kingdom, USA, 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. The Salkom Law Firm cooperates with Squire Patton Boggs.

provides that disputes arising out of public-private partnership agreements and concession agreements regarding real property are not covered by the exclusive jurisdiction of Ukrainian courts and may be submitted to foreign courts provided that such disputes do not concern the accrual, termination, or registration of ownership rights to real property. The new Law of Ukraine No. 155-IX On Concession, which came into force on 1 February 2020, is another example of a trend towards liberalisation of regulations in matters of jurisdiction in a commercial procedure. This act gives parties to concession agreements wide leeway for availing themselves of alternative dispute resolution mechanisms both in Ukraine and abroad instead of submitting disputes to Ukrainian state courts. The Concession Law provides that the parties to a dispute are free to choose a dispute resolution mechanism, including mediation, non-binding expert assessment, national or international commercial or investment arbitration including arbitration with a seat outside Ukraine, provided that a founder of a private partner is a company with foreign investments or a foreign company. A specific dispute resolution mechanism as well as a competent jurisdictional institution is determined by the agreement made between the parties to a concession agreement. At the same time, the Concession Law has introduced rules applicable to dispute resolution that can be construed as somewhat restricting the rights of the parties to submit disputes between them to jurisdictional bodies. In particular, the Concession Law provides that any disputes arising out of, or in connection with, concession agreements have to be resolved by negotiations between the parties. The time frame for such negotiations has to be set out in the relevant concession agreement. This rule can be construed as introducing a mandatory negotiation procedure that has to be followed before a party can file an action or a request for arbitration with a court or arbitration accordingly. Whether or not this approach is accepted will depend on the trends in case law and typical terms and the conditions of concession agreements. The recognition and enforcement of foreign judgments and arbitral awards in Ukraine is another aspect that has to be addressed when

considering jurisdiction issues. The enforcement stage is essentially part of a judicial process in its wider meaning. In the absence of an efficient enforcement of court decision, the right of access to a court guaranteed by international law becomes futile. This approach was taken on numerous occasions by the European Court of Human Rights in its case law. At present, Ukrainian law establishes different rules governing the recognition and enforcement of decisions made by foreign state courts and awards rendered by foreign arbitral tribunals. These procedures are established in the Civil Procedure Code of Ukraine, which contains two distinct sets of rules for the enforcement of decisions made by foreign state courts and awards made by foreign arbitral tribunals. At the same time, both judgments made by foreign state courts and awards made by foreign arbitral tribunals are recognised and enforced in Ukraine whenever such a procedure is established by an international treaty or on the basis of reciprocity. Foreign arbitral awards are enforced on the basis of the New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958, to which Ukraine is a party. This is why the recognition and enforcement of foreign arbitral awards made in the Contracting States of the New York Convention is also generally governed by the rules of the New York Convention, which prevail over the rules of the CCivP. The key issue within the scope of the recognition and enforcement of foreign judgments and arbitral awards are grounds for refusal of recognition or enforcement. The CCivP sets out a wide range of grounds for the refusal in the recognition and enforcement of foreign judgments and arbitral awards. These differences are mainly attributed to the nature of court and arbitral proceedings. However, such a ground for the refusal of recognition and enforcement of foreign judgments, as a threat to the interests of Ukraine, appear the most questionable. The CCivP provides that the recognition and enforcement of a foreign judgment can be denied in Ukraine if it poses a threat to the interests of Ukraine. However, this ground for the refusal applies only to the recognition and enforcement of judgments made by foreign state courts. The CCivP does not provide for refusal on the ground of a threat to the interests of Ukraine in

connection with foreign arbitral awards. Instead, the CCivP replicates the rules of the New York Convention in the part regarding public order of Ukraine: recognition and enforcement of an arbitral award can be refused if its recognition or enforcement were to be contrary to the public policy of Ukraine. The definition of public policy is set out both by legislation and case law. The plenary session of the Supreme Court in Ukraine in its resolution No. 12 dated 24 December 1994 stated that public order should be understood to mean the legal order of the state, the fundamental principles and foundations that make up the basis of the existing political system. The PIL Law defines public order as the foundation of a legal order in Ukraine. At the same time, the term “interests of Ukraine”, that can constitute a ground for the refusal of recognition and enforcement of a foreign court judgment under the CCivP, appears rather ambiguous and questionable. Ukrainian law does not provide for a definition of the interest of Ukraine as such. The concept of the interests of Ukraine can be construed ambiguously and constitute an impediment to improving the efficiency of a mechanism for the enforcement of foreign court judgments in Ukraine. On the other hand, the state needs some protective mechanism that enables it to prevent a threat to state interests that can arise as a result of the enforcement of certain foreign judgments in Ukraine. Such a mechanism is also provided for by the PIL Law, which prevents the enforcement of foreign judgments concerning the recovery of debts owed by strategic defence companies to companies incorporated in an aggressor state. This restriction is objectively required in existing circumstances. It is expected that case law and a legal doctrine will have to develop a steady approach to the application of the rule about the state interests of Ukraine. In particular, an answer should be given to the question as to whether or not the interests of Ukraine should be equated with public order in Ukraine, or whether the interests of Ukraine should be viewed as an equivalent of the national interests of Ukraine that have been defined by laws aimed at ensuring the state security of Ukraine, etc. This answer will make a contribution to the further improvement of regulation of jurisdiction issues in a commercial procedure.

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

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Labor & Employment

Labor Law Reform

Valeriia Gudiy Counsel, Attorney-at-Law, Ilyashev & Partners

Leonid Gilevich Counsel, Ilyashev & Partners

124

lready in 2019, when the Ukrainian government was rebooted as the voters elected Ukraine’s youngest President so far and Parliament with the biggest pro-President majority, the new head of state declared that Ukraine should no longer live with the soviet-era Labor Code of Ukraine and that a new code should be developed providing for protection of not only the employees’ rights, but those of the employers as well. This intention was formalized in the Decree of the President of Ukraine No. 713/2019 of 20 September 2019 On Immediate Measures for Ensuring Economic Growth, Stimulating Regional Development and Preventing Corruption, by virtue of which the Cabinet of Ministers of Ukraine was instructed to develop the draft law necessary for reinvention of Ukrainian labor legislation by 1 January 2020. Almost immediately thereafter, the Programme of Activities of the Cabinet of Ministers of Ukraine was adopted by Resolution No. 188-IX of the Verkhovna Rada of Ukraine of 4 October 2019, defining “liberal labor laws allowing employers to easily create new quality jobs, promote better employees, and pay higher wages” as one of the main goals of the Ministry of Economic Development, Trade and Agriculture. In compliance with the above, the latter Ministry managed to develop the draft of the Law of Ukraine On Labor in less than 3 months, and the Cabinet of Ministers of Ukraine submitted such draft for Parliament’s consideration on 28 December 2019 under number 2708. Importantly, 2 alternative drafts have been developed by various parliamentary groups already in November 2019, thus ever more pointing to the inevitability of changes. On 13 February 2020, the Head of the Committee of Verkhovna Rada of Ukraine on Social Policy and Protection of Veterans’ Rights announced that work on the various drafts in this area should be completed in March 2020. Early in March 2020, however, draft law 2708 was withdrawn by the Cabinet of Ministers amid calls for better protection of employees. Nevertheless, the work on the new Labor Code or an act with a different name but of similar importance continues, with draft law 2708 serving as a basis, as recently confirmed by Parliament’s Committee on Social Policy and Protection of Veterans’ Rights. At the same time, it so happened that the long-awaited reform actually began even without the new Labor Code. The coronavirus pandemic brought new challenges where more flexible forms of labor, hitherto virtually omitted from the existing labor laws, were required to keep the economy running, and the most necessary changes introducing proper regulation of remote work were introduced to the Labor Code of Ukraine. All in all, it seems that the completion of the reform of labor legislation is inevitable in the near future and may still take place in 2020, thus continuing a peculiar tradition of major labor law reform being adopted in Ukraine exactly every 49 years (as the existing Labor Code of Ukraine No. 322-VIII was adopted on 10 December 1971,

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and its predecessor was dated 1922). And while the Draft Law No. 2708 was withdrawn for further elaboration, it nevertheless serves as an indicator of what may be expected of that reform.

Laws with Soviet Roots Adopted in 1971, in the “country of workers and peasants”, the Labor Code of Ukraine at the beginning of the latter’s independence was hardly suitable for the new market economy, and had to undergo major changes over the last few decades. Its updated version, together with certain other laws and regulations, today forms the core of Ukrainian labor law. It consists of 18 chapters and 265 articles, and governs all the major issues relating to employment, such as employment agreement, collective bargaining agreement, working hours and time off work, payment for labor, employment-related guarantees and compensations, employee’s liability, labor disputes and other issues. The Labor Code of Ukraine guarantees the observance of minimum state guarantees (including those relating to working conditions and remuneration of labor) that each employee can count on, establishes strict liability for the employers’ non-compliance with the labor rights of employees and allows the state to apply financial sanctions to violators. The Labor Code of Ukraine prohibits admission to work without the conclusion of an employment agreement and does not allow unlawful dismissal of an employee, providing, in fact, an exhaustive list of grounds for termination of employment, including mutual consent of the parties, employee’s request, expiration of employment agreement, systematic failure to perform labor duties, etc. In any case of dismissal of an employee at the initiative of the employer, the latter must prove the existence of grounds for dismissal of such employee. Each employee is provided with generally effective rights to protect his/her employment-related interests, including by applying to court. Nevertheless, most observers agree that the Labor Code of Ukraine hasn’t got rid of all of its soviet roots and is simply unable to do so, while the effective Ukrainian labor law consists of substantial secondary legislation (with many regulations adopted in the 1970s and some even in the 1930s) with provisions contradicting both one another and primary legislation. Last but not least, implementation of mandatory international acts and regulations of the European Union into Ukrainian law is also on the agenda and cannot be achieved without substantial reform.

Long-Awaited Reform One cannot be sure at this point what the next version of the draft of the Law On Labor or the Labor Code will look like, but the group working on the document is doing that “based on the overall structure and provisions of Draft Law On Labor No. 2708”. Apparently, it will keep the rules for flexible working arrangements recently adopted under law No. 540-IX of 30 March 2020 and applying to

Founded in 1997, Ilyashev & Partners is one of the most prominent and authoritative full-service law offices in the CEE region, with the largest network representation in Ukraine. We’ve achieved this by employing leading experts in various areas of law practice, innovative thinking and strict compliance with ethical standards in our relationships with clients. Ilyashev & Partners provides services in almost every practice area to well-known international companies, leading Ukrainian companies and financial institutions, government agencies, law offices and consulting companies. With offices and representatives in Kyiv, Moscow, Tallinn, Dnipro, Kharkiv, Odesa, Simferopol, the firm employs more than 50 highly-professional lawyers. Ilyashev & Partners is a preferred legal counsel for many Ukrainian branches of multinational corporates, handling ongoing advisory support and transactional work as part of legal support for its international clients’ presence in Ukraine. The team has a strong reputation for delivering on-demand employment advice for global clients.

We undertake a full range of labor law work, including: -- Drafting of employment agreements and contracts for top management, model contracts for enterprises, individual employment agreements of specific employees, internal documents regulating employment relations; -- Employment of foreigners, including obtaining work permits for them; -- Organization of trade union activities; -- Regulation of relations between employers and trade unions; -- Protection of interests of employers and employees in employment relations, during their establishment and termination; -- Development of regulations and documents for labor aspects of business restructuring, redundancies or winding up of businesses; -- Representation in resolving individual and collective labor disputes; -- Advising on wage arrears and compensation plans, payroll tax planning;

-- Labor-law related audits of corporate legal departments to assess their effectiveness, staff competence and risk mitigation. The team is often instructed to support employment aspects of corporate deals, labor contracts, white-collar matters, staff outsourcing, employees transfer and relocation. The specialist knowledge held by Ilyashev & Partners includes employment compliance.

flexible working hours and remote work. These rules tend to simplify and clarify the introduction and use of respective work regimes, as prior to that, remote work was governed only by a substantially outdated Resolution of the State Committee of the USSR for Labor and Social Matters No. 275/17-99 of 29 September 1981. Newlyadopted provisions include definition of various forms of flexible working hours (including fixed hours, flexible hours or special hours for leisure and meal), limitation for use of those, requirements for remote work and payment for such type of work, as well as special rules for applying the above work regimes in case of epidemic, pandemic, military threat, man-made or natural disasters. Such rules, however, still need some polishing inter alia to properly regulate the extent of the employer’s liability in case of accidents happening with employees working from home or elsewhere outside the employer’s office. As for the rest, businesses would probably hope that the next draft will generally follow the approach to the essence of employment relations demonstrated by draft law 2708. That approach can be described as more balanced, meaning that while the Labor Code of Ukraine is mainly aimed at protecting the rights and interests of employees, the new draft also promotes the rights of employers and, thus, the business. An indication of that global shift is the fact that the Draft Law On Labor was heavily criticized by major Ukrainian trade unions. The full-scope continuation of that approach is in doubt, however, as the coronavirus outbreak demonstrates the state’s desire to maintain employment in critical situations at the cost of business, and so the ability of the employer to discontinue employment basically without any cause, that was included in Draft Law No. 2708, could probably go away in the next version of the document. At the same time both Draft Law No. 2708 and, apparently, any future replacement, therefore has to and will, respectively, keep the most important social guarantees, including special treatment of certain categories of employee (e.g. pregnant women, employees with children, those commissioned to serve in the army, etc.) Speaking of structure, when compared to the Labor Code of Ukraine, the Draft Law On Labor is more compact, consisting of 10 chapters and

98 articles. Not only is the latter document less broad, it provides for cancellation of a whole number of other laws and regulations, thus aiming, to the maximum extent possible, to have all major employment-related rules in a single document. This will probably be the case with any new draft to be developed. Apart from those described above, the main features of Draft Law No. 2708 are the following (and the legislator will probably keep many and maybe even most of them, while developing the new draft): -- Decrease in the level of state interference in individual employment relations and allowing more freedom for an employer and employee to determine their mutual rights and obligations in the employment agreement. -- “De-bureaucratization” of employment relations and implementation of a simplified electronic form to replace numerous employment-related documents in paper form. -- Customization of employment agreements by introducing several new types of those (including short-term agreements, agreements for flexible working hours, seasonal and student agreements) to better suit the needs of various types and periods of employment. -- Introduction of interest due on late payment of salary. -- Extension of allowed leave without pay from 15 to 30 calendar days a year. -- Introduction of new approaches to the settlement of individual labor disputes, in particular through mediation. -- Introduction of the statutory definition of employment and its features, to avoid any mix-up with retaining contractors and, accordingly, to prevent any deliberate determination of employment by controlling bodies of the state where, in fact, there is none. -- Additional protection of non-discriminatory principles (including newly-suggested protection against mobbing — economic or emotional abuse in the workplace) and implementation of the principle of equal pay for equal work. Importantly, it would be the employer’s obligation to prove the absence

of discrimination should an employee who has experienced it apply to a court for protection of his or her rights. As previously mentioned, Draft Law No. 2708 provided for the simplification of the procedure for dismissal of employees and extension of grounds for termination of employment. The principal innovation in this regard was the employer’s right to terminate the employment by notice (from 15 to 90 days), without any additional ground, as opposed to the approach in the Labor Code of Ukraine, providing that employment can only be terminated in cases listed in the Code, being in most cases termination for cause. While this may no longer be the case, one could still expect that the next draft will bring more balance between the interests of business and the employees than the existing Labor Code of Ukraine does. Importantly, the Draft Law On Labor, as it was drafted, was expected to decrease the significance of trade unions. While indisputably important for the purpose of securing improvement in pay, benefits and other working conditions of employees, trade unions currently enjoy rather extensive rights in employment-related matters and some believe that those rights are sometimes misused to the detriment of the business and the employees themselves. As work on the reform continues, it is the general understanding that the changes are long overdue. It is anticipated that once the reform is carried out, it will bring labor laws and employment relations in Ukraine closer to European and international standards, encourage “de-shadowing” (legalization) of the economy and offer clearer and simpler rules for cooperation between employers and employees.

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ILYASHEV & PARTNERS

ADDRESS: 11 Kudryavska Street, Kyiv, 04053, Ukraine Tel.: +380 44 494 1919 E-mail: office@attorneys.ua Web-site: www.attorneys.ua

125

Land

Land Reform in Ukraine: A New Chapter in the Never-Ending Story

Prof. Dr. Anatolii Miroshnychenko Attorney-at-Law, Senior Partner, Legal Group EUCON

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n 25 September 2019 the Cabinet of Ministers submitted to the Verkhovna Rada Draft Law No. 2178 On Amendments to the Land Code of Ukraine and other Legislative Acts Regarding the Turnover of Lands for Agricultural Purposes, aimed at lifting the moratorium on alienation of agricultural land from 1 October 2020 and allowing legal entities (including those with foreign capital) to buy farmland. After heated debate in Parliament and beyond it, legislative spam running into thousands of amendments aimed solely at delaying the procedure, Parliament finally adopted the alternative version of original draft on 31 March 2020, significantly modifying it in the course. The final result is far more conservative than the original version. The moratorium will be lifted on 1 July 2021, and until January 2024 only citizens of Ukraine (with minor exceptions) will be able to buy agricultural land, accumulating up to 100 hectares. And even on 1 January 2024 legal entities with foreign capital will be prevented from buying agricultural land (if not specifically permitted by a national referendum, which is highly unlikely). The outcome is far more modest in terms of the likely effect on the agricultural sector and economy as a whole, compared to expectations in September 2019. The delay is unnecessary, and even after 1 January 2024 the constraints on the market will go far beyond reasonable limits. Most agricultural lands in Ukraine are currently leased to legal entities, which will not be able to buy the land they are cultivating (at least formally). It is obvious that they will try to accumulate land through affiliated individuals, but this type of accumulation will inevitably increase transaction costs and legal risks. Small farmers, who were supposed to be the main beneficiaries of the conservative market design at the “first stage” (01.07.202131.12.2023) will, in reality, face enormous difficulties when trying to enter the market. Taking into account the fact that most land is being leased out, its purchase will be of little immediate benefit for any third party. But even after successful purchase of a vacant land parcel, the small farmer will be in harsh competition with larger enterprises. To win (or rather, survive) this competition, the farmer will have to step up production, which will be very hard without considerable investment. The possibility of investment will, in turn, be low, due to the lack of collateral — considering the limitations on the market, the farmland itself will be of little use for this purpose. The general feeling of active foreign investors in Ukrainian agriculture can be described as frustration. The draft bill which promised them the prospect of buying land ended with a result which put them into a disadvantageous position. Any constraint on the market turnover inevitably results in a reduction in price, which means that those owners willing to sell their plots will

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lose money. Opinion polls show that the number of people who are ready to sell land parcels immediately is relatively low — less than 10%. Despite all of its drawbacks, the Law of 31 March 2020 was important because it provided for the future of the agricultural land market. Accumulating the land, even if through complicated schemes, allows for intensification of agricultural production, increases competition among the agricultural enterprises and, as a result, ensures more efficient land use and a stronger economy. Many of the limitations imposed on the market can be by-passed via well-designed legal and business models. For instance, an investor should not necessarily own the land; they can fund accumulation of the farmland by an affiliated individual (a citizen of Ukraine). The risks can be reduced by simultaneous transfer of the land to the investor on the basis of emphyteusis, and the emphyteusis agreement can be drafted in such a way as to ensure its future extension or transfer of ownership to an investor (when the law will allow that) by a set of monetary incentives and checks. A new tool available for consolidation projects is the turnover of preemption rights, established by the new version of Article 131 (2) of the Land Code of Ukraine as amended by the Law of 31 March 2020. This allows for the consolidation already at the initial stage of the market, as preemptive rights can be transferred by lessees (who are not able to buy the land) to affiliated individuals (who can buy the land), and this can strengthen the position of current lessees who will compete for the farmland. The poor quality of land as collateral, and resulting lack of access to traditional financing schemes, can be compensated through modern financing techniques like crowdfunding. In any case, the possibility to buy and sell agricultural land is merely a tool. To use it efficiently, a lot of preparatory work is required. If the potential buyer wants to attract investment and/ or state support, the optimization of corporate structure, improve the accounting system and taxation schemes, increasing the value of assets, settling existing conflicts etc. will probably be needed. One of the biggest challenges falls on the shoulders of small farmers, who often operate in the shadow, without formal registration of their business and proper land lease contracts. They evade paying taxes on income from the sale of crops for cash. Those who wish to buy the land should step out into the light, which means registration, paying taxes, etc. This implies high risks. However, if this is done properly, it offers attractive opportunities. The possibility of accumulating land on the basis of ownership title opens niches which suppose high-productivity farming — like gardening, wineries, greenhouses, berry cultivation, etc. And here the small farmer can meet a potential investor.

Our philosophy on protecting a client’s rights is simple — to prevent legal risks and litigation. Legal Group 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 caused the structure of the EUCON, which includes the attorneys’ sector, audit sector, tax sector and sector of scientific advisers who together find not only effective but also competent decisions. The firm operates within two offices. Yaroslav Romanchuk heads the Ukrainian office in Kyiv and Andrii Romanchuk is the head of the Polish office in Warsaw. The team of Legal Group EUCON advises clients on the most complicated issues of tax, transfer pricing, corporate, agrarian and land law, business restructuring, assets protection, commercialization of IP rights objects, tax planning with application of non-material assets. Clients of the firm include international and Ukrainian industry leaders that come from oil and gas, energy, agriculture and food industry, telecommunications, trade, transport, metallur-

gy, chemical industry, construction, hospitality, finance, etc. The performance of the Legal Group EUCON and its partners is highlighted by numerous recognitions and awards. Since 2010 EUCON has been included into the list of Top 50 Leading Law Firms in Ukraine according to the annual ratings conducted by the Yuridicheskaya Practika Weekly. EUCON is recognized among the leading tax law firms according to the national legal directory Ukrainian Law Firms. A Handbook for Foreign Clients, Kyiv Post, Legal Awards, international directories Chambers & Partners, Legal 500 EMEA, World Tax and World Transfer Pricing, International Tax Review. In 2019 Legal Group EUCON won the nomination "The best law firm in the field of land and agrarian law" according to the Liga Zakon Awards. In 2015 EUCON won the Ukraine Transfer Pricing Firm of the Year award at the annual European Tax Awards 2015, International Tax Review. According to the Ukrainian Legal Awards 2018 Legal Group EUCON was recognized as the Transfer Pricing Firm of the Year. Also, the firm named as the Transfer Pricing Firm of the Year in Ukraine in 2016 and The Best Tax Law Firm in 2014.

Legal Group EUCON and the International Audit Union established and operate the Transfer Pricing School attended by managers of accounting and financial divisions. During 2019, our team took part in the discussion and submitted the proposals regarding introduction of the agricultural land market in Ukraine. In particular, our team has developed a “Concept of the legal component of the current stage of land reform in Ukraine”.

Even those who just want to maintain their land banks of leased farmland should do some homework. It includes an inventory of existing agreements, finding legal risks and mitigating them where possible. As of July 16 of this year new rules on extension of land leases will come into effect. Thus, in order to make automatic extension possible existing agreements should be modified after this date. In some instances, it will be necessary to formalize informal land leases. With the possibility of selling land the stakes will be higher, and a landlord will have more opportunities to dispose of his or her land. To sum up, it seems that prospective buyers (including foreigners) of farmland remain more or less on a level playing field, where all of the players have to adjust to the new reality of agricultural lands market. All of them are facing hardships and obstacles to overcome but, at the same time, all of them are gaining access to new opportunities. Although the Law On Amendments to the Land Code of Ukraine and other Legislative Acts Regarding the Turnover of Lands for Agricultural Purposes of 31 March 2020 is, of course, the main event in land reform, which has officially been continuing in Ukraine since 1990 without a clear prospect of a logical finale, we can expect many more events in this sphere. One of the most important is the imminent enactment

of Draft Law No. 2194 On Amendments to the Land Code of Ukraine and Other Legislative Acts Regarding the Improvement of Management System and Deregulation in the Field of Land Relationships. The draft, which has already been adopted in the first reading, provides for the transfer of most state lands outside settlements into municipal ownership, transfer of many current functions of the State Geodesy and Cadastre Service of Ukraine to bodies of local self-government, simplification, digitalization and transparency of land management procedures. The important novelty contained in the draft is lifting of the ban on the ownership of land parcels outside settlements by foreign legal entities and individuals. It is worth noting that existing laws provide for various opportunities for foreign investors to use land outside settlements, even now. Still, adoption of Draft Law No. 2194 would have important symbolic meaning, showing the readiness of the government to take unpopular steps to attract foreign investment. Slowly, with setbacks, but with major steps ahead as well, Ukrainian legislation is being developed towards a better and healthier environment for business, including foreign investment. A lot more needs to be done in the seemingly endless endeavor of adoption of land reform in Ukraine. Ukrainian law is still full of unreason-

able and harmful restraints on foreign investment, including investment in real estate. Some of them are specific for foreigners (individuals and legal entities), some are of a general nature (like the obsolete and corrupt procedure for land management, overregulated auction procedures, etc.). However, legislation already provides sufficient tools for structuring businesses and transactions in a sustainable and safe manner as to allow foreign investors to enter the Ukrainian market. Those who will do so at the early stage will face higher risks, but those risks are, in my opinion, worth taking. Ukraine is a land of opportunities now — and not only in agriculture. Despite the ongoing war and COVID-19, the government maintains its ambitious plans to develop road infrastructure (which means unprecedented spending of public funds). Green energy is on the rise, and the unique port infrastructure of Ukraine is available for PPP projects. There is no alternative for Ukraine other than to privatize a large number of inefficient state enterprises, which sometimes possess valuable assets, including land. I do hope that liberalization of the Ukrainian agricultural land market will be the trigger which will draw foreign investors into Ukraine, which, in turn, will enable us to boost and modernize not only our economy but society as a whole.

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ADDRESS: 5a Peremohy Avenue, Office 500, Kyiv, 01135, Ukraine Tel.: +380 44 238 0944 Tel.: +380 44 238 0413 18 Jana Dantyszka Street, Warsaw, 02-054, Poland Tel.: +48 226 581 025 Tel.: +48 226 581 125 E-mail: office.ua@euconlaw.com Web-site: www.euconlaw.com

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Litigation

General Overview of Ukrainian Judicial System

Andrey Kuznetsov Partner, ANTIKA Law Firm

Maxim Korchagin Partner, ANTIKA Law Firm, PhD in Law

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he principles of ensuring justice are declared in the Constitution of Ukraine. The main ones are ensuring justice exclusively via the courts and the inadmissibility of delegating functions of courts, as well as of appropriation of their functions by other bodies or officials; extension of the jurisdiction of courts for any legal dispute and any criminal charge; the binding nature of judicial decisions on the whole territory of Ukraine. Today, Ukraine still finds itself on the edge of judicial reform, whose main purpose is to increase the efficiency of the judicial process, combat corruption in a courtroom and create an independent judicial system. Ukraine has a three-level system of justice. Those are local courts, courts of appeal and the Supreme Court. The latter is the highest court in the Ukrainian judicial system and not only does it deliver justice, but it also performs the important task of ensuring the uniform application of the rules of law by courts of different jurisdictions. Local courts of first instance are the most numerous. Courts of first instance decide on the merits of a case, for which cause they are endowed with the right to establish factual findings of the case by assessment of evidence collected in the case at its own inner conviction. Judgements of local courts, as a rule, come into force after the termination of the term for the appeal or after review of the case by a court of appeal, if a judgement was not canceled or modified as a result of the review. Consideration of a particular case by a court depends on the subject matter to the dispute and its nature and is governed, first and foremost, by the relevant codes of the procedure (Civil Code of Procedure of Ukraine (2004), Economic Code of Procedure of Ukraine (1991), Code of Administrative Justice of Ukraine (2005), Code of Ukraine on Administrative Offenses (1984), Criminal Code of Procedure of Ukraine (2012)), with further amendments and additions. Economic courts generally resolve disputes arising from the conduct of an economic activity from corporate relations, of a transaction on share stakes, securities, rights of ownership or other property rights, cases on appeal against decisions of arbitration courts and other disputes between business entities, cases on the bankruptcy of individuals and legal entities. The jurisdiction of administrative courts extends to cases on public law disputes, particularly disputes involving individuals or legal entities with subjects of authority regarding the appeal against its decisions (legal acts or individual acts), acts or omissions, etc. Local general courts consider civil, criminal, some administrative cases, cases of administrative infractions. Cases arising from civil, land, labor, family, residential and other legal relations are considered in civil proceedings, with the exception of cases which are considered in the procedure of other legal proceedings. The

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system of general courts is the most ramified, as they can be created in regions, cities, city districts. Courts of second instance are courts of appeal formed in appeal districts. The functions of courts of appeal depend on the specialization of a court and the category of a case. As a general rule, the court of appeal reconsiders a case on the evidence it has and additional evidence, and verifies the legality and sufficiency of the decision of the court of first instance within the framework of the arguments and the requirements of the appeal. The decision of a court of appeal comes into force from the moment of its proclamation. The General Court of Appeal, whose jurisdiction extends to the city of Kyiv, deals with cases of recognition and granting of permission to execute decisions of international commercial arbitration in Ukraine. The last and highest instance in the system of courts is the Supreme Court of Ukraine, which began its work on 15 December 2017, and is endowed with the right to review court decisions in the order of cassation proceedings. The Supreme Court consists of the Grand Chamber of the Supreme Court, the Administrative Court of Cassation, the Economic Court of Cassation, the Criminal Court of Cassation, the Civil Court of Cassation. The Grand Chamber of the Supreme Court, in cases determined by law, reviews court decisions in a cassation order in order to ensure uniform application of the rules of law by courts; act as a court of appellate instance in cases considered by the Supreme Court as a court of first instance; analyze judicial statistics and study judicial practice, generalize court practice. During the first year of its operation, the Supreme Court removed a lot of impracticalities, which existed in court practice and formed hundreds of legal opinions aimed at ensuring the unity of court practice in Ukraine and the predictability of court decisions. The Law of Ukraine On Judicial System and Status of Judges provides for the functioning in Ukraine of High specialized courts. On 5 September 2019, the High Anti-Corruption Court of Ukraine began its operations. Its jurisdiction takes in consideration of criminal cases related to corruption crimes investigated by the National Anti-Corruption Bureau of Ukraine, as well as cases of recognition of unjustified assets and their recovery as income for the state. The High Anti-Corruption Court of Ukraine has The Chamber of Appeal, which is authorized to consider claims against the decisions of this court. On 29 September 2017, the High Court of Intellectual Property was formed by a decree issued by the President of Ukraine. Now, the competition to occupy judicial vacancies of this court and The Chamber of Appeal, which will function as part of it, is under way. According to the intentions of lawmakers, this court will

ANTIKA Law Firm has been providing legal services to corporate and private clients since 2010. During this time the firm has achieved a competitive advantage on the legal market, and been recognized by reputable international and Ukrainian guides like The Legal 500 EMEA, Chambers Global, Chambers Europe, IFLR1000 Energy and Infrastructure, IFLR1000 Financial and Corporate, Best Lawyers, Ukrainian Law Firms, 50 Top Law Firms of Ukraine, Client Choice. The Top 100 Best Lawyers in Ukraine. The firm received Legal Award 2012 in the nomination of Law Firm — a Breakthrough of the Year. The Firm is Finalist of the Legal Award 2013 in the field of Antitrust, Litigation and Real Estate, and in 2014-2019 in the field of Energy. The firm’s partners have more than 20 years experience of providing business law advice. ANTIKA’s team includes 15 highly-qualified lawyers who possess significant experience in various fields of legal practice. The key practices of the firm include corporate, M&A, Banking and Finance, Arbitration, Energy, Antitrust, Private Clients, Land law & Real Estate, Competition Law, Dispute Resolution, Legal expertise, Infrastructure and Logistics, PPP & Government relations.

The firm’s main principles are high quality legal services provided in a timely manner, strict confidentiality and a bespoke approach to every client’s project. 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 clients are Ukrainian and international companies doing business in various industries, including telecommunications, heavy, chemical, food, automotive industries, subsoil use, complex development, real estate and construction, wholesale and retail, media and sports, banks and financial services market. The following are representative clients: AWT Bavaria, Association of International Automobile Carriers of Ukraine (AsMAP), Cadogan Petroleum, Chornomornaftogaz, Esan Eczacıbaşı Industrial Raw Materials, Energobank, Ghelamco, Heitman, Henkel Ukraine, Henkel Bautechnik Ukraine, Ibis Group of Companies, Imperial Tobacco, International Resources Group, Lantmannen Axa, Nadra Ukrayny, Nasosenergomash, ViDi Group, Ukrnafta, insurance company Persha. The firm also advises the World Bank, European Bank for Reconstruction and Development, USAID,

hear cases in disputes over intellectual property rights to such objects and protection against unfair competition. In Ukraine, the Constitutional Court of Ukraine acts as a body of constitutional jurisdiction, which ensures the supremacy of the Constitution of Ukraine, decides on compliance with the norms of the Constitution of Ukraine, laws, other acts, international treaties of Ukraine, issues proposed for adoption at an all-Ukrainian referendum at the initiative of the people, carries out official interpretation of the Constitution of Ukraine and carries out certain other functions. The Constitutional Court of Ukraine has a Grand Chamber, two senates and six colleges. After procedural legislation amendments adopted in December 2017, improvements to the way the court runs continued. Namely, amendments were adopted aimed at preventing abuse of procedural rights by parties, providing prerequisites for unloading the court of cassation with cases of insignificant complexity, giving legal entities the opportunity to participate in a court case through their employees, etc. Furthermore, on 21 October 2019, Ukraine’s New Bankruptcy Code came into effect. Legislators systematized the rules on the procedure

for the recovery of debtors’ solvency and their bankruptcy. Since the time that this Code came into effect, bankruptcy proceedings against individuals in Ukraine have emerged. Legislative changes have, in many aspects, procedurally altered the exercise of procedural rights and the activities of the court. In particular, the implementation of “e-justice” is still under way. The practice of filing claims exclusively in electronic form using an electronic digital signature has appeared. The Council of Judges of Ukraine, together with the State Judicial Administration of Ukraine, gradually implements the Single Judicial Information and Telecommunication System in courts of all instances and jurisdictions for the submission of procedural documents and evidence in electronic form, summons and communications to the official e-mail of participants in proceedings, etc. The participants in cases were given a real opportunity to use the so-called “electronic” evidence in the trial after the rules of procedure for their submission and examination by the court appeared in procedural law. There are many cases of use of the right to take part in a case via videoconference mode, which enables court hearings to be held in the

event of the physical absence of a party to a case in a courtroom. It is also appropriate to note the general trends associated with changing the role of the court in litigation. In particular, courts are increasingly using the status of “arbitrator”, placing the responsibility on the parties themselves for committing or failing to act, including in matters of evidence. On the other hand, there is a strengthening of the “arbitration” approach of state courts. Among other things, the Grand Chamber of the Supreme Court has declared the principle of immunity and autonomy of the arbitration agreement, by which the court must interpret any inaccuracies in the text of the arbitration agreement and consider doubts as to its effectiveness, validity and enforceability in favor of its validity, validity and enforceability. Overall, it can be said that changes made to the Ukrainian judicial system have improved the mechanism of administration of justice and are consistent with the aim of ensuring effective protection of any violated right.

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Medicine & Healthcare

Ukrainian Medicine. Areas of Responsibility and Sources of Funding for Hospitals

Tetyana Gavrysh Managing Partner, ILF Coordinator of the Kharkiv expert group on implementation of medical reform

Olena Khytrova Partner, ILF Head of medical and pharmacy law department

he medical reform, whose implementation began in Ukraine back in 2017, changes the roles and responsibilities of those who influence the healthcare system. Thanks to innovation, domestic hospitals are experiencing a significant financial and personnel crisis. There is a need to reorganize the financing and management of medical institutions. According to the changes, the head of the hospital, the main doctor, is brought to the fore in the healthcare system. In the past, the main doctor carried out the orders of public officials and did not influence hospital financing. But the main doctor is now responsible for the efficiency and productivity of the medical institution, its property, staff, and direction of development. His duties also include implementing the strategy regarding the health protection of community members.

Responsibility in Healthcare Who is responsible for healthcare now? The Ministry of Health of Ukraine and reforms are blamed for everything: the terrible conditions in hospitals, the constant lack of medicines, poor-quality medical equipment. But the healthcare system works differently at present. The main aim of the Ministry of Health of Ukraine is to formulate state policy in the area of healthcare and establish conditions for its successful implementation. The executive bodies of local council authorities, which are the part of the regional departments of the Ministry of Health of Ukraine, are responsible for the enforcement of state policies on health. The National Health Service of Ukraine (NHSU), which is a newly-created executive institution according to the reform, is like a state insurer. The NHSU purchases medical services and medicines for the community, medical institutions, and pharmacies. The owners of medical institutions are local self-government bodies (LSBs). They include rural, district, city, and regional councils. These are elected bodies that represent the interests of community members, and make decisions on their behalf. It is LSBs that decide the number of medical institutions and the list of services those institutions provide. In practice, LSBs are not only the owners of the hospitals but also managers of these institutions.

Forced into Partnership There is no value of decisions taken at the state level if local authorities do not want to cooperate to create a useful and effective healthcare system. The reason for it is a new structure

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of the healthcare system according to which almost all decisions regarding the activities of medical institutions are taken by the main doctor and the LSBs of a particular city or community. Therefore, a low level of service, a lack of quality equipment, and corruption still exist in those hospitals where the old framework of the relationship between the main doctors of hospitals and the LSBs is preserved. The main doctor is an operator who provides medical services for people of the local community using money from NHSU and other sources. Those “other sources” do not always exist in a hospital. The funds of NHSU targeted to ensure the provision of services under an agreement between the hospital and NHSU. This money cannot be used to solve other issues as LSBs may propose to the main doctor. For example, last year in Kharkiv Region, a LSB refused to finance the transportation of patients to another locality for hemodialysis. The chief doctor, understanding the possible risks for patients of skipping this procedure, provided funds from the medical institution’s budget and arranged the transportation of patients. The vehicle used was involved in an accident en route and patients were injured and died. The main doctor was deemed to be one of the people responsible for this and was dismissed. The main doctor is responsible not only for money spending but for the people. Taking care of the people in this situation led to abuse of power on behalf of the patients on the spending of money. The main doctor risked and took responsibility that could have been prevented by more effective management by the LSB. The bottom line of the reform is that of cooperation between the main doctor and LSBs, which are the owners of the hospitals. It is for this purpose that the parties sign a public agreement according to which LSBs provide effective guidelines and management of the hospitals and the main doctor focuses on providing medical services. The result of the LSBs’ and the main doctor’s cooperation is the high-quality medical services that people will receive.

Challenges for Local Government The reallocation of roles and responsibilities is a significant difficulty for LSBs who do not have management and technical tools. It is necessary to reorganize bureaucracy within the framework of the reform. There are two ways to do this: 1. To create a Board of Trustees. Hospital managers will need to involve real private busi-

ness owners and managers in such a Board with experience in managing medical facilities. 2. To lease the institution or transfer it via concession. In this case, the investor reconstructs the medical institution at his own expense and will be able to use the state property for free, collecting income for his benefit. In any case, there is a great need for managers and administrators able to help medical institutions to optimize and reorganize the work process, as well as to change the hospital’s form of ownership, where necessary, in Ukraine.

Technical Difficulties At present the majority of medical institutions in Ukraine do not meet the technical and technological standards that the NHSU has guided in creating payable packages. Therefore, hospital owners need to look for resources for rebuilding property and buying new equipment. The hospitals would need to have elevators, specialist equipment for operations and other equipment. This significantly affects the nature of funds of hospitals and the procurement market. By becoming the owner of medical institutions LSBs compete for patients with similar municipal, state non-profit enterprises, and pri-

vate hospitals. There is the risk that the flow of patients, particularly in hospitals, will decrease, and a hospital will lose its funding when the sum of expenses will become the same. As a result, a hospital could go bankrupt and become a burden for LSBs, leaving them to sponsor hospitals from their own pockets or to close them. A similar situation happened in Germany when local authorities failed to follow similar innovations and many hospitals went bankrupt, were transferred to the management of others or were completely closed. People prefer medical facilities with better services. Therefore, under the ongoing reform in Ukraine, the high level of corruption, high mortality rates, provided by the poor service Ukrainian state hospitals could bring them to a similar situation as hospitals in Germany experienced.

Consequences for the Market The medical equipment market is also influenced by this reform. The main change is related to the participants of the market changing the system of their relations. In the past purchasing decisions were made by officials who ensured procurement via funds from the State Budget.

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of the leaders of the Ukrainian legal market and places the firm’s partners among key experts in respective fields of expertise: litigation, medicine and pharmacy, IT and labor law.

Areas of practice:

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ILF (INYURPOLIS LAW FIRM)

Public-private partnerships and privatization, corporate law and M&A, land and real estate, labor and employment, debt recovery.

ADDRESS: 22 Shovkovychna Street, Kyiv, 01024, Ukraine Tel.: +38 050 339 2307 E-mail: office@ilf-ua.com Web-site: www.ilf-ua.com

Currently, the medical institution and the supplier build direct relationships. The decision-making system becomes more balanced and shaped in accordance with to the strategic needs of patients and the medical paid packages established in the agreement between the NHSU and hospitals. As a result, the needs of patients have priority over the opportunity for officials to make money via illegal private deals inside a medical institution.

Summary The reform of the Ukrainian healthcare system is a great opportunity for the entire sector and a great challenge for LSBs. Hospitals would need to become separate players on the medical services market. LSBs will turn into real owners instead of being the distributors of subsidies. They become responsible for the health of the community’s members covering the losses of hospitals resulting from their management. At this stage, healthcare is financially attractive because it serves a market of nearly 40 million consumers and from 1 April 2020 it will receive a transparent system of rules necessary for fair competition.

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Mergers & Acquisitions

M&A Transactions in Times of Covid-19

Volodymyr Yakubovskyy Partner, Nobles

Volodymyr Yakubovskyy’s practice focuses on representing and advising international companies and major Ukrainian industrial groups in mergers and acquisitions and other cross-border investment and financing matters with reference to Ukraine. Mr. Yakubovskyy’s areas of particular expertise include such industries as retail, e-commerce, telecommunications, IT, media, agriculture, pharmaceuticals, and financial/insurance institutions

Alexander Weigelt Partner, Nobles

Alexander Weigelt is a qualified lawyer (Rechtsanwalt) in Germany. Mr. Weigelt’s focus is on corporate and regulatory advice for international clients, particularly those with their headquarters in German-speaking jurisdictions. Mr. Weigelt is an expert in regulated industries, particularly pharma, renewables, healthcare, automotive and aviation

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he unexpected outbreak and rapid spread of COVID-19 forced the government of Ukraine and most other countries to resort to unprecedented restrictive and protective measures. There is no doubt that their immediate impact on mergers and acquisitions during the quarantine period has been profound and will likely cause serious implications in the long run. Consequently, in the context of the coronavirus pandemic and taking into account the probability of its resurgence in future, it is worth giving careful consideration as to how it can affect each stage of an M&A transaction. In certain circumstances, the virus can become a serious deterrent and even render a whole transaction unfeasible due to considerable associated risks. In other cases, it is likely to trigger certain obligations of parties under the transaction agreement.

Term Sheets

how present and similar situations impact the target’s business, and such aspects as employment, supply chain risks, legal obligations under key business contracts, financial and tax liabilities, contingency arrangements and business continuity plans, insurance policies and their coverage, and properly evaluate all related legal risks.

Signing the Agreement The execution of the transaction may be complicated since the simultaneous presence of all the parties involved from different jurisdictions at one place, and notarization might appear problematic due to travel restrictions and social distancing requirements. Thus, the parties should, ahead of time, envisage specific arrangements for the signing, exchange of counterparts and coming into force of their agreement.

In the context of a pandemic like COVID-19, both buyers and sellers will rather seek to postpone the negotiation and signing of a term sheet, letter of intent, heads of agreement or a memorandum of understanding until the buyer has completed due diligence and the extent of the pandemic’s impact on the target’s business has become evident. Furthermore, the content of a negotiated term sheet might be somewhat different from what is normally included in such a document and also reflect some pre-closing and closing conditions, especially long-stop dates and material adverse effect clauses. The parties are also expected to argue about exclusivity, with buyers aiming to impose and extend this period to ensure that due diligence is properly conducted and sellers hesitating to provide such exclusivity even for short periods.

Regulatory Approvals

Due Diligence

Specific Deal Terms

The virus has already seriously affected and is likely to affect in future the possibility of conducting the full-scope legal due diligence of a target. While numerous non-essential businesses have been or still are on lockdown, mass gatherings are prohibited and office employees are forced to work remotely, using a physical data room does not appear to be safe and practical. A virtual data room would be the preferred option. In-person management representations and interviews can also be substituted by Zoom meetings or Skype calls. The parties should also adjust their timetables and take into account possible delays in the collection of additional documents. Furthermore, the crisis is likely to affect the scope of due diligence. In particular, the expert team might need to investigate specifically

COVID-19 and other pandemic-related issues should be sufficiently addressed in the transaction agreement in order to minimize associated risks. In particular, the parties should consider including in the agreement adequate provisions on how the target’s business will be functioning under abnormal pandemic conditions and how the parties will intend to coordinate their actions during the period between signing and completion. It is essential that the seller and target are able to make crucial decisions to address crisis situations in a timely and effective manner whenever the buyer’s consent is required. Another key consideration in a pandemic is ensuring that representations and warranties provided in the agreement adequately cover all potential implications of COVID-19 and similar crises related to the target’s operation and the

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The quarantine that the Ukrainian government has imposed is likely to affect the normal working routines of regulatory bodies and increase the time required to procure regulatory approvals for an M&A deal, such as antitrust clearance from the Antimonopoly Committee or approvals issued by the National Bank of Ukraine. This should duly be taken into account as a factor affecting the completion of a transaction. Please note that Ukrainian coronavirus-related legislation suspended (for the duration of COVID-19 quarantine) statutory application deadlines and time limits for providing certain public services, including the issuance of regulatory approvals. The duration of these deadlines and terms will be restored from the date when quarantine is terminated.

Nobles is a leading full-service corporate law firm in Ukraine that advises public and private companies, commercial and investment banks, private equity firms, funds, government entities and private high net worth individuals in various industrial sectors and practice areas. The team at Nobles is trusted for its excellence and efficiency, meeting the expectations and business needs of its clients. This solid team with first-class international experience and exceptional local expertise is committed to providing premium quality advice and uncompromising compliance. Nobles’ lawyers are acknowledged experts in many fields, with market-leading understanding of different practice areas. The firm has particularly profound knowledge and an extensive track record in areas like: commercial, corporate and M&A, antitrust and merger control, insolvency and restructuring, real estate and land law, employment, litigation and international arbitration,

Denys Vergeles Counsel, Nobles

Denys Vergeles specializes in tax and regulatory law as well as in labor, corporate, commercial and IP law. He regularly advises well-known international companies regarding their investment projects in Ukraine and their Ukrainian subsidiaries with respect to their daily legal matters. Mr. Vergeles’ areas of particular expertise include retail, IT, pharmaceutical, and insurance

intellectual property, regulatory and government affairs. The firm supports clients on a day-to-day basis, which generates a deep understanding of relevant industries and business areas. The firm’s team has developed profound insight in the following industries: agriculture, aviation, automotive and machinery, banking and finance, insurance, distribution systems and logistics, retail, energy, renewables, fashion and cosmetics, information technology, pharmaceuticals, health care and medical devices. Nobles holds itself to the highest compliance standards on the Ukrainian legal market. The firm keeps accurate and complete accounting records and adheres strictly to international anti-bribery requirements. Nobles’ experts regularly receive high recognitions from reputable legal rankings. The recent editions of The Legal 500, IFLR1000 and Who’s Who Legal recommend Nobles and the firm’s

partners in commercial, corporate and M&A, banking and finance and international trade. Our clients: Auto1, Credit Suisse, Daimler, Fujitsu, GAP, H&M Hennes & Mauritz, FR. MEYER’S SOHN, Lufthansa AG, Mothercare, Rocket Internet, Oracle, Swatch Group, Partners Group, ProPartner Holding, Spacebit Technologies Ltd, Viacom, Viatrans SA.

obligations of the parties. Regarding already executed agreements, the parties should carefully analyse whether all provided representations and warranties still hold true in the circumstances of the pandemic and whether any liability issues arise. The parties should also thoroughly take into consideration whether epidemics and pandemics, and the resulting public restrictive measures, will be viewed and/or included in the agreement as a material adverse change. The latter can give rise to a party’s right to file a lawsuit requesting unilateral termination of the agreement pursuant to the respective provisions of the Civil Code of Ukraine. All relevant elements and circumstances should be taken into account while determining whether a material adverse change clause can apply or be triggered in the event of COVID-19 or a similar situation and, first and foremost, on the extent of the adverse impact it is having on a party.

Transaction Financing

Force Majeure Closely related to a material adverse change, there is the issue of force majeure. This is defined as an extraordinary circumstance outside of a party’s control that, in contrast to a material adverse change, only relieves the affected party from liability for a breach of contract attributable to such circumstance. Normally, an agreement may not be terminated due to force majeure unless such option is expressly provided in it. The statutory definition of force majeure in Ukraine was amended recently to explicitly include a quarantine declared by the government due to an outbreak of an infectious disease (like COVID-19) as one of the force majeure events attestable by the Chamber of Industry and Commerce. Thus, the parties to an M&A transaction can refer to quarantine and ensuing public restrictive measures as a force majeure event to relieve them from liability for breaches of obligations under an agreement.

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ADDRESS: 7/11 Khreschatyk Street, Kyiv, 01001, Ukraine Tel.: +380 44 495 3080 Fax: +380 44 495 3090 E-mail: info@nobles-law.com Web-site: www.nobles-law.com

Where a transaction depends on third-party financing, additional challenges need to be taken into account. First of all, the parties may be confronted with a situation of uncertainty with regard to availability of financing and its terms. Apparently, potential lenders will want to increase their fees, add collateral and include additional legal safeguards and conditions to be fulfilled by the target and buyer in order to obtain financing. Moreover, the probability is high that a provider of financing will refuse to finance a particular transaction with due consideration of potential risks that COVID-19 poses for the target’s and buyer’s business. In such a situation, it is important for the agreement to provide sufficient flexibility of the buyer to walk away from the deal if financing becomes unavailable. Otherwise, the buyer (borrower) should have adequate contractual mechanisms in place to prevent the lender from refusing to provide financing where the buyer is forced to close the transaction. The seller might, in turn, seek to include in the agreement higher break-up fees for a buyer who fails to obtain financing and close the deal.

Conclusion Overall, the current pandemic is likely to have a serious long-lasting adverse impact on M&A. In these circumstances, parties are advised to carefully consider all COVID-19 and other pandemic-related aspects when planning and implementing a transaction in order to adequately address, limit or allocate relevant risks. In certain cases, it might even appear reasonable to re-consider the practicability of a transaction, to re-negotiate or postpone it until the pandemic and quarantine are over or its impact becomes clear.

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Non-Performing Loans

NPL Boosters “Every cloud has a silver lining” (English proverb)

ccording to economic studies the Ukrainian banking system has not yet recovered after several waves of crisis, the most notable of which occurred in 2008 and 2014. However, since 2019 the Ukrainian market has been attracting increased attention from investors. And while, until 2018, the vector of investments was aimed at bank deposits and bank shares, last year the palm on investment attractiveness passed unconditionally to Non-Performing loans (NPLs). This was facilitated by several factors, many of which lie on the legal ground.

NPL-Growth Factors Oleh Malinevskyi Partner, EQUITY Law Firm

Serhiy Chuyev Partner, EQUITY Law Firm

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(1) The economic crisis of 2008, which evolved into the economic disruption of 2014, resulted in a substantial deficit of liquidity in the Ukrainian economy and technical default of a great number of enterprises as well as their failure to service their bank loans. Consequently, a large number of NPLs have accumulated in the system. According to the National Bank of Ukraine, as of the beginning of 2020 non-performing loans (NPLs) in Ukraine came to 48.4%. Though gradually shrinking since 2018, the level has remained quite high in recent years. (2) The policy of the National Bank of Ukraine after 2014 has been aimed at cleaning up the existing bank market which, along with the economic downturn, led to forced withdrawal of 100 banking institutions from the market. Consequently, the assets of such banks, including NPLs were transferred for management by the state-run Deposit Guarantee Fund. This, in turn, (a) made it practically impossible to restructure banking loan debts due to the lack of specialized legislation and (b) reduced activity and effectiveness of NPLs recovery by insolvent banks which are subordinate to the Deposit Guarantee Fund, with the latter predetermined, among other things, with ineffective models of financing legal services of outsourcing (as a rule, simultaneous use of the fixed “success fee”). To sum up, any work with regard to NPLs was suspended until their sale by the Deposit Guarantee Fund, which seemed in the situation almost the only reasonable solution. (3) The launching of NPL sales through the ProZorro e-procurement system, especially according to the method of Dutch auction, has made buying NPLs not only transparent, but also available. The peculiarity of such auction was lowering the price. In other words, the top priority for the Deposit Guarantee Fund was to guarantee the sale of the lot in question, enabling customers to compete for the lowest price which, at the same time, would help them win. This is the reason why discounts in such sales of NPL are more than attractive. According to Svitlana Rekrut, acting head of the Deposit Guarantee Fund, the majority of NPLs are sold by the Deposit Guarantee Fund at a price not exceeding 4% of the nominal value (the discount is more than 96%). In some cases, particularly

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when loans of several borrowers, which might have been issued by different insolvent banks, in the total nominal value of more than billion hryvnyas were combined into one lot, the discount exceeded 99%. For example, the only bidder and winner of the “Dutch” auction to sell a 10-billion hryvnyas pool of assets of 10 bankrupt banks, which was held on July 22, 2019, was Credit Investment Group Ltd with a bid of 91.96 million hryvnyas.

Crisis Management The main risk is related to the condition of the collateral security and the status of the debtor itself. More than of 98% of all loans of currently insolvent banks are past due, i.e. non-performing. The bulk of borrowers stop servicing their loans within the first month of provisional administration. Often the debtor is in bankruptcy proceedings, and in some cases it is closed down and the property is transferred to another entity. Therefore, an investor should enjoy the most fascinating legal work on “debris removal” and untangling of everything that was done by the debtor during the times of insufficiently effective debt management by the Deposit Guarantee Fund. Based on the experience our company has acquired, only a comprehensive combating strategy will ensure success and the utmost result with the highest percentage of recovered debts. It will simultaneously include several directions of protection. It is worth noting that each of them has recently seen positive legislative breakthroughs aimed at protecting the rights of the creditor/affected party. (a) A high-quality comprehensive legal audit of NPL assets for likely risks. Apart from the required legal expertise, using information from official state registers (court rulings, real estate titles, mortgages and liens, pre-trial investigations, etc.) as well as information from a “data room” created on behalf of the insolvent bank by the Fund for a specific lot, and answers to lawyers’ enquiries. (b) Non-judicial protection. Non-judicial foreclosure on the collateral — the option ignored by the banks controlled by the Deposit Guarantee Fund due to the risk of liabilty for discretional decisions (mostly in regard to the cost to acquire or alienate the collateral without legal proceedings) is the fastest way to protect one’s own rights. This way became even more attractive for investors after 4 February 2019, when the Law of Ukraine On Amendments to Certain Legal Acts of Ukraine on Resumption of Lending was adopted. The aforementioned law was aimed at resuming lending, it significantly reinforced rights of creditors and increased foreclosure possibilities, having eliminated most of the legislative collisions in loan and mortgage relations, which had been benefiting the creditor for a long time. As far as such collisions goes, it was important to set the priority of mortgage over other liens which could arise afterwards and block non-judicial foreclosure. (c) Judicial protection and bankruptcy. As to aggressive judicial tactics serving as grounds

for a new owner of NPLs and depending on the current state of debt and security, one should not forsake instruments provided for by laws on bankruptcy which have sided with the creditor. Last year the country, and especially creditors, were presented with the Bankruptcy Procedures Code, which came into effect on 22 October. If we are talking about corporate bankruptcy, I would single out 5 novelties most expected by the market: (a) lifting of the minimum threshold for the initiation of proceedings; (b) the possibility for a creditors committee to revoke the insolvency officer of the case at any time, thereby gaining full control over the case; (c) limitation of the moratorium on creditors' claims to 170 days; (d) unification of the procedure for selling the debtor's property at electronic auctions; (e) new mechanisms of liability of management of the debtor. (d) Using instruments of criminal prosecution. The active anti-corruption policy of the state has promoted the growth of criminal procedure mechanisms which could be used in fighting not only corrupt officials, but also financial fraud and unscrupulous debtors. Instituting criminal proceedings and recognizing the affected creditor, conducting active investigative operations, detection and attachment of the debtor’s assets, his beneficiaries and officials, with the likelihood

Clients We provide legal services for many leading international and Ukrainian companies like: Azovmash Corp., Prizma Beta LLC, UkrinBank/ UkrinCom; Corporate non-government pension fund of the National Bank of Ukraine, etc. We

of entrusting such assets to third persons, is often the only prompt and effective means available for restoring financial discipline.

Prospects Despite the fact that the assets of the majority of banks currently managed by the Deposit Guarantee Fund are at the final phases of sale, we expect further growth of the NPLs market due to the deeper economic crisis caused by COVID-19 and lower financial discipline of debtors. Thus, according to IMF Managing Director Kristalina Georgieva, the world has entered a recession as bad or even worse than the one in 2009. A key concern about the long-lasting impact of the sudden stop in the world economy is the risk of a wave of bankruptcies and layoffs. If the policy of the National Bank of Ukraine and the country’s banking legislation do not undergo changes which would support troubled banks, not all banking institutions are expected to withstand a new crisis inflicted by the pandemic. Thus, the market may be subjected to a new wave of bankruptcies that would precondition the sale of a new portion of banking NPL. Significant shifts are also expected in stateowned banks. Thus, on 14 April of 2020 the Cabinet of Ministers of Ukraine approved the Order

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also earned loyalty and provide legal support to well-known politicians, civil servants, business representatives and public figures: Roman Nasirov, Gennadiy Trukhanov, Oleksandr Yefremov, Natalya Ignatchenko and Oleksiy Podolsky (Gongadze case (Pukach-Podolsky)).

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on Certain Issues of Management of Problem Assets by Banks in the Public Sector which, in particular, set out the peculiarities of selling NPLs on the balance sheets of state banks at a price lower than their balance sheet value. The government has regulated that NPLs at such auctions must be sold through open and transparent trading (auction) and may not be sold/alienated to the debtor/counteragent, final beneficiary owner/counteragent, pledger, surety or a related person. Our forecast is that such decision will substantially increase the domestic market of NPLs because, according to estimates made by the National Bank of Ukraine, state-owned banks have accumulated approximately 75% of all NPLs in the sector (around 45% of them are managed by PrivatBank). At the same time, with reserves covering only 95% of non-performing loans, the latter will not affect financial results and the capital of banks and, therefore, may be significantly discounted at their public sales. Taking into account the fact that valuable industrial facilities and agricultural assets are collateralized under the aforementioned NPLs of state banks, we can predict another wave of growth of investments in the NPLs sector.

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Patents

Bolar Exemption in Ukraine

Victoria Sopilnyak Partner, Doubinsky & Osharova

Anastasia Kazankina Attorney-at-Law, Doubinsky & Osharova

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n 2 June 2020, the Verkhovna Rada of Ukraine approved in the second reading and adopted in full Draft Law of Ukraine No. 2429 On Introducing Amendments to Certain Laws of Ukraine Regarding Elimination of Artificial Bureaucratic Barriers and Corruptogenic Factors in the Public Health Sector, which had been discussed in the professional community for a long time. In particular, one of the most resonant issues of the mentioned draft law is whether it provides a so-called “Bolar exemption” or “Bolar provision”, which will permit companies to file an application for obtaining marketing authorization for a generic medicinal product before expiration of a patent for an original medicinal product. It is stipulated that after expiry of the patent the company may immediately begin introduction of the generic medicinal product into circulation, reducing the time it takes for the generic to get onto the market. Introduction of the Bolar exemption into Ukrainian legislation has already been stipulated by the State Strategy for Realization of State Policy on Providing the Population with Medicinal Products for the Period up to 2025, as approved by Resolution No.1022 of the Cabinet of Ministers of Ukraine 5 December 2018. According to this Resolution, the Bolar exemption should resolve the problem of ensuring the availability of medicinal products. Therefore, the approval of the said bill is the next step in the implementation of exactly this strategy. Ukrainian legislation had not contained the relevant provision till then. Moreover, the current procedure for examination of materials for obtaining marketing authorizations for medicinal products expressly stipulates that a medicinal product may not be recommended for granting a marketing authorization in the event there is a court decision stating that the rights protected by patent will be infringed by the mentioned marketing authorization. This opinion is also supported by the courts, which have repeatedly recognized the filing of applications for obtaining marketing authorizations for generic medicinal products as infringement of the patent holders' rights to inventions and prohibited such authorizations. Draft Law No.2429 proposes to set out part 5 of Article 31 of Law of Ukraine On Protection of Rights to Inventions and Utility Models (hereinafter referred to as the Law) with the following wording: “Importation on the customs territory of Ukraine, in accordance with the procedure established by law, of the goods manufactured with the use of the invention (utility model) for research and/or the use of the invention (utility model) in research conducted for the purpose of development and submission of information for obtaining marketing authorization for a medicinal product shall not be considered an infringement of rights deriving from the patent”. The Bolar concept arose from a judicial precedent after a dispute between Roche Products, Inc. and Bolar Pharmaceutical Co. in the USA in 1984. Bolar, a generic medicinal products manufacturer, began to conduct experimental studies for confirming the bioequivalence of a created

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generic medicinal product and launching it on the market prior to the expiry of Roche’s patent for an active ingredient in Valium, an original medicinal product of the latter. The U.S. Court of Appeals for the Federal Circuit found Bolar’s actions to be an infringement of exclusive rights. However, that same year the United States Congress passed amendments to the Hatch-Waxman Act, aka the Drug Price Competition and Patent Term Restoration Act, which allowed the use of a patented formula for the development and subsequent launch of the medicinal product on the market. The Bolar exemption in European Law is governed by Directive 2004/27/EC. Article 10(6) provides that: “conducting the necessary studies and trials with a view to the application of paragraphs 1 to 4 [i.e. bioequvalents and biosimilars] and the consequential practical requirements shall not be regarded as contrary to patent rights or to supplementary protection certificates for medicinal products.” Notwithstanding the EU Directive, the exact language, scope and interpretation of the Bolar exemptions vary across Europe. Generally speaking, the EU countries are divided into those, where the Bolar exemption is limited to activities relating to obtaining of marketing authorizations for generic medicines, bioequivalents and biosimilars (the UK, Belgium, Cyprus, Ireland, Netherlands and Sweden), and those, where the exemption is interpreted more broadly. In particular, a number of countries will not consider as an infringement of the patent rights any act required for marketing approval, as well as acts relating to innovative medicines. At the same time, Austria, Germany, Denmark and Italy also exempt acts aimed at marketing authorizations outside the EU or European Economic Area (EEA). However, neither in Ukraine nor in the world is the Bolar exemption limited to provisions previously mentioned. It is interesting that earlier, on 4 February 2020, the Verkhovna Rada of Ukraine approved in the first reading Draft Law of Ukraine No.2259 On Introducing Amendments to Certain Legislative Acts of Ukraine (regarding Reform of Patent Legislation), which also contains the Bolar exemption and some more exemptions from the legal protection of inventions, which follow the foreign example. In particular, part 6 of Article 271 establishes that the manufacture of a product or a medicinal preparation containing the product with the use of the patented invention for the purposes of export to third countries, as well as other actions, if they are necessary for the manufacture of the product or a medicinal preparation containing the product, for the purposes of export to third countries, will not be considered as infringement of rights to the invention. Furthermore, the manufacture of a product or a medicinal preparation containing the product with the use of the patented invention not earlier than 6 months prior to the expiry of the supplementary protection term for the purpose of storage thereof for introduction into circulation after the expiry of the supplementary protection

Leading Trademark Professionals, Managing Intellectual Property IP STARS, IAM Patent 1000: The World’s Leading Patent Professionals 2020, Best Lawyers, Ukrainian Law Firms. A Handbook for Foreign Clients, Top 50 Leading Law Firms in Ukraine, The Top 100 Best Lawyers of Ukraine. The Client’s Choice, Leaders of the Market.

term shall not be considered as infringement of rights to the patent. Persons who intend to manufacture a product or a medicinal preparation containing the product with the use of the patented invention during the supplementary protection term should be obliged to notify in writing both the Office and the holder of the supplementary protection certificate not later than 3 months prior to the commencement of use of the invention. It is apparent that the mentioned provision follows Regulation (EU) 2019/933 of the European Parliament and of the European Council of 20 May 2019 amending Regulation (EC) No 469/2009 regarding the supplementary protection certificate for medicinal products, from which it has been adopted by Ukrainian lawmakers. However, in the European Union, in contrast to Ukraine, the purpose of such measures is not the fight against the so-called “evergreen” patents and Big Pharma, as supporters of generics try to represent it to be. The aforementioned legislative amendments try to establish a balance of interests between both manufacturers of innovative medicinal products and patients/ consumers who will be able to obtain an alternative almost as soon as the patent protection for some invention or other expires. In light of the adoption of Draft Law No. 2429, it is unclear whether the legislator will consider those amendments further. Even more, Draft Law No. 2429 makes change to Article 9 of the Law of Ukraine On Medicinal Products, and says that the reference of the generic applicant to the registration information

of the original medicinal product and its use in the registration materials of the generic is not considered as disclosure and unfair commercial use of such information. As we see, such an amendment influences the mechanism of protection of the data exclusivity. At the same time, the current edition of the said Article 9 in the part in restriction to apply for registration of a medicinal product that violates the rights of a third party protected by a patent and, accordingly, the authority of the Ministry of Health of Ukraine, to refuse to register such a drug if intellectual property rights protected by a patent are not changed. In Ukrainian realities, this will most likely result in infringements of intellectual property rights. Experience shows that generic companies formerly not only used to applying to receive marketing authorizations for medicinal products wherein patented active ingredients were used, but also, having obtained the respective marketing authorizations, used to introduce the mentioned products to the market, in particular, offered them for public procurement. So, can we hope for their integrity at this particular time? Moreover, in our opinion, the change to the protection mechanism of data exclusivity is a step backwards, since, at a minimum, provisions of Draft Law No. 2429 do not comply with Article 222 of the EU-Ukraine Association Agreement and certainly do not approximate Ukrainian legislation on data protection on medicinal products to the relevant European standards. Therefore, instead of stopping a potential infringement of their rights to inventions from

the very outset, inventor companies will have to make efforts to monitor the activities of competitors for observance of patent rights by them during the period of the so-called research. This may result in a situation where Ukraine will once again appear in a negative light in terms of the investment climate and lead to certain innovative companies exiting the market, as it has happened in the past. In order to prevent this situation, the Bolar exemption should not be too “broad”. Ukrainian legislation should have certain restrictive mechanisms that would allow generic companies, on the one hand, to “conduct research” and, on the other hand, would guarantee observance of the patent rights of the innovative company - patent holder throughout the patent protection term. For example, Mexican law similarly provides for a Bolar-like exemption, although such protection is available only when a patent is within eight years of expiry for a biologic product, or within three years for a small molecule. Alternatively, it could provide the possibility to generic companies to conduct research and development during the patent protection term without any restrictions, but the marketing authorization to be obtained by the generic company for its product will have effect with a suspensive condition, namely the next day following expiry of the patent or supplementary protection certificate. Otherwise Ukraine will, time and again resorting to improvement, merely take a backwards step.

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137

Political Prosecution

Why Ukraine Needs INTERPOL

Vitaliy Serdyuk Senior Partner, AVER LEX

Igor Fedorenko Partner, AVER LEX

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he International Criminal Police Organization, aka INTERPOL, despite the associations that come with its name, is not a typical police agency involved in investigations, whose officers capture the most wanted criminals all across the world. In reality, it is a high-technology organization designed to assist the law-enforcement agencies of countries within the INTERPOL system, of which there are currently 194. INTERPOL is essentially an “international data bank” in the field of criminal justice and a global network for dissemination of information about wanted persons, potentially dangerous persons, missing persons and stolen works of art. Basically, INTERPOL assists countries from different continents in the exchange of information about wanted criminals, helping them trace and, in the event of locating them, detain them for further examination and application of the corresponding procedures. The search types are specified as colored notices (requests): red, blue, green, yellow, black, orange and purple. The red notice often becomes a subject of discussions; there are lengthy procedures and numerous requirements for it, as it is issued to search and arrest a wanted person for their subsequent extradition. In terms of the international search of persons, INTERPOL publishes only red notices, but also not with regard to all individuals. That is why, if you suspect that a red notice was published against you, you can send an information request to the Commission for the Control of Interpol’s Files (CCF). This will not have a negative impact on the investigation or legal proceedings in a case. If INTERPOL issued a notice, getting removed from the INTERPOL database, i.e. removing your name from the red notice list, is a lengthy and labor-intensive procedure, while its success depends on employing an experienced lawyer who practices in this area. The request on removal from the list must contain clear information confirming the ungrounded nature of the search and proof to confirm it. The request is considered by the Commission for the Control of Interpol’s Files. It is worth noting that when a person against whom a notice was published obtains citizenship of the country, where such person is staying, this does not remove the notice and extradition when travelling to a different country. Due to this, only obtaining political asylum provides a possibility to request removal of the red notice, with reference to Article 3 of the Constitution of INTERPOL. The interaction between INTERPOL’s General Secretariat and member states takes place through national central bureaus, operating on the basis of the law-enforcement agencies of such states. Ukraine became a member of INTERPOL in 1992 and has since then been actively working with international partners involved in the search for wanted persons. Overall, the start of partnership between Ukraine and INTERPOL was actively discussed in the 1990s; it was an important achievement and had great signifi-

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cance for the role of the country on the international arena. However, now, the situation has changed somewhat, partially due to certain ambiguity of laws, and partially because of the abuse of the mechanisms and possibilities of INTERPOL. There are provisionally two main reasons causing new trends to appear in the work of Ukrainian law-enforcement agencies in the sphere of international search of wanted persons. The first one is that the number of red notice requests to INTERPOL continues to increase further. There have been frequent attempts to get INTERPOL to issue red notices against an “undesirable” person or political opponents. However, the Constitution of INTERPOL prohibits any intervention in cases of a political, military, religious or racial nature. INTERPOL does stick to this rule. That is why, if INTERPOL discovers the political nature of the persecution of a person, the organization denies a notice request. There have been many such cases lately. Indeed, politically-motivated persecution and attempts to get a person by using the red notice list have a strong negative impact on the country’s image. The second reason is the issue that elaborates on the topic of this article. Namely, that Ukrainian law-enforcement agencies have begun to dismiss the necessity of a red notice and come up with new methods of working without having to involve INTERPOL. This is largely due to INTERPOL's refusal to publish red notices. A special pre-trial investigation (in absentia) once again requires that a person is on the international wanted list (red notice list). In general terms, ever since the provisions on in-absentia investigation and trial were introduced to Ukrainian laws it has been mandatory for a person to be on the international wanted list for the application of such a procedure. Subsequently, in order to facilitate criminal prosecution of some former top government officials, lawmakers introduced a provisional special procedure for in absentia pre-trial investigations and trials. It was a simplified procedure that provided for several grounds for an “in absentia investigation”, with international search being one of them, and not a mandatory one. Starting from 27 November 2018, i.e. from the day the State Bureau of Investigation of Ukraine began to operate, the aforementioned simplified procedure became ineffective and, once again, international search became a mandatory condition for a court to issue permission for an in absentia pre-trial investigation to be held. Another mandatory rule of the Criminal Procedure Code of Ukraine related to the international search of a person is that an investigating judge may consider a motion for selection of such measure of restraint as putting a suspect into custody in his/her absence or accused solely in case the prosecutor proves that the suspect has been put on the red notice (internationally wanted) list. However, Ukrainian law-enforcement agencies have increasingly frequently received rejections from INTERPOL with regard to issuing

AVER LEX is the leading WCC boutique law firm in Ukraine, focused on high-profile economic crimes and politically-motivated prosecutions, cases regarding defense of corporate executives in criminal proceedings and corporate security matters. The firm stands out for its mature highly specialized team, and commands unrivalled capacities for being a preferred criminal defense counsel in particular compound and complex WCC litigations in Ukraine. The majority of cases are unique and first-hearing cases that set precedents for the criminal judiciary system in Ukraine and established practice for future hearings. These cases are highly public; require massive, regular and open communication with the entire spectrum of media outlets in Ukraine. The client portfolio includes state officials and high net worth individuals looking for protection from politically-motivated prosecutions, consulting and law firms, big corporate clients from a range of economic sectors.

Complex legal decisions

-- White-Collar Crime; -- Corporate Criminal Law; -- Corruption and Bribery; -- Tax Fraud and Evasion; -- International Criminal Law; -- Extradition; -- Business Crime, Fraud; -- Risk Assessment; -- Criminal Due Diligence, etc. AVER LEX provides for complex legal decisions in corporate security aimed at identifying and minimizing criminal risks in business; defense of legal rights of detained and convicted persons during a provisional arrest; measures to release from custody; comprehensive legal defense during operational search activities and pre-trial investigations by the law-enforcement bodies; successful advocating in court hearings within a criminal proceeding; legal aid to complainants; recovery of damages judgments.

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The firm advises on all aspects of criminal law, providing both the traditional services of legal prosecution and defense, and the new requirements of preventive criminal law and corporate compliance. Expertise encompasses:

AVER LEX was recognized as: -- Chambers Europe 2017-2019: the sole leader (Band 1) in ‘Dispute resolution: White-collar crime’; -- Best Lawyers 2019: Law Firm of the Year in Criminal Defense;

red notices (and often due to the prohibition of intervention in cases of a political nature). That is why the current situation is that an investigator issues a resolution on putting a person on the international wanted list and submits this document to a court as proof that the suspect is on the international wanted list. To prove the incorrectness of this approach, we first need to ascertain, when exactly is a person considered to have been put on the international wanted list? The Criminal Procedure Code of Ukraine does not provide a direct definition of the term “international wanted list”. However, the Guidelines on the Procedure of the Use of the Possibilities of the National Central Bureau of INTERPOL in Ukraine on preventing, solving and investigating the crimes envisages that an international search for persons are carried out using the channels and possibilities of INTERPOL. The search for a person using the channels of INTERPOL is confirmed by the issuance of the red notice by the INTERPOL General Secretariat and publication of this red notice in its database. That is why a resolution of the investigator or even a letter written by the National Central Bureau of INTERPOL in Ukraine confirming that law-enforcement agencies have submitted an application for a red notice cannot serve as confirmation that a red notice was published against a person. It is noteworthy that judicial practice in this issue is ambiguous. There is the position of courts, which has been set out in their judgments, when the decision of INTERPOL on is-

suance of the red notice and including the person in its database is required to confirm that a person is indeed wanted internationally. For example, in a number of decisions the Kyiv Court of Appeal states that a suspect who has been declared to be internationally wanted should be considered only as a person who is put on the international wanted list and this is confirmed by relevant certificates and extracts from the Interpol database. There is also a different practice, when the court deems the resolution of the investigator as sufficient. In the view of such different approaches, the work of the lawyer, specializing in this area and understanding the processes of the red notice and international wanted lists both from the standpoint of Ukrainian law and from the rules regulating the operation of INTERPOL, and who has already worked with INTERPOL procedures, is vital. In addition, it would be logical to settle the issue at the legislative level; to enshrine the notion of the red notice and international wanted list, and clearly determine the procedure in the Criminal Procedure Code of Ukraine. By this, we mean to determine in the law that the person is put on an international wanted list by INTERPOL (red notice), and not by a resolution of the investigator. Instead, Ukraine has decided to take a different path and decided to make the work of law-enforcement agencies easier. A draft bill was submitted to the Verkhovna Rada of Ukraine, which proposes to replace the requirement of the international wanted list (red notice)

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-- Legal Awards 2018, 2016: Law Firm of the Year in Criminal Law; -- Who is Who Legal 2016-2018: listed among the top firms in Business Crime, etc. To ensure the rights of our clients and to prevent them being violated, the firm has developed a strong best friends’ network of firms throughout the world (UK, Portugal, Switzerland, Netherlands, Belarus, Russia, Armenia), and is well equipped to handle cases with cross-jurisdictional elements. Also, the firm cooperates with a number of leading worldwide and local human right organizations within the framework of ongoing matters. These include Amnesty International in Ukraine, Transparency International Ukraine, Ukrainian Helsinki Human Rights Union, Ukrainian Human Rights Union, Amnesty International European Institutions Office, etc

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in the criminal procedure law with the resolution of the investigator/public prosecutor on putting a person on the wanted list. Be that as it may, Ukraine has travelled a long and difficult path since 1992, when it established itself on the international arena as an important partner in the area of criminal justice. A large number of serious operations have been carried out to fight crime. However, instead of refraining from politically-motivated prosecution of persons or improving work in terms of the validity and substantiation of requests, there are attempts to simply remove the requirements regarding the international wanted list (red notices) from the Ukrainian criminal procedure. It is worth noting that news publications still contain a sufficient number of mentions about Ukraine’s cooperation with the law-enforcement agencies of other countries with the involvement of INTERPOL in order to combat cross-border crime. That is why the logical conclusion is that the changes outlined to legislation will, in the event of their approval, have the biggest impact on persons who are subjected to political persecution. At the present time we have a new interpretation of the requirements of the law, or “favorable” for a specific situation, calling the actions of INTERPOL politically biased, which does not improve the work of our law-enforcement system and, as a result, leads to the violation of human rights.

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Private Clients

A New Tax Era — New Challenges and New Solutions for Private Clients December 2019, amended a number of passive income tax regulations. Strengthening cash control and financial monitoring indicate that Ukraine is seriously committed to implementing the OECD and Moneyval recommendations in regulating KYC and AML procedures. From April 2020, AML Compliance will even extend to virtual assets, the definition of which has appeared in the new edition of the Law of Ukraine No. 361-IX On Preventing and Counteracting Legalization (laundering) of the Proceeds of Crime, terrorist financing, and financing proliferation of weapons of mass destruction (hereinafter — the Law On Financial Monitoring).

Natalia Radchenko Partner, Legal House Group Accompanying clients with personal and corporate tax planning, residency and private investments matters. Education: 2005 — National University Kyiv-Mohyla Academy, Master of law 2007 — Ukrainian Institute of the Stock Market, Master of finance 2010 USAID Certificate — Leasing Business Specialist 2018 Saïd Business School of Oxford. Oxford Blockchain Strategy Program. In 2019 Natalia received a citation from the Legal500 international publication for being a specialist in the provision of private client services

hanges in the legislative field that Ukraine introduced in 2020 impress even experienced tax consultants. They affect not only taxation, but also financial monitoring; will force the beneficiaries of medium and large businesses to review their corporate and tax structures and to make adjustments to their personal financial plans. The tax vector chosen by the state is unambiguous — large-scale implementation of BEPS (Base Erosion and Profit Shifting), the fight against offshore companies, control of the income of business beneficiaries and transparency of tax structures. Over the past 10 years of existence of the Tax Code of Ukraine, this document has survived 126 editions. The 2020 edition is devoted in full to the integration of the BEPS plan into Ukrainian legislation. In addition to tax reform in Ukraine, revision of rules of double taxation avoidance has begun. The MLI Convention, which came into force on 1

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What Tax Innovations will Affect the Private Client Segment? When planning work with personal income, the tax burden on the source of assets is always taken into account. If the source of income is business, then a set of changes will affect the business structure.

Controlled Foreign Companies (CFC) This is a new doctrine for Ukraine, which already works successfully in all EU countries. In Switzerland it operates at the level of law, but not judicial practice. The Tax Code introduces new rules for all who have for a long time withheld the size of their real income and assets from the state. Given the multiple currency restrictions that business has had to deal with since the 1990s, the use of foreign companies by Ukrainian business was more related not to illegal activities but to the objective need of “staying afloat” and developing the business, and reluctance to declare it related to protection from pressure and corporate raiding. The CFC rules apply to individuals and legal entities, taxpayers who reside or are registered in Ukraine. The Code defines two main criteria: ownership of a foreign company and actual control. A sign of ownership is a direct or indirect participation in the capital of a foreign company: more than 50% individually or 50% or more in conjunction with other tax residents (in addition, everyone owns a share of at least 25%, and from 2022 — at least 10% of the shares of this company). Actual control is determined by the totality of rights that a resident of Ukraine possesses. The right to initiate or veto payments, have access to management of the company’s bank account, enter into or agree on contracts, give instructions on company management are sufficient grounds to recognize a person as a controller of a foreign company.

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If the tax resident owns or controls a foreign company, he must inform the tax authorities about it, file the reports of the company controlled by him, and, in some cases, pay the income tax of this company in accordance with submitted reports. Responsibility for non-compliance with the rules comes in the form of financial sanctions. Failure to provide information or incorrect data means a fine of between UAH 200,000 and UAH 2 million. In the case of tax, you will have to pay 18% income tax, a 1.5% levy and a fine of 25% of the amount of obligations for late payment. In some cases, taxes are not to be paid. For example, if the total income of all the CFCs of one controller does not exceed 2 million euro, or your CFC is a public company that is traded on a recognized exchange. There is one year left to review CFC structures, because the forecast date for the entry into force of CFC standards is 1 January 2021.

Constructive Dividends and Changes of the Term “Beneficial Owner” Constructive dividends are an additional opportunity for the State Tax Inspectorate to find income in the form of dividends from the taxpayer where he did not have it before. For example, when he left the founders. The new edition of the definition of “beneficial owner” will affect the types of personal income for which Double Taxation Avoidance Agreements are used for passive income such as dividends or royalties. Changes in the definition of income with a source from Ukraine is another important change that may affect real estate owners in Ukraine. If the change takes effect, then from 1 July 2020, when selling corporate rights/ shares of a foreign company, it will be necessary to analyze whether 50% of the value of such corporate rights is formed by participation in a legal entity from Ukraine and more than 50% of the value is formed from the value of real estate, then you will have to pay taxes on such transactions in Ukraine and at Ukrainian rates. It is also important to consider that these conditions must coincide at any time within 365 days before the sale of such corporate rights. Beneficiaries whose income is formed out of the business should take the coming changes seriously.

Stepping up Financial Monitoring and Control Functions of Banks At the end of April 2020, an updated edition of the Law On Financial Monitoring will come into

Legal House Group is a law firm, with specialization in Tax, Corporate, Wealth and Business Security. In 2019, Legal House opened a representative office in Warsaw. The company’s mission is to form a conscious attitude towards personal and corporate financial and tax history. Legal House offers its clients services in the field of international tax planning, corporate structuring and management. Our experts conduct tax audits of business entities and develop the best possible ones. We can properly arrange investments from the negotiation stage right up to the stage of a possible exit from investments. We work with mature businesses and start-ups. Legal House’s experts accompany registration of companies in the following jurisdictions: Switzerland, Cyprus, Liechtenstein, Hungary, Estonia, Great Britain, Czech Republic, Poland, Georgia, UAE, USA. We help to open bank accounts: Switzerland, Liechtenstein, USA, Cyprus, Hungary, Czech Republic, Poland.

Legal House knows how to achieve streamlined personal finances and get the optimal tax burden. We conduct a tax audit of personal assets, develop optimal ways to manage personal assets, help maintain and transfer business to future generations and create trusts and private funds. In the field of risk control and business protection we help to conduct risk audits (corporate, tax, commercial), create an effective company risk map, develop a risk mitigation roadmap, implement risk mitigation mechanisms, accompany client taxation and other types of disputes with the regulatory authorities. Legal House is an established practice in: -- Tax -- International Tax -- Private clients/Wealth Management -- Corporate and M&A -- Due Diligence -- Investments -- Public-private partnerships

ty” is possible if you do not exceed the threshold amount of UAH 30,000 or its equivalent in foreign currency. The new edition of the law expands the scope of persons who will be required to report suspicious transactions to their clients, adding tax consultants to the classical audit and accounting companies. This means that the consultants of the segment of private clients, as well as other subjects of financial monitoring, retain the requirements for the proper identification of their clients, as well as the financial monitoring of their transactions.

Common Reporting Standards Lana Golian Partner, Legal House Group Accompanies clients in structuring corporate and private assets, tax planning and obtaining economic citizenship. 2009 — Academy of Advocacy, Master of law Member of Tax Committee of the SBI Ukrainian Bar Association Member of the Association of Taxpayers of Ukraine

force. The key change will be the responsibility of banks and other entities of financial monitoring for violating the requirements of the law. Fines for violations will increase approximately 10 times compared with the old version of the law, and this factor will affect the behavior of banks first and foremost. We can safely predict that attention to customer operations will increase. At the same time, the threshold for mandatory financial monitoring will increase from UAH 150,000 to UAH 400,000. In addition, the Law specifies the requirements for payment systems on the mandatory identification of their clients, while maintaining “anonymi-

The government plans to complete anti-offshore reform this year, and the finishing touch will be CRS (Common Reporting Standard), an automatic exchange of financial information. The first steps have already been taken on this path. At the end of 2019, President Zelensky signed the Law on ratification of the FATCA agreement with the United States. The planned changes in the procedure for the disclosure of banking information that will be introduced into the law of Ukraine on banks and banking activities will affect not only the FATCA, but also the general exchange of information with tax purposes. Amendments to the Tax Code of Ukraine were also made. The concepts of “financial agent” and “accountable account” are introduced with respect to the accounts of non-resident clients. Now banks will report to the State Tax Inspectorate on the accounts of non-residents.

New Challenges Create New Solutions The segment of private clients expects an amnesty of capital, which should be adopted by the Verkhovna Rada of Ukraine by the end of 2020. Without an amnesty, all of the above-mentioned changes will not have the main thing — a reference point. Several options for tax amnesty

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are already being actively discussed in parliamentary committees. And while there is no amnesty, the most correct decision is law-abiding preparation for upcoming changes. It is necessary to conduct an audit of all foreign companies that are part of a business structure in order to determine which companies are subject to declaration and which are not. Offshore and inactive companies need to be removed from structures. This is especially true for companies registered in Cyprus, Malta, Jersey, Guernsey, Isle of Man, Gibraltar, Netherlands, Estonia. Since 2020, the AMLD5 Anti-Money Laundering Directive has obliged a company to maintain public registries of beneficiaries. It is also required to compile reports on companies that are subject to declaration. Together with a statement on the existence of a controlled foreign company, it will be necessary to submit a financial report on the results of such a CFC in the reporting year. In the future, on the basis of such reports, the beneficiary must calculate the tax and pay it to the state budget of Ukraine, as required. Do not forget to distribute dividends. Ukraine intends not only to collect information about which foreign companies are owned and controlled by its taxpayers, but also to collect tax on the income of these foreign companies. Now there are two main tax rates — 9% and 18%. Income distributed as dividends from a foreign company subject to taxation at a rate of 9%. At a rate of 18%, retained earnings of the foreign company will be taxed — the so-called conditional distribution of income. Therefore, when evaluating the structure in advance, you can choose the rate at which you will need to pay tax in the future. If the beneficiary is faced with the task of safely owning private capital, considering options for working with trusts and private funds, especially since the tax legislation of Ukraine is still loyal to such structures, is recommended. Financial monitoring will require greater attention to personal tax returns. As the world begins to prepare for BEPS 2.0, the Ukrainian segment of private clients will be able to adapt to new, civilized working conditions.

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Privatization

Privatization in Ukraine

Serhiy Piontkovsky Managing Partner, Baker McKenzie – Kyiv

t’s been almost two years since the new rules for the privatization of state and municipal property came into effect. Originally, the upgraded legal framework was aimed at speeding up the overall process of selling state and municipal property, and it certainly reached that goal to the extent that it relates to the sale of small privatization assets via an e-auction system. The types of small privatization assets vary from certain abandoned real estate located on the fringes of the country to fully functioning businesses with strong customer relationships. As of the end of 2019, total revenue from the sale of all small privatization assets amounted to UAH 2.03 billion, where 40% of e-auctions were successful, with an average price increase by more than 63%. It is also expected that alienation of small and large privatization objects in 2020 will ensure revenues to the state budget of UAH 12 billion. Unfortunately, there was not a single sale of any large privatization asset in 2019 and none of the instruments provided by the new framework have been tested yet. The updated list of large privatization assets for coming years includes companies such as Centrenergo (power generation), UMCC (mining of non-ferrous metals), Electrotyazhmash (manufacturing of power generators), Odesa Portside Plant (production of fertilizers), Indar (insulin product manufacturing), Ukragroleasing (leasing of agricultural machinery), several regional power distribution companies (e.g., Kharkivoblenergo and Mykolaivoblenergo), TPPs (e.g., Odesa TPP, Kherson TPP and Dnipro TPP), the President Hotel and other companies.

Assets and Buyers

Nataliya Tyschenko Senior Associate, Baker McKenzie – Kyiv

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All of the privatization assets are divided into two groups: large privatization assets (LPAs) and small privatization assets (SPAs). LPAs are shares in joint stock companies and key assets of companies, the asset value of which exceeds UAH 250 million and where the state owns 50% or more of the shares. All other assets fall into the SPA category. Privatization regulations embed a principle pursuant to which all assets that are not prohibited from privatization can be sold. From a buyer’s perspective, this means that any asset not prohibited from privatization by virtue of the law can be sold, for example, at the buyer’s initiative, regardless of whether it is listed as an LPA or SPA. As for the qualification criteria for buyers for the purposes of privatization, the law sets out a list of persons who cannot qualify as buyers, in particular: -- Buyers with non-transparent ownership structures registered in offshore zones; -- Buyers registered in states included on the FATF blacklist and their 50% direct or indirect subsidiaries; -- The aggressor state (Russia) and legal entities where such state holds equity interest, as well as other entities controlled by such legal entities;

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-- Legal entities whose beneficial owners of 10% or more of the shares (equity) in such legal entities are residents of the aggressor state (except for companies whose shares are traded on foreign stock exchanges other than those located in such aggressor state); -- Individuals (citizens or residents) of the aggressor state; -- Persons under the national sanctions regime and their affiliates; -- Ukrainian legal entities whose beneficial owners have not been disclosed in breach of the applicable law; -- Persons who used to be a party to a privatization agreement that was later terminated as a result of violations by these persons and by their affiliates. If the winner of the auction refuses to sign the sale and purchase agreement in respect of an LPA or SPA, the winner and its end beneficiary will not be allowed to participate in any future auction for the sale of such asset. This approach allows the government to cut off disreputable investors and requires buyers to think more carefully when selecting a partner for a privatization project. Furthermore, the buyer attracting financing to purchase a privatization asset must provide information on its creditor, who must meet the requirements put on buyers of privatization assets, as stipulated in the law.

Sale of LPAs Regarding the sale of LPAs, the implementation of the new rules reduces the risks associated with determining the starting price; the price will be determined by a professional adviser engaged by the privatization authority. This should eliminate the conceptual conflict that used to be embedded in the law when the starting price was determined by valuation, which should have reflected the fair market value of the asset while, in fact, a fair market value would be determined as a result of an auction. However, this only applies where an investment adviser is engaged, because if no adviser wishes to support the sale process, the starting price would still be determined by the privatization authority on the basis of the results of an independent valuation. As for the actual sale process, the default option is an “English” auction with at least two bidders. However, if only one bidder is qualified, the LPA may be sold directly to that buyer at a price not less than the starting price. If the LPA is not sold by auction or direct buyout, the sale will be made via an auction where the starting price should be determined by indicative bidding with the bid secured by the auction deposit (either in cash or as a bank guarantee). The law expressly provides for cases when an LPA may be sold with a reduction of 25% or 50% from the starting price via an “English” auction; however, it is not entirely clear when the privatization authorities will announce the indi cative bidding auction. That is, immediately following the very first auction where the LPA has

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not been sold, or after two failed auctions when the starting price has been reduced by 25% and 50%, respectively. These tools give a certain degree of flexibility to the privatization authorities, allowing them to choose the sale method appropriate to each particular asset depending on its individual characteristics. Furthermore, the law allows the privatization agreement to be governed by the laws of England and Wales at the buyer’s request. However, this option is only available until 2021 if the Ukrainian Parliament does not extend it. The key point of the new regulations is the issue of protection of buyers’ rights. The provisions governing the content of a privatization agreement, even if governed by Ukrainian law, may include a set of warranties of the seller as to information on the LPA, and the respective liability for breaching them. Furthermore, after a privatization agreement has been signed, the target company will not conclude any agreements that are beyond its ordinary course of business without the buyer’s prior consent, e.g., asset pledge, set-off or suretyship.

Given that many state or municipal enterprises have a significant amount of (typically simulated) indebtedness, the law prescribes an important protection mechanism: no bankruptcy proceedings will be brought within one year following completion of a privatization deal, against a privatized company based on grounds that relate to a period prior to the deal’s completion. On top of that, once a privatization agreement has been signed, no changes to the custody account relating to the arrest or placement of other encumbrances will be made until the title to the LPA passes to the buyer. These protection measures would allow buyers to directly control any cash-out from the target company after the signing of the sale and purchase agreement and to increase an asset’s overall attractiveness.

ally capable of holding privatization auctions. In the main all of the processes relating to the submission and acceptance of bids as well as determination of the winner of an e-auction are automated, and they do not require the involvement of privatization authorities until the binding sale and purchase agreement is executed. In terms of the auction process, the default scenario is an “English” auction with at least two bidders, and if there is only one bid submitted in respect of an SPA, the asset will be sold directly to that bidder. If the SPA is not sold, the starting price for the asset will be decreased by 50%. If the SPA still does not sell, the starting price will be reduced again, this time by 50%, and the asset will be sold at a “Dutch” auction. To some extent, the protection of buyers’ rights is also applicable to the sale of SPAs. The prohibition of bankruptcy within one year following completion of the deal, as well as placement of an encumbrance over shares, remain current for the sale of SPAs.

Sale of SPAs In relation to the privatization of SPAs, all SPAs will be sold via an electronic auction system. The privatization authorities conclude the agreements via e-platforms that are function-

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143

Procedural Actions

Disclosure and Admissibility of Information from Criminal Proceedings in Administrative Disputes

Volodymyr Vashchenko Attorney-at-Law, Partner, VB PARTNERS

he procedural law, which was substantially amended in 2017, has determined further development of the concept of evidence disclosure. Lawmakers have defined, through new procedural rules, the role of a court as an arbitrator which assesses rather than collects the evidence provided by litigants. However, this approach is not understood by all lawyers, and remains a matter of discussion with judiciary representatives and lawyers. In the administrative process, Article 77 of the Code of Administrative Judicial Procedure of Ukraine obliged each litigant to prove the circumstances on which its claims and objections are based, but with the proviso that in administrative cases over the unlawfulness of an authority’s decisions, actions or omissions the burden of proof rests with the defendant. In such cases, besides the burden of proving the lawfulness of its decision, an authority may not rely on evidence that is not the basis of a disputed decision. Rules are unambiguous and clear, but my direct involvement in a number of administrative processes with the central authorities points to the fact that administrative courts refuse to comply with the principles of competition between litigants.

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In particular, it is common practice for law-enforcement agencies to be involved in administrative processes on the side of the authorities, whose decisions or actions are being challenged. Such involvement occurs at the request of the authorities or at the court’s own initiative, and is justified by a reference to the abstract tasks of those law-enforcement agencies, but not to specific rights and obligations, which may be affected by a case decision. Let us consider a particular situation. In June 2019, a governing authority provided the administrative court’s panel of judges with all the available evidence as the basis for a disputed decision. The panel of judges involved a law-enforcement agency in the case at the authority’s request. Such a ruling is not subject to appeal. Initially, a law-enforcement agency (Third Party on Defendant’s side) violated the court’s deadline for submitting explanations and evidence, but later it began submitting to the court the materials related to various criminal proceedings before each court hearing in September, October, November and January. It was impossible not to raise objections to such evidence.

A. A court does not take into account evidence obtained in violation of the procedure established by law (Part 1 of Article 74 of the Code of Administrative Judicial Procedure of Ukraine) In particular, in September 2019, the Third Party provided, together with written explanations regarding the claim, materials from two criminal proceedings considered in 2017 and 2018. The information of a pre-trial investigation may be disclosed only with the written permission of an investigator or prosecutor and to the extent that they consider it possible (Part 1 of Article 222 of the Criminal Procedure Code of Ukraine). Unlawful disclosure of pre-trial investigation information entails criminal liability as established by law (Part 2 of Article 222 of the Criminal Procedure Code of Ukraine). The plaintiff drew the attention of the panel of judges to the absence of such a permit. Therefore, the provided pre-trial investigation information was disclosed unlawfully and obtained in violation of the procedure as established by law. That is, the evidence provided is inadmissible. To remedy the situation, in October 2019, the Third Party’s representative submitted the Resolution taken by a senior special investigator, of

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mid-October 2019, on allowing disclosure of a pre-trial investigation secret in five criminal cases, being considered in 2015-2018, at once. The resolution alleged that they had been combined into a “single criminal proceeding.” First, the Plaintiff drew the court’s attention to the fact that pre-trial investigation information was unlawfully disclosed in September 2019, when the Third Party filed its explanations in respect of the claim together with the criminal proceeding materials, but the secret disclosure Resolution was issued only in mid-October, when the secret had been already unlawfully disclosed. This clearly demonstrates a simplified understanding of law by law-enforcement agencies, when the fact of illegal, and even criminal action, seems to be legitimized by executing a document in the future. Second, the Plaintiff drew the court’s attention to an apparent inaccuracy in the investigator’s Resolution. One of the combined criminal proceedings had already been pending before a court since 2017, while the other two are being investigated by a structural unit of the law-enforcement agency in another region, which the senior investigator has no connection with. No other criminal proceeding exists. This resulted in a new postponement of court hearings. In November, in response to the Plaintiff attorney’s inquiry, an investigator acknowledged an inaccuracy, stating that he/she “mistakenly indicated four criminal proceedings.” A permit was granted for disclosing the secrecy of only one criminal proceeding. After a lengthy break, in January 2020, the Third Party provided two volumes of various documents which contained the minutes of investigative actions in two more criminal proceedings considered in 2015 and 2017. A permit for disclosure was not granted. No connection with the single case, being considered by the senior investigator, has been confirmed. As of the date of this Article, an administrative court panel had not yet finally assessed the evidence provided by the Third Party, but it is obvious that the criminal proceedings materials provided are inadmissible as evidence obtained in violation of the procedure, as established by law and disclosed illegally. In December 2019, the State Bureau of Investigation registered criminal proceedings against the Resolution’s falsification and unlawful disclosure of secret.

VB PARTNERS is a boutique law firm, founded in 2005, with specialization in White-Collar Crime, Investigations and Dispute Resolution. Thanks to this niche, our clients receive the highest level of expertise, an individual approach and personal involvement of partners in projects. The attorneys of VB PARTNERS protect business structures and private clients in criminal proceedings, both in cases of their involvement in criminal proceedings by mistake or the threat of criminal prosecution, and in cases where the client is accused of committing a crime. Our key expertise includes investigation of fraud, money laundering, misappropriation of funds and assets, tax evasion and fictitious bankruptcy, abuse of office, negligence and illegal enrichment. Our team developed practice in the field of compliance and conducts its own corporate investigations, including with the aim of bringing

B. A court does not consider evidence that is not relevant to the subject of proof (Part 4 of Article 73 of the Code of Administrative Judicial Procedure of Ukraine)

C. In cases related to a decision’s unlawfulness, an authority may not refer to the evidence, which was not the basis of the disputed decision (Part 2 of Article 77 of the Code of Administrative Judicial Procedure of Ukraine)

ious individuals that they committed serious crimes. Such circumstances and conclusions may be established by a court indictment which has come into force (Article 62 of the Constitution of Ukraine, Article 2 of the Criminal Code of Ukraine, Article 17 of the Criminal Procedure Code of Ukraine, Part 6 of Article 78 of the Code of Administrative Judicial Procedure of Ukraine). No indictment(s) was (were) filed by the Third Party against individuals or legal entities due to their absence. The pre-trial investigation in these criminal cases has not been completed or has even been suspended for years. In addition, the above-mentioned individuals were not the Plaintiff’s officials or beneficial owners. Therefore, by providing materials from criminal proceedings, the pre-trial investigation in respect of which has not been completed, law-enforcement agencies try to entrust administrative courts with the task of criminal justice and criminal process. Such tasks are defined in Article 2 of the Criminal Procedure Code of Ukraine, in particular, investigation of criminal proceeding materials and judicial examination in order to decide whether someone is guilty or innocent. However, they have nothing to do with the tasks of administrative justice courts. In addition, the involvement of law-enforcement agencies to support authorities is not justified, and contradicts the principles of equality and competitiveness of litigants, and purposes to enable the authorities to justify disputed decisions. Moreover, the fact of provision by law-enforcement agencies of pre-trial investigation materials is aimed at distorting the internal conviction of judges, and creating a preconception when evaluating the evidence regarding the lawfulness of a decision.

If we analyze the published materials of criminal proceedings, then they obviously have nothing to do with the dispute. In particular, the Third Party provided documents of varying commercial nature — contracts, certificates, reports, letters, etc., which confirm the Company’s usual financial and commercial activities in the period from 2000 to 2012. These documents have nothing to do with proving the lawfulness of the decision that was taken by the authority in 2018. Likewise, the submitted minutes of certain investigative actions (witness interrogation, Internet documents and information reviews), carefully selected by the senior investigator from the criminal proceeding’s materials, are not relevant to the dispute either. For example, one of the witnesses only explained that he was the son of an individual working as an engineer and had been the Company head in the past. At the same time, none of the pre-trial investigations, as mentioned above, is conducted in respect of such an engineer, and he is not suspected of any criminal proceedings. In addition, the minutes regarding the investigative actions in 2018-2019 could not be used to adopt a disputed decision in May 2018. Consequently, it is a common practice when law-enforcement agencies, being third parties on the authority’s side, submit documents which have nothing to do with the subject of evidence and, therefore, are inadequate.

This requirement relates directly to an authority’s duty to prove that a decision is lawful. An exception is when the authority proves that it has taken all possible measures to obtain evidence before a disputed decision is taken, but it has not been obtained due to reasons that are beyond its control. As noted above, the Third Party submitted 2018-2019 documents, which could not objectively be used to adopt a disputed decision in 2018. Moreover, the Defendant’s response to the claim has confirmed that the minutes of investigative actions and other criminal proceeding materials had not been submitted to it (authority) before the disputed decision was made. Therefore, in this category of disputes it is necessary to pay attention to what documents were used by the Defendant to adopt the disputed decision.

D. The circumstances of a case, which by virtue of legislation should be confirmed by certain means of proof, may not be confirmed by other means of proof (Part 1 of Article 74 of the Code of Administrative Judicial Procedure of Ukraine) A Third Party’s explanations in respect of a claim contained allegations made against var-

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Project Finance

Project Finance: an Introductory Overview tection based on a principal investor’s balance sheet if costs overrun. It is sometimes said that Project Finance is one of the principal meth- such finance can be legally complex, time-conods currently used to finance development suming and expensive to arrange. However, worldwide, in particular for energy, mining, Project Finance offers a method to create and transportation, infrastructure, utilities and fund many projects that would not otherwise manufacturing facilities. Project finance has exist, by contractually diversifying the allocation only been occasionally used in Ukraine, but of risks and matching sources of finance with it should be used much more. Greater use of revenue and security. Project Finance should follow from the “Strategy of Ukrainian Financial Sector Development How Project Finance until 2025” of 16 January 2020, of the National Bank of Ukraine, the Ministry of Finance and Functions other financial regulators in Ukraine, that stated, Project Finance is based on financing a among its five main priorities, promoting maccash flow resulting from the facilities and/or roeconomic development and innovations in other assets created by a project that one or financing. Project Finance is an innovative way more sponsors initiate. Typically, pledges and to stimulate Ukrainian economic growth. Howmortgages over the resulting assets and reveever, key problems need to be better addressed nue streams can be used to secure the project to facilitate using Project Finance in Ukraine, inlenders, without recourse or with only limited cluding in particular to provide better rule of law1 recourse against the sponsors themselves. and greater political risk insurance2. Such finance does not depend on the balance Project Finance typically uses highly leversheet strength of a particular sponsor or other aged structures, which impose discipline on participant. Thus, typically a project financing project participants — there is no unlimited prois “off-balance sheet” for the sponsors, i.e. it is ¹The British Ukrainian Chamber of Commerce reflected as an investment, with the debt only (BUCC), that the author chairs, has proposed establish- being shown in a footnote to the sponsor’s ing a Ukrainian Legal Ombudsman, as was success- balance sheet as a contingent liability for the fully used by Sweden to transform its judicial system investment. in the first half of the 20th century from being among Project financings, therefore, exist largely the most corrupt to be the least corrupt in Europe. See apart from the participants own financial struc"The Proposal for a Legal Ombudsman to End Abuses tures, based on a complex of contracts and of Justice by Ukrainian Courts", as published in the Kyiv arrangements to create an adequate cash flow Post at: https://www.kyivpost.com/article/content/ business-wire/the-proposal-for-a-legal-ombudsman- to cover the payment of principal, plus interest, to-end-abuses-of-justice-by-ukrainian-courts-by-bate- for the project loans, with a variety of pledges, c-toms-411404.html; See also bucc.uk/articles. Such mortgages and other supporting security and a Legal Ombudsman would provide outside review of guarantees to ensure their payment. Ukrainian judicial decisions, similar to that which is There is a great variety of types of Project Fiprovided under Ukraine’s bi-lateral investment treaties nance structures. Many types of project financ(BITs), but the Ombudsman would relatively quickly ings, for example, are based on government provide such review, in time to be useful for the continconcessions, that can be differentiated by ownuation of a project. ership of the assets created, such as (1) BOT — build, operate and transfer, and BOOT — build, ²The BUCC has, with International Council of Business Associations and Chambers of Commerce (IC- own, operate and transfer, where the project asBAC), developed a proposal for special enhanced politi- sets are eventually returned to the government cal risk insurance through the World Bank’s Multilateral body that granted the concession, and (2) BOO — Insurance Guarantee Agency (MIGA), as exists for all build, operate and own, where the concessionother countries that are experiencing conflicts, like the aire ends up owning the facilities that it creates West Bank and Gaza, Libya and Iraq. See “The Reso- using the concession. Such concession type lution of ICBAC, The International Council of Business arrangements can be created as part of a priAssociations and Chambers of Commerce in Ukraine, on the Need for the Ukraine Reform Conference on 2 to vate-public partnership (PPP), for which Ukraine 4 July 2019 to Agree on Providing Political Risk Insur- has an initial legislative framework.

Why Use Project Finance

Bate C. TOMS Managing Partner, B. C. Toms & Co Legal education: Yale Law School (J.D.), Magdalene College, Cambridge University (Law Tripos I); admitted to legal practice in the District of Columbia and Virginia, USA, and in Paris, France; Chairman, British Ukrainian Chamber of Commerce (BUCC); previously the partner handling project finance at a large multinational law firm in London.

ance for Ukraine Through MIGA”, as published by the Kyiv Post at: https://www.kyivpost.com/business-wire/ the-resolution-of-icbac-the-international-council-ofbusiness-associations-and-chambers-of-commercein-ukraine-on-the-need-for-the-ukraine-reform-conference-on-2-to-4-july-2019-to-agree-on-providing.html: and "A Commentary on the ICBAC Resolution on the Urgent Need for Greatly Increased Political/Conflict Risk Insurance for Ukraine", as published by the Kyiv Post at: https://www.kyivpost.com/business-wire/acommentary-on-the-icbac-resolution-on-the-urgentneed-for-greatly-increased-political-conflict-risk-insurance-for-ukraine.html; https://youtu.be/YvcCJnU0aW0; See also bucc.uk/articles.

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Project Finance Structures Participants The participants to a typical project financing and their roles are (participants may sometimes have multiple roles): 1. Project Sponsors — that usually are behind the project’s creation. 2. Lenders. While there may be a sole lender, usually there is a syndicate of lenders, that

B.C. Toms & Co is presently celebrating its 30th anniversary in Ukraine as the first law firm to come from abroad to open an office in Kyiv. During that time, we have successfully completed many of Ukraine’s milestone projects, including the first true Project Financing in Ukraine (for oil and gas exploration and development, including wells, processing facilities, pipelines, railroad construction, etc., which was funded by the EBRD). We have successfully handled the legal work for many other major matters, including: -- The first IPO in Ukraine (to raise approximately USD 500 million by a Ukrainian energy company's listing on the London Stock Exchange); -- The largest acquisition in Ukraine in the Ukrainian energy and natural resources sectors;

can include commercial and investment banks, spreading the risks, with some lenders only involved for certain stages of a project. Often for Ukraine, the lenders will include an international development bank like the European Bank for Reconstruction and Development (EBRD), the International Finance Corporation (IFC) or the European Investment Bank (EIB), that have mandates to finance development. 3. Project Customers/Users. The project customers or users pay for the project’s production (“off-take”) or for use of the project’s facilities (e.g. for transportation infrastructure). They are typically the main source of funds to pay the financing. 4. Contractors — that build the project and/or supply the equipment for it. 5. Project Companies — typically special purpose vehicle companies (SPVs) created to act as the borrower and to own and/or operate the project, in which the sponsors or others may make equity investments. 6. Insurance, Performance Bonds and other Credit Support. Guarantees, performance bonds, hedging and other credit support may be provided by various banks and other participants, including in part by sponsors, typically to address pre-construction completion risks. Insurance should apply to project assets as they are built. Political/conflict risk insurance can be important. 7. Export Credit Agencies and Other Sources of Supplemental Finance. Often, to reduce dependence on main project loans, some costs can be financed by separately financing parts of a project. For example, the cost to buy equipment and other materials abroad can often be covered using export credit finance like that provided by UK Export Finance (for the UK), Hermes (for Germany) or COFACE (for France). 8. Government Bodies. Governments can often be involved in a variety of ways, including (i) to provide some financial support, guarantees and/or other investment incentives, (ii) to provide concessions to use state assets or rights and/or (iii) to specially regulate the relevant business area. 9. Advisors and Experts. As a project financing is typically built from an idea implemented through the creation of a complex contractual structure, high quality legal, financial and technical advisors and experts are essential.

-- The largest bilateral investment treaty arbitration concerning Ukraine (at the Permanent Court of Arbitration in The Hague); -- The largest sale in the agricultural sector by a major foreign investor of a Ukrainian farming business (for which we earlier handled all legal work for its creation, operations and financing); and -- A highly-complex corporate raid defense, simultaneously involving over 50 related proceedings. Our legal practice is based on our commitment to provide client service of the highest quality. We are ranked in the 2019 independent Kyiv Post Survey of Law Firms among the top three law firms in Ukraine.

Types of Contracts The contractual structure to create a typical project financing involves the following types of contracts: 1. Loan, Bond and other Finance Agreements, based on which the finance is provided. 2. Mortgages, Pledges, Assignments and Other Security Arrangements can apply over project movable and immovable assets and contract rights to secure the lenders under the finance agreements. 3. Project Construction Contracts, such as an engineering, procurement and construction (EPC) contract on the design, build and turnover of a facility for a fixed price. Projects may also be built under other arrangements, like construction management contracts with costs varying as construction proceeds, which can be more difficult to project finance. 4. Concession, License or other Rights or Assets Use Arrangements. Typically, the contracts for a concession, or other project asset or exclusive rights arrangements, are with government bodies. They may range from the exclusive right to build a toll-road (e.g. for a ring-road around a city) to the right to sell energy at a particular price to a government purchaser. 5. Project Operation Contracts. The project company may operate the assets or facilities itself or may contract for a third party to do so. 6. Purchase/Off-take or Use Contracts. The contract for the purchase of the products produced or use of the facilities created is often the key contract around which a project financing is based. Ideally, these are longterm forward contracts, providing in advance a guaranteed market for the project, thereby ensuring revenue streams to pay the financing. 7. Supply Contracts — for example, to fix longterm future raw material and other supply sources and costs. 8. Agreements among Participants. These arrangements among project participants typically cover the sharing of collateral and enforcement cooperation, distribution of revenues, restrictions on, and requirements for consents to, variations in project documents, as well as shareholders agreements. 9. Term Sheets, Letters of Intent, etc. A project financing idea, once developed by the financial and technical advisors and verified in a

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We have had numerous articles published on Ukrainian law, including the legal sections of the ICC book Doing Business in Ukraine, which we can provide copies of, that identify significant problems present in Ukrainian law that investors should be aware of.

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ADDRESS: 18/1 Prorizna Street, Suite 1, Kyiv, 01001, Ukraine Tel.: +380 44 278 1000 or 490 6000 E-mail: bt@bctoms.net Web-site: www.bctoms.com

pre-feasibility study, will usually be reflected in a term sheet, and then in supporting letters of intent from the proposed project participants, based on which a financial plan can be developed, commitments in principle to fund obtained and a full feasibility study conducted. Based on such commitments and study, the actual contract documents can be negotiated and agreed.

Project Risk Allocation A key to any Project Finance is the identification of project risks, both for the construction phrase and for operations, and the development of solutions to mitigate such risks, such as: 1. Construction Completion Risk — typically the contractor should provide a performance bond from its bank to ensure that if it does not complete the project construction on time, another contractor can be brought in to do so. 2. Project Solvency Risk — Project financing are typically highly leverage, which can result in solvency risks. If the SPV goes bankrupt, the contractual structure should permit re-allocation of the project’s contractual structure to a new owner, that can complete and operate the otherwise viable project. 3. Currency Risk — for Ukraine, such risks include changes in currency value, convertibility and cross-border transferability, and are sometimes covered by special insurance or hedging contracts. 4. Political/Conflict Risk is often important (as discussed in footnote 2 above, a solution for Ukraine is to obtain special programs for political/conflict risk insurance). 5. Legal Risk — for Ukraine, the main legal risks are from (i) misbehavior within the judicial system (see the solution proposed in footnote 1), (ii) unexpected adverse changes in Ukrainian law and regulations and (iii) the discovery of environmental problems.

Conclusion This brief review is just to indicate what Project Finance entails and to encourage its use in Ukraine as a financial technique for Ukraine’s future economic development.

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Public-Private Partnerships

PPPs in Ukraine: Improved Rules, New Projects Launched and Future Plans

Yevheniy Deyneko Managing Partner, EVERLEGAL Education: INSEAD, (Broadening Business Perspectives Programme, 2015); Kyiv National Economics University (Masters in Finance, 2009); University of Connecticut School of Law, (LL.M., 2001); Lviv National University Law School (Specialist’s Degree in Law, 2000). Mr Deyneko is qualified to practice in Ukraine and admitted to practice in New York State, USA

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public-private partnership (PPP) is cooperation between the state (or municipal bodies) and private entities relating to projects of public interest and significance. PPP projects provide for long-lasting cooperation between a private partner, which undertakes to implement a project, provide services, construct new or rebuild existing facilities and the public authorities which need capital investment and specific expertise from the private partner and otherwise lack the self-capacity to undertake and complete a project. One of the main advantages of the PPP is the ability to use existing publicly-owned assets, obtain government guarantees, support from the state in solving land access and use issues and secure infrastructure for the implementation of a project as well as other support which would all in all ensure income stability, enabling the project to attract outside financing. The majority of PPP projects in Ukraine are traditionally implemented in the form of concessions (which is a form of PPP), while joint activity agreements and so-called “public-private partnership” agreements are less common. This is why the Ukrainian government has recently been working hard on introducing improvements to the regulatory framework of concessions, as discussed in more detail below. Several laws and regulations currently exist that govern PPPs as well as a considerable amount of secondary legislation supplementing primary PPP rules and detailing PPP-related procedures. The key laws in the sector are: -- Law of Ukraine No.2404-VI On the State and Private Partnership (SPP Law); and -- Law of Ukraine No.155-IX On Concession (the Concession Law). The SPP Law determines the general characteristics for the application of PPPs in Ukraine, while the Concession Law prescribes more specific provisions for implementation of concession projects as one of the forms of PPP. The Concession Law was adopted on 3 October 2019, replacing its predecessor, the Law of Ukraine No.997-XIV On Concessions, as well as the Law of Ukraine No.1286-XIV On Concessions for the Construction and Operation of Automobile Roads. The Concessions Law has eliminated certain contradictions that existed between the SPP Law, special laws on concessions in different sectors and secondary legislation and made primary and secondary PPP legislation more consistent and coherent. The key idea behind the newly-adopted Concession Law was to balance the interests of private and public partners, thereby fostering attraction of investments, modernisation and development of the new infrastructure in Ukraine.

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Advantages of the Concession Law First of all, the Concession Law revised and broadened the list of eligible partners. The possible parties to concession now include: i. a concessionaire, a legal entity — resident of Ukraine, that is awarded and is a party to a concession contract; and ii. a grantor — the government or a municipal authority (or a state-owned legal entity) having power to award and enter into a concession contract. Secondly, the Concession Law introduced a new and transparent concession award process and concessionaire selection. Even though competitive selection is not new for PPPs, the Concession Law provided for a procedure that complies with the standards of the UNECE, UNCITRAL, World Bank, EBRD and IFC. Such procedure includes a preliminary selection and the actual concession tender and generally includes the following elements: i. a pre-tender, during which potential private partners are invited to submit their business proposals; ii. a concession tender, during which a grantor sets up a tender commission, approves tender documentation, adopts a decision on conducting the concession tender, informs the applicants on the pre-selection results and invites them to take part in the concession tender; iii. an evaluation of proposals, where the grantor determines the best tender conditions; and iv. an invitation to the winner to execute a concession contract. Thirdly, the Concession Law introduces changes in relation to an initiator of a concession process (and PPP under the SPP Law). The initiative to enter into a PPP, in general, and into a concession may, in particular, come not only from a state or municipal body, but also from a potential private partner. Fourthly, the Concession Law provides for improved standards of protection for both public and private partners. For example, parties to the concession contract are free to select a dispute resolution mechanism. For example, mediation, non-binding expert evaluation, national or international commercial or investment arbitration, including arbitration located abroad (if the concessionaire has a foreign element to it), as well as procedural rules for dispute resolution. Furthermore, the Concession Law gives parties a possibility to enter into a concession and associated contracts under foreign law. Finally, the Concession Law provides for a possibility to enter into a direct contract with creditors. Thus, the creditors, grantor and con-

EVERLEGAL is an independent and sector-focused Ukrainian law firm with particular expertise in Energy & Natural Resources. Our mission is to be a legal business partner for our clients and to get jobs done for you. The EVERLEGAL team is a synergetic combination of professionals from international law firms and local legal experts. We advise our clients on (i) transactional matters with the focus on corporate finance, (ii) dispute resolution (in courts and via ADRs) and (iii) legal aspects of business operations. We feel equally comfortable advising on complex cross-border deals or representing your interests in domestic courts or foreign arbitration and jurisdictions fora against tough counterparties. Our offering

covers Corporate and M&A, Dispute Resolution (Courts and ADRs), Antitrust/Competition, Banking & Finance, Employment, Commercial Matters and White-Collar Criminal Defence. We are also experienced in Drafting Legislation. EVERLEGAL’s clients are industry leaders with global brands, mid-size and growing businesses as well as innovative start-ups. Our lawyers have experience and expertise in a range of sectors, such as Energy & Natural Resources (with special focus on RES), Infrastructure, Agriculture, Innovations and Technology, Healthcare, Financial Institutions and Consumer Goods. EVERLEGAL prides itself on being a “sustainable impact” law firm: we support green energy, healthy lifestyle and we are bike friendly.

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cessionaire may enter into a direct contract setting out, inter alia, the conditions and grounds for changing the concessionaire, financial obligations undertaken by the concessionaire in favour of the creditor and other terms aimed at preventing the termination of a concession contract.

panies expressed interest in the said tenders, both international and local.

Risks of the Concession Law

Andriy Olenyuk Partner, EVERLEGAL Education: Georgetown University Law Center (LL.M., 2010); Lviv National University Law School, (Master’s Degree, 2008). Mr Olenyuk is admitted to practice in Ukraine

The Concession Law has faced its share of criticism. The main detriment of the Concession Law is that for certain PPPs it provides for the obligation to obtain an environmental impact assessment after performance of the concession contract. Consequently, if the environmental impact assessment results are negative, the concessionaire will not be able to proceed with the PPP project, despite the duly executed concession contract and passed selection procedures.

PPPs currently implemented Based on the information provided by the Ministry for Development of Economy, Trade and Agriculture of Ukraine, as of the beginning of 2020, 187 agreements had been concluded on the basis of the PPP. Out of these 187 agreements, 52 are being implemented, with 34 on the basis of concession contracts, 16 under joint venture agreements and 2 under other types of agreements. The majority of PPP projects are being carried out in Mykolaiv Region (10), Odesa Region (5) and Kyiv Region (5). The majority of active PPP projects are implemented in the area of water management. Recent, highly-discussed PPPs concerned the conclusion of concession contracts regarding sea ports in Southern Ukraine. In particular, QTerminals (Qatar) won the concession contract for the Olvia sea port located near Mykolaiv city, and Risoil-Kherson (Georgian and Swiss company) won the concession contract for Kherson sea port. A total of more than 50 com-

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Future Plans More concessions are planned to be announced in 2020. Among them are concessions for four regional airports, namely Chernivtsi, Kherson, Lviv and Zaporizhzhia, for which feasibility studies are being prepared. Concessions for toll roads are also planned. The Ministry of Infrastructure of Ukraine has started feasibility studies for five privately run toll highways: Kyiv-Bila Tserkva, Kyiv’s Ring Road, Lviv-Krakovets (Polish border) and LvivStryi (route to Zakarpattia). It is anticipated that about in a year, Kharkiv, Dnipro, Khmelnytskyi, Mykolaiv and Chop rail stations could be handed over to private investors under long-term leases. The Ministry of Infrastructure of Ukraine estimates that these five stations could attract USD 20 million in investment.

Concluding Observations Public and private partners generally consider concession to be the most secure type of PPP due to the extensive legal framework and experience in comparison with other types of PPP. Despite the progressive steps made by the Ukrainian government in developing PPPs, this type of partnership is yet to reach the desired level of success. Unfortunately, in practice, many of the PPPs concluded remain not implemented and PPPs in sectors like health care, waste management, education and mineral extraction are not common. Nevertheless, a number of ambitious PPPs were announced in various sectors, including infrastructure, sea ports and airports, which are expected to advantageously influence and develop those sectors.

149

Railways

Ukrainian Railway Reform and Investment Options

Andrii Pidhainyi Managing Partner, AGRECA

Marina Sharapa Partner, Attorney-at-Law, AGRECA

he Ukrainian railway industry is characterized by a dominant player, the Joint Stock Company Ukrzaliznytsia (UZ), a unitary enterprise with regional branches. UZ operates the country’s public rail infrastructure, a natural monopoly, and provides passenger and freight transportation and services in adjacent markets. The post-soviet model of regional governance, as well as financial challenges of the last decade, have created an ongoing crisis for UZ. This is a classic example of deteriorating quality of services of a natural monopoly while costs continue to rise. To address the problems the government aims to change the rules in the rail transport sector through deregulation and private investment. It must be said that this strategy is at the initial phase and investors are not lining up to enter the market. However, sooner or later, reforms will be launched, and those armed with essential information will get an advantage.

What are UZ’s Assets? UZ controls two types of property: the first one includes assets dedicated to social and noncore activities, i.e. production of various goods and services consumed by the core business — operation, maintenance and development of the public rail infrastructure, as well as freight and passenger transportation services. The company also owns rolling stock (locomotives, wagons and other machinery). It is important to note that the main buildings of all passenger stations in Ukraine are owned by UZ. This is actually an exception from the second type of property: publicly-owned rail infrastructure of general use operated by UZ. Existing legislation prohibits the privatization of infrastructure, or any contracts for its O&M, lease or PPP/concessions. Theoretically, the public company’s assets can be an object of purchase and sale, lease and concession agreements. However, as a public company fully controlled by the government, UZ acts cautiously according to its Strategy. Approval of the document is a kind of prelude to coming reform in the railway transport sector. So far we have seen progress in several directions.

Concessions for Passenger Stations The process has been launched thanks to the Global Infrastructure Facilities and International Finance Corporation (World Bank Group), which secured funding for a pre-feasibility study of concession projects. The first group of stations includes Kyiv Central, Kharkiv, Dnipro, Khmelnytsky, Vinnytsia, Mykolaiv and Chop. Concessions for the operation and development of these objects may turn out to be sustainable investment projects. But today it’s hard to predict when the next steps will be taken.

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IPO At the end of November 2019, the EBRD, Ministry of Infrastructure of Ukraine and UZ signed a Memorandum of Understanding on UZ’s IPO. The document is not publicly available, though numerous statements by the company’s management have revealed that money, and UZ expects to raise USD 3 billion, will be directed towards renewal of rolling stock. The ministry considers that the IPO could potentially be best placed in the US and UK markets. Logically, in the context of UZ's restructuring strategy, the IPO could be organized after UZ’s reorganization and establishment of a new cargo company, which will own the rolling stock.

Divestiture of Non-core Assets Another opportunity for investment is acquisition of UZ’s non-core assets which, according to the company’s statements, are valued at UAH 7-10 billion. The list of those assets is still being compiled, though we can say that these property facilities are used for various economic activities, such as production of construction materials, animal farming and even medical services. The selling procedure has not been defined yet. Another investment opportunity may be to establish joint ventures in which the company will retain joint control over new business entities, even though this type of investment has not been registered in Ukraine since the mid-90s.

Access of Private Locomotives to Public Rail Infrastructure The permanent shortage of locomotives is one of the reasons for liberalization of the freight rail transport segment. The only available option for investors today is a lease. Nevertheless, the private sector does not seem to find the lease contract a sustainable solution. Since opening the freight market is a longterm process, the Draft Law On Railway Transport sets a 2-year transition period. But the government decided to start an advance pilot project allowing private locomotives to use public rail facilities on a limited number of routes. This is the first case when private companies were allowed to operate on the public rail infrastructure and it’s a real incentive for freight owners to invest in additional rolling stock.

Coming Reform and Investment Opportunities It is difficult to say when the first draft of the Law On Railway Transport was developed. No-

Transport and infrastructure legal consultants. AGRECA has been one of the strategically focused legal market players in Ukraine since 2005. The firm’s team has a unique practical experience and credentials in the sectors of transport, infrastructure and logistics, which is proved with years of legal advisory experience and transactional work for the most reputable national and international industrial companies, as well as the firm’s expert input in reforming the transportation regulatory framework. The firm’s expertise covers the whole range of transactions related to state property, such as privatization, joint venture, lease, public-private partnership, including concession. For the last 10 years, AGRECA has positioned itself as a highly specialized legal adviser in the sector of transport and infrastructure, which primarily relates to seaports and waterways, railways, airports and motorways.

In particular, the firm’s experience focuses on two key areas: (1) advising on the regulatory framework, which includes constant monitoring of sectoral policies and legislative developments; drafting legislation and regulations; contributing to the efforts of international financial organizations and institutional investors in upgrading the sector’s regulatory framework; and counselling private businesses on building up strategic relationships with the government and state monopolies in the sector; (2) attracting private investment, providing direct legal advisory support for transactions on privatization, lease, PPP and concessions. AGRECA is among pioneer law firms in Ukraine to launch a comprehensive legal support of major national and international investments in the transport and infrastructure industry. Today, the firm’s lawyers keep their practice focus as advisors investing in and protecting sector-related assets.

In addition to this, AGRECA’s lawyers are renowned for their experience in drafting sectoral laws, as well as developing procedures for privatization, lease, and management of state assets. While dealing with law drafting and regulatory updates, the firm’s experts focus their efforts on identifying and minimizing transactional and operational risks for all parties involved in sector-related projects with state property.

body knows how many drafts have been elaborated since then. The Transport Committee of the Ukrainian Parliament is currently discussing the latest version. The draft is one of consensus between the public authorities and major market players, primarily large freight owners and port operators. Understandably, the draft is not perfect, but everyone agrees it should outline the future structure of the market. Here are the key features of the law and how its implementation is likely to affect investment in the sector. The core of the proposed reform is establishment of a vertically-integrated management system consisting of six companies engaged in specific operations. On the top of the pyramid there will be a company with a corporate management function. Another company will operate the public rail infrastructure and provide access to the facilities; as a natural monopoly it will be subject to regulation by the state. The users of this company’s services will be two separate freight and passenger carriers which in the future will compete with other private companies on the market. The other two subsidiary companies will supply products and services for the needs of the infrastructure operator and utilize non-core assets for social and other purposes. The draft law introduces a new definition of “strategic assets” which include the main railways in general use, technological facilities and transmission devices being directly used by transport operators. The strategic assets are not transferred into the authorized capital of UZ, and they will remain in public ownership and be operated by the company operating the infrastruc-

ture. They can’t be privatized, leased or transferred into concession. It is worth noting that all buildings of the railway stations will become the property of the infrastructure company. The remainder of UZ’s property, such as railway rolling stock, industrial factories, maintenance and repair depots, as well as non-core assets, will be transferred into the ownership of other companies in accordance with their relevant functional use. No need to dig deeper into other important developments such as tariff regulation, transport regulator, safety standards and cargo security. It is sufficient to focus on the above issues in order to understand future investment opportunities. Analysis of the draft law shows that it will diversify objects for investment but it does not create any special mechanisms or instruments to attract investment into the rail sector. The existing legal status of UZ’s assets will remain the same after the bill has been adopted. The only difference will be operation as a group of six companies instead of one. The operator of the public rail infrastructure will primarily manage so-called “strategic” facilities. The draft law does not explicitly prohibit lease or PPP/concessions of such facilities. However, the design, construction, reconstruction and modernization of strategic infrastructure objects can be performed only by the infrastructure operator. It means that those facilities cannot be an object for any investment projects with the participation of private capital. The only exception is concessions for railway passenger stations.

The start of reform will signal the launch of preparations for the IPO of the cargo company. This is the most lucrative business, which requires infusion of capital. The UZ Strategy does not envisage that the assets of the cargo and passenger transport companies can be privatized, leased or transferred into PPP/concession. Those companies supplying goods and services for the core rail transport business are likely to create wider opportunities for investors and strategic partnerships with international players. However, the Strategy does not specify the legal forms of such potential collaboration. The organizational structure of companies managing social and non-core assets will be set up with regard to activities not directly related to the transportation business. Before launching the divestiture UZ must prepare a plan for the optimization of non-core assets with the criteria for identifying assets and activities as non-core, their importance for the main business and methods to decide on their future use: lease, sale, etc. As we can see, all investment opportunities will appear after the restructuring of UZ is completed or, at least, during this process. According to the timeline set out in the Strategy, the process will take two years from the time that the Law of Ukraine On Railway Transport comes into effect.

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Real Estate

Taxation of Real Estate and Transactions in Ukraine and has certain peculiarities among which we should note a different tax regime for land and buildings. The main taxes related to real estate are the property tax (that includes land and real estate taxes), corporate income tax, value added tax, personal income tax, military duty, and others that are applicable as the case may be.

Real Estate Tax Tax Objects

Timur Bondaryev Managing Partner, Head of Real Estate & Construction, Arzinger

This is a local tax, levied on both residential and non-residential properties (buildings, apartments, etc.) or their parts. This tax does not consider the title to the underlying land. At the same time, certain immovables are exempt from the real estate tax. Such exemption applies to state and municipal properties, certain social objects (religious, educational facilities, others) and some types of commercial property (temporary constructions used by SMEs, certain agricultural and industrial facilities, etc.). Local councils may determine other exemptions from the real estate tax based on the financial standing of certain groups of individuals.

Taxpayers All individuals and legal entities — owners of facilities, regardless of their residency.

Tax Rate The rate is determined by local councils. Nevertheless, the tax rate per 1 sq.m cannot exceed 1.5% of the minimum wage established as of 1 January of the tax year. This results in a maximum rate of UAH 70.85 or EUR 2.66 per sq.m. in 2020. As a surcharge, an additional UAH 25,000 is paid for each apartment (or part of it) with an area exceeding 300 sq.m and for each house (or part of it) - exceeding 500 sq.m.

Tax Base

Tetiana Storozhuk Senior Associate, Real Estate & Construction, Arzinger

efore making a final decision on entering into a particular asset deal or structuring business in Ukraine, it is crucially important to consider all the details of real estate taxation and other entailed costs. That is why the aim of this piece is to highlight general taxation rules that will likely be of interest to real estate owners and tenants. The taxation of real property in Ukraine is regulated by the Tax Code of Ukraine (TCU),

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The tax amount is calculated by multiplying the total area of the facility by a tax rate. As an exception for individuals, the tax base for residential properties is reduced by an area of 60 sq.m for an apartment and 120 sq.m for a house. Thus, the taxpayer who owns both an apartment and a house, in which the areas of the aforesaid figures are exceeded, benefits from an exemption of 180 sq.m.

Reporting Period The real estate tax is paid once a year.

Land Fee Tax Objects and Forms of Land Fee The land fee is paid as (i) a land tax or (ii) a land rent and levied in respect of land plot, land share (so-called "pai") or even unallocated and unregistered land lying under a building.

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Under the law, certain individuals or legal entities are excused from paying the land tax (for instance, agricultural producers registered as a IV group taxpayer in the simplified taxation system).

Taxpayers The owners pay the land tax and the tenants pay the land rent.

Land Tax Tax Base The tax base is a normative monetary valuation of a land plot in a region or the size of the land plot in case assessment of the valuation of such land plot was not carried out.

Tax Rate The rate is determined by local councils. The maximum rate for a land plot with a normative monetary valuation does not exceed 3% of its valuation. There are also certain exceptions, as set out in the TCU for various land plots. By contrast, the tax rate of a land plot without valuation may come to 5% of the normative monetary valuation of arable lands in the region in question. Big tax benefits are established for agricultural lands. The tax rate for an agricultural land plot with registered normative monetary valuation may range from 0.3% to 1% of its valuation. For land without such valuation the tax may be charged at the rate of 3%. This makes business projects much more attractive for agricultural producers, especially in anticipation of the lifting of the moratorium on the sale of agricultural land.

Reporting Period The land tax is paid once a year.

Land Rent Land rent is usually higher than the tax and its amount is set out by the lease agreement. Hence, a list of restrictions is established by the TCU for lease of public lands. In particular, the land rent rate must not be less than the land tax rate for the respective category of land and must not exceed 12% of its valuation. The high threshold does not apply to leases executed under land bidding. Some restrictions also apply to subleases of public lands, inter alia, the sublease payment must not exceed the lease payment.

Corporate Income Tax The taxation of asset deals between legal entities is the same as that of other transactions and depends on the legal entity’s taxation system. For example, asset deals for the seller — a Ukrainian legal entity registered as a taxpayer on general grounds — will be taxed at a tax rate

Arzinger is an independent law firm headquartered in Kyiv which has regional offices in Western and Southern Ukraine, in Lviv and Odesa, respectively. Arzinger for over 17 years has been among the legal business leaders providing high-quality legal support to clients throughout Ukraine. Among the firm’s clients are top representatives of international and local business. Arzinger follows high standards of legal services and is a reliable 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, white collar crime, dispute resolutions, litigation and arbitration, tax, banking & finance, anticorruption compliance and business ethics. We serve clients operating in the energy and natural resources, life sciences, agriculture, food & beverages, telecoms & IT and other industries.

enabling it to engage colleagues from various jurisdictions in cross-border transactions and so provide clients with top-level professional legal advice.

The share acquired in a Ukrainian SPV (property holding company) is also VAT-exempt. That makes such transactions more attractive in taxation even if it involves a higher volume of transactional work (legal and financial due diligence, merger control, SPA-structure, etc.). Hence, the consequences of such an acquisition are vital and should be considered before closing. The issue of securities is also a VAT-exempt operation, which makes it a more frequent option for developers and investors, especially in residential property. In practice, this option triggers the involvement of corporate and venture funds into a project.

Disposal of any other (non-residential) properties, as well as of the 2nd (or more) residential property within one year, is subject to taxation at the rate of 5% for both residents and nonresidents. In order to supervise the due payment of the tax, an obligatory property valuation has been introduced. The notary, while certifying an agreement, has to check if the price of the property in question is higher than its valuation. In case the sale of a property is carried out at a lower price, the tax obligations calculated from the price in the valuation report are registered with the relevant register.

Tax Rate

Taxation of Inherited Property or Gift Property

The rate is 20% of the contractual price for products and services.

Bohdan Shmorhun Associate, Real Estate & Construction, Arzinger

of 18% from taxable profits (i.e. the difference between contractual price and residual value of assets). Non-resident companies, all Ukrainesourced income, including income from real estate transactions, are subject to a withholding tax which, as a rule, is 15% unless otherwise given under a double taxation treaty.

Value Added Tax The payment of Value Added Tax is generally applicable to the supply of goods and services by a VAT payer. The TCU states that asset deals are considered as the supply of goods. However, there are certain exemptions. The sale of an undeveloped land plot is VAT-exempt. Developed land plots are subject to VAT even in case the construction object is not completed. A developed land plot is disposed of with the building, which is subject to VAT. The lease of public land plots is VAT-exempt. The rent payments for private land plots might be subject to VAT if the landlord is a VAT payer.

Personal Income Tax Taxation of Rental Income This tax is applicable to the income of individuals (residents and non-residents) at a rate of 18%. Here the income from transactions with real property and emphyteusis (agricultural easement) is considered. As a rule, this tax is withheld by the tenant of the property (beneficiary of emphyteusis) from the landlord’s income. If the tenant is a private person, the landlord pays the tax. Non-residents should enter into special agency agreements. An agent (so-called "tax agent") under such an agreement shall withhold the tax amount from the income and pay it on behalf of the non-resident. Failure to have a tax agent for a non-resident could be considered tax evasion and is subject to prosecution.

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Income received as property from blood relatives and spouses is not subject to taxation (0% rate). The 5% applies to a person’s income in the case of an heir who is not a blood relative or spouse/first-degree relative. The rate of 18% applies in the event that a non-resident successor inherits the property from a resident.

State Duties Pension Fund Contribution The pension fund contribution is paid under the Law of Ukraine On the Duty for Obligatory Pension Insurance for the acquisition of buildings and constructions but not of land. The rate is 1% of the contractual value and is always paid by the buyer.

State (stamp) duty The state duty comes to 1% of the contractual value of any property (it applies to both property and land transactions).

Taxation of Proceeds from the Military duty Sale (exchange) of Real Estate This duty was introduced

Income from the sale of real estate (commissioned and unfinished) is taxed on the basis of a 5% rate. The first sale of residential property in one year, regardless of its area, is tax-exempt. It could be applied if the seller owns the property for at least 3 years before the sale. The exemption does not apply to inherited property.

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into the TCU with the purpose of reforming the Armed Forces of Ukraine. The rate is 1.5% of the contractual price or any other income. This duty is charged on all transactions with real property which is subject to personal income tax.

153

Renewable Energy

Renewable Energy in Ukraine

he feed-in tariff has been one of the major drivers of massive growth in the renewable energy sector in recent years. It has contributed to creating a competitive market in Ukraine with a strong presence of foreign investors. However, Ukraine is on the brink of significant changes, with the feed-in tariff set to be replaced with ’green’ auctions. Seeing about EUR 3.7 billion in investment and 4500 MW of installed capacity (according to the Ukrainian State Agency on Energy Efficiency), 2019 was — and will probably remain — the peak year in terms of investment volumes and construction of new renewable energy objects in Ukraine. At the same time, 2019 will be remembered for the addition of the uncertainty factor to the picture, as a result of the Ukrainian government’s attempts to retrospectively review the Type

Capacity(kW)

Feed-in Tariff Rates The feed-in tariff is fixed in EUR until 2030, however, it is paid in UAH, the national currency. In Ukraine, renewable power producers sell all generated electricity, except for electricity for personal use, to the State Enterprise Guaranteed Buyer (the sole buyer of ’green’ electricity), which is obliged to off-take ’green’ electricity generated under the feed-in tariff, regardless of the installed capacity. It should be noted that as of March 2020, the mentioned state enterprise owes billions of hryvnias to ’green’ energy producers due to its increasing deficit. The amount of the feed-in tariff depends on the date of commissioning of the electricity generating facility. The feed-in tariffs applicable to different sources of renewable energy are shown below:

Commissioning date (in EUR) 2019

2020

2021

2022

2023 – 2024

2025 – 2029

Ground-mounted solar installations

0.1502

0.1126

0.1088

0.1050

0.1012

0.0975

Roof- or facade-mounted solar installations

0.1637

0.1228

0.1185

0.1147

0.1104

0.1066

≤600

0.0582

0.0517

0.0506

0.0495

0.0490

0.0452

>600 - ≤2,000

0.0679

0.0603

0.0592

0.0582

0.0571

0.0528

>2,000

0.1018

Wind power (capacity of individual wind turbines)

0.0905

Biomass, business entities

0.1239

Biogas, business entities

0.1239

Hydropower, business entities

0.0792

≤200

0.1745

0.1572

0.1395

>200 - ≤1,000

0.1395

0.1255

0.1115

>1,000 - ≤10,000

0,1045

0.0942

0.0835

0.1502

0.1352

0.1201

Geothermal power

154

green tariff rate. This prompted some investors to consider turning to international arbitration courts to protect their interests as well as those of their creditors. As of the first quarter of 2020, ongoing negotiations between major investors and the Ukrainian government had not brought any solution that would satisfy both parties. Currently, the renewable energy sector is facing a slowdown, as many investors who aimed to expand their presence on the market, have postponed development of new objects. Instead, they have focused on projects with established financing that are under construction to ensure their timely commissioning, and thus, to secure the higher rate of the feed-in tariff.

Roof- or facade-mounted solar installations, private households

≤50

0.1809

0.1626

0.1449

Wind power, private households

≤50

0.1163

0.1045

0.0932

Combined solar and wind power systems, private households

≤50

0.1637

0.1228

0.1066

Roof- or facade-mounted solar installations, private households or energy cooperatives

≤150

0.1637

0.1228

0.1066

Wind power, private households or energy cooperatives

≤150

0.1163

0.1045

0.0932

Combined solar and wind power systems, private households or energy cooperatives

≤150

0.1637

0.1228

0.1066

Biomass, households or energy cooperatives

≤150

0.1239

Biogas, households or energy cooperatives

≤150

0.1239

Hydropower, households or energy cooperatives

≤150

0.1745

0.1572

0.1395

Geothermal power, households or energy cooperatives

≤150

0.1502

0.1352

0.1201

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DLF Attorney-at-Law is a Ukrainian law firm that provides consultancy services to mainly English-speaking and German-speaking clients on various matters of doing business in Ukraine. We have vast expertise of corporate, M&A, insolvency, antitrust, labor, competition, IP, renewable energy law, advertising law, privatization, agriculture, real estate and tax law as well as in litigation and dispute resolution. Our core customers are SMEs from various fields. We offer them tailor-made, 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, agriculture, life sciences and healthcare, renewable energy, foodstuffs, pharmaceuticals

and chemicals, management consulting as well as home appliances. Our multilingual team is led by Igor Dykunskyy, LL.M., managing partner, who has over 15 years of experience in consulting foreign businesses. Most of our lawyers graduated from Ukrainian law universities 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 clients, but also their business philosophy and the specific needs of their respective business models.

We have a close working relationship with various business associations in Ukraine. We also come recommended by an array of foreign embassies in Ukraine.

Additional Incentives

in the auctions voluntarily. The advantage of the new green auctions over the existing feedin tariff system lies in the longer support period (20 years after commissioning of the renewable energy facility). The auctions will be conducted until 31 December 2029 and shall be held twice a year. The existing feed-in tariff scheme is guaranteed until 2030 and applied to: -- producers, already receiving the feed-in tariff; -- economic entities, which signed a pre-PPA under a feed-in tariff with the SE Guaranteed Buyer before 31 December 2019 and which will construct and commission the respective facilities within 2 years (for solar power plants) or 3 years (for facilities generating electricity from other renewable energy sources); -- economic entities that will construct renewable energy facilities after 1 January 2020, where the installed capacity is less than the capacity for which the auctions are mandatory; -- electricity consumers, including energy cooperatives, having installed energy-generating installations with a capacity of up to 150 KW and selling surplus electricity at a feed-in tariff rate once they use the energy for their own needs. A yearly quota (a capacity of renewable energy facilities for the respective year, within the limits of which the economic entities will be provided with state support) shall be allocated through the auctions. To ensure fair competition among bidders, Ukrainian law stipulates that bidders have to submit an irrevocable bank guarantee to participate in the auction (EURÂ 5 per 1 KW) and an additional bank guarantee on top in the event of winning the auction (EURÂ 15 per 1 KW) as a performance bond to secure the obligations under the contract concluded with the guaranteed buyer.

The government encourages investors to use equipment of Ukrainian origin by adding a relevant premium (up to 10%) to the feed-in tariff throughout the entire period of the feed-in tariff, provided that electricity generating facilities are commissioned by 31 December 2024. However, the premium to the feed-in tariff does not apply to renewable energy installations set up by private households. Renewable energy installations with a capacity of up to 30 kW may be set up by private households for the purpose of producing electricity for their own use and for selling excess solar or wind generated electricity to the grid at feed-in tariff rates.

Green Auctions Igor Dykunskyy LL.M., Managing Partner, DLF Attorneys-at-Law

With effect from 1 January 2020, the promotion of companies intending to generate electricity from wind or solar energy is only possible subject to their participation in the auctions for quota allocation and winning the auction. In its Resolution as of 31 January 2020, the Cabinet of Ministers of Ukraine established the detailed procedure for holding the auctions for quota allocation and the selection of the bidding platform. However, the quotas for 2020 are yet to be determined, both nationally and for separate regions. The capacity requirements for renewable energy facilities to participate in the auctions are as follows: -- wind energy facilities with a capacity of more than 5 MW (the limitation does not apply to facilities with one wind turbine); -- solar power plants with a capacity of more than 1 MW. Other business entities intending to generate electricity from renewable energy sources, regardless of the facilityâ&#x20AC;&#x2122;s installed capacity and the renewable energy source, can participate

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DLF ATTORNEYS-AT-LAW

ADDRESS: IQ Business Centre, 13-15 Bolsunovska Street, Kyiv, 01014, Ukraine Tel.: +380 44 384 2454 E-mail: info@DLF.ua Web-site: www.DLF.ua

Yaroslav Anikeev Associate, Insolvency Administrator, DLF Attorneys-at-Law

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155

Role of Experts in International Arbitration

Online Arbitration: Reality and Prospects

Alexey Kot Managing Partner, ANTIKA Law Firm, Doctor of Law

Sergii Korniienko Partner, ANTIKA Law Firm

156

he rapid development of information technologies and modern instruments of communication inevitably exerts its influence on all spheres of life of society and the order of dispute resolution is no exception. The concept of “online arbitration” is more and more often encountered in the professional environment, which can be understood as an online dispute resolution mechanism (ODR) or an arbitration procedure through the use of information technologies. If in the first case we are talking, as a rule, about the procedure for resolving minor disputes arising in the e-commerce sphere, then in the second — the process of resolving disputes in institutional arbitration or ad hoc arbitration using online communication is implied. Today there are many online platforms for dispute resolution, but the most common should be considered the Uniform Domain-Name Dispute-Resolution Policy (UDRP) and the European Online Dispute Resolution (ODR Platform). UDRP was developed by the World Intellectual Property Organization (WIPO) and adopted by the international non-profit organization Internet Corporation for Assigned names and Numbers (ICANN) — accredited registrars in all top-level domains in 1999. Protecting trademark owners, this procedure aims to resolve online disputes arising as a result of illegal domain registration. Complaints are submitted to approved dispute resolution providers, each of which follows the Rules for Uniform Domain Name Dispute Resolution Policy. It is noteworthy that from 19.12.2019 UDRP began to operate in the most popular public domain com.ua in Ukraine, which was the result of the signing of an agreement between the domain register by the Hostmaster Company and WIPO as a provider of dispute resolution services. The European platform for PCO (hereafter — the ODR platform), was founded in accordance with Regulation No. 524/2013 of the European Parliament and of the Council on online dispute resolution for consumer disputes and the Directive No. 2013/11 of 21.05.2013 of the European Parliament and of the Council on alternative dispute resolution for consumer disputes. The ODR platform serves as the coordinating center for traders, consumers, providers and is used to resolve disputes arising from contracts between European suppliers and consumers concluded online. The following procedure includes: informing a trader on complaint by using the ODR platform, online-negotiation, and the ability of transferring a dispute to a trusted provider. Since the launch through the ODR Platform, 120 thousand consumer disputes have been initiated, most of which concerned air travel, the supply of clothes and footwear, and information and communication technologies. Despite the effectiveness of the ODR Platform (the 2019 European Commission report indicates that about 42% of disputes were resolved using the ODR

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Platform), the lack of counterparty awareness of its existence remains a problem. Thus, since as of 2019, 40% of retailers were not aware of the ODR Platform's availability. The perspective of further development of the ODR was also clearly indicated by the adoption by UNCITRAL in 2017 of the Technical Notes on Online Dispute Resolution (hereinafter – Notes). Although the developed document is not binding, it is expected that the Notes will make a significant contribution to the development of systems to resolve disputes arising from low-cost cross-border purchase agreements or service supply agreement concluded using electronic communications (e-commerce sphere). The importance of the Notes lies in the wide potential of their application for the development of ODR systems. In particular, in paragraph 2, Section 2 of the Notes, it is indicated that online dispute settlement (ODS — in the terminology of the Notes developers) covers a wide range of approaches and forms (including but not limited to ombudsmen, complaints boards, negotiation, conciliation, mediation, facilitated settlement, arbitration and others). The following stages of ODR are distinguished: negotiations, assistance to the settlement and the third (final) stage. Interestingly, negotiations are defined as negotiations provided by information and communication technologies, during which the claimant and the defendant negotiate directly with each other through the ODR platform. This approach is fully consistent with the above UDRP and ODR platform procedures. Nevertheless, regarding the creation of a global platform on the basis of the Notes, skepticism is still retained not only because of their optional nature, but also because of the difficulty of enforcing decisions, the uncertainty applicable to legal disputes, and the imperativeness of national law protecting consumers. The process in institutional arbitration also did not remain outside the influence of information technology. For example, Art. 1-2 of the Arbitration Rules of the London Court of International Arbitration in 2014 (hereinafter — the LCIA Rules) provide for the possibility of sending the Registrar a request for arbitration (with all accompanying documents), as well as answer (with all accompanying documents) in electronic form (as e-mail attachments). In this case, the claimant and the defendant can use the standard electronic request/response form, available online on the LCIA website. Article 4.1 of the LCIA Rules entrenched the possibility of delivery of any written messages of the Court LCIA, the Registrar or any party by e-mail or other electronic means of communication. Part 1 of Article 12 of the Arbitration Rules of the 2018 Vienna International Arbitration Centre (hereinafter — the Vienna Rules) establishes the requirement to file an arbitration claim in electronic form together with paper one. Moreover, the requirement for a paper form of an arbitral

utility and the implementation of other projects in Ukraine. The firm’s partners have many years of experience providing business law advice. They are members of national and international professional legal organizations, particularly the International Bar Association. ANTIKA is a member of the Ukrainian Chamber of Commerce and Industry, the Kyiv 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.

award does not deprive the parties of the right to receive such decision in electronic form (part 5 of Article 36 of the Vienna Rules). What is impressive in the context of ensuring electronic document circulation in the arbitration process is the current approach of the Hong Kong International Arbitration Centre (hereafter — the HKIAC), which relates the fact that a party, arbitrator, emergency arbitrator or the arbitration court itself receives any written message to post it in any secure online repository agreed by the parties for use (Article 3.1 Arbitration Rules of the HKIAC). The regulation of the issue of document circulation in the ICAC arbitration at the Ukrainian CCI looks more moderate in this regard. As a general rule, documents related to the opening of proceedings and the implementation of arbitration are provided in writing, however, the ICAC secretariat has the right to invite the parties to submit such documents in electronic form (part 1 of Article 11 of the Rules of the ICAC at the Ukrainian CCI). Special attention should be drawn to the use of means of communication in international arbitration in the provision of evidence, as well as the electronic form of evidence. Characteristic in this regard is the definition of a document as any text, message, image, drawing, program or data recorded or contained on paper or by electronic, audio, visual or other means in the International Bar Association Rules on Taking Evidence in International Arbitration 2010. (hereinafter — the IBA Rules). When requesting the provision of documents stored in electronic form, the requesting party may independently or must, by order of the arbitral tribunal, identify specific files, search criteria, specific individuals or other ways to search for such documents in

an effective and economical way (part 3 of Article 3 of the IBA Rules). The updated version of Rules of the ICAC at the Ukrainian CCI reflected the specifics of the electronic form of evidence. The electronic evidence refers to information in electronic (digital) form, including electronic documents, websites, text, multimedia and voice messages, databases and other data in electronic form stored on portable devices, servers backup systems. Electronic copies of such evidence must be certified by an electronic digital signature (part 3 of Article 52 of the Rules of the ICAC at the CCI of Ukraine, entered into force 1 January, 2018). The connection between the use of technology and the provision of evidence is determined by the ability of the Сomposition of the Arbitral Tribunal to receive oral or other evidence through a teleconference, videoconference or similar technology (Article 8 of the IBA Rules). The Rules on the Efficient Conduct of Proceedings in International Arbitration (Prague Rules) 2018 also comply with the trends in the development of international arbitration. Despite the general rule of recommendation, which avoids any form of evidence disclosure, including electronic evidence disclosure (e-discovery), the parties and the composition of the arbitration should strive to organize the arbitration hearing in the most cost-effective way possible, including by reducing the length of the hearing and using video, electronic and telephone communication to eliminate unnecessary expenses on business trips by arbitrators, parties and other participants in the process (Article 4.2., 8.2, Prague Rules). It should also be noted that today, at the level of institutional arbitration, there is already experience in introducing special platforms that

contribute to the high-tech conduct of the arbitration process. So, the Arbitration Institute of the Stockholm Chamber of Commerce, (hereinafter — SCC) in September 2019 announced the launch of the SCC Platform, with which the parties and the arbitral tribunal can exchange documents and messages. As the SCC explained, now there is no need to send confidential or voluminous files and documents by e-mail, since all documentation in cases (including correspondence with the SCC, procedural orders, statements of the parties and their annexes) is uploaded to the individual website of a particular arbitration case. All participants in the trial have the right to upload, view, download and print files of the case. For each trial, a separate website is provided on the SCC Platform simultaneously with the registration of the case, and only participants in the trial have access to the site. In addition, the site contains a procedural calendar with the dates and dates of the proceedings. Undoubtedly, the development trend of online arbitration comes up against constraints related to determining the right under the ODR, the requirement of a written form for arbitral awards, the enforceability of an online judgment, the need to ensure the confidentiality of arbitration and the authenticity of electronic documents. However, practice shows that the possibilities of online arbitration, which encompass in a broad sense the institutional form and the ODR, are now being effectively implemented and are qualitatively increasing. The proposed convenience and efficiency are the key advantages for the parties when using various technologies in the arbitration process, and these difficulties are only temporary and cannot stop the general progress of the gradual digitalization of international arbitration.

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ANTIKA LAW FIRM

ADDRESS: 12 Khreschatyk Street, 2nd Floor, Kyiv, 01001, Ukraine Tel/Fax.:+380 44 390 0920/21 E-mail: office@antikalaw.com.ua Web-site: www.antikalaw.com.ua

157

Secured Transactions

Secured Obligations in Debt Transactions

Olga Babiy Senior Associate, Co-Head of the Banking & Finance Practice, Jeantet Ms Babiy has significant expertise in legal support of multinational companies, in particular, in their large corporate, financial and structuring projects involving Ukrainian and foreign companies. Olga is in charge of large domestic and international corporate and banking clients. She possesses topnotch experience in financing transactions, securities, restructuring and corporate finance questions

158

s many people are aware, debt financing of business is a common phenomenon and companies actively use various sources of financing for supplementing their operating assets and for implementing large capital projects. For those reasons companies usually take out domestic or foreign loans, raise cash, increase their statutory capital, use intercompany loans, or financial aid. All sources of financing may be divided into domestic and foreign. Of course, domestic sources are the most popular ones since it is easier to obtain a loan in Ukraine. But in recent years more and more projects in Ukraine are financed by international financial organizations/ funds (IFOs). Taking into account the fact that not just big businesses but also small and medium size companies have access to such funding, it is predictable that interest in foreign sources will continue to rise. However, one should bear in mind that IFOs fund only certain industries as preferential ones (agriculture, alternative energy, innovations, infrastructure projects, as well as special targeted microfinancing of small and medium companies). It is an important legal point that IFOs in Ukraine are international organizations, of which Ukraine is a member. There are also IFOs under agreements with which Ukraine undertook to maintain the legal regime extended to other IFOs. Such IFOs have official status in Ukraine and certain privileges in currency control and tax regulations. If that is so, a business should understand that the main concern for IFOs when deciding whether or not to approve a credit line is the issue of securing the financing. Despite the fact that Ukraine’s legal system is not stable and it is would not come as a surprise to anyone that major laws in Ukraine are amended every year, legal regulation of loans and security for obligations under such transactions is quite stable and has not seen major changes in recent years. The last noticeable improvements were changes adopted in 2018 designed to expand lending and, in particular, to strengthen the rights of creditors and introduce a new type of security called a trust ownership, which we will go into further detail below. Before we move onto the features of security, it is worth giving a quick reminder about the general rule that any security obligation is of accessory nature and not an alternative to the primary obligation under a loan agreement. In Ukraine, the most common types of security remain pledge (pledge of moveable property, inventory, property rights, rights to money funds in bank accounts), mortgage, as well as suretyships and corporate and banking guarantees. When using these types of security properly it is important to keep some specific legal requirements and practice of their application in mind. For example, a pledge agreement should refer to the description of property in order to identify its individual features as well as the amount and

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term of performance of the primary obligation, secured by the pledge, or a reference to the loan agreement. It’s also worth noting that a pledge agreement can become effective via a simple signature affixed by the parties, while a mortgage agreement requires obligatory notarization. Talking about mortgaging property, it is worth bearing in mind that banks usually ask for a market value of the property appraised by an expert, as well as documents confirming the mortgagor’s ownership right over the property (like a sale contract or balance sheet statement). Even though the law allows the pledging of assets, ownership of which will be acquired by the pledger after execution of the pledge agreement, creditors, especially, foreign ones, find it critically important that the pledger possesses 100% ownership rights to the collateral at the time of execution of the pledge agreement as long as the lender’s primary objective is to avoid any restrictions and risks regarding the possibility of alienation and enforcement. The general rule is that the pledger retains the right to manage and use the collateral but the creditor may insert certain restrictions in the agreement. For example, a change of location of the asset, the same as its replacement, may only take place upon the consent of the pledgee (except for inventory, which is regulated separately). However, banks sometimes agree to a more simplified procedure for approval. For example, by a simple notification to the bank about certain changes in the collateral (creditor’s tacit consent). It is still important to bear in mind that, according to the law, contracts with respect to alienation by the pledgor of the collateral, its remortgaging, leasing and the like are without the consent of the pledgee, null and void.

Suretyship vs Guarantee Suretyship and guarantee are other popular types of security in Ukraine. Should the obligor breach an obligation secured by a suretyship, the obligor and the surety are liable towards the creditor as joint and several obligors. The surety is also liable towards the creditor to the same extent as the obligor is. In contrast to the suretyship, a guarantee serves as an independent obligation and imposes secondary liability. Furthermore, the guarantor’s liability is limited only by the amount indicated in the guarantee. Please note that while the obligations of the guarantor are not dependent on the primary obligation, in the event that the guarantor pays under the guarantee he does not automatically acquire the creditor’s rights under the primary obligation, as, for instance, the surety does. The guarantor only enjoys the right of regress against the obligor within the limit of the amount paid under the guarantee. Another important thing to mention is that unlike in other countries, in Ukraine guarantees can only be issued by banks, other financial institutions or an insurance company. Therefore,

Jeantet is one of the leading independent French business law firms delivering customized services with added value. Our own offices are located in 6 countries, while our network of firms with whom we share the same values spans 130 countries. Jeantet Ukraine makes it easier for foreign investors as well as local companies to do business in Ukraine and navigate its market. Firstrate legal services are provided to clients in an often-unstable legal and regulatory environment while promoting the firm’s best international practices.

As a testament of dedication to its clients as well as extensive knowledge and experience, Jeantet Ukraine is regularly ranked by international industry guides, with some of its lawyers featured as leading experts in their respective fields. The firm’s main focus of expertise is Agricultural Law, Banking, Finance and Capital Markets, Bankruptcy Law, Competition and Distribution, Employment Law, Energy & Environment, Intellectual Property, Telecommunications, Media & Technology, Litigation and Arbitration, Mergers, Acquisitions and Privatisations, Public Procure-

ment, Public-Private Partnerships, Real Estate, and Taxation. Our lawyers advise in Ukrainian, English, French, German, and Russian.

Ukrainian companies may not act as guarantors under obligations of other companies through corporate guarantees, which are a widely used instrument abroad. Still, Ukrainian banks often accept guarantees of foreign parent companies issued as security for obligations of their Ukrainian subsidiaries under loans of such subsidiaries. Such guarantees are accepted under the laws of the jurisdiction of the parent company, usually in the form of an unconditional irrevocable demand guarantee.

pendent valuation company or in the event of sale of the collateral to determine the price with a potential buyer. Recent changes also revolved around the grounds for termination of the suretyship in the event of change in the primary obligation without the consent of the surety. In particular, if the scope of the obligor’s liability has increased, the suretyship is not terminated now and the surety remains liable for breach of obligation by the obligor within the limit that existed prior to the change in the obligation. Another legislative change was the change of the regulations with respect to determining the term of validity of the suretyship in the event that the suretyship contract does not set one, or if the term of performance of the primary obligation is not set, or is set as the moment of presentation of a demand. In such case, the suretyship ceases to be effective if the creditor has not made a claim against the surety within three years (term used to be one year) following the end of the term of performance of the primary obligation. Banks often determine the term of validity of the suretyship by adding such a threeyear period to the term of the primary obligation.

as a type of ownership right over property with certain limitations on the right to use and transact with it. The creditor that received the property into trust (trustee) may not unilaterally sell such property, except in order to enforce against it, nor may he use it as the trust property continues to be used by the trustor or a third person. A trust may cover any property that can be enforced against, except for securities and corporate rights. At its core a trust is very similar to a pledge/ mortgage. The main differences are the independence of trusts from laws on pledges and mortgages and the ability of the parties to define the terms of the agreement and the procedure for enforcement against the trust property, the right of the creditor to independently determine the asset’s sale price. Such a right of the creditor is very different from relations of the parties to a mortgage or pledge, where the price is determined by the mutual agreement of the parties or an appraiser based on the common prices of the property, and where the opportunities for any abuses by the creditors are reduced. Among other advantages for the creditor is the possibility to assign the right to the trust property (provided that a notarized consent of the trustor is given). It is worth pointing out a provision of the law, which provides for the obligation of the trustee to enforce against the trust property in the event of its own liquidation or bankruptcy. As you can see, the wide range of choice of types of financing and types of security is definitely a positive fact and enables companies to choose the most suitable option in a particular business situation, whether it’s supplementing working capital or long-term financing of large corporate projects.

Important Recent Legislative Changes Substantial improvement in the mechanisms of securing obligations and lowering of risks has taken place recently. First and foremost, for creditors, certain conflicts of law have been removed. Earlier on, the legislation provided that a pledge/suretyship terminated with the termination of the primary obligation in the event of liquidation of the obligor, or in case the amount received out of the out-of-court settlement under pledge agreement was insufficient to fully satisfy the claims of the pledgee. Via recent changes in legislation such barriers have been removed and, in particular, creditors have acquired the right to receive the shortfall at the expense of other property belonging to the obligor. It used to be that the scope of the pledgee’s claims was limited by the contractual value of the collateral defined by the parties. These restrictions have now been done away with and according to the practice, now the contractual value bears a primary informational role and in case of the enforcement procedure a creditor can obtain the ownership right on the collateral under the market value estimated by an inde-

A Trust — New Type of Security This new type of security was introduced in autumn 2019 exclusively for loans, primarily to promote lending by banks and to minimize the risks borne by creditors. It entails the transfer of property into ownership of the creditor for the duration of the trust agreement and the right of the creditor to sell the property on its behalf should the obligor fail to perform its obligations under the loan agreement. A trust is recognized

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ADDRESS: 4 Volodymyrska Street, Kyiv, 01001, Ukraine Tel.: +380 44 206 0980 E-mail: ayesypenko@jeantet.org Web-site: www.jeantet.fr

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JEANTET UKRAINE

159

Securitization

Raising Finance for Ukrainian Agri Sector through Securitization

Vsevolod Volkov Partner, EVERLEGAL, Head of International Arbitration Practice, Co-Head of Banking and Finance Practice

he securitization mechanism has not used been widely in Ukraine to date. There are only two transactions which tapped the market and those are RMBS and car-loans securitzations by Privatbank in 2007 and 2008, respectively. Before the credit crunch, securitization was considered not only by Privatbank but also by a number of other Ukrainian banks and the receivables in question were residential mortgages, car loans, credit cards receivables, diversified payment rights and certain trade account receivables of commercial entities. However, since 2008 the situation with leaders of the Ukrainian economy driving its growth has changed, and Ukrainian banks do not currently originate the considerable loan portfolios of receivables which were traditionally used for securitizations. In 2019, the largest contributor to Ukraineâ&#x20AC;&#x2122;s GDP was its agri sector, which even outweighed the contribution to GDP from the services sector. Despite that leading role, many Ukrainian agri producers continue to complain about the lack of proper funding, which means that traditional instruments of finance for the agri sector are not coping with the demand either because of the cost or because of volumes. Many commentators have acknowledged that there is no apparent or irreconcilable difficulty in raising finance through securitization of rural output. The important prerequisite of securitization deals is the presence of a sophisticated financial market with experienced investors. Many may question the existence of a properly sophisticated financial market in Ukraine, while others will answer in the affirmative. While this discussion continues, it is worth noting that a credit enhancement mechanism can still be used to overcome market inefficiency. And this was demonstrated by certain structured finance mechanisms that were already in use in the securitization of agri receivables in other countries, and not only at a private level, but also to foster government support programs. Securitization in the agricultural sector generally takes in four types of receivables, namely agricultural loan securitization, future agricultural income securitization, securitization based on other agricultural collateral, including with the use of repo transactions or warehouse receipts, and securitization of insurance risks.

Securitization of Agricultural Loans The originators of securitization of agricultural loans are mostly banks and financial institutions. Securitization effectively allows them to remove the default risk under agricultural loans from their balance sheet and to raise additional funding for the issuing of new loans. The liquidity ratio of the originator is increased and this diversifies the sources of funding. It also increases the profitability of the originator, although the

160

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interest is transferred to investors and the originator continues to receive service fees and may charge additional interest on the loans made out of funds raised as a result of securitization. Securitization of agricultural loans may require that the loans participating in the program be uniform to the maximum extent possible and this may be difficult to achieve within one originator. Therefore, securitization of agricultural loans may be multi-originator and a special purpose vehicle (SPV) will purchase such loans from different banks or financial institutions. Ukrainian banks and financial institutions have accumulated sufficient amounts of agricultural loans, including those which are sufficiently uniform as to their terms. Such loans include financing which was made available to farmers based on crop receipts. In accordance with the available statistics, by March 2020 Ukrainian farmers had issued crop receipts to the value of approximately UAHÂ 21 billion. Those crop receipts are transferable and are generally available for securitization. Ukrainian crop receipt regulations are currently under review and proposed changes considerably reduce the costs of dealing with them. Once the reform is complete crop receipts are likely to become the most attractive collateral for securitization in the Ukrainian agri sector. As experience in other countries shows, the role of the government in establishing the infrastructure for securitization of agricultural loans may be important. The government may establish an SPV, which may be buying agricultural loans from the market on the account of proceeds raised through a collagenised bonds issuance. The government, or even international financial institutions, may provide certain credit enhancement for such bonds by, for instance, guaranteeing a certain portion of agricultural loans participating in securitization or providing certain subsidies.

Securitization of Future Agricultural Income While securitization of agricultural loans is mostly for banks and financial institutions, securitization of future agricultural flows is for agri producers or traders. Securitization of future receivables is very popular in countries in transition and Ukraine can become a member of that club. In the agri sector securitization of future income will normally cover domestic and export sales of agri products. The attractiveness of future income securitization in the agri sector may also be because it can help to pierce the ceiling of the sovereign credit rating and procure financing at a lower interest rate than the sovereign one and for longer. One good example of credit enhancement tools used for securitization of agri receivables in developing countries like Ukraine is a program offered by the International Finance Corporation

covers Corporate and M&A, Dispute Resolution (Courts and ADRs), Antitrust/Competition, Banking & Finance, Employment, Commercial Matters and White Collar Criminal Defence. We are also experienced in Drafting Legislation. EVERLEGAL’s clients are industry leaders with global brands, mid-size and growing businesses as well as innovative start-ups. Our lawyers have experience and expertise in a range of sectors, such as Energy & Natural Resources (with special focus on RES), Infrastructure, Agriculture, Innovations and Technology, Healthcare, Financial Institutions and Consumer Goods. EVERLEGAL prides itself on being a "sustainable impact" law firm: we support green energy, healthy lifestyle and we are bike friendly.

EVERLEGAL’s motto is "Ever More Success". We measure such success by how successful our clients are in achieving their business goals. Our job is to make your life easier.

(IFC) in Peru. The Peruvian transaction was connected with the issue of USD 25 million worth of bonds to finance the Drokasa Corporation, a leading agri producer and distributor in Peru. The terms of the transactions provided for the transfer to an issuing SPV of existing and future receivables from agri sales by Drokasa Corporation. The SPV was receiving daily proceeds from Drokasa’s sales to non-related parties and used the proceeds to top up a bondholder payment account to ensure that at on any payment day the SPV debt servicing account is 6 times over-collateralized. The IFC also provided additional credit enhancement by agreeing to guarantee 30% of the bonds issue. The IFC’s involvement enabled the issue to achieve an AAA national rating, a substantial increase on the SPV’s stand-alone AA rating. This resulted in Drokasa making considerable savings in interest charges even after paying IFC’s fees for the guarantee.

raised proceeds were used to pay the liabilities acquired with the investors, with the remaining earnings paid to farmers. To make sure that the finance could be raised at the appropriate rate the scheme used a number of credit enhancement mechanisms. The bond issue was for 75% of the expected value of the cattle, and there was also insurance to cover the risk of theft, and technical supervision to guarantee in the event that the cattle failed to reach the anticipated weight gain. Repo transactions are well known in Ukraine and are also used by the National Bank of Ukraine to provide private and state-owned banks with stabilisation loans. Repo transactions, apart from in effect being a collateralised loan arrangement, are also treated as encumbrance under Ukrainian law. Ukrainian legislation is however, unclear on who is the holder of that encumbrance. If respective changes are introduced to Ukrainian legislation, the use of repo transactions to securitise Ukrainian agri collateral could become an available option.

crepancies in those acts as to how warehouse receipts circulate, and the enforcement mechanism in the event of default is not particularly creditor friendly. These circumstances caused a situation when storage of grain in warehouses is documented mainly by warehouse tickets. The use of single or double warehouse receipts is quite limited for practical reasons, and even when they are not used in the way set out in the applicable legislation. It appears that warehouse regulations need further review to meet the needs of the market, including to be eligible for securitization.

Securitization Based on Repo Arrangements Repo agreements are more frequently used in relation of securities, but a repo agreement can also be used in relation to any commodity. A good example of a repo transaction to securitised collateral in the agri sector is the Colombian livestock finance program. That program was essentially developed by the Colombian National Agriculture and Livestock Exchange, and it was aimed at benefiting a number of farmers. In accordance with that program, the National Agriculture and Livestock Exchange established an SPV and that SPV was designed to take ownership over unfattened calves and the pasture land where the livestock is fattened. The SPV and National Agriculture and Livestock Exchange were responsible for selecting farmers to participate in the scheme under a strict set of criteria. Selected farmers received finance from the SPV to purchase animal feed. The farmers fattened the animals for 11 months and after that the calves were sold by the agent to third parties and the

Securitization Based on Warehouse Receipts Securitization based on warehouse receipts is designed to provide post-harvest financing to cover working capital needs. Since warehouse receipts represent goods in storage, the SPV or investors in the securities may enforce and charge receipts created by a warehouse and cover their obligations. Ukraine has (and continues to develop) modern warehouses for the storing of agricultural products. In many cases, licensed warehouses are affiliated with or constitute an integral part of agricultural holdings. Since the majority of warehouses may not be regarded as public and they are rather, inhouse, the eligibility of such warehouses to participate in securitization arrangements may be limited. In addition, Ukrainian regulations on warehouse receipts have been in existence since 2002-2004 and are embodied in two legislative acts. There are dis-

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Agri Insurance Securitization Securitization of insurance proceeds in the agri sector is used to transfer the insurance risk from insurance and reinsurance companies to investors in securitization bonds. The bonds issued in insurance securitization may be called "catastrophe bonds". Catastrophe bonds belong to the high-yield market, and were designed to raise funding for insurance or reinsurance companies in the event of natural disasters. The issuer of the CAT Bond receives funding only if such events like floods, drought or tornado, occur. If an event protected by the bond activates a payout to the insurance company, the obligation to pay interest and repay the principal sum is deferred, reduced or completely forgiven, depending on the amount of losses caused by a natural disaster. *** Many may express pessimism regarding securitization of receivables originating in the Ukrainian agri sector for the reasons that Ukraine does not have properly developed financial markets, and that it considerably downsized after the 2008 credit crunch. On the other hand, development of the financial market was driven by the needs of other sectors which were leading the economy, and the agricultural sector is one such sector for Ukraine.

161

State Aid

State Aid in Ukraine: New Opportunities and Old Regulations

tate aid regulations and practices in Ukraine have rarely been among top news even if we talk about legal news in Ukraine for the last couple of years. However, there are some reasons for a breakthrough which may happen in the Ukrainian state aid control system. Several pending cases may lead to more complaints from market players. Moreover, the COVID-19 outbreak and its impact on the Ukrainian economy leaves no opportunity for the Ukrainian state authorities to abandon much needed state aid to many industries.

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Oleksandr Aleksyeyenko Partner, Marchenko Partners

Ukrainian Law On State Aid to Undertakings, which became effective on 2 August 2017 at least initially thrilled the minds of those who were a bit familiar with what state aid is in the EU. However, the relaxed pace at which the state aid sphere develops in Ukraine may discourage supporters who contribute to the building of the state aid system in Ukraine. Nevertheless, the history showed us multiple times that people, including Ukrainians, always give up too early to witness any results of positive initiatives. Rome wasn't built in a day and the same may be claimed about the fullscale launch and development of the state aid control system in the EU. It would be rather good to abstract oneself from widespread pessimistic views on the situation with development of the Ukrainian state aid control system and evaluate the current state of affairs in Ukraine bearing in mind the fact that historically the development of state aid in the EU was neither a short nor a bitten path.

In the Beginning was the Law When we speak about the development of the state aid control system, we should not forget about the legal acts which form the basis for such development. Nevertheless, one cannot deny that the legislative basis is mostly in place. There is still a number of state aid compatibility criteria which were developed but not yet approved by the government. Those are criteria applicable to environmental protection, banking, coal industry and the general state aid compatibility criteria. Moreover, the need to modify the regulations which are already in place will most likely be constant due to the anticipated increase in enforcement of the relevant rules, which means that the effective rules will be tested, and certain â&#x20AC;&#x153;bugsâ&#x20AC;? will obviously come out. This is a natural process: it is next to impossible to hit all targets in one shot. Also, while the rather successful EU experience in the field of state aid serves as a lighthouse for the Ukrainian competition

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authority, a proper path to full-scale functioning of the state aid control system should be chosen with consideration of the actual state of affairs in Ukraine. For example, it did not take long before everyone understood that the absence of any sanctions for aid grantors and lack of diligent control is definitely not the best formula to succeed in the effective launch and promotion of state aid initiatives in Ukraine. Bringing current regulations in a proper order requires both the parliament and government to act in legislative capacity, and the Antimonopoly Committee of Ukraine to be more actively involved in enforcement of the already developed rules. One may note that the predicted 2020 competition legislation reform does not devote enough attention to state aid-related issues. Letâ&#x20AC;&#x2122;s hope that this will not be a systematic approach and that the leftover principle will not be applied to state aid.

State Aid in Ukraine: No Longer a Joke The pioneering Ukrposhta case, which was triggered by a complaint from Nova Poshta, did not shed much light on the approach which may be further steadily applied by the Committee to such high-profile cases. While taking care of numerous notifications made by local authorities, which, in many cases concerned things that were certainly far from what state aid is, the Committee did not take into account that a couple of high-profile and illustrative cases could have stress-tested the Committee's internal resources and might have resulted in sending a clear message to the market: state aid in Ukraine is not a joke. The course of state aid reform seemed to be deferred after the 2019 changes in the composition of the Antimonopoly Committee of Ukraine. While a number of state commissionaires and other personnel left the office and new people came, it turned out that no state commissionaire is now in charge of state aid. Nevertheless, as of now, the statistics even show a slight progress in the quantitive efficiency of the Committee in 2019 compared to 2018: 12 decisions on non-compatibility (2 in 2018), 75 decisions on compatibility of state aid (9 in 2018), and 269 decisions on defining that support is not state aid (174 in 2018). Fortunately, the appearance of a couple of recent state aid court cases and even a new third-party state aid complaint revives the expectations. Let's have a brief look at the mentioned recent state aid court cases (there are at least three of them). First, let's have a look at the case on state aid granted by the Construction and Housing Department of the Kyiv City Council to several communal enterprises. The mentioned case may be of special interest due to being the first case when a court turned down the Committee's

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decision on state aid. The Committee ruled that certain aid granted to several communal enterprises was incompatible and subject to recovery from such enterprises. Such decision was further appealed to the court by the Department. The court of first instance examined the evidentiary basis used by the Committee to adopt its decision and accepted plaintiffs’ arguments on services of general economic interest and Altmark criteria. The appeal court further upheld the decision of the court of first instance. The case is now pending in the cassation court. Certainly, it is not enough for an in-depth analysis to simply review the court decision as shown in the public registry. However, we can already make one positive statement: the court is ready to look into the details of state aid cases, review complaints brought by the involved parties and render decisions in favor of the involved parties and not only in favor of the Committee. Although the other two out of three court decisions confirmed the correctness of the Committee state aid assessments, such decisions mostly support the above statement and prove that the court is ready to look into the details. Of course, there may be certain ambiguities in such decisions which are detrimental in terms of the essence of the cases. However, we have to consider that the Ukrainian court system is generally imperfect. If the courts decided not to review the Committee's decisions in their essence, leaving it up to the Committee to decide everything on merits and taking care only about the procedural aspects, a worst-case scenario would have taken place.

New Cases — New Opportunities? Now we come to the cherry on top of the recent Ukrainian state aid news. On 2 January

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2020, the Committee started state aid case involving Philip Morris (as an alleged recipient of state aid). The proceedings had been triggered by a complaint on unlawful state aid filed by Vynnyky Tobacco Factory – a local competitor of Philip Morris. This time, unlike in the case with Ukrposhta, where the aid in question already existed before adoption of the relevant legislation which initially determined the slow pace of case review, nothing prevented the Committee from formally starting the case and assessing the allegedly unlawful or even incompatible state aid. The same as in the case with the abovementioned court decisions, the Philip Morris state aid case causes serious deliberations. This is due to the background of the case, which is as follows. Philip Morris was using an inward processing regime (under a permit from the tax authority) to import raw materials free from import duties and taxes for production of cigarettes which were further re-exported outside of Ukraine. However, in 2016, the tax authority claimed that Philip Morris misused the regime and charged import duties and taxes, as well as additional sanctions, amounting up to EUR 23 million. Philip Morris first tried to protect its rights in Ukrainian courts. At the appeal stage, the company, as an investor, involved remedies provided by the US-Ukraine and Swiss-Ukraine bilateral investment treaties and started negotiations with the State of Ukraine. In 2019 the Cabinet of Ministers of Ukraine and Phillip Morris entered into a settlement agreement based on which the tax authority revoked its claims and the court case was closed at the appeal stage. However, it turned out that the happy end of the story was not that near. As we mentioned, Vynnyky Tobacco Factory decided to file a complaint with the Antimonopoly Committee of Ukraine. Although the fact that the Committee opened proceedings in a situation, where the

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matter under question was settled amicably at the level of the State of Ukraine and under the international obligations of Ukraine, leaves significant space for discussion, we will avoid assessing the reasonability and legality of Committee's actions from the international law perspective and will refer solely to some of the state aid-related aspects. Thus, the Committee received a third-party complaint, made a basic review, found grounds for more detailed review and opened the proceedings. This way the Committee started probably the most intriguing state aid case this far. Disregarding the potential outcome of the Philip Morris state aid case, it has a chance to become a breaking point in terms of the Ukrainian state aid control system. This may happen because even one high-profile case can send a strong message to the market and can cause other complainants to be more active in filing complaints, and those who actually receive or grant state aid be more active in taking care that all necessary analysis or even notifications are made in line with the law. This puts state aid experts back to the starting point of a sprint run in terms of state aid development. New cases, especially the high-profile ones, will certainly stress test the Ukrainian state aid system, examine the Ukrainian courts’ readiness for proper judicial review and show all the existing drawbacks of regulations and practices. The courts will have no choice but to opine on links and correlations between national state aid laws and the Association Agreement, preciseness of exemptions from state aid regulations, ambiguity of state aid procedural rules and many other down-to-earth aspects of the state aid practice. The hope is still there that subsequently Ukrainian authorities will make sure that Ukrainian state aid legislation is absolutely in line with the rules provided by the Association Agreement and that procedural regulations are good and flexible enough to be used for effective state aid control and enforcement.

163

Tax

Reducing Income Tax by the Amount of Excise Tax Paid on Used Heavy Distillates: Myth or Reality?

Myroslava Savchuk Counsel, Aequo

t the end of 2017, the new Clause 15 was added to Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine, enabling corporate income tax payers to reduce the amount of corporate income tax paid by the amount of excise tax paid for certain types of heavy distillates (gas oil)1 that they purchased. In accordance with the said provision, in order to reduce corporate income tax, purchased diesel fuel should be used to fill up diesel-electric locomotives2 and/or motor transport vehicles for the carriage of cargos, the capacity of whose vehicles exceeds 75 tons.3 The said corporate income tax exemption was included in the Guidebook of Tax Exemptions under code 11020372 and came into effect on 1 January 2018. Since these specific types of fuel are needed to fill up special-purpose vehicles, including increased lift capacity trucks that are normally used in heavy industry, it was expected that large ore mining plants and iron and steel works would, first and foremost be interested in the use of the said exemption. According to public sources, state-owned national rail carrier Ukrzaliznytsia PJSC also planned to decrease its corporate income tax pursuant to Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine. The said exemption was no less important for other companies that used their own locomotives in their day-to-day operations. However, the position later adopted by the tax authorities and the Ministry of Finance of Ukraine regarding the application of the exemption was not in line with the expectations of the business sector.

business entities which are payers of excise tax on the sale of fuel. That is, the entities that carried out transactions referred to in Paragraph two of Sub-Clause 14.1.212 of Clause 14.1 of Article 14 of the Tax Code of Ukraine (specifically, carried out transactions of actual delivery (sale, shipment) of fuel on a paid or free of charge basis, with or without transfer of title to such fuel). In August 2018, the first detailed clarification was issued by the State Fiscal Service of Ukraine (No.3510/6/99-99-15-02-02-15/IPK of 10 August 2018), in which clarification of the supervisory authority expressed a position similar to the one taken by the Ministry of Finance of Ukraine regarding the right to the tax exemption only in respect of business entities that: (i) were payers of excise tax on the sale of fuel (for instance, suppliers of fuel), (ii) were registered as payers of the relevant tax, and (iii) paid excise tax directly to the State Budget based on the results of transactions involving the sale of fuel. The said approach would exclude the possibility of using the exemption set out in Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine by corporate income tax payers, in which taxpayers consumed fuel and paid excise tax as part of the price paid for fuel purchased and, at the same time, were not registered as payers of excise tax. Similar clarifications were subsequently reflected in a number of Individual Tax Advice.4 However, the reasonability and lawfulness of such an attitude assumed by the tax authority and the Ministry of Finance of Ukraine is highly questionable.

To What Extent is Such an Approach Reasoned?

Business Entities which Sell Fuel Only

In our opinion, the interpretation by the tax authority of Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code In May 2018, the Ministry of Finance of of Ukraine to the effect that it permits a reducUkraine, in its Letter No. 11320-10-10/12920 of tion in corporate income tax only for persons 10 May 2018, stated that Clause 15 of Sub-sec- who carry out fuel sale transactions and who, at tion 4 of Section XX Transitional Provisions of the same time, pay the excise tax directly to the the Tax Code of Ukraine should be extended to State Budget, is erroneous. Firstly, Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of ¹Heavy distillates (gas oil), with sulphur content not Ukraine does not limit the scope of persons who exceeding 0.005 mass % (diesel fuel classified under can take advantage of the exemption only to commodity sub-categories 2710 19 43 00, 2710 19 46 00, 2710 19 47 10 of the Ukrainian Classification of Commodities in Foreign Economic Activity (UCC FEA).

²Code under UCC FEA 8602 10 00 00. ³Code under UCC FEA 8704 10 10 10.

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4Individual Tax Advice No. 4292/6/99-99-15-02-02-15/ IPK dated 05 October 2018 and Individual Tax Advice No. 597/6/99-99-15-02-02-15/IPK dated 19 February 2019.

Aequo is an advanced, industry-focused Ukrainian law firm made up of highly-qualified, internationally recommended lawyers who work proactively to help their clients reach their business goals. 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. Aequo provides integrated legal support in areas such as antitrust and competition, banking and finance law, intellectual property, corporate and commercial law, mergers and acquisitions, taxation, litigation and international arbitration, and capital markets.

Taras Shmyh Associate, Aequo

The list of Aequo’s representative clients includes leading Ukrainian and international companies and organizations, such as Agroprosperis, Apax Partners, Apollo, Bunge, DuPont, EBRD, European Commission, Google, Inditex Group, NCH Capital, Pioneer Hi-Bred International, Samsung Electronics, Sandvik, Synthon, Tetra Laval, Ukrainian Redevelopment Fund, UniCredit Group, Vodafone Ukraine etc. Aequo has been named among Top 20 most innovative law firms in Europe by FT Innovative Lawyers 2019, recognized as the “Most Innovative Law Firm of the Year 2018” in Ukraine at IFLR Europe Awards, Law Firm of the Year in Russia, Ukraine and the CIS by The Lawyer

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persons that carry out the sale of fuel. The said provision contains no list of any specific categories of excise tax payers entitled to exercise the exemption. Secondly, the approach assumed by the tax authority that the said provisions extend exclusively to persons that carry out the sale of fuel (for instance, suppliers of fuel) fails to take into account the impossibility of compliance by such suppliers with one of the conditions granting the exemption (regarding the use of fuel for specific categories of transport vehicles). In other words, according to the attitude assumed by the tax authorities, a supplier or importer of fuel, in order to reduce corporate income tax, should use the fuel purchased, for instance, to fill up a special-purpose mining truck, which is highly unlikely in practice and negates the application of the whole provision. Thirdly, Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine contains no requirements for the payment of sums of excise tax directly to the State Budget. The excise tax is an indirect tax on consumption of certain types of commodities (products), which is included in the price of such commodities (Sub-Clause 14.1.4 of Clause 14.1 of Article14 of the Tax Code of Ukraine). Thus, having paid the price of any excised commodity, the purchaser of such commodity automatically pays the excise tax included in the commodity price, the tax for which is eventually paid to the State Budget anyway.

lows any corporate income tax payer to reduce the amount of this tax, provided that it has fulfilled the following two conditions: -- has purchased heavy distillates (gas oil) classified under certain commodity sub-categories (2710 19 43 00, 2710 19 46 00, 2710 19 47 10), and has paid the relevant amounts of excise tax included in the purchase price of the fuel bought under excise tax invoices registered by suppliers; -- has used the purchased heavy distillates (gas oil) for specific transport vehicles (diesel-electric locomotives and motor transport vehicles for carriage of cargos, the capacity of which vehicles exceeds 75 tons). Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine provides for no other conditions to reduce the amount of corporate income tax (in particular, the payment of excise tax directly to the State Budget by a person registered as a payer of excise tax). The said approach is supported by the jurisprudence of courts of first instance and courts of appeal.5 At the same time, as of the date of this publication, no opinion of the Supreme Court is available regarding the application of the corporate income tax reduction set out in Clause 15 of Sub-section 4 of Section XX Transitional Provisions of the Tax Code of Ukraine. However, the fact that, in this category of disputes, local courts and courts of appeal sustained exclusively the position of taxpayers gives hope that the same approach will be taken by the Supreme Court.

Who is Entitled to the Exemption Then? In our opinion, since Clause 15 of Subsection 4 of Section XX Transitional Provisions of the Tax Code of Ukraine contains no express reference to specific categories of excise tax payers or specific transactions subject to excise tax, which transactions, when effected, warrant the exercise of the exemption, the said provision al-

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5See, for instance, the Ruling of the Third Administrative Court of Appeal in case No. 160/4438/19, dated 12 February 2020; the Ruling of the Third Administrative Court of Appeal in case No. 160/4329/19, dated 13 February 2020; the Ruling of the Donetsk Circuit Administrative Court in case No. 200/12405/19-а dated 18 December 2019.

165

Tax Controversy

How to Optimize Time and Money on Appealing Tax NoticesDecisions in Ukraine

Iryna Kalnytska Attorney-at-Law, Partner, GOLAW

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iven the fact that Ukrainian tax legislation frequently changes and the business sector experiences a number of challenges while adapting to “a game under new tax rules”, the issue of appealing against tax notices-decisions of tax authorities (hereinafter the plural referred to as “TNDs” and in the singular as “TND”) continues to be topical. In this article we will single out several merits and demerits of TNDs’ appealing procedures, prescribed by Ukrainian tax legislation, in the light of minimization of the time and expenses of taxpayers, which are required for such procedures. TND is a decision of a tax authority that obliges a taxpayer to pay a certain sum of certain tax, calculated by the tax authority, or modify tax reporting. TNDs are usually issued as the result of tax audits of taxpayers. It is unfortunate that TNDs are sometimes issued in the absence of reasonable grounds for this, which results in their illegality. That’s why the Tax Code of Ukraine (hereinafter — the TCU) grants taxpayers the right to appeal against TNDs within an administrative procedure and/or to court. It is worth clarifying that the administrative procedure is out-of-court and involves the filing of complaints by taxpayers to the higher tax authority of Ukraine against TNDs, issued by lower tax authorities. Taxpayers quite often omit the administrative procedure of appealing TNDs and, upon their receipt, appeal them to a court. For sure, this approach conforms to Ukrainian legislation and may take place. But, from our point of view, more relevant for taxpayers in the majority of cases is appealing TNDs within administrative procedure and only in the event of its negative result appealing them to court and that is why. Firstly, administrative procedure flows in a short time-frame and may take from 1 to 3 months. This depends on a number of factors, particularly as to whether or not the higher tax authority will extend the consideration term of a taxpayer’s complaint. In this vein the TCU establishes that a taxpayer’s complaint shall be considered and the decision issued and sent to a taxpayer by the higher tax authority of Ukraine within 20 calendar days following the day of receipt of the complaint. At the same time, the TCU grants the foregoing governmental body with the right to extend the consideration term but not more than for 60 calendar days. Secondly, the administrative procedure of appealing against TNDs does not require any payments to the Ukrainian state budget to be held. Yet, it will require payments for legal aid in the event of involvement of attorneys to handle it.

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Thirdly, as follows from practice, taxpayers do have very strong chances of cancelling TNDs just within administrative procedure, so that the need to refer to a court in order to cancel them will never even arise. This is possible only if taxpayers effectively exercise a wide range of rights and mechanisms granted them within the administrative procedure by Ukrainian tax legislation. Of course, together with a well-built legal position envisaged in their complaint against TNDs. Unfortunately, not all taxpayers are aware of the above-mentioned rights and mechanisms and those who are do not always exercise them. For example, taxpayers may review the materials of tax audits and administrative appeal. This way they can get acquainted with documents taken into consideration by the tax authorities when issuing TNDs, and this will enable taxpayers to better understand the position of tax authorities and present solid counter-arguments to it. Furthermore, taxpayers may personally attend sessions of the highest tax authority of Ukraine devoted to consideration of their complaints against TNDs, give oral explanations regarding the subject matter of complaints and carry out technical recording of such sessions. Taxpayers may ask the foregoing government body to involve to aforementioned sessions the representatives of the lower tax authority that issued TNDs under appeal and to involve representatives of mass media outlets in such sessions with a view to attract attention to the appeal. All of this entails deeper consideration of complaints against TNDs. Ukrainian tax legislation grants taxpayers one more very important right, the right to ask for support from the Business Ombudsmen Council to cancel TNDs within an administrative appeal. The last point should be clarified. The Business Ombudsmen Council is a permanent advisory body of the Ukrainian government established with assistance from international partners of Ukraine and the Ukrainian business community. It is important to note that the Business Ombudsman Council is not authorized to cancel TNDs, but it may contribute to their cancellation before a judicial appeal. Taxpayers can turn to the Business Ombudsman Council to get its support in administrative appeal of TNDs by filing claimants against the tax authorities that issued them with an explanation as to why such TNDs shall be deemed illegal. If the Business Ombudsman Council finds such claimants reasonable, it will support a taxpayer throughout an administrative appeal, particularly by sending to the higher tax authority of Ukraine legal positions on protecting the respective taxpayer,

GOLAW is an international full-service law firm with the offices in Kyiv (Ukraine) and Berlin (Germany). The firm has been recognized by several prestigious international and Ukrainian rankings, such as The Legal 500, Chambers & Partners, IFLR 1000, Best Lawyers, Who is Who Legal, Legal Awards, etc., and continuously ranked among the TOP 10 Leading Law Firms of Ukraine. GOLAW provides sophisticated legal advice and reliable legal assistance in all major sectors, including agribusiness, retail and FMCG, healthcare and pharmaceuticals, financial services, renewable energy, transportation and infrastructure, IT and real estate. The client portfolio of the firm includes large and medium-sized, national and foreign companies, banks and financial institutions, as well as private investors doing business in Ukraine or entering local and/or foreign markets. Among them — TIU Canada, Inditex Group (Zara, Pull & Bear, Massimo Dutti, Oysho, Bershka, Stradivarius), Fiba Retail (Marks & Spencer, GAP), ProCredit Bank, Expobank CZ

a.s., Oriflame, Red Bull, Reckitt Benckiser, Syngenta, Export Guarantee and Insurance Corporation (EGAP), Azelis, Galicia Distillery, Enkom a.s., KBPP Management Ltd., Georgian International Energy Corporation (GIEC), Mercator Medical, Ubisoft, etc. GOLAW practice areas are: Banking and Finance; Litigation and Dispute Resolution; Corporate Law and M&A; Criminal Law and White-Collar Defence; Tax; Insolvency and Corporate Recovery; Restructuring, Claims and Recoveries; Real Estate; Employment; Government Relations (GR); Anti-Corruption and Anti-Bribery; Antitrust and Competition; International Trade; Compliance, Corporate Governance and Risk Management; Intellectual Property; Environmental Protection; Maritime Law. GOLAW is a member of the leading Ukrainian and international legal associations (International Bar Association (IBA), Rechtsanwaltskammer Berlin (Berlin Bar Association), Ukrainian National Bar Association (UNBA), etc) and business associations (American Chamber of Commerce

(ACC), European Business Association (EBA), Ukrainian Network of Integrity and Compliance (UNIC), German-Ukrainian Chamber of Industry and Commerce (AHK), International Turkish Ukrainian Business Association (TUID), European-Ukrainian Energy Agency (EUEA)).

attending sessions of such government body devoted to the complaint against the TNDs by such taxpayer. As practice shows, the Business Ombudsman Council’s support for taxpayers results in more thorough consideration by the highest tax authority of Ukraine of complaints against TNDs. Besides, the Business Ombudsman Council’s written positions on illegality of TNDs are always taken into consideration by courts if the respective TNDs are appealed in court after their unsuccessful appeal in an administrative procedure. Fourthly, administrative procedure of appealing against TNDs has one more very important “bonus” for taxpayers in those cases where the fact that TNDs will not be cancelled within an administrative procedure is obvious: it provides taxpayers with time to get ready for a court appeal against TNDs. This means that while an administrative procedure continues, a taxpayer can improve his/her legal position on the illegality of TNDs and properly prepare all documents evidencing this fact for presentation to a court. Therefore, all the points listed above appear to make an administrative procedure very attractive for taxpayers. Without prejudice to the above, taxpayers should take into account that sometimes an administrative appeal against TNDs may be irrelevant and appealing TNDs to court will be preferential. To make a conclusion on relevance or irrelevance, a high-quality analysis of the factual and documental background of TNDs’ issue must be carried out. It should be also noted that in January 2020 the Ukrainian legislative body adopted the Draft Law No.1210 On Amendments to the TCU on Improvement of Tax Administration, Elimination of Technical and Logical Inconsistencies in the Tax Legislation (hereinafter - “Draft Law No 1210”) aimed at introduction of fundamental changes to the TCU.

Inter alia, such changes may influence the administrative procedure of appealing TNDs. As follows from the initial versions of Draft Law No.1210, it provided for establishment of one more institutional body for administrative appeal of TNDs — the Appeal council for consideration of taxpayers’ complaints (hereinafter - the Appeal council). It was planned that such body would be authorized to consider taxpayers’ complaints against certain categories of TNDs after their unsuccessful appealing to the higher tax authority of Ukraine, and such consideration would be free of charge and short-term — within 15 business days following the day of receipt by the Appeal council of taxpayers’ complaint with the possibility to extend this term for 30 business days. Thus, the Appeal council was planned as one more stage of administrative appeal that would provide taxpayers with a possibility to challenge TNDs before going to court and to save time and minimize expenses in the event of a positive result. However, Draft Law No.1210 has not entered into force yet: it is waiting to be signed by the President of Ukraine and its final official publication. As there is no official text yet, it is not clear whether the idea of creation of the Appeal council was included in the final version of Draft Law No.1210 or not. As to appealing TNDs in court, this procedure may, unfortunately, last for years due to the heavy caseloads of courts. Besides, filing a plaint requires payment of a court fee to the Ukrainian state budget. It may also require payment of case-related expenses that include, inter alia, expenses on legal aid in the event of involvement of attorneys to handle the respective tax court case. Thus, appealing against TNDs to a court generally appears to be less advantageous for taxpayers.

However, within the court procedure of appealing TNDs taxpayers are granted the right to receive compensation for their payments of the aforementioned court fee and case-related expenses. They may be compensated to a taxpayer in full if his/her plaint regarding TNDs is fully satisfied by a court. In the event of partial satisfaction of a plaint, a taxpayer may receive compensation in part, proportional to the sum of satisfied claims. Finally, if a taxpayer’s plaint against TNDs is not satisfied by a court, no compensation will be provided. A few words about compensation of expenses on legal aid. In order to obtain it, the sum of these expenses must be declared by the taxpayer within his/her court case against TNDs in accordance with procedural rules, be properly justified and confirmed by a number of documents. Courts always evaluate declared for compensation expenses on legal aid, and in the result of such evaluation may decide on compensation in full, in part or refuse in it even in the event of full satisfaction of a plaint against TNDs. In our practice we always recommend taxpayers to exercise their right to compensation of expenses on legal aid, asking the court for full compensation of them. Especially taking into consideration the abundance of court decisions providing it. For instance, in court case No.815/3146/18 the court decided to fully compensate the taxpayer’s expenses for legal aid in the amount of USD 4,000. Another example is court case No.640/7703/19, where a court also decided to compensate the taxpayer the entire sum of expenses on legal aid, which came to USD 8,000. To conclude, we would like to mention that success in appealing against TNDs, whether in administrative or judicial procedures, always depends on proper preparation of one's legal position and evidence to prove the illegality of TNDs. Therefore, we recommend enlisting skilled tax consultants to the appeal process.

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Trade Remedies

Trade Defense Remedies: Hot Topics of 2019

Anzhela Makhinova Partner, Sayenko Kharenko Ms. Makhinova is a country expert on franchising, distribution, and agency for the International Distribution Institute and a Chair of the Working Group on International Trade of the ACC, recognized as “Best in international trade” by LMG Europe Women in Business Law Awards; in International Trade for Ukraine and in Franchising by Client Choice Awards; in Franchising by Who’s Who; in Trade by Best Lawyers International; in Trade and Customs by Who’s Who: Trade & Customs. Anzhela Makhinova is recognized among leading individuals for International Trade by The Legal 500, 2020

ast year saw a variety of protectionist sentiments around the globe. Taking into account that trade defense remedies are protectionist measures directly allowed in the WTO, naturally enough 2019 demonstrated a growth in different investigations and applied remedies. In this article, our aim is to focus on the hottest issues in the field of trade defense remedies.

Global View Statistics on Trade Defense Measures According to official statistics provided by the WTO Committee on anti-dumping practices, in 2018, WTO members introduced 203 anti-dumping measures, which is by far the largest number of such measures during the last 15 years. In the first half of 2019, WTO members reported 82 new anti-dumping measures, the final number for the year is likely to increase.

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The number of countervailing measures rose significantly in 2018 when WTO members initiated 55 new investigations and introduced 28 new measures. These are record figures for the WTO since 1995. WTO members reported 18 new countervailing measures for the first half of 2019. In 2019, WTO members reported 13 new safeguard measures, which is the largest number since 2003. Furthermore, in 2019 WTO members reported 30 new safeguard investigations (the largest number since 2002). These global statistics lead to the conclusion that countries more often revert to trade defense measures in order to protect domestic markets and local producers from imports. This trend is likely to continue in 2020 when most countries face serious economic challenges caused by the COVID-19 pandemic, downturn on financial markets, and price declines on raw material markets.

Global Safeguard Measures Against Steel in 2019 On 8 March 2018, the USA imposed additional duties of 25% on steel imports and 10% on aluminum imports. Other countries responded in 2019 with safeguard measures to protect local producers. Definitive safeguard measures were imposed by the European Union against 28 product categories. Notably, 12 out of 28 categories of Ukrainian products have been excluded from definitive measures. Canada imposed safeguard measures on imports of heavy plate and stainless-steel wire. Notably, some products were excluded from investigation, while the Canadian government announced a refund of previously paid provisional safeguard duties. The Eurasian Economic Union imposed a safeguard measure against imports of hot-rolled products. Cold-rolled products and coated products were excluded from the scope of the measure. Safeguard measures were also imposed by certain other countries. Unlike the USA, other countries introducing safeguard measures on steel followed the procedure envisaged by the WTO Agreement on Safeguards. On the contrary, the USA claims its steel and aluminum measures to be beyond the scope of WTO regulation and does not regard them to be safeguard measures per se. This approach was largely criticized by the WTO community and entailed several disputes raised against the USA in the WTO dispute settlement system. Though the USA managed to find mutually agreeable solutions on this matter with a number of states, other disputes are at the active stage and we are likely to see their outcome in 2020.

Ukrainian View Statistics on Trade Defense Measures in Ukraine 2019 was quite a productive year for trade remedies in Ukraine. During the year, Ukraine

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applied 7 new anti-dumping duties, namely on rods from Belarus and Moldova, bearings from Kazakhstan, rolled steel from Russia and China, cement from Russia, Belarus and Moldova, salt from Belarus, incandescent lamps from Belarus, and medical rubber corks from Poland and China. Two other anti-dumping duties, on aerated concrete blocks from Belarus and steel ropes from Russia, were imposed in early 2020. Anti-dumping measures on medical glass bottles and incandescent lamps from China, as well as safeguard measures on polyurethane foam, were extended. In 2019, Ukraine also initiated a number of new investigations and reviews: anti-dumping investigations on the import of steel ropes from Russia, aerated concrete blocks from Belarus, aluminum car wheels from China, matches from Belarus and Russia, steel fasteners from China, sunset reviews of anti-dumping measures on ammonium nitrate from Russia, iron non-isolated products from China, railroad switches from China, seamless steel pipes from China, special investigations on nitrogen fertilizers, complex fertilizers, syringes, review of safeguard measures on polyurethane foam. An anti-dumping investigation into the import of syringes from India, Turkey and China ended without measures being taken.

Legal Issues in Trade Defense Legislation In 2019, Ukrainian courts reached several important conclusions which throw light on the way in which courts treat certain provisions of trade defense legislation: -- The limitation period for challenging decisions on application of measures before the courts. The Law of Ukraine On Foreign Economic Activity establishes a 1 month limitation period to challenge trade remedies. The law does not explain precisely from which date such period is calculated (i.e. adoption of a decision on imposition of a measure, official publication of the notice on the above decision, or entry of a measure into force, which in Ukraine usually takes from 30 to 60 days). But in case 826/7768/17 the Supreme Court of Ukraine clarified that the 1 month limitation period shall start from adoption of a decision on imposition of a measure by the Interdepartmental Commission on International Trade (the Commission). In our view, the above approach is quite controversial because Ukrainian law does not stipulate any mandatory deadlines for official publication of decisions on application of measures. Thus, it may well be that late publication may deprive the interested parties of the right to challenge measures before a court; -- Interested parties that are allowed to challenge applied measures before the courts. According to the general procedural provisions of Ukrainian law, a court action can

15 Years of Leadership in Law Sayenko Kharenko is one of Ukraine’s largest law firms, offering comprehensive support in all major sectors of the economy. In order to manage the rapidly evolving Ukrainian legal and business environment, the firm embraces innovation through new products, out-of-the-box thinking and creative solutions. The emphasis on innovation brings services that enable clients to excel in what they do. Sayenko Kharenko has been recognized over 100 times as No. 1 law firm in key practice areas and named “Best Law Firm in Ukraine” more than 30 times by the most prestigious professional excellence awards.

Ivan Baranenko Associate, Sayenko Kharenko Mr. Baranenko is mostly engaged in trade defence proceedings both in Ukraine and internationally. Ivan Baranenko is recognized among rising stars for International Trade by The Legal 500, 2020

vations. The ultimate goal is to create new legal solutions, which would drive forward the business of the firm’s clients.

be filed by a person or legal entity, whose rights or interests have been violated. In case 826/11968/16 the Supreme Court of Ukraine clarified that while a foreign entity does not pay safeguard duties (i.e. such duties are paid by importers), its rights and interests are not violated, therefore, it could not act as a claimant before Ukrainian courts. The same approach was taken by the court of first instance (and later upheld by the appellate court) in case 826/7872/17. This decision means, in fact, that trade remedies may only be challenged in court by domestic companies (e.g. importers, end customers) paying duties and having participated in an investigation. It shall be noted that entiti