Category: Ukraine

Asters has advised Horizon Capital on the co-investment with the IFC in Miratech.

According to Asters, Miratech is one of the first IT companies established in Ukraine, 34 years ago. With over 700 employees in 25 countries, Miratech provides IT and consulting services.

Horizon Capital is a private equity firm in Ukraine backed by over 40 institutional investors and with USD 1.4 billion in assets from investors with a capital base exceeding USD 630 billion.

The Asters team included Partners Oleksiy Demyanenko and Igor Svechkar, Counsels Sergiy Glushchenko and Maksym Tereshchuk, Senior Associate Bohdana Marchuk, and Associate Volodymyr Kadyrov.

Asters could not provide additional information on the deal.

Everlegal has partnered up with the Norwegian Refugee Council in Ukraine and will be offering the NRC legal support on a number of day-to-day legal issues.

The Norwegian Refugee Council started its humanitarian mission in Ukraine in November 2014 and currently implements programs in areas such as legal aid and counseling, distribution of hygiene and emergency kits, cash assistance, and housing support, among others. In 2022, the Norwegian Refugee Council provided assistance to over 400,000 people who were forced to leave their homes or were affected by hostilities.

The Everlegal team includes Managing Partner Yevheniy Deyneko, Partner Oleksandr Ruzhytskyi, and Project Manager Daria Kravets.

Amidst the tumultuous backdrop of a war-torn Ukraine, the legal market in the country finds itself navigating a complex landscape marked by uncertainty, according to Avellum Senior Partner Kostiantyn Likarchuk who talks about Ukraine’s quest for investment, the status of its judicial reforms, and the pivotal role of antitrust legislation in this challenging environment.

“While the past 19 months have been fairly kind to our firm compared to the rest of the market, we do see many hurdles ahead,” Likarchuk begins. “New projects are not opening much and the horizon seems a bit bleak, which is concerning – the uncertainty stemming from the ongoing war has deterred potential investors and governments from committing to Ukraine.” However, according to Likarchuk, “the truth is, Ukraine needs investments and assistance now, as we cannot predict when and how the war will end. The economic challenges we face ripple across various sectors, making immediate investments crucial for recovery.”

Focusing on the markets themselves, Likarchuk shares that “over the past three months, the M&A market has experienced limited activity. Transactional work across the board has significantly decreased. Unless there is a strong push on the side of investors to make the call to invest in Ukraine – not just by Ukrainian entities but also international ones – the transactional practices in our market are at risk of further decline,” he says.

Looking at ongoing legislative reforms, Likarchuk mentions efforts to improve the country’s judicial system. “Ukraine has recently formed the Higher Judges Qualification Commission, marking a significant step forward in our ongoing judicial reform efforts.” According to Likarchuk, this is particularly crucial for Ukraine’s aspirations to join the EU. “The process had been halted since 2019 when the previous commission was dismissed,” he explains. “We expect this development to pave the way for more comprehensive judicial reform and legislative updates as we move forward, with accession negotiations expected to kick off by the end of 2023.”

In addition, Likarchuk mentions another critical legislative change in the realm of antitrust legislation. “The Antimonopoly Committee of Ukraine is set to gain broader powers, including the ability to conduct dawn raids and undertake quasi-policing activities,” he reports. “With the recent change in leadership at the Antimonopoly Committee, we anticipate a more robust push in the fight against oligarchs, making this a significant development in our legal landscape,” Likarchuk posits.

He concludes on a positive note by stressing that “Ukraine’s legal community remains resilient, adapting to the ever-evolving landscape and working towards a brighter future.”

On 12 September 2023, the President of Ukraine signed Law No. 5431 “On Amendments to Certain Legislative Acts of Ukraine to Improve the Activities of the Antimonopoly Committee of Ukraine” (“Law“), which launches a reform of Ukrainian competition law. The Law will enter into force on 1 January 2024.

The Law was developed together with competition law experts from the EU in line with the European Union-Ukraine Association Agreement. Adopting and implementing the Law is the first stage of the competition law reform, aimed at strengthening the powers of the Antimonopoly Committee of Ukraine (“AMC“) and bringing Ukrainian competition law and the AMC’s activities closer to the legal system of the European Union.

Key takeaways

The Law introduces a number of amendments to Ukrainian competition law, among which the following should be singled out:

1. Changes to obtaining the AMC’s approval for concentration and concerted actions
2. Introduction of a detailed procedure of inspections by the AMC
3. Introduction of settlement procedures and improvements to the leniency procedure
4. Introduction of joint and subsidiary liability for the payment of fines imposed by the AMC
5. Strengthening of the institutional powers of the AMC
6. Establishment of a maximum term for reviewing competition law infringement cases (within three years of the date of the resolution initiating the competition law infringement case, along with the possibility of an extension for no more than two years)
7. Introduction of a state register of legal entities that were held liable for anticompetitive concerted actions related to distorting the results of tenders, auctions and bids

A significant number of the Law’s provisions were developed in line with the provisions of European Union Directive 2019/1,¹particularly the provisions on the inspection procedure.

​Calculation of financial indicators

Under certain circumstances, when calculating the financial indicators of the participants in the concentration, the excess of which requires a merger filing for the AMC’s approval (particularly for the value of assets and turnover), the seller’s financial indicators are not to be taken into account if the control relations between the seller and the target cease as a result of a concentration.

Filing fee

The filing fee for merger control filings will be increased to UAH 42,500² or approximately EUR 1,070 (the current fee is UAH 20,400). For concerted action filings, the filing fee will be increased to UAH 25,500³ (the current fee is UAH 10,200).

Other important amendments

Separate transactions performed within two years between the same legal entities will be considered as one single concentration.

If the AMC identifies grounds for prohibiting mergers or concerted actions as a result of the respective phase II investigation, the parties will have the right to familiarize themselves with the investigation materials, and make extracts and copies thereof.

According to the amendments introduced by the Law, a bank’s acquisition of assets in the form of a property complex or shares (participatory interests) of a legal entity as a result of foreclosure on the object of collateral (mortgage) or other security encumbrances would not qualify as a concentration and, thus, would not require the AMC’s approval for concentration. However, such an exception is only applied if the following circumstances are applicable:

• The bank and the legal entities related to it by control do not exercise voting rights in the highest or other governing bodies of the respective legal entity.
• The respective assets in the form of a property complex will not be used for the purposes of carrying out business activities during the entire period of owning the object of collateral (mortgage) or other security encumbrance.
• Disposal of the respective object of collateral (mortgage) or other security encumbrance shall be performed by the respective bank in favor of a third-party business entity not related to it by control relations within one year from the date of its acquisition.

The Law strengthens the AMC’s authority to conduct inspections and defines it in more detail.

In particular, the Law establishes the following:

• The basis for conducting inspections shall be a decision from a commercial court.
• The maximum term of an inspection may not exceed 30 calendar days, unless otherwise established by the decision of a commercial court. At the same time, the term of the inspection may also be extended by a court decision at the AMC’s request.
• Places and objects for which inspections can be conducted, the powers of the AMC’s employees, as well as the requirements for gathering evidence, etc.
• The non-appearance of a lawyer or a representative of an entity authorized to participate in the inspection within three hours does not prevent the inspection from being carried out.

3. Settlement and leniency procedures

• The defendant’s recognition of the fact that an infringement has been committed
• The circumstances of infringement, recognized by the defendant
• The termination of the competition law infringement
• Offers and guarantees from the defendant regarding eliminating causes of such infringements and conditions contributing to their occurrence (if available) and regarding eliminating the consequences of the infringement (if available)
• A 15% reduction of the fine compared to the amount that should have been imposed in the case of a settlement procedure not being applied

To apply a settlement procedure, the defendant shall submit a corresponding application to the AMC before the AMC sends preliminary conclusions.

The Law improves the leniency procedure for participants of anti-competitive concerted actions, which was prescribed in accordance with EU Directive No. 2019/1; specifies requirements on the applicant regarding the leniency procedure; establishes cases when the legal entity cannot be exempted from liability; introduces a partial exemption from liability in addition to a full exemption from liability; and determines the procedure for compensating damage caused by the legal entity that is being exempted from liability.

4. Strengthening of the institutional powers of the AMC

The Law provides for the AMC’s access to automated registers, data banks (databases) and other systems for collecting, storing, processing and searching for information and data.

The AMC will have the right not to consider an application for infringement of competition law if the applicant does not prove that the actions or inaction containing signs of infringement has or had a direct and negative impact on its rights and/or activities.

If the AMC’s decision is not executed, the head of the AMC or the territorial branch of the AMC will issue an order on the enforcement of the decision, which is an executive document.

By Oksana Simonova, Partner, and Olga Mikheieva, Counsel, Baker McKenzie

On 16 September 2023 the Resolution of the Cabinet of Ministers of Ukraine “On Amendments to the Procedure for Payment of Fees for Actions Related to the Protection of Intellectual Property Rights” (“Resolution”) will enter into force. The Resolution introduces new fees, provides additional reductions and clarifies existing ones.

Key takeaways

Overall, new changes are positive from a business standpoint. First of all, they pave the way for administrative proceedings before the Appellate Chamber which, from now on, may be used as an alternative to litigation in court. Secondly, they reduce some procedural fees and provide bigger discounts for filing trademarks electronically, thus encouraging paperless document flow.

In particular, the Resolution introduces the following changes:

• New types of fees relating to the filing of oppositions by third parties against applications for inventions, administrative revocation of patents, obtaining a certificate of additional protection for inventions, carrying out information searches, restitution of rights by applicants and right holders, etc. (This also paves the way for administrative proceedings to be brought before the Appellate Chamber.)
• Extended list of fee reductions, including fees for extension and renewals of missed terms ➢ Increased discount for the electronic filing
• Changes to the wording in accordance with the new terminology

Detailed overview Among other reductions and discounts, the Resolution proposes the following changes. In the case of filing a trademark application in electronic form, the fees will amount to the following:

• 75% of the established fee (comparative to the previous 80% discount)

Extension or renewal of missed term

• Fees for requesting the extension or renewal of a missed term have been reduced by 50%.

An individual who is an applicant, patent owner or holder of a certificate for industrial design or a certificate for a semiconductor product layout must pay each fee for actions related to the protection of rights to such objects, except for some exclusions, in the following amount:

• 10% of the established fee — if they are the inventors of the invention or the authors of the semiconductor product layout
• 20% of the established fee — if they are the inventors of the utility model or the authors of the industrial design

Non-profit institutions and organizations that are applicants or patent owners for the invention/utility model shall pay each fee for actions related to the protection of rights to such objects, except for some exclusions, in the following amounts:

• 12% of the established fee — if they are applicants for the invention or patent owners
• 30% of the established fee — if they are applicants for the utility model or patent owners

Where the applicant or patent owner of the invention/utility model is the inventor together with the non-profit institution or organization, each fee for actions related to the protection of rights to such objects, except for some exclusions, shall be paid in the following amounts:

• 15% of the established fee — if they are applicants for the invention or patent owners
• 40% of the established fee — if they are applicants for the utility model application or patent owners

By Ruslan Drobyazko​, Partner, and Myroslava Koval-Lavok, Senior Associate, Baker McKenzie

On 30 August 2023, the President of Ukraine signed Law of Ukraine “On Digital Content and Digital Services” No. 3321-IX (“Law”), designed to implement EU Directive 2019/770. The principal provisions of the Law enter into force on 2 March 2024.

Key provisions of the Law

• Scope. The Law applies to relations between the trader (acting directly or indirectly) and the consumer for the supply of digital content or a digital service. The Law provides a broad definition and includes a non-exhaustive list of digital content and services, including, for example, music files and computer programs. At the same time, the Law does not apply to certain services, which are regulated separately, including e-communications, financial and medical services.
• Trader’s duties. In addition to the requirements stipulated by e-commerce and personal data protection laws, the Law significantly strengthens the rights of consumers in the area of provision of digital content and services. This includes, in particular, the trader’s obligations to (1) ensure that digital content or a service meets certain objective and subjective criteria, including fitness for use in accordance with the purpose for which such service or content is usually used, and (2) inform the consumer of the need to update the software supporting the functioning of digital content or a service. In addition, the trader provides a guarantee to the consumer that the content or service does not violate third party rights, including intellectual property rights.
• Trader’s liability. The Law establishes the consequences of non-compliance with the Law depending on the type of violation. For example, for violation of consumer rights related to compliance of digital content or a service with certain criteria, the Law provides for a fine which can reach up to 300% of the value of digital content or a service. In certain cases, the consumer also has the right to demand that digital content or a service be brought into compliance with the terms and conditions of an agreement with the trader, demand reduction of price, reimbursement of money or may withdraw from an agreement.

By Mykola Stetsenko, Managing Partner, Yuriy Nechayev, Partner, and Oleksandr Kozhukhar, Associate, Avellum

Sayenko Kharenko has successfully represented the interests of Oschadbank in a dispute over the unlawful usage of its trademark by the former Sberbank, in a case where Oschadbank was awarded EUR 10 million in damages.

According to Sayenko Kharenko, the case concerns the recovery of damages from Sberbank, which was subsequently renamed International Reserve Bank, for the unlawful use of the Oschadbank trademark. “The specified case is a logical continuation of the court case on the prohibition for Sberbank to use the Oschadbank trademark, which was initiated in 2016 and subsequently won.

According to the firm, the court of first instance dismissed the claim, justifying its decision by stating that, in its opinion, the elements of the offense had not been proven, the forensic examination allegedly contained deficiencies, and prejudice should not have been applied because the defendant owned other trademarks.

Following an appeal, and “after a series of court hearings and a successful cassation appeal against the procedural ruling, the Northern Commercial Court of Appeal issued a decision upholding the request in full, including the full recovery of damages for trademark infringement from International Reserve Bank (renamed Sberbank) for over UAH 390 million (EUR 10 million). The decision of the Court of Appeal has entered into legal force,” Sayenko Kharenko reported.

The firm’s team included Partner Yaroslav Ognevyuk, Senior Associate Volodymyr Hrunskyi, and Associate Gennadiy Kochin.

Sayenko Kharenko has advised the EBRD on its USD 30 million secured financing to Ukrainian agro-industrial holding Astarta.

The package includes a USD 21 million EBRD loan and a USD 9 million sustainability-linked loan funded by the Clean Technology Fund. According to the firm, the financing aims to modernize existing production facilities, introduce climate-smart agricultural practices to increase business resilience, and secure sufficient working capital financing. “These measures will reduce production and energy costs, enhance productivity and operational efficiency, and improve energy efficiency.”

According to Sayenko Kharenko, “this transaction marks a first in Ukraine, supported by the EBRD High Climate Impact program for the Corporate Sector funded by the CTF. The innovation of the loan is its pricing, which is linked to climate change-related targets.”

Astarta is a vertically integrated Ukrainian agro-industrial holding and a public European company operating around 220,000 hectares of leased arable land, five sugar plants, a soybean processing factory, a biogas facility, and dairy farms. 

The Sayenko Kharenko team was led by Partner Igor Lozenko and included Senior Associate Denis Nakonechnyi, Associate Vladyslava Mitsai, and Junior Associate Yevgen Koval.

Understanding procedures, stakeholders and milestones of Ukraine’s future recovery is essential for all parties planning to be involved in that process, including on the construction side. In this effort, the key messages currently available are as follows.

Corporate Presence in Ukraine

Foreign construction companies can carry construction activities in Ukraine by establishing one of the following structures: 

• local permanent representative office (branch)
• local subsidiary (LLC)

A local subsidiary is usually in greater demand considering, in particular, the following: 

(1) it is a separate legal entity with separate legal liability, albeit typically owned and run by the parent company, (2) it is faster and easier to establish, (3) it provides the possibility to obtain a local license required for carrying out construction activities, and (4) it can be sold to other persons. There are important remarks to each of these items, which should be addressed on a case-by-case basis.

Regulatory Presence in Ukraine. Licensing of construction activities

In Ukraine, construction of certain facilities (i.e., facilities with medium and significant consequences – so-called CC2 and CC3) is subject to licensing.

There is currently no procedure of recognition of foreign construction licenses.

The procedure for obtaining a construction license is rather complex and has significant gaps and uncertainties. Due to several reasons, including incomplete reform of construction regulations, licensing procedure is currently not functioning and so obtaining a license is technically not possible. In the meantime, as a temporary solution for the martial law period, the right to conduct construction activities may be obtained by business entities based on a declaration. 

What does the declaration mean?

The declaration means submitting an application in electronic or in paper form through electronic service delivery portal (Diia) or one of the administrative service centers. The applicant should be entitled to start performing the declared activities upon submission of such declaration. However, it is advisable to wait for the licensing (permitting) authority (i.e., State Inspection of Architecture and Urban Planning – the “Inspection”) to process and include the submitted declaration into the respective register, which will eventually serve as a formal confirmation of the right to perform construction activities.

Such declaration procedure, essentially being a substitute for a license, is temporary. After the end of martial law, the entity must apply to the Inspection and obtain a permanent license as applicable.

Old licenses

For the period of martial law, the licenses and permits issued earlier are deemed automatically extended for the period of martial law plus three months from the date of its termination.

Overall, from a policy perspective, licensing remains an open issue and is pending legislative solution. It is broadly expected that this area will be further reformed after the war in Ukraine ends.

Local Clients for Recovery Projects

To understand who should be approached for potential cooperation on the future construction / recovery projects, hence are the main options in the public sector. 

1. The State Agency for the Restoration and Development of Infrastructure of Ukraine (the “Restoration Agency“)

Restoration Agency is a body aimed to manage recovery projects previously submitted by local communities through a digital system and agreed with the government.

For this purpose, the Government of Ukraine has created a Digital Restoration Ecosystem for Accountable Management (the “DREAM“) – a state digital system that will provide a single platform for all reconstruction projects in Ukraine, where local communities can create and present necessary reconstruction projects, as well as investors and counterparts will be able to track the entire reconstruction cycle, from design, public procurement, construction, reconstruction and repair to commissioning of the finished facilities. DREAM system is designed to introduce clear accountability and transparency in the reconstruction process. 

2. State bodies, enterprises and organizations as clients of separate projects

Large state-owned companies operating in certain infrastructure sectors, such as Ukrainian State Railways (the national railway carrier), the Ukrainian Sea Ports Agency (the authority managing Ukraine’s port infrastructure), Naftogaz (the gas supply provider), Ukrenergo (electricity transmission system operator of Ukraine), Energoatom (the largest producer of electricity in Ukraine), Ukrhydroenergo (the largest hydro-generating company in Ukraine), Gas Transmission System Operator of Ukraine, local utility companies etc., may also be contractors for individual reconstruction projects in certain infrastructure areas. Typically, such projects should be organized through direct cooperation or public procurement (if applicable).

Structuring Partnership Relations in Construction Projects

Parties can structure their relationships with partners as corporate or contractual joint ventures (although the latter are subject to rather burdensome regulations in Ukraine). Subcontractor arrangements are broadly used as well. 

Joint venture arrangement can also be considered for project financing purposes. However, note that Ukrainian law provides for an exhaustive list of instruments to attract funds to finance construction of the residential premises. Joint venture agreement is not included in this list and therefore can only be used for non-residential projects. 

Procurement and Financing

As far as a project involves budgetary spendings, procurement laws should be applied.

Local tender procedure is applied if any payments/contracts exceed a certain value threshold (subject to certain statutory exceptions). Within the period of martial law in Ukraine, this threshold is as follows:

• for the procurement of goods and services (except for routine maintenance services) – UAH 100 thousand and more
• for maintenance services – UAH 200 thousand and more
• for works – UAH 1.5 million and more

If a project is funded by international financial institutions (such as World Bank, IBRD, EBRD etc.), such institutions keep the powers to introduce their own procurement rules and regulations. In practice, therefore, construction projects with international financing are usually carried out based on standard procurement procedures of the respective finance organization, being the most known and comfortable standard for international bidders.

If a project is funded by other external sources (i.e., charity funds, international donor’s funds, etc.), the public procurement procedures may not apply, although this should rather be assessed on a case-by-case basis. 

In addition, there are certain exceptions to the above thresholds, which will not be subject to the tender process, namely in cases of procurement of goods, works and services needed to restore the facilities of the electric power, nuclear power, coal mining and oil and gas complexes during the martial law period.

By Oleg Boichuk, Partner, Olena Kasatkina, Senior Associate, Asters

On 3 September 2023, Law of Ukraine “On Amendments to Certain Legislative Acts of Ukraine on the Regulation of Activities of Separate Subdivisions of a Legal Entity Established in Accordance with the Laws of a Foreign State” No. 3257-IX, dated 14 July 2023 (“Law”), entered into force.

The Law improves the procedure for state registration of representative offices and enables the establishment of full-fledged branches of foreign companies.

In particular, the Law delegates the powers over state registration of representative offices and branches of foreign companies from the Ministry of Economy to state registrars and decreases the period for such registration to 5 business days. Also, information on branches or representative offices of foreign companies will be available in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Organisations.

The Law introduces amendments to the Law of Ukraine “On State Registration of Legal Entities, Individual Entrepreneurs and Public Organisations”, which will determine the procedure for state registration of representative offices and branches of foreign companies along with an exclusive list of documents required for such registration.

The Law provides for a new requirement for state registration, necessitating the submission of the statutory document (regulation) of a branch or representative office. This must include details about the ownership structure of the founding foreign company and information regarding its ultimate beneficial owner.

Additionally, the Law establishes a procedure for liquidation of representative offices and branches of foreign companies. Specifically, it outlines the steps for notification of the state registrar of the liquidation, appointment of the liquidation commission, conducting inventory and inspections, review of creditors’ claims, etc.

Despite the entry into force of the Law, most of its provisions will be enacted only in one year, on 3 September 2024.

By Mykola Stetsenko, Managing Partner, Yuriy Nechayev, Partner, Bogdana Parkhomchuk, Managing Associate, and Andrii Andriishyn, Associate, Avellum