LAW FIRM DIRECTORY

Practice Areas

Corporate tactics

In 2018 many Ukrainian companies faced the need to solve organizational issues due to introduction of new corporate legislation, primarily regarding activities of limited liability companies. Businesses which are strategically aimed at development, began to systematize internal documents in order to minimize the risks of disputes and simplify their resolution in the future. So-called squeeze out procedures became a new area of work, including for lawyers. At the same time, long-running corporate conflicts, as well as fundraising and debt repayment issues, are still topical

IRYNA GONCHAR

Ukraine is rising gradually in the Doing Business rating compiled by the World Bank, which determines an index of ease and convenience of doing business in all countries of the world, but it is still sits in last place among countries in our region (the Kyrgyz Republic overtook our country this year). Nevertheless, our country occupies 71st place in the Doing Business 2019 rating traditionally published at the end of October, while only two years ago it was in 80th place, and four years ago in 90th place. It's curious that this year progress is determined in growth by those directions, which fell in the rating for 2018, so the general situation is, to a greater or lesser extent, stable.

However, due to stronger competition it will be harder to keep  moving up, though the trends intended with amendment of regulatory legislation and judicial reform should facilitate further growth.

Experts commented on the state's influence on legislative support.

 

Contractual procedure

The most important event in the corporate management area in 2018 is, perhaps, adoption of the Law of Ukraine "On Limited and Additional Liability Companies" (the law on LLC) which came into force on June 17, 2018.

The problem of current corporate conflicts in Ukraine is due to the lack of understanding of the significance of legal confirmation for friendly arrangements regarding jointly-owned business. When the majority of existing companies were established in the 1990s, no-one considered this, as there were other threats, the high risk of failure, as well as big faith in one’s best friend as a business partner. Experts believe that conflicts arise immediately when a business becomes efficient and brings profit beyond expectations.

"Who’s in command of the partnership? Over the time this question leads to a corporate war in a joint business regardless of the area (agriculture, retail, medicine and every area with liquid assets). This results in the appointment of one’s "own" directors, the forging of documents and reports, extraction of wealth and disposition of participants from the company. All corporate wars (which include multi-stage legal proceedings that continue in parallel with criminal proceedings) begin from weaknesses in management processes and bodies and unregulated agreements between business partners", says Alexey Kharitonov, partner at the ILF law firm. A common scenario is when two friends pool some money in equal amounts and establish a company together. They register their business as an LLC, where each participant owns a 50% share. Everything goes seamlessly for some time, but after the first profit and success opinions regarding the company’s development are divided, it becomes more difficult to agree upon transactions, especially important ones. If a general meeting in convened, it is impossible to achieve "majority" votes for a decision. Consequently, the business suffers and the company’s income steadily falls. "Business with a friend, a 50/50 joint business and boundless confidence with conceptual agreements on a napkin" are three main reasons for long-lasting and dead-end corporate conflicts, according to Mr. Kharitonov.

However, Mr. Kharitonov predicts that amendment to specialized legislation will significantly improve opportunities for joint business in Ukraine and even save many companies from dissolution. This amendment came into force in the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine Related to Corporate Agreements" on February 18, 2018, which introduced changes to the Civil Code of Ukraine, the Laws of Ukraine "On Business Associations", "On Securities and the Stock Market", "On Joint Stock Companies" and allowed the conclusion of corporate agreements between participants of a LLC, as well as the coming into force of the Law of Ukraine "On Limited Liability Companies" on June 17.

The partner of the ILF law firm notes: "Now business owners have more tools to create a stable management model, formalize existing or future agreements (on roles, contributions, rights and obligations in management, on the terms of withdrawal from a business and profit distribution, etc.). A minority shareholder has, in turn,  an opportunity to obtain more management rights if they manage to agree upon and stipulate everything in the Articles of Association and partnership agreement on time." This has also influenced requests made to external advisors by businesses. "While before 2018 our clients turned to lawyers at the stage of a latent or open corporate war, when the stakes and risks were extremely high, then this year their requests have changed towards the prevention of such conflicts, legalization of agreements between partners, assessment of contributions and mediation of negotiations", Alexey Kharitonov adds, commenting.

By the way, corporate agreements should also simplify solution of issues as to acquisition of a LLC. Thus, Oles Kvyat, advisor at Asters, notes that they have already faced the problems of conclusion of corporate agreements in LLC, whose Articles of Association are based on old legislation on LLC.­ Controversial points arise in terms of correlation between provisions of the Articles of Association and agreement, right of the company to be a party to the corporate agreement on a par with the contracting parties, submitting the corporate agreement to foreign law and the transfer of disputes under the corporate agreement for consideration to a foreign court or international arbitration.

With regard to the application of foreign law to a corporate agreement, according to Mr. Kvyat, this is not generally prohibited by Ukrainian legislation in terms of issues of a purely civil nature, in the event of a foreign element in the agreement. At the same time, for example, the issues of exercising of the right to vote at the general meeting are directly regulated by Ukrainian legislation, and the chances are high that their submission to foreign law would contradict our public policy (which was repeatedly indicated by courts) and, more likely, provisions of Articles of Association. Eventually, the "hybrid" approach may be possible, but it is fraught with disputes on one or other conditions that will require joint work with Ukrainian lawyers to determine the limits of regulations.

 

Transaction
was successful

 

"The majority of transactions in the financial sector supported by corporate practice in the outgoing year were M&A transactions, the mandatory sale of shares to shareholders owning a dominant majority shareholding (squeeze out)", Andriy Moskalik, senior lawyer at Baker McKenzie international law firm, notes. According to him, there is insufficient interest on the part of investors in the Ukrainian market, so it is still the "buyer's market", as distinct from developed Western European and North American markets, where asset prices are high and sellers dictate the terms of transactions. This often enables buyers to achieve very favorable transaction terms both in terms of price and payment procedure and protection mechanisms.

"Since the majority of entities on the financial market of Ukraine are joint-stock companies, legislative changes related to the coming into force of the Law of Ukraine 'On Amendments to Certain Legislative Acts of Ukraine on Simplification of Doing Business and Attracting Investment by Securities Issuers' dated November 16, 2017, significantly influenced transaction structuring. The buyer usually expects that before completion of the transaction the seller will fully ensure the bringing of the acquisition target’s activities into compliance with requirements of this law at its own expense in terms of regulation of public and private joint-stock companies, including requirements regarding stock turnover on stock exchanges. Due to the insufficient stability of the Ukrainian economy the buyers pay particular attention to the terms and conditions of the agreement, which enables them to close the concluded transaction without prejudice to themselves in case of material adverse changes on the existing financial market", Mr. Moskalik says, sharing the practice.

Oles Kvyat believes that the main issues on M&A transaction support are primarily related to new regulation of LLC activities and changing approaches to classification of joint-stock companies.

"In cases with LLC acquisition issues of a technical nature were demonstrated relating to the need to bring the Articles of Association of an LLC into compliance with the new Law on LLC, novelties in the area of state registration of new participants of LLC, requirements of registrars towards these documents and procedures", the advisor at Asters states, noting that there is no unified approach to the interpretation and application of new provisions of the Law on LLC, and the majority of situations are solved ad hoc.

A change in the approach to division of joint-stock companies into public and private according to the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Simplification of Doing Business and Attracting Investment by Securities Issuers" had great influence on M&A transactions regarding joint-stock companies. While previously these companies were divided into public and private by the number of purely-formal matters, then now in order to circumvent the problem of pseudo-publicity of the majority of public joint-stock companies, the European approach to differentiation of types of JSC was employed based on the nature of processes taking place within them. According to Oles Kvyat, this has a great impact on a transaction and a number of internal procedures related to it in the acquired company in one of the cases that he supported in 2018.

 

Money ratios

 

"Troubled loans remain one of the main sensitive issues in the area of financial and banking activities. State-owned banks have the largest portfolio of such loans, and the special committee composed of representatives of NBU and the Ministry of Finance was even established for solving these problems", Dmytro Savchuk, associate partner at Lavrynovych & Partners Law Firm, notes speaking about the legal issues of the capital market.

According to him, non-performing loans have an influence on the financial solvency of banks and create a threat to the stability of the country’s financial situation. Furthermore, banks must set up large reserves for troubled loans in order to comply with NBU standards. The banks try to solve issues with troubled loans via  one of these possible ways: they restructure debts, transfer currency loans in hryvnia, carry out enforcement of charge, but they are not able to solve this problem independently in global terms.

Accordingly, the companies requiring capital investments for development, have no sufficient financial support from banks, which has a negative impact on the economy’s development. Both banks and borrowers, including potential ones, should strike a compromise and solve financial problems together.

Mr. Savchuk recommends that attention be paid to certain state decisions, which should give a helping hand in this direction. In particular, one of the mechanisms proposed by the state to solve issues around troubled loans was adoption of the Law of Ukraine "On Financial Restructuring". The restructuring procedure has already been carried out by both state (Oshchadbank, Ukrgasbank) and private (IndustrialBank, Alfa-Bank) banks according to provisions of this law. However, not every bank may use its mechanisms, for example, in terms of loans to associated persons.

"Another one efficient mechanism for solving troubled loans issues may be establishment of a secondary loan market for the sale of such loans by the banks and a financial institution to which the state banks could transfer their troubled loan portfolio for administration. International financial institutions may also be interested in the secondary market of troubled loans, but this requires efficient and transparent statutory regulation", Mr. Savchuk underlines, proposing ways out of this situation.

One global problem in the area of financing is the acute shortage of foreign investments and currency inflow. According to NBU statistics, the main currency flows in Ukraine come either from money transfers by individuals working abroad or via loans from associated non-residents, which facilitates partial return of funds earlier withdrawn from the country. "The reasons for this problem are both political and economic, but in practice they can sometimes be purely technical, related to the complexity and overregulation of the currency legislation of Ukraine", Dmytro Savchuk believes. At the same time, he sees the Law of Ukraine "On Currency and Foreign Exchange Transactions" as a breakthrough in currency legislation, which should significantly simplify the processes related to movement of capital. "Hopefully, the NBU, which may establish restrictions on the currency market according to the provisions of the above-mentioned law, will use these powers reasonably and solely for the purposes of the economy’s development and to stimulate businesses, and will not negate all the progressive provisions in this law through its activities", the partner of Lavrynovych & Partners Law Firm stresses in sharing his expectations.

 

PRACTICE LEADERS. BANKING & FINANCE

AUTHORITIES

Serhiy Chorny
(Baker McKenzie)

Armen Khachaturyan (Asters)

Michael Kharenko(Sayenko Kharenko)

LEADING FIRMS

1

 

AVELLUM

 

2

 

Sayenko Kharenko

 

3

 

Baker McKenzie

 

4

 

Asters

 

5

 

Dentons

 

6

 

Redcliffe Partners

 

7

 

Aequo

 

8

 

CMS Cameron McKenna Nabarro Olswang

 

9

 

Arzinger

 

10

 

DLA Piper Ukraine

 

LEADING INDIVIDUALS

1

 

Glib Bondar 

(AVELLUM)

 

2

 

Nazar Chernyavsky

(Sayenko Kharenko)

 

3

 

Olexiy Soshenko

(Redcliffe Partners)

 

4

 

Natalia Selyakova 

(Dentons)

 

5

 

Iryna Pokanay 

(Asters)

 

OTHER ESTABLISHED PRACTICES

Integrites

 

Jeantet

 

Kinstellar

 

KPD Consulting

 

OTHER NOTABLEPRACTITIONERS

Gabriel Aslanian (Asters)

 

Kateryna Chechulina(CMS Cameron McKenna Nabarro Olswang)

 

Anton Korobeynikov(Sayenko Kharenko)

Igor Krasovskiy (Jeantet)

 

Oleksandr Kurdydyk(DLA Piper Ukraine)

 

Yulia Kyrpa (AEQUO)

 

Helen Lynnyk (Gryphon Legal)

 

Andriy Nikiforov (Kinstellar)

 

Ihor Olekhov (Baker McKenzie)

 

Oleksandr Plotnikov (Arzinger)

Nadiya Shylienkova (Dentons)

 

Oleh Zahnitko (Integrites)

 

 

PRACTICE LEADERS. CORPORATE AND M&A

LEADING FIRMS

1

 

Baker McKenzie

 

2

 

AVELLUM

 

3

 

Sayenko Kharenko

 

4

 

Aequo

 

5

 

CMS Cameron McKenna Nabarro Olswang

 

6

 

Dentons

 

7

 

DLA Piper Ukraine

 

8

 

Asters

 

9

 

Redcliffe Partners

 

10

 

Arzinger

 

LEADING INDIVIDUALS

1

 

Mykola Stetsenko (AVELLUM)

 

2

 

Viacheslav Yakymchuk(Baker McKenzie)

 

3

 

Vladimir Sayenko(Sayenko Kharenko)

 

4

 

Anna Babych (AEQUO)

5

 

Graham Conlon(CMS Cameron McKenna Nabarro Olswang)

OTHER ESTABLISHED PRACTICES

Eterna Law

 

EVERLEGAL

 

EY Ukraine

 

ILF

 

Integrites

 

Jeantet

 

Kinstellar

 

KPMG Law

 

PwC Legal

 

SDM Partners

 

Wolf Theiss

 

Vasil Kisil & Partners

 

Ilyashev & Partners

 

EUCON

 

OTHER NOTABLEPRACTITIONERS

Oleg Batyuk (Dentons)

Olha Demianiuk (Baker McKenzie)

Yevheniy Deyneko (EVERLEGAL)

Oleksiy Didkovskiy (Asters)

Tetyana Dovgan(CMS Cameron McKenna Nabarro Olswang)

Taras Dumych (Wolf Theiss)

Dmytro Fedoruk(Redcliffe Partners)

Ernest Gramatskiy(Gramatskiy & Partners)

Margarita Karpenko(DLA Piper Ukraine)

Alexey Katasonov (PwC Legal)

Yuriy Katser (KPMG Law)

Armen Khachaturyan (Asters)

Andriy Kolupaev(Lexwell & Partners)

Alla Kozachenko(DLA Piper Ukraine)

Denis Lysenko (AEQUO)

Oleh Malskyy (Eterna Law)

Volodymyr Monastyrskyy (Dentons)

Andrii Moskalyk (Baker McKenzie)

Adam Mycyk (Dentons)

Yuriy Nechayev (AVELLUM)

Oleksandr Nikolaichyk (Sayenko Kharenko)

Iryna Nikolayevska (Kinstellar)

Alina Plyushch (Sayenko Kharenko)

Vadym Samoilenko (Asters)

Albert Sych (EY Ukraine)

Illya Tkachuk (Jeantet)

Galyna Zagorodniuk(DLA Piper Ukraine)

Anna Zorya (Arzinger)