Category: Ukraine

Sayenko Kharenko has advised Citibank and UK Export Finance on a GBP 26.3 million equivalent export loan provided to Ukraine under UKEF’s guarantee, to finance the reconstruction of bridges around Kyiv.

According to Sayenko Kharenko, “the loan proceeds will be used to finance the reconstruction of six bridges in the Kyiv region as part of the ongoing effort to reopen vital supply routes near Ukraine’s capital. The loan was announced at the Ukraine Recovery Conference in London, which aims to bridge the gap between the public and private sectors and facilitate discussions on accelerating and supporting Ukraine’s reconstruction efforts.”

The Sayenko Kharenko team included Partner Anton Korobeynikov, Senior Associate Oles Trachuk, and Associates Vladyslava Mitsai and Oleksandr Motin.

Editor’s Note: After this article was published, Avellum announced that it had advised the Ministry of Finance of Ukraine on the loan. The firm’s team included Senior Partner Glib Bondar and Associates Yaroslav Pavliuk and Marharyta Brianska.

On September 22, White & Case announced that it had advised Ukraine’s Ministry of Finance on the borrow side. The firm’s team in London included Partner James Hardy and Associate Prema Govind.

Freshfields Bruckhaus Deringer has signed the memorandum of understanding and is providing pro bono legal advice to the Ministry of Economy of Ukraine as it establishes a development fund to attract public and private sector capital for the future reconstruction and recovery of its economy.

According to Freshfields, “the fund, which will be launched with the advisory support of BlackRock Financial Markets Advisory, will be designed to provide a path for both domestic and international public and private investors to assist Ukraine with financing its post-war development efforts across infrastructure, energy, agriculture, and other key areas. Under the memorandum of understanding, Freshfields will also support the Ministry on the further development of an investor-friendly legal climate.”

The Freshfields team is led by Partner Seb Lawson.

On 22 June 2023, the Law of Ukraine on Amendments to Certain Legislative Acts of Ukraine on Optimizing the Operations of the State Property Fund of Ukraine, Increasing the Effectiveness of State Property Management and Improving the Effectiveness of Sanctions Policy (“Law”) became effective.

Highlights

The Law provides for the following:
• Changes in the management system of the State Property Fund of Ukraine (SPFU) aimed at management centralization
• Changes in privatization laws: unblocking large-scale privatization
• The SPFU’s authorities to manage sanctioned assets

Detailed overview

Changes in the SPFU management system

• Changes in respect of the SPFU chairperson are as follows:
o The chairperson is to be appointed as proposed by the prime minister of Ukraine and to be dismissed by the Verkhovna Rada of Ukraine (before, the chairperson was appointed by the president of Ukraine upon agreement with the Verkhovna Rada of Ukraine).
o The chairperson will independently appoint deputies (before, deputies were appointed by the president of

Ukraine as proposed by the prime minister of Ukraine).

• Changes in respect of the SPFU regional branches are as follows:
o The SPFU regional branches are to be established and operate as separate structural units without legal entity status (before, they had legal entity status).
o It is no longer required by the Law to agree on the appointment of directors of the SPFU regional branches with local state administrations. Instead, they will be appointed and dismissed by the SPFU chief of staff, who is to be appointed by the SPFU chairperson.

• In addition, the Law abolished the procedure for agreeing on the appointment and dismissal of directors of enterprises, institutions and organizations managed by the SPFU with local state administrations.

Changes in privatization laws: unblocking large-scale privatization

• The Law of Ukraine on Privatization of State and Municipal Property (“Law on Privatization”) has been supplementedby a clause pursuant to which a sale and purchase agreement in respect of a large-scale privatization object may include the parties’ obligations provided for in terms of auction in respect of the following:
o Performance of the enterprise’s main types of activities
o Retooling and modernization of production (amount of investments) and energy renovation of the object
o Accomplishment of mobilization objectives
o Repayment of unpaid wages, debt to the government and overdue payables of the enterprise
o Requirements and additional restrictions in respect of object use provided by environmental laws
o Payment for the services of legal entities and individuals (if engaged) related to taking measures to privatize state-owned objectsd by the NBU remaining prohibited during the martial law period or until the NBU lifts these restrictions.

(Before, the laws envisaged that, for the duration of martial law, the above conditions could only be applied in the event of privatization of property of the Ukrspyrt state-owned enterprise of the alcohol and liquor industry, and no exception has been provided for large-scale privatization objects.)

Thus, the purpose of making it possible to include the parties’ obligations (as listed above) provided for in terms of auction in a sale and purchase agreement in respect of a large-scale privatization object is to unblock large-scale privatization.

The SPFU’s authorities to manage sanctioned assets

• The SPFU will determine methods to enforce court decisions on applying sanctions in the form of recovery to the state budget of assets owned by an individual or a legal entity, as well as assets in respect of which such individual/legal entity can directly or indirectly (through other individuals or legal entities) perform actions in the nature of exercising the right to dispose of them (“Sanctioned Assets”).

• The SPFU will manage the Sanctioned Assets and sell the Sanctioned Assets owned by the residents of states engaging in the armed aggression against Ukraine (the relevant procedure will be approved by the Cabinet of Ministers of Ukraine).

By Serhiy Piontkovsky, and Lina Nemchenko, Partners, Baker McKenzie

With a new cryptocurrency regulation in the legislative pipeline, Ukraine’s anti-aggression measures are also ramping up, presenting even more uncertainties and challenges for all business sectors in the country and keeping lawyers on their toes, according to Sytnyk & Partners Counsel Artem Sokurov.

“The new crypto regulations draft presented by state authorities aims to address the unregulated nature of crypto in Ukraine and to finally propose a taxation regime,” Sokurov begins. “By aligning with the EU’s MiCA framework, Ukraine seeks to establish a transparent legal landscape, eradicating the existing gray areas. This move is planned as a step towards much-needed protection for investors and companies, and it should also bolster trust in Ukraine’s potential,” he says. The regulations aim to ensure Ukraine remains open and attractive to existing and future local investments as well as those from the EU and international investors, according to him, “thereby facilitating growth and keeping the status of top-3 country in the world in terms of the adoption and penetration of crypto.”

Additionally, Sokurov outlines some of the effects that the Russian invasion had on Ukrainian markets of late. “The anti-aggression measures in place require companies to fill out questionnaires about their dealings and connections, in order to detect Russian influence. These have created challenges for businesses with any sort of ties to Russia – many international clients find themselves in a tough position, uncertain about the potential consequences of non-compliance,” he explains. Moreover, the sanctions for failing to complete these questionnaires are not entirely clear, either. “It remains uncertain whether accounts, including securities and money accounts, could be frozen by the state, or if further escalations could occur. These questionnaires are sensible and important in their aim because detecting Russian influence is a national security interest – but they have placed additional strain on international clients and may affect their operations,” he adds.

In addition, Sokurov reports that the Ukrainian state authorities compiled a list of “international sponsors of war.” This list includes companies and international groups like Auchan, Xiaomi, and Metro – all of whom now face a potentially huge reputational risk,” he explains. “While the current implications of being on the list are primarily and mostly reputational, the situation remains fluid, and practical consequences may arise in the future.”

Continuing, Sokurov posits that, while the “anti-aggression measures and the ‘international sponsors of war’ list aim to uncover traces of Russian influence for state security purposes, these also place a significant burden on businesses and individuals.” He notes the questionnaires, while necessary from a security perspective, “result in a substantial workload for international clients, while the ‘international sponsors of war’ list carries both reputational risks and the potential for market reactions.” However, the practical consequences of being included on the list remain uncertain, leaving businesses in a legal and economic vacuum, he reports.

Finally, giving an example of the difficulties these measures impose, Sokurov mentions a couple of European banks having subsidiaries in Ukraine, each of them being a top-ten bank in the country. “Those banks still have an extensive presence in Russia and exiting this market is a complex, complicated, and lengthy challenge for them.” The banks hold significant importance for the Ukrainian economy, both being admitted by the regulator as “systematically important banks,” Sokurov says in conclusion. “Any issues affecting such prominent players would undoubtedly reverberate throughout the country. The interconnectedness of businesses, including shareholdings and accounts, means that any complications the banks encounter may have a wide-reaching impact for all citizens.”

With effect from 16 May 2023, Ukrainian borrowers are allowed to make payments from Ukraine abroad to repay and service certain
cross-border loans from foreign lenders. This applies to the loans that are:

Key changes
With effect from 16 May 2023, Ukrainian borrowers are allowed to make payments from Ukraine abroad to repay and service certain cross-border loans from foreign lenders. This applies to the loans that are:

a) fully or partially backed by a guarantee or suretyship of an international financial institution (IFI);
b) provided with the participation of (i) a foreign export credit agency, (ii) a foreign state acting through its authorized agency,or (iii) a foreign legal entity owned by a foreign state or a foreign bank (provided that a foreign state is the shareholder of such foreign bank).

The exempt payments should not be made prior to the payment date stipulated in the relevant loan agreement. The National Bank of
Ukraine (NBU) has expressly prohibited any amendments to the existing loan agreements that would shorten the payment terms
thereunder.

Background information
In May 2022, the NBU permitted Ukrainian residents to make payments from Ukraine abroad under contracts for sale of goods with nonresidents, provided that such contracts are financed by an IFI loan or a loan from the state of Ukraine funded by an IFI loan. Notably, payments from Ukraine abroad under loans extended by IFIs have not been restricted since martial law was introduced in Ukraine in February 2022.

Context
These recent changes come amid the martial law regime, which has been in effect in Ukraine since 24 February 2022. The martial law led to significant restrictions on capital outflow and tightened foreign exchange controls. Although the changes mentioned above can be viewed as a positive development, the broader foreign exchange regime in Ukraine remains severely restricted, with transactions not explicitly permitted by the NBU remaining prohibited during the martial law period or until the NBU lifts these restrictions.

By Serhiy Chorny, Managing Partner, Bohdan Diakovych, Associate, Polina Korotka, Junior Associate, Baker McKenzie

CMS has advised the European Bank for Reconstruction and Development on its acquisition of a 35% stake in the Lviv M10 industrial park project in Western Ukraine, developed by Dragon Capital. Aequo reportedly advised Dragon Capital.

According to CMS, “the Lviv M10 industrial park is a modern multi-phase multi-tenant industrial park located 60 kilometers from the Ukraine-Poland border. It will create warehouse and manufacturing space that will help the country expand access to vital services and products. Under the joint venture with Dragon Capital, the EBRD is investing USD 24.5 million in the project (with an investment of USD 5.5 million in the first phase).”

CMS’ team included Partners Tetyana Dovgan and Graham Conlon, Of Counsel Eszter Torok, Senior Associate Mariana Saienko, and Associate Ihor Pavliukov.

At the end of March, the Antimonopoly Committee of Ukraine (the “AMC”) published its Annual Report for 2022 (the “Report”).

In brief

The full-scale russian invasion caused significant damage to Ukraine’s economy. Thus, in 2022, the AMC focused on markets that are strategically important for the country, including the markets for: (i) electricity, (ii) natural gas, (iii) light oil products, (iv) housing and communal services, (v) construction materials (i.e., cement), (vi) medicines, (vii) real estate, (viii) information technologies, (ix) retail, and (x) other industry sectors.

Key takeaways

As usual, the Report contains examples of the previous year’s most prominent cases and emphasizes the upcoming year’s priorities. For this alert, we picked some trends and highlights from the Report in the following categories:

• merger clearances;
• concerted actions approvals;
• competition law infringements;
• fines and recommendations;
• priorities for 2023.
  In more detail

I. Merger clearances

In 2022, the AMC received 530 applications for concentration approval, which is 349 applications fewer than last year. The main highlights are:

• Approval rate: In 379 cases (71.5%), the AMC granted approval.
• Phase I rate: 93.7% of applications were considered in Phrase I.
• Fast-track review rate: 6.3% of the applications were considered under the fast-track review procedure (26.7% less compared to 2021 figures).
• Phase II remedies rate: Out of the nine concentrations reviewed by the AMC in 2022, six (67%) were approved subject to commitments. The review of the other three applications was closed without a decision on the merits.

Most approvals were granted in the markets for: (i) forestry, processing and sale of wood (39.6%), (ii) land management and real estate services (14.5%), (iii) agro-industrial complex (9.5%), (iv) industry (7.7%), and (v) fuel and energy (6.9%).

II. Concerted actions approvals

In 2022, the AMC reviewed 41 applications for concerted actions (compared to 50 applications in 2021) and approved 32 of them (78%).

Most approvals were granted in the following markets: (i) land management and real estate services (18.8%), (ii) industry (18.8%), (iii) healthcare, medicines and medical devices (15.6%), (iv) agro-industrial complex (12.5%), and (v) fuel and energy (6.3%).

III. Competition law infringements

In 2022, the AMC issued decisions and recommendations with regard to 611 competition law infringement cases. Anticompetitive concerted actions constituted 46.6% of all infringements that took place in 2022, with procurement result distortions accounting for 96.7% of all concerted actions.

The biggest amount of terminated competition law infringements related to the following markets: (i) housing and communal services (19%), (ii) construction and construction materials (16.7%), (iii) agro-industrial complex (11.5%), and (iv) fuel and energy (10%).

The vast majority of the AMC’s decisions on unfair competition consisted of consumer misrepresentation to gain an advantage over a competitor. This is mainly because (i) this type of infringement covers pieces of information placed on the products’ labeling or advertising, and (ii) the AMC has the power to initiate proceedings in respect of such infringement on its own initiative.

IV. Fines and recommendations

In the previous year, the AMC adopted a significantly fewer number of decisions regarding competition law infringements (517 decisions in 2022 compared to 1,344 decisions in 2021). Therefore, the total amount of fines imposed was only UAH 557.91 million (compared to UAH 7.2372 million in 2021).

The fines imposed in 2022 consisted of fines for anticompetitive concerted actions (66.7%), unfair competition (15.3%), information infringements (13.6%), abuse of dominant position (2.4%), and concentration and concerted actions without obtaining the AMC’s prior approval (2%).

In 2022, the AMC only issued 10 recommendations aimed at strengthening competition (97.9% less than in 2021).

It should be noted that the deterioration of the security situation, caused by the full-scale russian invasion in Ukraine, had a negative impact on the AMC’s work, cooperation with other authorities and ability to interact with the affected persons. In addition, the proactivity of businesses decreased significantly, which affected the number of applications and recommendations.

V. Priorities for 2023

In its Report, the AMC determined the following priorities for 2023:

1. advocating and/or detecting and terminating violations of competition legislation in the market for banking and financial services;
2. advocating and/or detecting and terminating violations of competition legislation in the energy market (electricity and natural gas);
3. advocating and/or detecting and terminating violations of competition legislation in the market for light petroleum products(fuel);
4. detecting and terminating violations of competition legislation of state property privatization through competitive procedures;
5. conducting research on the competition status in the market for construction materials;
6. providing regulatory and legal support and advocacy of the system for monitoring and controlling state aid granted to legal entities;
7. strengthening cooperation with competitive authorities of the EU member states.

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

Integrites has been providing pro bono legal advice to the military personnel protecting Ukraine in the war against Russia, as well as to members of their families.

According to Integrites, “since March 2022, dozens of families have already received legal aid. Among them – the family of a Ukrainian military serviceman who has allegedly been held captive by the Russians. The soldier’s wife lost connection with him in March 2023 to find out later about his alleged captivity. This family has a son, also serving in the military, who required legal help after severe injury in the frontline.”

According to Integrites, the firm’s team “consulted the soldier’s wife regarding the documentation of the fact and circumstances of his captivity, as well as regarding application for social benefits provided by the law for such cases. [The firm] has been also advising the couple’s son on the remuneration for medical treatment and rehabilitation, and on the application for combatant status.”

Integrites’ team included Partner Oleksandr Onishchenko, Associate Mykola Yerema, Junior Associate Fedir Vasylenko, and Paralegal Viktoriia Bondar.

Ilyashev & Partners has provided pro bono legal support to the family of a fallen Ukraine’s Armed Forces soldier in receiving UAH 15 million in financial compensation.

“The soldier died while performing a combat mission in a war zone in August 2022,” Ilyashev & Partners informed.

According to the firm, the family experienced a delay in granting a single payment allowance of UAH 15 million by state authorities. The process was later sped up by submitting relevant requests and appeals to the Ministry of Defence of Ukraine, as well as the regional territorial recruitment and social support center of servicemen.

The Ilyashev & Partners team included Attorney-at-Law Dmytro Lazebnyi.

Asters has successfully defended the interests of the Home Box Office company in a dispute before Ukrainian courts regarding the production and distribution of its Chornobyl limited series in the country.

“The plaintiff sought deletion of certain scenes from the Chornobyl series and a prohibition for Home Box Office and other defendants on the matter to distribute the series in Ukraine,” Asters informed.

“The court, however, did not find any evidence of a breach of the plaintiff’s right by the producers of the series and dismissed the lawsuit,” the firm reported.

HBO is an American media and entertainment company operating as a unit of Warner Bros. Discovery.

The Asters team included Partners Julia Semeniy and Andriy Pozhidayev and Senior Associates Viktor Tarasenkov and Olena Kozhokar.