Category: Ukraine

On October 30, 2023, Sayenko Kharenko announced that its Partner and Head of IP Yaroslav Ognevyuk would leave the team at the end of the month, to continue practicing law at his own firm.

Practicing IP law for almost 30 years, Ognevyuk spent the last five with Sayenko Kharenko. Before that, he spent over 12 years with Doubinsky & Osharova, from 2006 onwards. Earlier, he spent two years between 2004 and 2006 as the Chief of the Litigation Division of the Patent Office of Ukraine. He started his career as an in-house Lawyer with the Educational Book publishing house in 2002.

After Ognevyuk’s departure, the Sayenko Kharenko IP practice will remain under the overall leadership of Partner Nazar Chernyavsky, together with the heads of individual practice areas Counsel Oleg Klymchuk and Senior Associate Volodymyr Hrunskyi.

“As part of a constructive discussion, we have agreed that splitting up the legal business is currently the best option for both parties,” Ognevyuk commented. “Conflicts do not affect our decision. It is aimed at further development and considers the interests of all.”

“We understand that this decision will give Yaroslav more flexibility to realize his ambitions and experiment with different legal products,” Chernyavsky added. “At the same time, we have agreed to continue our cooperation in matters where Yaroslav’s clients in the new firm will need the expertise of other Sayenko Kharenko practices or vice versa. For almost five years of working together, we have established an effective implementation of complex, interesting, and non-standard projects that require the involvement of specialists in various fields of law.”

On 19 September 2023, the Cabinet of Ministers of Ukraine and the National Bank of Ukraine adopted Regulation No. 1011, introducing a comprehensive methodology (“Methodology“) to identify the ultimate beneficial owners (UBOs) of legal entities in Ukraine. This significant development aims to enhance transparency and provide detailed guidance on the process of identifying UBOs, with the ultimate goal of ensuring that legal entities in Ukraine are able to correctly identify UBOs within their ownership structure and disclose this information to the competent authorities.

Key highlights

• Streamlined UBO identification: The primary goal of the Methodology is to simplify the identification of UBOs by establishing a uniform and consistent approach, criteria and methods for assessing the presence of a UBO within a corporate structure.
• Access to accurate information: The Methodology aims to ensure that competent authorities have access to adequate, up-to-date and accurate information on UBOs.
• Alignment with international standards: The development of this Methodology is in line with the guidance provided by the Financial Action Task Force (FATF) in its “Guidance on Beneficial Ownership of Legal Persons” published in March 2022.

Key provisions:

• Comprehensive UBO identification process: The Methodology lays out a structured process for identifying UBOs. This involves investigating ownership relations to identify the characteristics of direct or indirect control over an entity, establishing a list of persons who directly or indirectly exercise such control, and gathering documentary confirmation of the respective control and ownership relations. If there are no clear signs of control, or if doubts persist about the UBO, the focus of the investigation should shift to examining individuals holding positions in the entity’s management or those performing a single executive function.
• Principles of UBO disclosure: The Methodology establishes various principles that should be considered when investigating the characteristics and determining the UBO. This includes the need to avoid a formal approach to determining the UBO (e.g., by way of direct ownership only), and apply a flexible and practical approach to UBO analysis.
• Research methods and documentation: Specific research methods and document requirements are detailed for identifying UBOs in cases of both direct and indirect influence, offering clear guidelines on assessing the UBO status of any individual.
• Indicators of indirect influence: The Methodology provides specific indicators to determine indirect influence through control rights. These include, among other things, the ability to issue binding instructions to entity management, negotiating significant transactions without further approval, holding a power of attorney issued for more than a year for significant transactions, or managing bank accounts.
• Control relationships among entities: Where one person (legal or individual) exercises control over another, the Methodology outlines a process to identify the main controlling person within a chain of control (i.e., a person that is not controlled by anyone else).
• Specific guidelines for different types of entities: The Methodology also provides detailed instructions on identifying UBOs for several specific types of legal entities, such as non-profit organisations, corporate and mutual investment funds, general and limited partnerships, and limited liability partnerships.

In conclusion, the introduction of the Methodology marks a significant step forward in Ukraine’s efforts to combat financial crime, promote transparency and align its UBO disclosure procedures with international standards. Businesses and organisations operating in Ukraine should carefully review these new regulations and integrate them into their compliance and governance processes to ensure compliance with these evolving requirements.

Actions to consider

While Ukrainian legal entities are generally not required to perform UBO disclosure and updates during the martial law period, this will change once the martial law period ends. Therefore, we recommend revising your entity’s ownership structure and UBO status to align it with the Methodology before the deadline established by Ukrainian law. Such a proactive approach will help to avoid the rush and time-related complications related to completing the UBO disclosure after the end of the martial law period, and will mitigate any issues with service providers that require the completion of financial monitoring and know-your-client procedures (such as banks, insurance companies, auditors, etc.)

By Viacheslav Yakymchuk, Managing Partner, Olga Gavrylyuk, Counsel, Mykyta Stebliuk, Associate, and Artem Sinelnikov, Junior Associate, Baker McKenzie

Avellum has advised JSC Integrity Capital on obtaining the merger control clearance of the Antimonopoly Committee of Ukraine for its acquisition of shares in Lanita Invest – an indirect co-owner of the Ocean Plaza shopping and entertainment complex in Kyiv.

Following this transaction, Integrity Capital has itself become an indirect co-owner of Ocean Plaza. According to Avellum, the other significant co-owner of Ocean Plaza is the State of Ukraine. “It is anticipated that the State’s share will soon be offered for sale in an upcoming public auction,” Avellum reported.

“This transaction illustrates the enduring spirit and resilience of Ukrainian businesses and investors, who continue to push forward against all odds,” Avellum Partner and Head of Competition Mykyta Nota commented. “We are honored to be entrusted with our clients’ most important matters.”

The Avellum team was led by Nota and included Counsel Anton Arkhypov and Associates Veronika Humeniuk and Yulia Bulenok.

Effective from 2 October 2023, Ukraine has ushered in a series of substantial amendments to its Advertising Law, aimed at modernizing advertising regulations and harmonizing them with the EU Audiovisual Media Services Directive.

Key takeaways

Clarified scope of application. The revised Advertising Law brings more clarity by establishing criteria for determining which advertisements are subject to Ukrainian jurisdiction. Notably, these updates also introduce new regulations concerning product placement and advertising across a spectrum of digital platforms, including video-sharing platforms, information-sharing platforms and electronic communication channels, such as messengers, bots, virtual and augmented reality, and other digital technologies.

New restrictions. The list of content prohibited in advertisements is expanded with certain discriminatory statements and unauthorized use of individuals’ images or names. Importantly, the amended law restricts residents of Russia from engaging in advertising activities within Ukraine. Additionally, a novel provision has been introduced, prohibiting the placement of ads on websites flagged by WIPO ALERT, based on Ukraine’s list of websites raising concerns about IPR compliance.

Revised license and permits-related requirements. The prohibition on advertising goods and services lacking necessary licenses and permits remains intact. However, accountability for compliance with this requirement has been transferred to advertisers, with advertising agencies not being considered advertisers for this specific purpose. Liability for spam. Despite the long-standing prohibition on spam, there was previously a lack of clear liability provisions for violations. With the new changes, violations of spam restrictions may result in fines of approximately USD 1,400.

Protections of children’s personal data. The revised Advertising Law enforces strict regulations that prohibit media, video-sharing platforms and information-sharing platforms from processing children’s personal data for commercial purposes. This includes direct marketing, profiling and behaviorally targeted advertising.

Self- and co-regulation. The updated legislation paves the way for self- and co-regulation within the advertising industry. This empowers businesses to play a more active role in shaping regulations, particularly concerning the creation and distribution of advertising.

Recommendations

The amendments to the Advertising Law are expected to have a positive impact on the advertising industry in Ukraine. We strongly recommend closely monitoring developments in the enforcement of these regulations to ensure compliance and adapt to the evolving legal landscape.

By Oleksiy Stolyarenko, Partner, and Dmytro Skydan, Associate, Baker McKenzie

On 18 October 2023, Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine Regarding Mandatory Registration and Use of Electronic Offices in the Unified Judicial Information and Telecommunication System or its Separate Subsystem (Module) Enabling Document Exchange” No. 3200-IX, dated 29 June 2023, will be enacted (“Law”).

The Law introduces an obligation to register an electronic cabinet in the Unified Judicial Information and Telecommunication System (“UJITS”) for certain categories of persons, including legal entities. According to the Law, legal entities are required to register in the UJITS by 18 October 2023 for the purposes of commercial proceedings and by 20 February 2024 for the purposes of civil and administrative proceedings. Furthermore, legal entities will have to include information about their registration in the UJITS in all their applications submitted to courts.

In case of failure to comply with this obligation, the court will leave the statements of claim without motion and return other applications filed by such a legal entity. Such consequences will apply even if the legal entity is represented in court by attorney-at-law.

The Law also allows for electronic document exchange within the UJITS system among parties involved in a case who are registered in the UJITS. Courts will serve documents electronically to those required to register in the UJITS, with the option for these legal entities to request a paper copy of court decisions if needed.

Similarly, the issuance of enforcement documents will be handled by the court, either in paper or electronic form, using the UJITS. However, issuing the same enforcement document in both paper and electronic formats to the same individual is not permitted.

Registration in the UJITS can be done by following the link and using the electronic signature of a legal entity.

By Kristina Mysenko and Oleksandra Syerova, Associates, Avellum

On 18 October 2023, the Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on Mandatory Registration and Use of Electronic Offices in the Unified Judicial Information and Telecommunication System (UJITS) or its separate subsystem (module) that provides for the exchange of documents” No. 3200-IX dated 29 June 2023 (hereinafter – the Law) was enacted. The Law amends the provisions of the procedural codes, in particular the Civil Procedure Code of Ukraine (hereinafter – the CPC).

The Law, inter alia, provides that starting from 18 October 2023, attorneys, notaries, public and private enforcement officers, insolvency officers, forensic experts, state and local authorities and other legal entities shall have an electronic account in the UJITS. Thus, registration in the UJITS remains voluntary only for individuals, and they are not required to have an electronic cabinet.

From now on, any procedural document submitted to the court must contain information on the presence or absence of an electronic cabinet of a party to the case. If a person who is obliged to register an electronic cabinet but has not fulfilled his or her obligation applies to the court, the documents of such a person will be left without movement by the court or returned, depending on the type of procedural document. For example, if a response to a statement of claim is filed by a person who is obliged to register an electronic cabinet but has not fulfilled such an obligation and has not provided valid reasons for its failure, the court has the right to decide the case on the basis of the available materials, i.e., to disregard the information contained in the response.

Upon entry into force of the Law, subpoenas, summonses, copies of court decisions and court orders will be sent to the electronic accounts of the parties to the case, and if the party does not have an electronic account (in the case of individuals), the documents will continue to be sent by registered mail with acknowledgment of receipt or by registered mail.

Mandatory registration of litigants in the electronic cabinet will allow courts to send notices and summonses to litigants electronically. This, in turn, will optimize budget expenditures on paper, postage stamps, envelopes, stationery, etc. In addition, the electronic procedure for sending notifications will relieve the workload of court staff and significantly reduce the time for receiving court documents (almost instantly after sending). At the same time, the parties to the cases are not deprived of the right to receive copies of court decisions in paper form, upon a separate application.

Separately, the Law introduced amendments to the Civil Procedural Code of Ukraine regarding the grounds for leaving a claim without consideration (Article 257(1)(3) of the Civil Procedural Code of Ukraine). From now on, the court may leave the claim without consideration in case of repeated failure of the plaintiff to appear not only at the court hearing, but also at the preparatory hearing. Prior to the Law’s entry into force, the Code of Civil Procedure of Ukraine stipulated that repeated failure to appear at a court hearing was a ground for leaving a claim without consideration. The previous approach led to delays in the consideration of cases, as the courts could not leave the claim without consideration due to the repeated failure of the plaintiff to appear at the stage of preparatory proceedings. This legislative gap has now been eliminated.

Thus, the amendments introduced by the Law are justified and appropriate, aimed at introducing modern electronic record keeping in courts, electronic case management, and electronic communications with courts. At the same time, the practice of law enforcement may reveal certain problems related to the implementation of such changes in the work of courts and the conduct of court proceedings. It will soon be possible to summarize the first interim conclusions on the effectiveness of the introduced changes.

By Talina Kravtsova, Partner, Yuri Neklyaev, Senior Associate, and Maryna Korniienko, Associate, Asters

Sayenko Kharenko has advised the European Fund for Southeast Europe on its EUR 4 million local currency equivalent loan to Bank Lviv for on-lending to micro, small, and medium enterprises.

The EFSE is a privately managed development finance fund initiated by the KfW Development Bank with the financial support of the German Federal Ministry for Economic Cooperation and Development and the European Commission. The EFSE uses capital provided by donor agencies, international financial institutions, and private institutional investors to finance MSEs in the target region, which includes Ukraine.

Bank Lviv is a regional bank headquartered in Lviv providing banking services to MSMEs and private clients across western Ukraine.

The Sayenko Kharenko team included Partner Igor Lozenko, Senior Associate Denis Nakonechnyi, and Associate Yevgen Koval.

Sayenko Kharenko has advised an ad-hoc group of noteholders in connection with the consent solicitation launched by Naftogaz to amend and extend its USD 335 million in 7.375% notes due 2022.

Naftogaz is Ukraine’s largest state-owned oil and gas company.

According to Sayenko Kharenko, the noteholders provided the requested consent for the amendments to the terms of the 2022 notes, which included an extension of the notes’ maturity. “As a result of the successful amendment of the 2022 notes and, in parallel, the 2026 notes, Naftogaz has exited the defaults that the company entered into due to the impact of the ongoing Russian military aggression against Ukraine.”

The Sayenko Kharenko team included Partners Igor Lozenko and Anton Korobeynikov and Senior Associate Denis Nakonechnyi.

Sayenko Kharenko did not respond to our inquiry on the matter.

Earlier this year, the Ukrainian Tax Code underwent significant amendments with the adoption of Law N 2970-IX. This legislation integrates the Common Reporting Standard into Ukrainian domestic tax law. As part of these broader changes, the law establishes distinct provisions applicable to trustees and trust administrators.

WHAT DOES THIS MEAN?

The law incorporates several key points concerning trusts managed by Ukrainian residents.

Notification Requirement. Both individuals and legal entities residing in Ukraine who manage the activities, assets, or property of a trust, acting as trustees or fulfilling trust administrator duties, are now required to notify the Ukrainian tax authorities about the conclusion or termination of any trust management or administration agreement.

Notification concerning the conclusion or termination of trust management/administration agreements must be submitted to the tax authorities within 30 calendar days of the agreement’s conclusion or termination. However, as part of the transitional rules for trustees and trust administrators, their first notifications about the conclusion or termination of such agreements are required within 180 calendar days from the end of the martial law regime established on 24 February 2022.

Documentary and Reporting Obligations. Trustees and trust administrators have an added onus of maintaining a host of records, financial reports, and documents.

• store and present, upon request, details regarding the settlors, trustees, protectors (if any), beneficiaries, and any other parties who are the ultimate beneficial owners (UBOs) of the trust
• maintain up-to-date records of all UBOs and the trust ownership structure and provide the tax authorities with them upon request within 10 calendar days of receiving such a request
• retain and provide separate financial reports concerning the trust and documents confirming such data

Documentation and Translation Provisions. Trustees and trust administrators are obliged to provide certified copies of documents, with Ukrainian translations, upon request by the tax authorities within 30 calendar days. Documents in English, however, do not need a Ukrainian translation. The documents concerning the trust must be retained for at least 1825 days following the reporting period they pertain to, or the termination of the trust or related agreement, whichever is earlier.

Financial reporting. Trust financial reports must adhere to the requirements established by the legislation governing trust activities. If there is no directive on trust financial reporting, the trustees or administrators must ensure separate financial reporting in line with international standards.

NOTE FOR TRUSTEES AND TRUST ADMINISTRATORS

The law’s requirements apply irrespective of whether the trust is considered a Controlled Foreign Company under Ukrainian regulations. This means that any trust with a Ukrainian resident as a trustee or trust administrator is encompassed within these provisions. Trustees and trust administrators holding Ukrainian citizenship should be vigilant to prevent inadvertent designation as residents by the Ukrainian tax authorities, who often default to treating all nationals as tax residents in the absence of evidence suggesting otherwise.

While trustees and trust administrators are mandated to notify the tax authorities about trust management or administration agreements, it is crucial to understand two key points:

• The term “agreement” encompasses a broad spectrum. It could range from a simple one-page trust declaration of individual clauses within a complex contract, to comprehensive written contracts, and might even be constituted through implied actions or oral arrangements.
• The essence of the provisions within the agreement, rather than its title, is determinative. The substantive content and true intent of the agreement’s provisions are of importance.

Hence, it is recommended that all concerned parties thoroughly review their current affairs and agreements to pinpoint arrangements that may fall within the scope of these regulations.

SANCTIONS FOR NON-COMPLIANCE

Ukrainian tax authorities have been empowered to impose sanctions for non-compliance:

• Failure to Notify. Failing to inform about the conclusion or termination of a trust management or administration agreement within stipulated timeframes will result in a fine of UAH 33,500 (around EUR 870) in 2023.
• Insufficient Reporting. Not providing or inadequately supplying the financial reports, original document copies, or other information related to the trust upon request will lead to a penalty of UAH 67,000 (approximately EUR 1,740) in 2023.

The fines are calculated based on the minimum salary set by the Ukrainian government and, as such, are subject to change annually. Paying these fines does not exempt the concerned trustee or trust administrator from their obligation to submit the requisite information or documents.

By Pavlo Shovak, Senior Associate, and Olena Mitskan, Associate, Asters

Former Asters Counsel and Head of Environmental Protection and Sustainable Development Anzhelika Livitska has joined Arzinger as a Partner in the firm’s Real Estate & Construction practice. She will also lead Arzinger’s Energy & Natural Resources and Environmental & Sustainable Development practices.

Prior to joining Arzinger, Livitska spent over five years with Asters as a Counsel, being appointed a practice head in 2021 (as reported by CEE Legal Matters on August 25, 2021). Earlier, she spent almost 12 years with Dentons. Her experience includes advising on real estate, construction, infrastructure, mining, and environmental projects.

“Arzinger is a logical continuation of my career ambitions,” Livitska commented. “For many years we have been working in the same market as the Arzinger team, we know and respect each other well, and I am very pleased to become part of a team of professionals and like-minded people with whom we fully share a strategic vision of the prospects and attractiveness of the Ukrainian real estate and construction market. We are already witnessing a strong interest of global businesses in rebuilding Ukraine, and developing its infrastructure, energy, and industrial recovery, and I am proud that, at such an important time for our country, we are bringing together the best industry expertise under the roof of a powerful independent law firm and offering our clients the best solutions.”

“We are delighted to welcome Anzhelika Livitska to the firm’s partnership,” Arzinger Managing Partner Timur Bondarev added. “We are well aware that Ukraine’s reconstruction will be based on the principles of energy efficiency, smart consumption, and sustainable development, and our unique expertise in these areas will allow us to maintain our leadership position in the market. Angelika’s interests include environmental protection, ESG, and subsoil use, among others.”