Category: Ukraine

Dentons has announced the appointment of a Global Task Force to help clients navigate Ukraine’s transformation and rebuild.

The task force consists of Ukraine Managing Partner Oleg Batyuk, Member of UKIME Executive Committee Partner James Batham, Leader of the US National Security and Foreign Policy Team Partner Chris Fetzer, UKIME Partner Esther McDermott, and Europe and Global Transport and Infrastructure Sector Leader Partner Ian McGrath.

According to the firm, the task force will “lead Dentons’ client-facing response, drawing together cross-practice and cross-border experts from across the firm, particularly those with energy and natural resources, technology, infrastructure, and investment sector expertise, to work alongside Dentons’ team of Ukrainian lawyers.” 

“Our clients are engaged in rebuilding Ukraine and require the multifaceted and cross-border offering that Dentons is able to provide,” said Dentons’ Global CEO Elliott Portnoy. “Our remarkable team in Ukraine, combined with the reach and expertise of our Global Task Force, is poised to help clients as they help Ukraine regain its position of stability and success.”

On 27 April 2024, the Law of Ukraine, titled “On Amendments to the Law of Ukraine ‘On State Regulation of Capital Markets and Organised Commodity Markets’ and Certain Other Statutory Acts of Ukraine Concerning Regulation and Supervision of Capital Markets and Organised Commodity Markets” (the Law), came into effect.

As claimed by the Law’s authors, the primary aim of the Law is to frame an effective regulatory system for the Ukrainian capital market by, inter alia, expanding the powers of the regulator, the National Securities and Stock Market Commission (the “Commission“) and vesting it with broad authority to investigate offences on capital markets, amending the financing of its functions and enhancing the rules for market abuse prevention.

While there are arguments in support of this Law, as a necessary regulatory framework for the development of the national capital market in accordance with the IOSCO requirements and its alignment with the EU laws, there are those that criticise the Law. The latter particularly relate to the transformation of the Commission into a de-facto law-enforcement authority with unprecedented discretionary powers. In this article, we will set these debates aside and focus on the most important aspects of the Law. 

Commission: extended authorities

The Law introduces substantial modifications to the Law of Ukraine “On State Regulation of Capital Markets and Organised Commodity Markets” dated 30 June 1996 no.448/96-BP (the “Regulation Law“) and the Law of Ukraine “On Capital Markets and Organised Commodity Markets” dated 23 February 2006 no.3480-IV (the “Markets Law“) as it pertains to the expansion of the Commission’s authorities. 

Notably, the Commission will among other things:

• “clarify the list of actions” that may be conducted exclusively on condition of obtaining a license for the relevant activities on capital markets or organised commodity markets, or a respective certificate from the relevant register. Furthermore, the Law grants the Commission the power to determine the rules for the combination of activities on capital markets and organised commodity markets, which are now regulated by statutory acts (i.e., the laws of Ukraine adopted by the Parliament) and will be determined by the Commission’s regulations. 
• decide on whether financial instruments and/or so-called civil rights objects (i.e. assets or instruments) belong to securities. 

  In this regard, it is worth noting that the Law amends the definition of “security” (please see below more details) by excluding certain key features of securities and thus making this definition rather broad. This gives the Commission room for interpretation as to whether an instrument can be referred to as a security with all applicable regulatory requirements.   

• conduct inspections and investigations on capital markets or organised commodity markets (please see further details below). Compared to the audits that the Commission is authorised to conduct under effective regulations, the Law generally arms the Commission with greater capacity and authority during the inspection process;
• have more extended tools of influence on market players, such as requesting the dismissal of persons with managerial functions. It will be also able to suspend measures that are taken by market participants to increase sales of financial instruments and the distribution of information regarding financial instruments that is unrelated to advertising (the Law does not specify any grounds for such suspension and one can expect it in the future regulations of the Commission).

As a general observation, the Commission has obtained discretion to decide on and adopt regulations involving a broad list of matters. Moreover, in addition to the above-mentioned determination of licensed activities, securities, and combination of activities, the Commission will set fees for its administrative services, additional requirements for professional participants and the right to suspend the licences of professional participants.

New definition of security

The Law introduced a new definition of security defining it as a document (electronic document) that certifies the property [ownership] and other rights of its owner, arising as a result of one or more transactions (issuance or execution of a security) and having monetary value. In addition, the Law abandons Article 196 of the Civil Code of Ukraine, setting forth that the mandatory requisites of a security are that it be established by law and that an instrument cannot be considered as a security if it fails to meet the specified requisites and form.

However, it is presently not clear whether such requisites will be established by the Commission’s regulations rather than by statutory acts or if the Commission will develop some other criteria for referring to an instrument as a security. The new definition seems to be too broad and a bit puzzling. Unfortunately, the explanatory note behind the Law omits shedding light on the reason for having it this way.

In this regard, one cannot ignore another definition of a security that has been recently brought to law by amending Article 194 of the Civil Code of Ukraine. Namely, the Law of Ukraine “On Agrarian Notes” dated 22 February 2024, no. 3586-IX (the “Agrarian Notes Law“) provides for a more extended and self-sufficient definition of a security, which is still conditioned by statutory law.  

The Agrarian Notes Law will become effective on 1 January 2025, while the provisions of the Markets Law amending the definition of a security have already come into effect. The existing confusion seems to be the result of an omission by the lawmakers rather than an intention to have the definition of security changed twice in one year. Nevertheless, one may only guess at which of those definitions will ultimately survive.    

Authorised persons of the Commission

The Law introduces an institute of authorised persons of the Commission (“authorised persons”) who are defined as the officers of the Commission and are authorised to perform the following functions on capital markets and organised commodity markets: (i) carrying out inspections, (ii) conducting investigations, (iii) supporting and presenting cases that are reviewed by the Commission, (iv) considering cases of breach of applicable legislation.

The authorised persons will be powerful players and basically independent. This follows from the provisions of the Law setting forth that an authorised person shall not be obligated to provide any explanations regarding, among other things, the subject of an inspection or an investigation, except for providing explanations during the course of criminal proceedings and litigation. 

Inspections and investigations 

The Law supplements the Regulatory Law with detailed rules for the off-site and on-site inspections by the Commission and extends a list of persons that can be subject to inspections. Notably, this list has been updated with such new categories as investors in financial instruments, applicants for the obtainment of a license of a professional participant and authorisation of information services provider on capital markets and organised commodity markets. So far, only the actual holders of the license/authorisation can be subject to the audit by the Commission.

As already mentioned, inspections will now be conducted by authorised persons who will exercise greater powers. An inspection will result in a draft report, which should be shared first with a person under inspection for any comments, objections, or suggestions that must be considered by the authorised person and either reflected in the report or rejected with grounds for the rejection. 

In addition, after the completion of the inspection, the Commission may take additional measures, such as (i) requesting an inspected person to take certain actions, (ii) referring inspection documentation to the state enforcement authorities, other state or local authorities, (iii) referring these documents to the authorised person for the purpose of supporting the case or for conducting an investigation, and (iv) sending documentation to foreign capital markets regulators. However, the Commission has quite a deferred deadline of one year to take these measures following the completion of the inspection. 

While the above-mentioned provisions on the inspections by the Commission have become effective, the procedures for conducting inspections and the consideration of the inspection report, the issuance of related rulings by the Commission and the form of the inspection report and other documents, must still be elaborated on in the regulations of the Commission.

Starting on 1 January 2026, the Commission will be empowered with investigatory functions on capital markets and regulated commodity markets. There are grounds for the launch of an investigation in the Law; some of these, “potential breach” and “reasonable suspicion of breach” of applicable legislation, stand out as vague and uncertain. Investigations will be conducted by authorised person(s) and must be completed within 18 months. This term can be extended for another year. 

While conducting an investigation, an authorised person is vested with powers that are very similar to the powers and functions of an investigator in criminal proceedings. They include: 

• accessing the premises of capital market participants as well as professional participants of organised commodity markets, and based on a court ruling, the premises of any legal entity or individual; 
• accessing the information and telecommunications systems, documents, objects etc. concerning the subject – matter of an investigation;
• requesting any information concerning the subject-matter of an investigation including restricted access information (apart from advocate secrecy);
• conducting a survey of individuals (including witnesses) and using video, photo, audio recordings in the course of a survey;
• upon the approval of the Head of Commission – requesting that the court to seize property including financial instruments and funds;
• suspending the performance of agreements on capital markets, further requesting the same from the court; and
• suspending the entry of amendments to the depository accounting system with respect to the securities of a specific owner.

The respective provisions on investigations require the Commission to adopt a number of by-laws, inter alia, regulating the process of decision-making by the Commission in terms of launching an investigation, the adoption of rules required in the course of investigation, etc.

Breaches of legislation; Penalties

Similarly, as provided in the effective laws, a violation of law must be recorded and documented in the form of a detailed act of violation. The Law amends this procedure as well as provides the requirements to the act, which is now the responsibility of a specially designated authorised person of the Commission, who is responsible for supporting the case. 

In certain cases, which are to be determined by the Commission, an alleged wrongdoer will receive a draft of the act recording the violation along with a draft of a settlement agreement from the authorised person. Therefore, the Law introduces a kind of settlement procedure at this stage whereby the person in question for whom the act has been drawn up may provide comments, objections and suggestions to the act, as well as propose their own settlement terms by submitting a draft agreement.  

The Law substantially expands the corrective measures that the Commission will be empowered to apply for the breach of legislation. Apart from financial sanctions, it may withdraw or suspend the licence/authorisation issued by the Commission and may apply public warnings, prohibitions against conducting transactions in financial instruments, compensation of damages to the investors, prohibitions against participating in trading and against performing managerial functions in a capital market participant, etc.

While applying these measures, the Law requires the Commission to consider a variety of factors such as: the severity and duration of the violation, the financial standing of the wrongdoer and the possible consequences caused by the application of sanctions, as well as damages to third parties caused by the violation, other violations of legislation within the last 10 years, cooperation with the Commission, etc.

The ranges of financial sanctions (fines) and the number of violations for which these sanctions could apply, as introduced by the Law, are among its most debatable provisions. These ranges are determined rather broadly (e.g., “from UAH 20 mln to UAH 30 mln” or “up to 81 mln but not exceeding 10% of the total annual turnover of a legal entity“). 

The provision on financial sanctions will come into effect on 1 January 2026 and the amounts will be subject to a gradually increasing reduction factor until 1 January 2030. Prior to 1 January 2026, the Commission will apply financial penalties envisaged by the transitional provisions of the Law based on reduced rates and for a limited number of violations. When it comes to individuals, most of these penalties will apply after introducing the respective amendments to the Code on Administrative Offences of Ukraine. 

Regulatory contributions

The Law provides for a new mechanism and new sources of financing for the Commission. A novelty in the national law is the so-called regulatory contributions payable by professional participants and certified market players of capital markets and organised commodity markets that hold a respective license/authorisation as of 1 January of a respective year. These regulatory contributions are linked to the minimum living wage of the employable population and depend on a specific activity. Basically, two rates are provided, which currently amount to UAH 45,420 and UAH 227,100. They must be paid to a special fund of the State Budget of Ukraine annually by 1 July.

Failure to make a regulatory contribution will be subject to forced collection by the state execution authority and financial sanctions.  

The entry into force of these provisions is linked to the enactment of amendments to the Budget Code of Ukraine related to the Commission’s functions.  

Other regulatory developments 

There are a number of other fundamental regulatory developments introduced by the Law that are worth noting, including:

• Enhancement of corporate governance rules for professional participants of capital markets, including requirements and procedures for a conflict-of-interest disclosure, its prevention and settlement, notification to the regulator of market abuse or misbehaviour.
• Updated and extended rules for self-regulatory organisations of professional participants of capital markets.
• More extended rules on market abuse prevention including more enhanced requirements related to insider trading such as the disclosure of insider information and insiders, insider deals, etc.
• Rules, procedures and authorities of the Commission in the course of international cooperation with international organisations, market regulators and their associations. 
• Introduction of the notion of whistle-blowers with regard to capital markets and organised commodity markets, with the relevant procedures, rights and protection measures.

Further steps

The new regulatory framework will come into force in stages over the next few years. During this time, apart from the further development and adoption of by-laws by the Commission, which are necessary for the implementation of the Law, the regulator and market players will simultaneously undergo the transformation and adaptation to a new regulatory set-up. 

One of the main difficulties of this process is the fact that the Law does not simply introduce the new rules but rather changes the principles and approaches to regulation and enforcement in capital markets and organised commodity markets dramatically. It is quite clear that the success of this entire undertaking will largely depend on the quality of regulations, which are yet to be developed by the Commission, and their ability to ensure transparency and be premised on the balance of interests and risks. 

By Oksana Volynets, Senior Associate, Wolf Theiss

On 5 June 2024, the Cabinet of Ministers of Ukraine adopted Resolution No. 650 (hereinafter referred to as “Resolution No. 650”), which approves the Procedure for Reservation of Persons Liable for Military Service during Martial Law by means of the Unified State Web Portal of Electronic Services (hereinafter referred to as “Portal Diia”).

The relevant amendments also affected Resolution of the Cabinet of Ministers of Ukraine No. 76 dated 27 January 2023, in particular, the Procedure for Reservation of Persons Liable for Military Service during Martial Law and the Criteria and Procedure for Determining Enterprises, Institutions and Organizations as Critically Important for the Functioning of the Economy and Ensuring the Livelihood of the Population during a Special Period, as well as Critically Important for Ensuring the Needs of the Armed Forces and Other Military Formations during a Special Period.

I. Electronic reservation procedure (e-reservation)

Resolution No. 650 provides for reservations based on the lists of persons liable for military service offered for reservation (hereinafter referred to as “the lists”) through the Diia Portal.

Such lists are submitted via the Diia Portal by entities included in the Unified List of Public Authorities, Other State Bodies, Local Self-Government Bodies, Enterprises, Institutions and Organizations for Reservation of Persons Liable for Military Service (hereinafter referred to as the “Unified List”).

1. Procedure for the formation of the Unified List

1.1. Through the Diia Portal, the Ministry of Economy forms and maintains a Unified List for the reservation of persons liable for military service who are proposed for reservation for the period of mobilization and for wartime, who work or serve:

• in public authorities, other state bodies, local self-government bodies (hereinafter referred to as “state bodies”)
• at enterprises, institutions and organizations that are critically important for meeting the needs of the Armed Forces and other military formations during a special period (hereinafter referred to as “enterprises”);
• at enterprises, institutions and organizations that are critically important for the functioning of the economy and ensuring the livelihood of the population during the special period (hereinafter referred to as “institutions”).

1.2. The following procedure is provided for the formation of the Unified List: The Ministry of Economy adds state bodies to the Unified List; the relevant state body adds enterprises and institutions to the Unified List. Thus, inclusion in the Unified List is carried out on the basis of a notification submitted by the Ministry of Economy or a state body, which, among other things, must contain information on the grounds for reserving employees liable for military service of the relevant state body, enterprise and institution, namely:

• the date of adoption and the number of the decision of the central executive body in charge of the Armed Forces, other military formations established in accordance with the laws of Ukraine, the Security Service of Ukraine, the Ministry of Strategic Industries of Ukraine on determining the enterprise as critically important for meeting the needs of the Armed Forces, other military formations during a special period; or

• date of adoption and number of the decision of the central executive body, regional, Kyiv and Sevastopol city state administration (military administration, if established) on determining the institution as critical for the functioning of the economy and ensuring the livelihood of the population during the special period or the decision of the Ministry of Foreign Affairs, the Ministry of Reintegration, the Secretariat of the Cabinet of Ministers of Ukraine or bodies managing state property that supports the activities of the President of Ukraine, the Verkhovna Rada of Ukraine and the Cabinet of Ministers of Ukraine on approving the list of such institutions.

1.3. The Unified List contains the following information about the company or institution submitting the lists:

• full name of the company;
• code according to the EDRPOU;
• surname, name, patronymic (if any) of the head of the state enterprise.

2. E-reservation procedure

2.1. The head of a state body, enterprise, institution (included in the Unified List) or a person authorized by him/her through the Diia Portal shall form free-form lists after passing identification and authentication.

When forming a list from the Unified State Register of Conscripts, Persons Liable for Military Service and Reservists (hereinafter referred to as the “Register of Persons Liable for Military Service”), through electronic information interactions there is obtained information on:

• the total number of persons liable for military service in a state body, enterprise or institution;
• the total number of persons liable for military service in a state body, enterprise, or institution that has been granted a deferment and transferred to a special military record.

The head of a state body, enterprise, institution or a person authorized by him/her may submit an application in electronic form through the Diia Portal and receive information about persons liable for military service who have been granted a deferment and who have been transferred to a special military record held in the Register of Persons Liable for Military Service.

The list contains information about:

– state body, enterprise, institution, namely:

• full name and location;
• code according to the EDRPOU;

and

– and person liable for military service, in particular:

• last name, first name, patronymic (if any);
• taxpayer registration number or serial number (if any) and passport number of a citizen of Ukraine;
• the term of the deferment.

Formation of the list by means of the Diia Portal shall be completed by imposing a qualified electronic signature or an advanced electronic signature of the head of a state body, enterprise, institution or a person authorized by him/her.

2.2. The formed list is checked by means of the Register of Persons liable for military service in order to verify the presence of a person in the said Register. In case of a positive result of the check by means of the Register of Persons liable for military service, the person liable for military service is automatically transferred to a special military record for the period of validity of the deferment.

From the moment a person liable for military service is transferred to a special military record, he or she is considered to be reserved and granted a deferment. Information about the deferment is reflected in the military registration document in electronic form.

A person liable for military service is not subject to reservation, and the head of a state body, enterprise or institution is notified of this via the Diia Portal, in case of:

• absence of information about the person liable for military service in the Register of Persons Liable for Military Service;
• absence in the Register of Persons Liable for Military Service of information that the person liable for military service is in an employment relationship with a state body, enterprise or institution.

2.3. At the request of an employee in electronic form, submitted by means of the Diia Portal, an extract on the reservation of a person liable for military service may be generated, which is a document confirming the granting of a deferment to a person liable for military service. Such an extract is generated and sent by means of the Diia Portal to the user’s electronic cabinet. The extract must contain a unique electronic identifier (QR code), which is generated automatically and can be read to verify the data in the Register of Persons Liable for Military Service.

As a separate aspect, it should be noted that the submission of the list, and the booking procedure in general, is carried out through the Diia Portal if technically possible, i.e. submission of lists for booking in paper and/or electronic form remains possible.

II. Amendments to the Resolution of the Cabinet of Ministers of Ukraine No. 76 dated 27 January 2023 on the Procedure for Reservation of Persons Liable for Military Service during Martial Law

Resolution No. 650 also provides for amendments to the Procedure for Reservation of Persons Liable for Military Service during Martial Law, including, in particular, the following:

1. The maximum periods of deferment have been changed, namely, they can no longer exceed:
   • the term of the contract (agreement) for the supply of goods, performance of works and provision of services necessary to meet the needs of the Armed Forces and other military formations – for persons liable for military service who work or are employed at enterprises, institutions and organizations that are critical to ensure the needs of the Armed Forces and other military formations during a special period;
   • 12 months – for persons liable for military service who work or serve at enterprises, institutions and organizations that are critically important for the functioning of the economy and ensuring the livelihood of the population during a special period;
   • the term of the agreement (contract) or the term for which they were elected (appointed) –

for persons liable for military service who work or serve in specialized United Nations institutions, international judicial bodies, international and non-governmental organizations and institutions of which Ukraine is a member, participant or observer, in accordance with the international agreements concluded by Ukraine.

For persons liable for military service who work or serve in public authorities, other state bodies, and local self-government bodies, the maximum period of deferment remains limited to the duration of mobilization.

In addition, all of the above categories of persons liable for military service are now subject to reservation regardless of military rank, age, or military speciality.

2. State bodies, local self-government bodies, enterprises, institutions and organizations that are (i) critically important for ensuring the needs of the Armed Forces, other military formations during a special period, or (ii) critically important for the functioning of the economy and ensuring the livelihood of the population during a special period, no later than the next day after the employee is hired, transferred from one structural unit to another or transferred to another permanent position or job, dismissed, reinstated, temporarily termination/resumption of the labor agreement, submit to the Pension Fund of Ukraine the relevant information through the web portal of electronic services of the Pension Fund of Ukraine.

3. The list of enterprises, institutions and organizations, which are not subject to the limitation on the number of persons liable for military service subject to reservation, has been expanded; from now on, these include:
   • specialized United Nations institutions, international judicial bodies, international and non-governmental organizations and institutions of which Ukraine is a member, participant or observer, in accordance with the international agreements concluded by Ukraine;
   • enterprises, institutions and organizations that ensure the provision of services and performance of operations and comprehensive maintenance of the property of state authorities and local self-government bodies, as well as maintain and service objects that are part of the state system of emergency control points that are critically important for the functioning of the national economy and ensuring the livelihood of the population in a special period;
   • institutions and organizations that include full-time national teams of Olympic, non-Olympic sports and sports for persons with disabilities, the list of which is approved by the Ministry of Youth and Sports of Ukraine.

4. In the justification, in addition to the information on the correspondence of the registration data of the persons liable for military service specified in the list with their military registration documents, there also should be indicated information on the clarification of the data by them regarding their stay on the military registration in accordance with clause 2 of section II “Final and transitional provisions” of the Law of Ukraine dated 11 April 2024 No. 3633-IX “On Amendments to Certain Legislative Acts of Ukraine Regarding Certain Issues of Military Service, Mobilization, and Military Record.”
5. From now on, along with the enrollment of a person liable for military service on a special record, the territorial centres of recruitment and social support shall enter information about the deferment into the Unified State Register of Conscripts, Persons Liable for Military Service and Reservists.
6. In the event of a change in the position of a person liable for military service, state authorities, other state authorities, local self-government bodies, enterprises, institutions and organizations shall, within three days, send a notice of such changes to territorial centre of recruitment and social support where the person liable for military service is registered. In this case, the extract issued for the previous position is withdrawn from the person liable for military service and sent together with the notification, and the extract for the new position is issued to the person liable for military service.
7. The list of grounds for canceling the deferment has been expanded. In particular, such grounds now include:
   • temporary termination of the labor agreement between a person liable for military service and an enterprise
   • a reasoned submission from the head of a public authority, other state body, local self-government body, enterprise, institution or organization
   • granting a deferment for other reasons specified in Article 23 of the Law of Ukraine “On Mobilization Preparation and Mobilization”
   • termination of an agreement (contract) or expiration of the term of appointment – for employees of specialized United Nations institutions, international judicial bodies, international and non-governmental organizations and institutions of which Ukraine is a member, participant or observer, in accordance with the international agreements concluded by Ukraine.

In addition, the previously provided ground – dismissal of a person liable for military service from a public authority, other state body, local self-government body, enterprise, institution or organization – has been clarified by adding an exception, which is the case of “dismissal from a position with subsequent appointment to another position within the same public authority, other state body, local self-government body, enterprise, institution or organization”.

III. Amendments to the Resolution of the Cabinet of Ministers of Ukraine dated 27 January 2023 No. 76 regarding the Criteria and procedure for determining enterprises, institutions and organizations that are critically important

1. The list of enterprises, institutions and organizations that can be considered critically important for the functioning of the economy and ensuring the livelihood of the population in a special period has been expanded, namely, the latter now includes also:
   • the research service of the Verkhovna Rada of Ukraine, as well as enterprises, institutions and organizations that are in the sphere of management of bodies that manage state property, which ensures the activities of the President of Ukraine, the Verkhovna Rada of Ukraine and the Cabinet of Ministers of Ukraine, respectively, according to the lists approved by the relevant management bodies;
   • enterprises in the field of prosthetics and orthopedics, determined by the Ministry of Social Policy of Ukraine as critically important for the functioning of the economy in a special period in the field of social protection of the population, which directly perform prosthetics/orthotics;
   • the Ukrainian Red Cross Society, other Ukrainian non-governmental organizations that implement humanitarian projects at the expense of international partners, according to the list approved by the Ministry of Reintegration of the Temporarily Occupied Territories of Ukraine.

2. There has been supplemeted the list of enterprises, institutions and organizations that can be recognized as critically important for the functioning of the economy and ensuring the livelihood of the population in a special period only if two (or more) criteria (according to which enterprises, institutions and organizations that are critically important for the functioning of the economy are determined) are met. Now this provision applies to enterprises, institutions and organizations that carry out international transportation of passengers and/or goods, transportation of passengers on public bus routes and/or goods, and carriers of urban electric transport.
3. It is established which enterprises, institutions and organizations can be identified as critically important for ensuring the needs of the Armed Forces and other military formations. Such enterprises may be:
   • enterprises, institutions and organizations engaged in the production of goods, performance of works and provision of services on a paid and/or free of charge basis necessary to meet the needs of the Armed Forces, included in the list approved by the Ministry of Defence;
   • enterprises engaged in the production of goods, performance of works and provision of services necessary to meet the needs of military formations (other than the Armed Forces) established in accordance with the laws of Ukraine, included in the lists approved by the central executive authorities that manage these military formations, the Security Service of Ukraine, in whose interests they produce goods, perform works, provide services;

To be recognized as critical on this basis, an enterprise, institution or organization must:

• produce goods, perform works and provide services necessary to meet the needs of military formations (except for the Armed Forces) established in accordance with the laws of Ukraine;
• be included in the lists approved by the central executive authorities that manage these military formations, the Security Service of Ukraine, in whose interests they produce goods, perform works, provide services;
• legal entities of private law, whose constituent documents define charitable activities in one or more areas defined by the Law of Ukraine dated 5 July 2012 No. 5073- УІ “On Charitable Activities and Charitable Organizations”, which produce/purchase goods, perform works and provide services necessary to meet the needs of the Armed Forces and other military formations included in the list approved by the Ministry of Defence of Ukraine;

To be recognized as critical on this basis, an enterprise must:

• produce/purchase goods, perform works and provide services necessary to meet the needs of the Armed Forces and other military formations and meet the criteria set by the Ministry of Defence;
• be included in the list approved by the Ministry of Defence of Ukraine;
• enterprises, institutions and organizations that provide training, retraining and advanced training of external pilots (operators) of unmanned robotic systems and external crews of unmanned robotic systems, enterprises, institutions and organizations that provide training, retraining and advanced training in electronic warfare in the interests of the security and defence forces of Ukraine, enterprises, institutions and organizations that provide training, retraining and advanced training in tactical medicine in the interests of the security and defence forces of Ukraine, the criteria for which are determined by the order of the Ministry of Defence of Ukraine.

By Yuna Potomkina and Anton Sintsov, Counsels, Asters

On 1 May 2024, the Ministry of Energy of Ukraine’s Order No.136 as of 1 April 2024, came into effect, cancelling Order No.206 as of 15 June 2022. This change has significant implications for the renewable energy sector in Ukraine, as detailed below.

Regulation During Martial Law in Ukraine: Ambiguity in Interpretation

Since the onset of the full-scale invasion, Ukraine has enacted several laws and regulations to ensure the smooth and stable operation of its electricity market during martial law, namely:

• Order No.140 as of 28 March 2022 “On Settlements in the Electricity Market”
• Order No.206 as of 15 June 2022 “On Settlements with Producers under the “Green” Tariff”

These orders established advance transfer rates for payments for electricity generated from renewable sources. Specifically, Order No.140 set the following rates based on the weighted average “green” tariff for 2021:

• 15% for Solar Power Plants (SPPs)
• 16% for Wind Power Plants (WPPs)

Full payments were to be made proportionally, depending on the availability of funds in the Guaranteed Buyer’s account, as per NEURC Resolution No.641. Upon the expiration of Order No.140, Order No.206 increased the advance payment rate to 18% for both SPPs and WPPs, allowing for continued electricity generation from alternative sources during the crisis. This was intended to support the industry and ensure a minimum level of payment to producers.

However, the Guaranteed Buyer interpreted Order No.206 as removing its obligation to make full payments to producers under the “green” tariff, leading to significant debt and several lawsuits to recover funds, including 3% per annum interest and inflationary costs on the debt.

Landmark Decision of the Commercial Court of Cassation

Court rulings on Order No.206 had been inconsistent: some courts supported renewable energy producers, stating that the order did not exempt the Guaranteed Buyer from making full payments, while others sided with the Guaranteed Buyer, interpreting the order as capping payments at the specified advance rates.

However, on 11 April 2024, the Commercial Court of Cassation resolved this ambiguity in case 910/9100/22.

The court concluded that Order No. 206 was intended to regulate the distribution of funds specifically for advance payments and did not absolve the Guaranteed Buyer from the obligation to make final payments to ensure 100% payment for the supplied electricity.

Three weeks after this decision, the Ministry of Energy’s order cancelling Order No. 206 came into force.

Further Challenges and Uncertainties

The cancellation of Order No.206 marks a crucial step for the renewable energy industry. Order No.206 not only failed to stimulate the sector’s development but also fostered ambiguity, debt accumulation, and extensive litigation.

We hope that rescinding Order No.206 will resolve the settlement issues between the Guaranteed Buyer and producers under the “green” tariff, which have persisted since the full-scale invasion began. However, significant challenges remain. It is uncertain how the Guaranteed Buyer will manage its relations with producers, considering the existing debt and ongoing litigation. The crucial question is whether the cancellation of this order will ensure full payment to producers or if they will still need to pursue legal action to protect their rights.

Moreover, given the Guaranteed Buyer’s stance in court and the lack of official comments from government authorities regarding the impact of the cancellation, the probability of debt repayment for previous periods appears to be very low.

By Yaroslav Petrov, Partner, and Kateryna Andarak, Associate, Asters

On 25 April 2024, Ukrainian Parliament adopted the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding the Regulation of Labour of Domestic Workers”, which introduces regulation of labour relations with domestic workers. The Law supplements the Labour Code of Ukraine (the “Labour Code”) with a new Chapter “Labor of Domestic Workers”.

In particular, the following provisions are introduced to the Labour Code:

• a domestic worker is defined as an individual who performs domestic work for a household within the framework of an employment relationship with an employer
• a household is a group of people who live together in one dwelling or part of it, provide themselves with all the necessities of life, run a common household, and fully or partially pool and spend their funds
• an employer is an individual who is a member of the household and with whom a domestic worker has entered into an employment agreement

The amendments clarify the legal status of domestic workers, essential terms of an employment agreement with them, and set forth additional rights, obligations and guarantees for domestic workers. For instance:

• the employer shall enter into a written employment agreement with the domestic worker and shall notify a local tax authority of the hire of the domestic worker
• the parties may skip creating usual employment-related paperwork and making entries in the employee’s employment record book
• social contributions are payable on a voluntary basis
• the employee may be provided with housing on a paid or free basis, however, the employer can not deduct housing costs from the salary
• the employee is prohibited from disclosing information about the household without the employer’s consent
• domestic workers are subject to the provisions on working hours and rest periods provided for by labour law
• domestic workers independently keep records of their working hours in a form that is convenient for them and approve such records with the employer within the timeframes specified in the employment agreement
• an employment agreement concluded with a domestic worker may be terminated at the initiative of one of the parties with a 14-day notice, unless otherwise provided by the employment agreement.

The amendments come into force on 24 August 2024.

By Inesa Letych, Counsel, and Iryna Shaposhnikova, Associate, Asters

Integrites has advised UAID Fund on financing the reconstruction of the Giraffe Mall in Irpin, Kyiv Region.

UAID Fund is a US-based private investor focused on rebuilding Ukraine’s middle-market commercial and residential real estate.

According to Integrites, “the Giraffe Mall was one of the first targets of the Russian troops during their attempt to occupy Ukraine’s capital, Kyiv, in February – March 2022. The 6,500-square-meter two-storeyed Giraffe Mall is scheduled for re-opening in autumn 2024.”

The Integrites team included Managing Partner Oleksiy Feliv, Senior Partner Illya Tkachuk, Partner Viktoriya Fomenko, Counsel Olena Savchuk, Senior Associates Yuriy Korchev, Tetiana Storozhuk, Vitalii Labadin, and Serhii Datsiv, Associate Sofia Movchanets, and Paralegal Artem Suchenko.

The International Arbitration and Cross-Border Litigation practice has taken center stage for Asters in Ukraine according to Co-Managing Partner Oleksiy Didkovskiy, with work driven by the war and the pandemic and a focus on state and quasi-state clients.

CEELM: Over the past year, what specific work or mandates have occupied your time?

Didkovskiy: Our focus has been intensely trained on representing state and quasi-state entities, such as state companies and banks, which have long been our clients. This focus has only sharpened with the ongoing war and the preceding pandemic, as these crises have made private litigation less appealing and feasible. Our work mainly involves complex legal disputes arising from bilateral investment treaties, especially in cases against the Russian Federation related to its actions in Crimea and the eastern territories of Ukraine.

We’ve continued to represent the state of Ukraine in two major ongoing disputes against Russia: OschadBank v. Russia and PrivatBank v. Russia, both under the auspices of the Permanent Court of Arbitration. These cases involve substantial claims for compensation due to Russia’s illegal annexation of Crimea, asserting significant economic losses and breaches of international law. We are also acting as local legal counsel for Ukraine in a landmark USD 3 billion Eurobond dispute with Russia in the English courts.

CEELM: Can you provide more details on these disputes?

Didkovskiy: The OschadBank and PrivatBank cases are seminal, not just for their high stakes but for their broader implications on international legal norms. OschadBank is seeking compensation for the expropriation of its assets following Crimea’s annexation – a direct violation of the bilateral investment treaty between Ukraine and Russia. Similarly, PrivatBank has filed a USD 1 billion claim related to the loss of its banking facilities and investments in Crimea, tagged under the same treaty violations. As to the USD 3 billion bond dispute, in March 2023, the UK Supreme Court ruled for a full public trial, allowing Ukraine to defend the claim on grounds of duress due to Russia’s threats of aggression in 2013 and subsequent behavior.

Additionally, we handle cases defending the Ukrainian government against investment disputes, such as Misen Energy and Igor Boyko v. Ukraine. These cases typically revolve around alleged breaches of treaty obligations by Ukraine and require a robust defense strategy that navigates complex international legal principles.

CEELM: What insights have you gained from defending both the state and investors in these disputes?

Didkovskiy: Representing both sides has provided us with a unique vantage point to understand and anticipate the arguments and strategies employed across the table. This dual perspective is invaluable, particularly in investment arbitration where nuanced legal and factual issues are at play. It enhances our strategic planning and execution in both defending and asserting claims in complex disputes.

CEELM: Aside from these cases, how significant is your pro bono work?

Didkovskiy: Our pro bono efforts are a cornerstone of our practice. We’ve been representing the State of Ukraine in the European Court of Human Rights, challenging the widespread human rights violations perpetrated by Russia during its full-scale invasion. These proceedings address the damages and seek accountability for the breaches of international law committed by Russia, which is crucial not only for legal redress but also for historical documentation and future deterrence.

CEELM: How are you bolstering your team to handle these increasing challenges?

Didkovskiy: This year, we’ve made significant additions and promotions within our team to enhance our capabilities. Oksana Legka and Oleksandr Volkov were promoted to Partner positions, bringing their extensive expertise in multi-jurisdictional litigation and international arbitration to the forefront of our practice. Additionally, Andriy Stetsenko joined us as a Counsel, bringing over a decade of experience in contentious matters including international commercial and investment arbitration.

In 2023, we also experienced a poignant departure. Markiyan Kliuchkovskyi left his partnership at our firm to lead the International Register of Damage Caused by the Aggression of the Russian Federation against Ukraine – a testament to our firm’s deep involvement and commitment to addressing the consequences of international conflicts.

CEELM: How do you expect the practice and your work to evolve in the next 12 months?

Didkovskiy: We anticipate an increase in both the scope and number of cases. The ongoing geopolitical tensions and the evolving international response to Russia’s actions are likely to generate new legal challenges. We expect to continue growing our involvement in investment disputes and state defense cases, alongside handling significant non-performing loan portfolios for state banks, which have spiked in number due to the economic impacts of the pandemic and war.

On 26 April 2024, the Cabinet of Ministers of Ukraine (“Government”) approved the Procedure for Using Funds from the State Budget to Provide State Support for the Implementation of Investment Projects Involving Significant Investments (“Budget Procedure”).

Background
The incentives for investment projects with significant investments (“Investment Project”) were initially introduced by the Law of Ukraine “On State Support for Investment Projects Involving Significant Investments in Ukraine” (“Law”) back in 2020.

The Law provided a range of benefits for the Investment Projects of over EUR12 million in the processing industry, production of biogas and biomethane, waste management, transport, warehousing, postal and courier services, logistics, scientific and technical activities, etc.

Now, the Government has finalised its by-laws governing the allocation of the incentives for the Investment Projects by adopting the Budget Procedure.

Budget Procedure’s key points

The Ministry of Economy of Ukraine (“MEU”) is entrusted with the role of a chief administrator of the budget funds for the Investment Projects.

The allocated budget funds can be used for:

• compensation (full or partial) for the cost of engineering and transport infrastructure facilities built by the applicant or an investor with significant investments that are necessary for the implementation of the Investment Project; and
• compensation (full or partial) for the costs of connecting to engineering and transport networks necessary for implementing the Investment Project.

UAH3 bln (EUR70 mln) has been budgeted for this programme for 2024.

In order to apply for compensation, an investor must submit an application to the MEU accompanied by documents confirming the respective spending.

Once the MEU decides on full or partial compensation, the budget funds are transferred from a special state account to an investor’s current account.

At the same time, the investor will be required to return the total amount of compensation within a month if:

• the investment has turned out to be less than EUR12 million; or
• the investor was not entitled to the compensation in the first place.

The Procedure came into force on 4 May 2024.

By Maksym Maksymenko, Partner, Avellum

Asters has successfully defended PrivatBank in a dispute over the title to Pryozernyi, a shopping mall in Dnipro with a total area of more than 32,000 square meters.

According to the firm, the former owner of the Pryozernyi shopping mall was seeking to regain ownership of the shopping mall while claiming the illegality of the actions of the bank and the state registrar in foreclosing on the asset, which had been mortgaged to PrivatBank. The case had been pending in court since 2021.

On April 23, 2024, Ukraine’s Supreme Court dismissed the former owner’s cassation appeal, upholding the decisions of the first instance and appeal courts, which confirmed the legality of PrivatBank’s acquisition of the title to the property.

The Asters team included Co-Managing Partner Oleksiy Didkovskiy, Partner Andriy Pozhidayev, and Counsel Viktor Tarasenkov.

On 15 May 2024, amendments to the Labour Code of Ukraine came into effect aiming to regulate the rights and obligations of parties in labour relations during a change of control over business. The Ukrainian parliament adopted such amendments to align Ukrainian legislation with EU Directive 2001/23/EC, dated 12 March 2001.

Definition of the “transfer of a business entity”

For matters related to labour relations, the transfer of a business entity includes:

• change of ownership of the employer company;
• reorganisation of the employer company (merger, acquisition, transformation, division, or spin-off);
• change of the owner and/or user of the assets (their part) that form the organised group of resources used by the employer, while preserving the type of economic activity (“Transfer”).

Consequences of the Transfer

Upon the Transfer, the employment relationship continues with no changes.

The legal status and functions of trade unions or authorised representatives of employees are maintained and performed under the same terms as before the Transfer.

Consultations with employees regarding the Transfer

Currently, at least ten business days before the Transfer, both the transferor and the transferee must notify the trade union (an authorised representative of employees) or staff themselves about:

• the date or approximate date of the Transfer;
• reasons for the Transfer;
• legal, economic, or social implications of the Transfer for the employees; and
• any measures planned for the employees upon the Transfer.

In turn, the trade union or employees’ authorised representatives may initiate consultations with the seller and/or the purchaser within five business days of receiving the notice on Transfer concerning the reasons for the Transfer and its consequences for the employees. The consultations are to be held within five business days of their initiation. Based on the results of the consultations, a minutes or another document is issued.

The absence of such consultations does not affect the Transfer.

Importantly, employees must be notified of changes in their essential working terms caused by the Transfer at least two months in advance.

The changes introduced by the implementation of the Directive aim to ensure better protection of employee rights in the event of a change of the business owner and facilitate a transparent process of transferring ownership to the employer. However, the ambiguous wording of the new provisions may complicate the process of completing M&A transactions, creating potential risks for the business and its officials.

By Mykola Stetsenko, Managing Partner, and Yuriy Nechayev and Andriy Romanchuk, Partners, Avellum