Category: Ukraine

Ukraine has taken several important steps in recent months towards improving the country’s domestic dispute resolution mechanisms. One of those steps was the complete overhaul of the judicial system and the adoption of completely new procedural rules governing domestic litigation.

In the course of this reform of the judicial system, the highest judicial body of the state – the Supreme Court of Ukraine – ceased its operations and was replaced with a new Supreme Court. To ensure a fundamental change of approach to the delivery of justice, the judges of the new Supreme Court were selected through a rigorous and transparent procedure. As a result, a number of experienced private practitioners and notable legal scientists have managed to secure places as judges on the new Court, and they have, already, brought a fresh outlook to a number of corporate, tax, and general commercial matters, including revisiting certain obsolete rulings rendered by their predecessors. In addition, the Supreme Court’s judgments are now set out in a structured fashion inherited from the decisions of the European Court of Human Rights, which facilitates better comprehension of the Court’s reasoning and makes its position clear and straightforward.

Alongside the changes to Ukraine’s court system, there has been a significant amendment to the procedural rules. Traditionally, Ukrainian court proceedings in civil, commercial, and administrative matters were purely inquisitorial. However, the new procedural rules restrict the role of the judge by shifting the focus of the proceedings from the court towards the parties. Considering the evolved role of the parties in the fact-finding process, the proceedings became, to a certain extent, adversarial. Having tested the new procedural rules, we feel safe in reporting that the proceedings have become far more sophisticated, as well as more streamlined and efficient. In particular, and among other changes, litigants can now engage their own expert witnesses without a judge’s approval, submit electronic evidence, and invoke a simplified procedure for minor disputes. One of the major challenges for the judicial reform effort was to implement forceful mechanisms to prevent dishonest litigants from abusing procedural rights and causing unreasonable delays of the proceedings. We have experienced certain cases in which the courts executed their powers to punish the opposing parties employing unfair tactics by imposing fines on their counsels and rejecting applications submitted with no plausible purpose.

Another important innovation introduced by the new procedural rules concerns the domestic support of international arbitration. Several foreign companies have already obtained interim measures rendered by domestic courts to secure Ukrainian-based respondents’ performance under arbitral awards. These precedents are important, since they demonstrate Ukraine’s position as an arbitration-friendly jurisdiction. At the same time, it is fair to mention that parties seeking interim measures (either in support of international arbitrations or within domestic proceedings) may occasionally encounter difficulties relating to counter-security. Considering the absence of clear guidance on how to measure the counter-security, court practice in this respect has been quite inconsistent so far. To this end, parties seeking interim measures should be prepared to provide security in an amount equal to the amount of their claims.

It is nearly a year since the new Supreme Court started to operate and the new procedural rules came into force. It seems quite clear that Ukraine is heading in the right direction – towards complying with the best standards of transparent and efficient judicial systems – despite the inevitable impediments down the road. In addition, in coming months we expect the launch of an electronic system for administering court proceedings. This system is meant to facilitate document exchanges between the parties and the court, as well as to allow remote access to evidence and other case files. Meanwhile, the Ukrainian parliament is set to pass a new law expanding the professional rights of attorneys and enhancing the attorney-client privilege. We truly hope that these improvements to the Ukrainian judiciary and procedure will make Ukrainian courts a more attractive and predictable dispute resolution venue for foreign investors.  

By Aminat Suleymanova, Co-Managing Partner, and Andriy Fortunenko, Associate, Avellum 

This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The judicial system of Ukraine has transformed in recent years at an unprecedented scale and speed, and new procedural legislation has been adopted in the civil, economic, and administrative codes. In addition, the Supreme Court was elected for the first time through a competitive procedure, and the structure of the courts was reformatted into a three-level system. Judges of all levels are undergoing re-qualification. An attorney-at-law “monopoly” on representing others in court has been introduced. All of these fundamental changes are occurring in a revolutionary way and in a very short time period.

To sustain a high level of legal services, LCF continuously monitors judicial system changes and reviews new judicial practice. In our opinion, the Top 5 innovations that have most strongly influenced the judicial process include:

Court Remedy: New legislation has strengthened the guaranteed right to an effective legal remedy. Before the country’s judicial reform, this right in Ukraine was based on Art. 16 of the Civil Code of Ukraine, which established an open list of remedies. However, it was subject to interpretation and application. According to the new codes, if neither law nor contract contains an effective legal remedy, the court has the right to determine such remedy in a judgment, giving a person an opportunity to get his or her right restored in an effective way, if not in contradiction to the law.

Functions of the Court: The new codes have significantly changed the way parties must prove their claims and arguments, along with the tasks of the court in overseeing that process. Going forward, parties must provide the court with all their evidence along with the filing of their first statements. At the same time, the active role of the court in requesting evidence is eliminated: it is stipulated by law that collecting evidence is not the responsibility of the court. Thus, courts will no longer perform an “inquisitorial” role, seeking to establish “objective truth,” but now take the role of arbitrator, resolving disputes solely on the basis of evidence submitted by the parties. Also, parties were provided with new and expanded means of evidence.

New Types of Court Proceedings: Different forms of judicial proceedings have been provided for, allowing disputes to be considered by the court in the form of general, simplified, or writ proceedings, differentiated by the significance of the case. The determination depends on the value of the claim, the subject of the dispute, and the complexity of the case.

New Rules for Determining Jurisdiction: Jurisdiction is now determined based on the subject matter of the dispute, and no longer on the composition of the parties. For example, disputes related to economic activity are heard in economic courts, in some cases even when they concern a natural person (e.g., a person who acted as a guarantor for a loan of a legal entity or entrepreneur). The Supreme Court is currently actively developing jurisprudence on the issue of jurisdictions. A dispute over the proper jurisdiction for a claim is an unequivocal reason for referring the case to the Grand Chamber for consideration.

Introduction of Derivative Claims: New procedural laws introduced derivative claims, the satisfaction of which depends on the satisfaction of the principal claim, and which are considered by the same court. This innovation improves the guarantees of access to court and of effective protection of violated rights.

The most significant changes in economic disputes involve evidence and proof issues. Innovations have changed the approach to the burden of proof, the grounds for exemption from proof, filing, soliciting, and securing evidence. The parties are now able to submit opinions of independent experts, who the parties themselves choose, and not only the opinions of experts determined by the court. In addition, it is now possible to present expert opinions on legal analogies and legal opinions on the substance of foreign law, and to bring and examine witnesses in economic proceedings.

To summarize, all of these changes are only a small part of the large-scale judicial reform process that is underway. We hope that they will open new opportunities for the development of effective and equitable justice in Ukraine.

By Artem Stoyanov, Senior Partner, and Yulia Atamanova, Counsel, LCF Law Group

This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

After a number of important improvements to Ukrainian corporate legislation in 2017, such as the introduction of squeeze-out and sell-out procedures for joint stock companies and the concept of shareholder agreements, reform of the country’s corporate legislation is continuing, with even more significant transformations in 2018.

In particular, Ukraine’s legislative framework for joint stock companies has undergone further approximation to European directives, an entirely new law on limited liability companies has been adopted, and a new privatization law aims to bring privatization procedures closer to international M&A standards.

These developments offer new opportunities for both existing businesses and new ventures. 

Joint Stock Companies

On January 6, 2018, amendments to the Law on Joint Stock Companies (the “JSC Law”) dramatically changed the rules on distinctions between public and private JSCs. After several years of efforts to bring Ukrainian public JSCs closer to the common concept of a public company, legislators have finally overhauled the approach to defining a public JSC. A public joint stock company is now a joint stock company with shares that are publicly offered and listed on a stock exchange.

Due to this new definition, the number of genuinely public JSCs has drastically fallen. The JSCs that inherited quasi-public status historically and cannot or do not wish to conform to the high requirements set by the new regulation have no choice but to change their status to “private,” which can cause complications for company activity.

Limited Liability Companies 

The new Law on Limited and Additional Liability Companies (the “LLC Law”), which took effect on June 17, 2018, overhauled the legal framework for limited liability companies in Ukraine. The law finally provides opportunities for businesses to tailor the most common corporate vehicle to their needs, making the LLC not just the most widespread but also the most flexible corporate form in Ukraine. Most if not all of the LLC Law’s provisions have a twofold purpose: to make investments more secure and to make investing more flexible.

Generally, the LLC Law aims to give more discretion to participants of an LLC to organize its operation and management. Thus, the LLC Law broadened existing charter capital formation options to allow: (1) contributions into charter capital with a “share premium”; (2) debt-to-equity swaps; and (3) reinvestment of profit into charter capital. Transferring participatory interest in LLCs became easier as the approval of a general meeting and the amendment of the charter is no longer required for a new participant to be registered.

Corporate governance in LLCs was also enhanced. Notably: (1) the regulation of duties and liabilities of management was upgraded; (2) the creation of supervisory boards was allowed; and (3) general meeting procedures were improved. The general framework and default rules on qualification and approval of material transactions and the concept of related party transactions were introduced, with LLC participants free to determine the specific types and criteria of transactions requiring prior approval via a general meeting or supervisory board tailored to their specific needs.

The LLC Law also sets up a detailed procedure for enforcement of pledges of participatory interest in an LLC, thus providing grounds for the participatory interest pledge to become an efficient security instrument in corporate and financing transactions.

Finally, the limitation on the number of participants of an LLC was lifted so an LLC may now have more than 100 participants.

Big Privatization

Under the new privatization law, for the sale of large privatization objects the state will engage professional advisors with international experience (such as widely recognized investment banks), in order to prepare an informational package on the privatization object, find potential buyers, and determine a starting purchase price. The large privatization objects are subject to sale at conditional auctions, and potential buyers undergo screening for compliance with legislative requirements before qualifying to participate.

Until January 1, 2021, potential buyers have the right to opt for English law as the governing law for sale and purchase agreements (though the privatization commission has the final say on the governing law). There is also an option to choose international arbitration (by default, under the SCC Arbitration Rules) as the dispute resolution forum under the SPA.

By Oleksandr Nikolaichyk, Partner, and Mykhailo Grynyshyn, Associate, Sayenko Kharenko

This Article was originally published in Issue 5.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.