Category: Ukraine

Asters has advised the Black Sea Trade and Development Bank on its EUR 25 million short-term revolving trade finance facility to Ukraine’s Concern Galnaftogaz.

“The loan will be used for the shipment of light-petroleum products and services from the EU and BSTDB’s member states including, among others, Bulgaria, Greece, and Romania to Ukraine,” Asters informed. “By providing critical trade finance to Galnaftogaz, the BSTDB plays a key role in promoting Ukraine’s economic development and resilience, supporting job preservation, and improving the quality of life of Ukrainian citizens.”

Concern Galnaftogaz is a Ukrainian petroleum retailer company.

The BSTDB is an international financial institution that finances projects in the Black Sea Region. The bank has an authorized capital of EUR 3.45 billion and provides trade and project finance lending, guarantees, and equity participation in private companies and public entities in 11 member countries.

Asters had previously advised the Black Sea Trade and Development Bank on a USD 20 million loan to Concern Galnaftogaz back in 2018 (as reported by CEE Legal Matters on April 24, 2018). The BSTDB and Galnaftogaz partnership dates back to 2004, with more than USD 130 million in loans being provided by the bank in the meantime. 

Earlier this year, Asters also advised the BSTDB on its EUR 8 million financing to the Real Estate Development Centre for the construction of a 128-room hotel in Lviv, Ukraine (as reported by CEE Legal Matters on January 9, 2023).

The Asters team included Partner Iryna Pokanay, Counsel Gabriel Aslanian, Senior Associate Inna Bondarenko, and Associate Viktoria Zagreba.

Asters did not reply to our inquiry on the matter.

Avellum has advised the American University Kyiv on establishing its campus in the Kyiv River Port building, in Poshtova Square in Kyiv.

“The American University Kyiv is a private university in Ukraine designed as an innovative world-class institution with its foundation fully based on US higher education standards,” Avellum informed. “It is the first university in Ukraine to partner with Arizona State University, the most innovative university in the US according to the US News & World Report. This partnership gives American University Kyiv access to Arizona State University curriculum, exchange programs, and unique opportunities to offer dual degrees from both American University Kyiv and Arizona State University.”

In 2022, Avellum also advised on the initial establishment of the American University Kyiv (as reported by CEE Legal Matters on September 9, 2022).

The Avellum team was led by Partner Maksym Maksymenko and included Senior Associate Daryna Mykhailenko and Associates Rostyslav Mushka, Yuliia Pidlisna, and Inna Erbelidze.

Editor’s Note: On July 3, 2023, Integrites announced it had advised the American University Kyiv on real estate issues related to the River Port building – updates to the building’s renovation plan and lease agreement – which will now include “bomb shelters in order to ensure a seamless educational process at the AUK.” The firm’s team included Managing Partner Oleksiy Feliv and Senior Associate Tetiana Storozhuk.

Ilyashev & Partners has successfully represented the creditors of bankrupt Fortuna-Bank’s beneficiary, Serhii Tyshchenko, in bankruptcy proceedings before the Economic Court of Kyiv.

“The decision of the Economic Court of Kyiv put an end to the bankruptcy case – the collection of funds from Serhii Tyshchenko will be carried out by creditors in full outside the bankruptcy procedure,” Ilyashev & Partners informed. “The total amount of accounts payable exceeds UAH 1 billion.”

“The relevant proceedings were commenced by the Economic Court of Kyiv in 2019, thereby imposing a moratorium on meeting creditors’ claims,” the firm reported, noting that, as a result of the litigation, “Serhii Tyshchenko was unable to agree to a debt restructuring on terms that were unfavorable to the creditors. Now, the creditors can sue the debtor separately and demand the full repayment of debts.”

The Ilyashev & Partners team was led by Senior Partner Roman Marchenko and included Partner Yevgen Solovyov and Counsels Andrii Konoplia and Vadym Kizlenko.

Everlegal has successfully represented Agromino subsidiary Oliynikova Sloboda LLC before the Grand Chamber of the Supreme Court in a land lease-related dispute.

According to Everlegal, Oliynikova Sloboda LLC concluded a land lease agreement with the owner and, in 2015, registered the right to lease the land in the state register and subsequently used this land for the cultivation of agricultural crops.

In February 2018, the owner of the leased land together with a group of other landlords appealed the decisions of the state registrars on the registration of the client’s right to lease their land plots to the so-called Anti-raider Commission under the Ministry of Justice of Ukraine. On the day of issuance of the relevant order by the Ministry, the right to lease the land plots of the complainants was registered by another tenant.

Oliynikova Sloboda LLC challenged in court both the order of the Ministry and the land lease agreements concluded with the new tenant. Everlegal reported that significant changes were introduced in resolving disputes regarding land leases by the Grand Chamber of the Supreme Court.

The Everlegal team was led by Counsel Svitlana Teterya.

Ilyashev & Partners has advised the Ukrainian Red Cross, on a pro bono basis, regarding the development of a construction contract for the capital repair of the old building of the First Medical Union of Lviv’s clinic, on Mykolaichuka Street in Lviv, on the basis of which the Unbroken National Rehabilitation Center was created.

According to Ilyashev & Partners, “it is going to become the country’s largest rehabilitation facility for people affected by the war. Unbroken was created to treat both military servants and civilians. It is a seven-floor building with a modeled residential apartment and a store, so that the patient could better adapt to the new living conditions. Therefore, every year, 10,000 Ukrainians will be able to receive comprehensive assistance and undergo rehabilitation in one facility.”

The Ilyashev & Partners team was led by Counsel Dmytro Hrybov.

Redcliffe Partners has advised the EBRD on its up to USD 100 million secured loan to Ukrainian poultry and grain producer MHP.

According to Redcliffe Partners, the loan is aimed to finance seasonal working capital needs for its edible oil-crushing segment in Ukraine.

“The project is part of the EBRD’s Resilience and Livelihoods Framework adopted by the Bank to support the Ukrainian economy following Russia’s invasion,” the firm informed. “Specifically, the loan proceeds will be used to support the MHP Group’s capacity for the production and export of essential agricultural commodities.”

The MHP Group is a grain, poultry, and edible oils producer that operates in Ukraine and southeastern Europe.

Last year, Redcliffe Partners also advised the EBRD on a EUR 24 million short-term unsecured loan to MHP (as reported by CEE Legal Matters on June 28, 2022). 

The Redcliffe Partners team included Managing Partner Olexiy Soshenko, Associate Sevastian Viktoruk, and Junior Associate Danylo Martyniuk.

Editor’s Note: After this article was published, CMS announced it had advised the EBRD on English law matters. The firm’s team included Partner Rafal Zakrzewski and Senior Associate Evgeniy Vazhynskiy.

Redcliffe Partners has advised the EBRD on its up to USD 100 million secured loan to Ukrainian poultry and grain producer MHP.

According to Redcliffe Partners, the loan is aimed to finance seasonal working capital needs for its edible oil-crushing segment in Ukraine.

“The project is part of the EBRD’s Resilience and Livelihoods Framework adopted by the Bank to support the Ukrainian economy following Russia’s invasion,” the firm informed. “Specifically, the loan proceeds will be used to support the MHP Group’s capacity for the production and export of essential agricultural commodities.”

The MHP Group is a grain, poultry, and edible oils producer that operates in Ukraine and southeastern Europe.

Last year, Redcliffe Partners also advised the EBRD on a EUR 24 million short-term unsecured loan to MHP (as reported by CEE Legal Matters on June 28, 2022). 

The Redcliffe Partners team included Managing Partner Olexiy Soshenko, Associate Sevastian Viktoruk, and Junior Associate Danylo Martyniuk.

A new law implementing a wide range of international agreements and standards is aimed at improving global transparency in Ukrainian tax reporting and will have implications for a variety of taxpayers.

On April 20, 2023, the President of Ukraine signed the Law of Ukraine, “On Amendments to the Tax Code of Ukraine and other Legislative Acts of Ukraine on the Implementation of an International Standard for the Automatic Exchange of Financial Account Information,” adopted by the Parliament of Ukraine on March 20, 2023 (the “Law”). The Law takes legal force and effect on April 28, 2023, except for certain provisions that will become effective from June 30, 2023, and January 1, 2024.

The Law implements into Ukrainian law the provisions of a number of international agreements and standards:

• Multilateral Competent Authority Agreement on Automatic Exchange of Financial Account Information (MCAA CRS).
• Multilateral Competent Authority Agreement on the Exchange of Country-by-Country Reports.
• Qualifying Competent Authority Agreements entered into by competent authorities of Ukraine and a foreign jurisdiction that are parties to the current international agreement containing provisions on the exchange of information for tax purposes (this provides for the automatic exchange of country-by-country reports of an international group of companies between Ukraine and such a foreign jurisdiction).
• Qualifying Competent Authority Agreement.
• Common Standard on Reporting and Due Diligence for Financial Account Information (CRS).
• Agreement between the Government of the United States of America and the Government of Ukraine to Improve International Tax Compliance and to Implement the Provisions of the Foreign Account Tax Compliance Act (FATCA).

The Law will enable the automatic exchange of financial and tax information—one of the elements of a framework to prevent base erosion and profit shifting (BEPS) that was developed among 135 countries with the OECD/G20— and is aimed at creating facilitated access by competent authorities to such information in order to effectively identify undeclared income of tax residents outside their resident countries and control over the correctness of income declaration and tax payments.

Ukraine will launch its automatic exchange of financial and tax information in July 2023, and in 2024 the tax authorities of participating countries will begin exchanging such information with Ukraine for 2023.

In practical terms, introducing automatic exchanges of information in accordance with he Law means that Ukrainian banks will be obliged to collect information about the accounts of foreign taxpayers in Ukraine and transfer it to the Ukrainian tax authorities that will, in turn, transfer this information to the tax services of the respective countries according to the taxpayer’s tax residency. Ukrainian tax authorities will also receive such information about their taxpayers from the tax authorities of countries that are parties to the relevant international agreement.

In particular, the following information will be subject to automatic exchange:

• Name/corporate name of the account holder
• Date of birth, address
• Tax number
• Bank account number
• Balance at the end of the year
• Total income from financial assets for the reporting period

As the Law obliges reporting for purposes of automatic exchange of financial information from July 1, 2023, Ukraine will be able to transfer such information in 2024 (for the last half of 2023) to other countries that are parties to the relevant international agreement. Ukrainian tax authorities will also be able to receive such information for 2023, possibly for the entire year, depending on when the other CRS member countries begin collecting their information.

For more detailed information about the Law and the possible consequences of its entry into force for you and your business, please contact our tax and financial specialists.

By Igor Davydenko, Partner, Dentons

Ilyashev & Partners has successfully represented Ferrexpo before the Supreme Court of Ukraine against claims of the share purchase agreement for a 40.19% stake in Ferrexpo Poltava Mining being invalid coming from four former shareholders seeking the reclamation of their shares.

According to Ilyashev & Partners, Ferrexpo Poltava Mining is the largest Ukrainian producer and exporter of iron ore pellets to Europe. The Ferrexpo Group, to which Ferrexpo Poltava Mining belongs, specializes in iron ore extraction by open-pit mining and its resource base is one of the largest iron ore deposits in the world.

“Court proceedings on recognition of the share purchase agreement of 40.19% stake in Ferrexpo Poltava Mining invalid under the claims of the former shareholders had been conducted since 2005,” the firm informed. “In 2015, the Supreme Economic Court of Ukraine rejected all claims of Ferrexpo Poltava Mining’s former shareholders.”

“However, at the end of 2020, another former shareholder of Ferrexpo Poltava Mining, Trimcroft Services Limited, tried to challenge the share purchase agreement in court again,” Ilyashev & Partners added. “Later, three other former shareholders, Emsworth Assets Limited, Calefort Developments Limited, and Gilson Investments Limited, joined the claim. In May 2021, the Commercial Court of Kyiv rejected the claims of the companies, declaring them baseless.” Ferrexpo, however, lost the case on appeal, in September 2022, before the Northern Commercial Court of Appeal.

Finally, according to Ilyashev & Partners, “the Grand Chamber of the Supreme Court, having considered Ferrexpo AG’s cassation appeal, put an end to the legal dispute and canceled the resolution of the Northern Commercial Court of Appeal on reclamation of the stake in Ferrexpo Poltava Mining from four companies – former shareholders. Thus, the Supreme Court left 40.19% of the share in Ferrexpo Poltava Mining to the legitimate owner: Ferrexpo.”

The Ilyashev & Partners team included Managing Partner Mikhail Ilyashev and Counsels Andrii Konoplia and Marina Riashchenko.

Since the beginning of Russian full-scale invasion of Ukraine, Ukrainian authorities have imposed personal sanctions on about 5,000 individuals and 2,500 legal entities.

Unlike some other countries, Ukraine has not criminalised the violation of sanctions regime. This effectively means that a person who violated the sanctions (for example, entered into a transaction with a sanctioned entity) would not be prosecuted on this basis. Nonetheless, the law enforcement authorities may still investigate dealings with sanctioned persons under “general” criminal qualifications in the absence of those specifically connected to sanctions.

How authorities prosecute violations of sanctions regime

As a matter of practice, the law enforcement authorities would qualify violation of the sanctions regime as follows:

1. Financing of terrorism (Article 258-5 of the Criminal Code) – if the offender transacted with an entity sanctioned for dealing with so-called DPR, LPR, and Russian paramilitary units; or

2. Financing of actions aimed at forcible change of the constitutional order of Ukraine (Article 110-2 of the Criminal Code) – if the offender transacted with an entity sanctioned for the alleged connection to the Russian defence or financial sector.
The latter qualification appears to be the most “popular” among the various agencies investigating business crimes. Offences with such qualification are mostly investigated by the Security Service of Ukraine (“SSU”). The grounds for the SSU to inspect a business sector or a particular entity might be quite extensive. The most recent investigations comprise the alleged financing of Russia by a group of gambling companies, and a broker company which allegedly sold Ukrainian bonds to unnamed Russian citizens.

Recent law enforcement trends

The SSU not only conducts criminal investigations, but also gathers information on the entities of interest which might have connections to Russia. The SSU further supplies this information to the National Security and Defence Council, which then approves a new sanctions list. This partially explains why the investigations under Articles 110-2 and 258-5 of the Criminal Code rarely end up with a verdict – the SSU tends to use these mainly to equip the National Security and Defence Council with the evidence necessary to justify its decisions.

As regards the criminal investigations of this type, it is quite challenging for the law enforcement authorities to ultimately issue charges. Violation of sanctions regime as such may be used as an evidence of criminal intent rather than the basis for charges. Suspicions of financing Russian military or terrorist groups are difficult to prove beyond reasonable doubt, so most of such investigations stuck at the pre-trial investigation stage. Side effect is still significant for the businesses targeted by the law enforcement agencies – the latter tend to extensively use a variety of measures from asset freezes to dawn raids. The courts generally apply quite a low threshold to the applications seeking the respective orders. This is mainly because of the seriousness of the charges and the national security motives.

Prospective legislation

In January 2023, a group of MPs submitted a draft law aimed to amend the Criminal Code with a dedicated article criminalising the violation of sanctions regime. The maximum penalty for such an offence would be imprisonment for up to 12 years with confiscation of property. Importantly, liability would only arise in case of violation of domestic sanctions – not those imposed by the EU or foreign states.

In addition to a verdict, the court may apply the so-called special confiscation – to seize any assets or funds which qualify as proceeds of crime or target of crime (including those kept by third parties). We can imagine that the special confiscation would apply to the proceeds received by a party as a result of the transaction with a sanctioned entity.

The authorities in both Ukraine and the EU are trying to counter numerous schemes that help to evade sanctions but do not formally violate them. One of the areas of this effort is the criminalisation of such schemes. Time will tell whether the criminal law measures may aid in this respect.

By Andriy Fortunenko, Counsel, and Oleg Shkondin, Attorney at Law, Avellum