Category: Ukraine

Integrites has successfully represented Epiroc in a safeguard investigation in Ukraine regarding the company’s imports of three-cone drill bits into the country.

Epiroc, based in Sweden, is a rock drilling equipment producer.

According to Integrites, the investigation – initiated by Ukrainian three-cone drill bit manufacturer Universal Drilling Technique – was stopped “without applying safeguard measures on [Epiroc]. As the investigation has been closed without applying any safeguard measures, Epiroc will be able to retain the volume of products supplied to Ukraine, the market share in the region and in Ukraine, as well as its qualified personnel.”

The Integrites team included Counsels Sergii Lakhno and Yevgen Ivanets and Junior Associate Ivan Yefimenko.

Avellum has advised all parties involved in Roosh’s acquisition of a minority stake in Neurons Lab.

According to Avellum, “for Roosh, this deal became the first investment since the beginning of a full-scale war in Ukraine. Roosh is a Ukrainian tech company that creates and invests in AI and machine-learning-focused projects. The business ecosystem of Roosh includes venture studio Pawa, venture fund Roosh Ventures, community-building platform AI House, educational online platform AI House Club, technological university SET University, and start-ups Reface, and ZibraAI.”

According to the firm, “Neurons Lab is an AI R&D company that helps innovators accelerate the development and launch of data-driven products. The Neurons Lab team has expertise in fundamental science and full-stack AI/ML development.”

Avellum’s team included Partner Yuriy Nechayev, Senior Associate Anton Arkhypov, and Associates Maryna Buinytska, Oleksandr Kozhukhar, and Anastasiia Karpenko.

On 2 September 2022, the National Bank of Ukraine (NBU) adopted a new slew of changes to the martial law restrictions introduced on 24 February 2022:

1. The NBU now allows Ukrainian borrowers—legal entities—to make interest payments under cross-border loans that became due and payable at any point between 24 February 2022 and 10 August 2022, inclusive (Allowed Interest Payment), provided that the following conditions have been met:

• The borrower was not in payment default under the loan on or before 24 February 2022.
• The maximum interest amount payable in one month does not exceed one-fifth of the Allowed Interest Payment amount.
• The borrower must use its own funds for making the interest payments.
• The borrower has no debts under payments, falling under the authorities’ oversight, as confirmed by a certificate whose form is set out in Ukrainian legislation; while the NBU regulations are silent on what that certificate should be, one may presume this could be the certificate from tax authorities on the absence of tax debts.
• The borrower continues business operations after 23 February 2022 (including salary payments to its employees, other mandatory contributions, as confirmed by bank statements showing turnover in the borrower’s accounts).

The NBU regulations are silent on the evidence required from the borrowers on meeting the above criteria. Accordingly, Ukrainian servicing banks will determine this within their currency control and compliance functions.

Any other payments from Ukraine under cross-border loans (e.g. principal, interest) than Allowed Interest Payments and other permitted payments (please refer to our previous newsletters) remain prohibited. Ukrainian banks are also prohibited to proceed with amendments to cross-border loan agreements on rescheduling interest payment dates from other periods to the period from 24 February to 10 August 2022. 

2. Ukrainian companies are now prohibited from purchasing foreign currency on the Ukrainian FX market for cross-border payments if they already have own funds in the respective foreign currency available for making cross-border payments.

3. The NBU prohibited the Ukrainian banks to stop the currency control checks for the setoffs under transactions on exports/imports of goods, save for cross-border settlements under the operations related to the international telecom services.

In addition, the NBU now requires Ukrainian banks to recommend their clients (borrowers with cross-border loans) to request their foreign creditors to restructure their financial indebtedness on terms that are not worse than Ukraine sovereign financial debt restructuring. If you recall, this summer Ukraine had reached an agreement with its creditors to defer repayments.

No specific consequences are provided in respect of a failure to provide or follow such recommendations.

We advise that lenders consider with their counsels actions to preserve their rights under finance documentation, request Allowed Interest Payments and continue to monitor developments.

The above changes came into force on 6 September 2022.

By Natalia Selyakova, Partner, and Artem Lukyanov, Senior Associate, Dentons

Everlegal has announced its cooperation with the Danish Refugee Council to implement an online legal support platform aimed at helping Ukrainians around the world.

According to Everlegal, “DRC is developing a unique legal online platform that will be available to Ukrainians wherever they are. The platform will include legal support of Ukrainians in various jurisdictions, convenient formats for obtaining the necessary information in the relevant country, quick and open access to information for every Ukrainian, and modern online consulting systems.”

“Everlegal helps DRC in the implementation of this large-scale project by engaging top legal talents, focusing on inquiring into and understanding the legal needs of Ukrainians in this challenging time,” the firm informed. “Legal support for this project is important for Everlegal’s Sustainability direction, as the implementation of this project is another step towards achieving the UN Sustainable Development Goals.”

The Everlegal team is led by Partner Andriy Porayko.

The Parliament of Ukraine has adopted in its entirety draft law “On Joint Stock Companies” No. 2493, dated 25 November 2019 (“Draft Law”). The Draft Law is designated to align the regulation of joint stock companies (“JSC”) operation with EU corporate governance standards.

Choice of the governance structure

The current Law of Ukraine “On Joint Stock Companies” (“Law”) provides for the mandatory establishment of a supervisory board for public JSCs and private JSCs with more than 10 shareholders. However, the Draft Law allows JSCs to choose a one-tier or two-tier governance structure:

• one-tier governance structure consists of a general shareholders’ meeting and a board of directors. In turn, the board of directors includes executive directors and may include non-executive directors. Executive directors manage the JSC’s operational activity, while non-executive directors perform the supervisory and controlling functions
• two-tier governance structure consists of a general shareholders’ meeting, a supervisory board (controlling the executive body’s activity), and an executive body (managing the JSC’s operational activity)

A JSC may decide to switch to a one-tier or two-tier governance structure at any time.

Officers’ fiduciary duties

The Draft Law increases the standards of liability of the JSC’s officers:

• officers must act in the interests of the JSC, in good faith and reasonably, and take independent resolutions to achieve successful results of the JSC’s activities
• if net assets’ value is less than 50 per cent of the JSC’s share capital, officers must take actions to improve the JSC’s financial condition or convene a general meeting to take the resolution on reducing the JSC’s share capital or its liquidation. If officers fail to carry out the appropriate actions, they may be held personally liable for the JSC’s obligations

Electronic voting

The Draft Law takes into account the urgency of modernising corporate relations and provides the shareholders with a right to participate in general meetings through an electronic system as follows:

• notification of the general meetings, registration and identification of shareholders, voting, and vote counting may be carried out through a special electronic system
• to participate in an electronic general meeting, a shareholder must have an electronic signature or other means of electronic identification provided for by the National Securities and Stock Market Commission
• based on the results of the electronic general meeting, the JSC’s authorised person signs and the Central Depository certifies the minutes of such general meeting

Shareholders’ agreement

The Draft Law clarifies some important issues related to shareholders’ agreements:

• a shareholders’ agreement may be entered into with or without consideration
• in addition to the shareholders, the JSC itself and third parties may be parties to a shareholders’ agreement
• if a party enters into any contract in violation of the shareholders’ agreement, the respective contract is deemed null and void, provided that the counterparty was aware or should have been aware of the relevant violation

Issuance and consequences of violation of an irrevocable power of attorney

The Draft Law expressly provides that an irrevocable power of attorney may be issued to fulfil or secure obligations under a share pledge agreement.

Additionally, under the Draft Law, in case of violation of the principal’s rights and interests, the relevant representative must cease acting under the irrevocable power of attorney and renounce it at the request of such principal. The court may cancel such irrevocable power of attorney if a dispute arises.

Restrictions for JSC-controlled companies

The Draft Law provides for several restrictions for the companies controlled by the JSC. In particular, such companies may not:

• purchase JSC’s shares
• provide a loan to purchase the JSC’s shares
• guarantee obligations under a loan provided by a third party for purchasing JSC’s shares

Restrictions on payment of dividends

The Draft Law supplements the list of cases when the JSC may not pay dividends. Now such restriction will also apply if the JSC’s assets are or become (as a result of a relevant resolution) insufficient to satisfy the claims of the JSC’s creditors. The court may order to return dividends paid out to shareholders if such requirements are violated.

Competence of the general meeting

The Draft Law establishes the principle of non-interference of the JSC’s governing bodies in the activities of each other. As a general rule, a general shareholders’ meeting may not take resolutions on the issues that fall under the competence of a supervisory board or a board of directors (unless otherwise expressly provided for in the JSC’s charter). At the same time, the supervisory board or the board of directors may, on its initiative, include in the agenda of the general meeting any issue that falls within the relevant body’s competence.

Changes in LLCs’ operation

In addition to changes regarding JSCs’ operation, the Draft Law provides for a number of amendments relating to limited liability companies (“LLC”):

• by the participants’ resolution, participatory interests in the LLC’s charter capital may be kept by the Central Depository. In this case, the LLC may also pay dividends through the participatory interests’ accounting system, as well as hold general participants’ meetings through an electronic accounting system
• similarly to the JSC, a shareholders’ agreement in relation to the LLC may be entered into with or without consideration
• enforcement of the share pledge may be carried out in extrajudicial order as provided for in a relevant share pledge agreement following requirements of the Law of Ukraine “On Securing Creditors’ Claims and Registration of Encumbrances”
• an irrevocable power of attorney may also be issued to fulfil or secure the pledgor’s obligations to transfer a participatory interest in the LLC’s charter capital
• the LLC’s charter may provide that a participant holding 50 per cent or more of the charter capital may withdraw from the LLC without a prior consent of other participants
• similarly to the JSC, executive and non-executive directors may be appointed to the LLC’s board of directors

By Aleksandr Volodin, Associate, Yelyzaveta Kravtsova, Associate, and Anastasiia Karpenko, Associate, Avellum

Avellum has advised the Managing Partners of the American University Kyiv on its launch in Ukraine.

According to the firm, the American University Kyiv “is a private university offering a U.S. higher education standard in Ukraine through its partnership with Arizona State University ASU, one of the largest universities in the U.S.” Its founding partners in Ukraine include EPAM Systems, BGV Group Management, Academy DTEK, Brain Computers, Channel Georgia Consulting, and Georgian American University. 

“Even in the times of full-scale war in Ukraine, Avellum continues to help its clients contribute to the development of Ukraine as a modern country,” commented Avellum Partner Yuriy Nechayev. “We are, thus, proud to have advised on this landmark project, introducing the first American university of its kind in Ukraine offering American educational excellence for global-thinking students.”

The Avellum team was led by Nechayev and included Counsels Oleksiy Maslov and Anton Zaderyholova, Senior Associate Anton Arkhypov, Associates Maryna Buinytska, Yelyzaveta Kravtsova, Iryna Fonotova, Anastasiia Karpenko, Yelyzaveta Kashyna and Oles Bidnoshyia. 

On July 19, 2022, Law of Ukraine No. 2352-IX On Amendments to Certain Legislative Acts of Ukraine, Governing Optimization of Labor Relations entered into full force and effect and amended the Code of Labor Laws of Ukraine (the Labor Code), the Laws of Ukraine On the Organization of Labor Relations under Martial Law, On Leaves, and others.

Below we bring you a summary of the main amendments that the employer should be aware of.

Salaries of mobilized employees

Employers now are not obliged to pay an average salary to employees mobilized for military service, but the employees shall remain employed and continue to hold their positions (part three of Article 119 of the Labor Code). Previously, the employer had to continue to pay such employees’ average salaries for the entire period of the employee’s military service.

Secondary employment

Secondary employment is now allowed for an employee at the employer’s primary place of work (Article 102-1 of the Labor Code). Previously, this was not a possibility.

New grounds for terminating employment:

1. Death of an employer who is an individual or entry into full force and effect of a court decision whereby such individual is recognized as missing or declared dead (section 8-1 of Article 36 of the Labor Code);

2. Death of an employee, his/her recognition as missing or declared dead in accordance with a court decision (section 8-2 of Article 36 of the Labor Code);

3. The employee’s absence from work and lack of information regarding the reasons for such absence for more than four consecutive months (section 8-3 of Article 36 of the Labor Code);

4. Impossibility of providing an employee with the work specified in the employment agreement, due to the destruction (lack) of production, organizational, and technical conditions, means of production or property of the employer as a result of hostilities, when it is impossible to transfer the employee to another position (Article 41 of the Labor Code). The employer must notify the employee of dismissal no later than 10 calendar days prior to such dismissal (Article 49-2 of the Labor Code) and pay severance pay amounting to no less than the employee’s average monthly salary (Article 44 of the Labor Code).

Timeframe for service of notification about changes in key employment terms

During the period of martial law, employees must be notified of a change in essential employment terms no later than prior to introduction of such new terms (part 2 of Article 2 of the Law on Organization of Labor Relations under the Martial Law). Previously, the Law previously allowed the employer to change the essential employment terms “on a same-day basis.”

Changes related to suspension of employment agreement

In the event a decision to cancel suspension of the employment agreement is adopted, the employer must notify the employee of the necessity to return to work 10 calendar days before resumption of the employment agreement. Previously, it was not required to serve this notice.

Duration of annual leave

The employer has now been granted the right to independently decide, whether or not to limit the employee’s annual basic leave to 24 calendar days for the current working year during the period of martial law. At the same time, if an employee was supposed to have a longer vacation period than 24 calendar days, then those unused days can be used after martial law has expired or been cancelled.

In addition, during the period of martial law, the employer may deny the employee’s request for unused days of annual leave. However, if an employee is dismissed during the period of martial law, he/she must be paid monetary compensation for all unused days of annual leave in accordance with Article 24 of the Law of Ukraine On Leaves. In the event of an employee’s death, compensation for unused annual leave days is paid to his/her family members, and in the event of their absence, it is included into the employee’s estate.

By Volodymyr Monastyrskyy, Partner, and Tetiana Sokhotska, Associate, Dentons

On July 19, 2022, Law of Ukraine No. 2352-IX On Amendments to Certain Legislative Acts of Ukraine, Governing Optimization of Labor Relations entered into full force and effect and amended the Code of Labor Laws of Ukraine (the Labor Code), the Laws of Ukraine On the Organization of Labor Relations under Martial Law, On Leaves, and others.

Below we bring you a summary of the main amendments that the employer should be aware of.

Salaries of mobilized employees

Employers now are not obliged to pay an average salary to employees mobilized for military service, but the employees shall remain employed and continue to hold their positions (part three of Article 119 of the Labor Code). Previously, the employer had to continue to pay such employees’ average salaries for the entire period of the employee’s military service.

Secondary employment

Secondary employment is now allowed for an employee at the employer’s primary place of work (Article 102-1 of the Labor Code). Previously, this was not a possibility.

New grounds for terminating employment:

1. Death of an employer who is an individual or entry into full force and effect of a court decision whereby such individual is recognized as missing or declared dead (section 8-1 of Article 36 of the Labor Code);

2. Death of an employee, his/her recognition as missing or declared dead in accordance with a court decision (section 8-2 of Article 36 of the Labor Code);

3. The employee’s absence from work and lack of information regarding the reasons for such absence for more than four consecutive months (section 8-3 of Article 36 of the Labor Code);

4. Impossibility of providing an employee with the work specified in the employment agreement, due to the destruction (lack) of production, organizational, and technical conditions, means of production or property of the employer as a result of hostilities, when it is impossible to transfer the employee to another position (Article 41 of the Labor Code). The employer must notify the employee of dismissal no later than 10 calendar days prior to such dismissal (Article 49-2 of the Labor Code) and pay severance pay amounting to no less than the employee’s average monthly salary (Article 44 of the Labor Code).

Timeframe for service of notification about changes in key employment terms

During the period of martial law, employees must be notified of a change in essential employment terms no later than prior to introduction of such new terms (part 2 of Article 2 of the Law on Organization of Labor Relations under the Martial Law). Previously, the Law previously allowed the employer to change the essential employment terms “on a same-day basis.”

Changes related to suspension of employment agreement

In the event a decision to cancel suspension of the employment agreement is adopted, the employer must notify the employee of the necessity to return to work 10 calendar days before resumption of the employment agreement. Previously, it was not required to serve this notice.

Duration of annual leave

The employer has now been granted the right to independently decide, whether or not to limit the employee’s annual basic leave to 24 calendar days for the current working year during the period of martial law. At the same time, if an employee was supposed to have a longer vacation period than 24 calendar days, then those unused days can be used after martial law has expired or been cancelled.

In addition, during the period of martial law, the employer may deny the employee’s request for unused days of annual leave. However, if an employee is dismissed during the period of martial law, he/she must be paid monetary compensation for all unused days of annual leave in accordance with Article 24 of the Law of Ukraine On Leaves. In the event of an employee’s death, compensation for unused annual leave days is paid to his/her family members, and in the event of their absence, it is included into the employee’s estate.

By Volodymyr Monastyrskyy, Partner, and Tetiana Sokhotska, Associate, Dentons

Avellum, working with White & Case, has advised the Ministry of Finance of Ukraine, National Power Company Ukrenergo, and the State Road Agency of Ukraine Ukravtodor on consent solicitations for extending external debts.

According to Avellum, “the purpose of these consent solicitations was to extend maturities of Ukraine’s 13 series of outstanding Eurobonds and, separately, its outstanding GDP-linked warrants, as well as Ukrenergo’s and Ukravtodor’s outstanding Eurobonds guaranteed by the state of Ukraine. The total face value of all the instruments within the perimeter of these transactions exceeded USD 25 billion.”

“On August 10, 2022, Ukraine announced it had received the requisite consents from the holders of its Eurobonds and GDP-linked warrants,” the firm added. “On the same date, Ukrenergo and Ukravtodor announced the same with respect to their Eurobonds. These primarily allowed all three issuers to defer all payments due under their relevant debt instruments for two years. Most importantly, this will also allow Ukraine to refocus its limited foreign currency liquidity toward other pressing needs of the state budget of Ukraine.”

Avellum previously also advised Ukravtodor on a debut USD 700 million issuance (as reported by CEE Legal Matters on July 14, 2021) and Ukrenergo on its debut USD 825 million issuance (as reported by CEE Legal Matters on November 21, 2021).

The Avellum team was led by Senior Partner Glib Bondar and included Senior Associates Oleg Krainskyi and Anastasiya Voronova, and Associates Mariana Veremchuk, Yaroslav Pavliuk, and Oleksandra Mohylna.

Historically, Ukraine has been known as a country with a good investment climate, particularly in the energy sector. The country’s high feed-in tariff rates, general digitalization, well-established and simplified regulatory procedures, and the availability of alternative suppliers for works and services, among other factors, have contributed to a large influx of investors in new green energy projects in Ukraine.

The large-scale and aggressive war of the Russian Federation against Ukraine, which first began in 2014 and further escalated in 2022, has led to an increasing number of human losses and widespread material destruction. Power plants and power lines, airports, ports, schools, hospitals, roads, residential buildings, state and municipal buildings – literally all types of buildings and facilities that unfortunately are or were in the zone of active hostilities, or that simply became targets of rocket fire from the side of the Russian Federation – require at a minimum repair or are, in many cases, beyond repair.

In our opinion, the key features of the post-war reconstruction of Ukraine will be its timing and the socially crucial need to provide fast and substantive results. From the state’s point of view, projects should be implemented where and to the extent required by the state, based on dialogue with the communities concerned and considering their individual needs (for projects of a local nature) at the preparatory stage. At the same time, the implementation of large-scale reconstruction of infrastructure is impossible without attracting private financing. In this case, public-private partnerships appear to be the right mechanism to achieve a cumulative effect.

In view of the above, the Ukrainian government is considering changes to the legal framework of public-private partnerships (PPPs).

To this end, the start of public discussions on this issue has recently been announced, according to which the following main legislative and procedural changes are being discussed by the Ukrainian government: (1) introduction of a simplified preparation procedure for reconstruction PPP projects; (2) the term of reconstruction projects under the umbrella of the refreshed PPP regime will be limited to 15 years; (3) all PPP tenders will be administrated through an electronic procurement system, developed with support from the European Bank for Reconstruction and Development; (4) a dedicated PPP agency will provide technical support to tender commissions; and (5) a special procedure for engaging advisors for the preparation of reconstruction projects will be introduced.

Further, the Ukrainian state guarantees and assurances for investors may also include: (1) a simplified procedure for obtaining antimonopoly clearance in relation to potential state aid provided by the state of Ukraine to investors; (2) no land tax payable by an investor during the term of a PPP agreement; (3) a simplified procedure for taking land plots for the implementation of reconstruction projects; (4) no environmental impact assessment would be required in the context of reconstruction projects; (5) assignment of “protected” status to expenses from the Reconstruction Fund; and (6) establishment of an insurance fund in a suitable and “safe” jurisdiction, to provide PPP reconstruction investors with insurance covering military risks (e.g., MIGA).

To start the legislation framework change, the government has prepared a draft law on amendments to the Law of Ukraine on Public-Private Partnership. The draft law introduces a procedure for the formation of the list of state reconstruction PPP projects and a list of local reconstruction PPP projects. Projects included in both lists should be prepared for tender in accordance with a simplified procedure and in the shorter term.

The draft also provides rather short procedural terms for each stage of the private partner selection process. In general, it is expected that the simplified tender preparation procedure and selection of a private partner will take between seven and 11 months, in contrast to the usual procedure that lasts for 20 months. The draft also provides for a commissioning fee payable to the private partner out of the funds received from various donors or the state budget, subject to the private partner reaching agreed KPIs. Lastly, according to the draft, tenders will be conducted using the so-called electronic trading system, which is expected to be developed and launched with support from, and based on the experience of, the EBRD.

By Oleksandr Kurdydyk, Partner and Co-Head of Energy, and Kateryna Soroka, Senior Associate, Kinstellar

This Article was originally published in Issue 9.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.