Category: Ukraine

On 28 April 2022, Resolution of the Government of Ukraine “On Amendments to Certain Resolutions of the Government of Ukraine on Notaries’ Activity and Functioning of Unified and State Registers Held by the Ministry of Justice, during Martial Law” No. 480-2022-p, dated 19 April 2022 (“Resolution”), entered into force, amending several previously adopted resolutions (as described in the Legal Alert, dated 29 March 2022).

Among other things, the Resolution lifts certain restrictions (in particular, it determines the conditions for the state registration of proprietary rights), while establishing some new limits in order to avoid trespasses in the notarial and registration actions during martial law and one month after it is terminated.

1. Notarisation

• the russian federation’s citizens and companies whose beneficial owners or participants with a share of more than 10% are russian federation’s citizens may only apply for notarial services if such citizens have legitimate grounds to live in Ukraine
• only the notaries included by the Ministry of Justice of Ukraine (“Minjust”) in a special list (“List of Notaries”) may perform notarial actions in respect of the valuable property (to certify agreements on disposal of property, change of creditor under loan and mortgage agreements, to certify mortgage, lease, loan, and inheritance agreements, agreements on disposal of securities or corporate rights, to certify signatures on delivery acceptance acts regarding shares in companies, etc). The List of Notaries has been approved by the Minjust and may be updated: https://minjust.gov.ua/pages/list_of_notaries
• an interested party may confirm the authenticity of a power of attorney certified by a notary without using official notarial forms, by contacting the relevant notary with a copy of such document. The notary must, within two business days, issue a certificate confirming or denying the authenticity of such power of attorney.

2. Registration

Some legislative provisions related to state registration of legal entities, individual entrepreneurs, and civic organisations (“Companies”) and/or state registration of proprietary rights to real estate and their encumbrances (“State Registration”) were amended:

• the State Registration may now be done by the notaries included in the List of Notaries in addition to officials of the Minjust, its local agencies (“Registrars”), included in the list of registrars adopted by the Minjust (“List of Registrars”)
• only the notaries practicing within the real estate’s location may register the rights to respective real estate (except in case of inheritance)
• if the documents for the State Registration require notarial certification of the applicant’s signature (e.g. a delivery acceptance act in case of transfer of property into the ownership of a company as a contribution, written co-owners’ consents to property alienation), the notary performing the State Registration should personally certify the signatures on such documents
• to complete the State Registration initiated before the martial law, the submitted applications may be transferred to the Registrars and notaries included in the List of Registrars and the List of Notaries
• the following registration actions are prohibited:
  • disposal of real estate or changes to the Company’s participants if the seller’s representative acts under a power of attorney
  • the State Registration of the proprietary rights to real estate and their encumbrances under an agreement certified by a notary within the period from 25 February 2022 up to the date when such notary was included in the List of Notaries
  • the State Registration of the ownership right to real estate within one month after its previous owner’s title was registered (except in case of inheritance)
  • real estate contribution to the Company’s charter capital or its transfer to withdrawing founders (participants)
  • the State Registration of the ownership right to the real estate mortgaged under a consumer loan agreement.

Thus, the Resolution has partially unblocked the performance of some notarial and registration actions, allowing certain notaries and Registrars to ensure the real estate turnover and perform more registration actions related to the Companies. We believe that such amendments will contribute to the partial restoration of economic relations during martial law.

By Daryna Mykhailenko, Associate, Avellum

Ukrainian Parliament currently considers bill No 7232 that increases tax rates for Ukrainian businesses related to Russia (the “Measure”). The aim of the bill is to discourage corporations from Russian business activities. If successful, it should decrease Russian fiscal revenue, which will leave Russia with less funds available for warfare. There is, obviously, a huge social request and support for such measures. However, actual effect of the bill is far not that definitive.

A brief overview of the scope of the Measure

Under the bill, the Measure will apply to Ukrainian businesses designated as “affiliated with Russia”. The bill operates a specific definition of “affiliation”. The company is deemed affiliated with Russia if it meets any of following criteria:

• As at 23 February 2022, the resident of Russia was a direct or indirect owner or the ultimate beneficial owner of the company;
• The company derives income from Russia or owns the company that receives such income or conducts transactions that may result in receipt of such income;
• The company is a part of a multinational enterprise and any company of such an enterprise:
• Derives income from Russian sources or conducts transactions that may result in receipt of such income, including by having a permanent establishment in Russia;
• Has financial liabilities towards Russian residents;
• Russian residents have financial liabilities towards such companies; or
• Supports Russia economically, including by carrying business through a permanent establishment in Russia or by supply of goods and services to Russia without consideration.

The transactions which were actually carried out but were not documented would also be taken in consideration for purposes of the “affiliation” test.  

Ukrainian legal entities and permanent establishments of non-resident entities in Ukraine must file a special “affiliation declaration” and disclose any of the affiliation criteria. Misreporting on the affiliation declaration may result in an unscheduled tax audit. 

Businesses deemed affiliated with Russia will be subject to increase in tax rates for certain taxes. The following tax rates will be subject to increase by 1,5 times:

• corporate income tax (increased to 27% instead of standard 18% for resident entities);
• rent tax (royalty for use of subsoil, radiofrequency, etc.);
• environmental tax; and
• property tax.

Civil society have already exerted significant pressure on corporations that are not ready to leave and abandon Russian market. These companies experienced decrease in demand, negative publicity, bad performance of shares on stock exchanges and other effects. Still, quite a number of large corporations continue to conduct business in Russia. In such circumstances, the idea to create additional tax reason to abandon Russia seems very appealing at the first glance. However, further scrutiny of the Measure leaves us with more questions both on technical side of the bill and its chances to succeed. 

Withholding tax and treaty position

In Ukraine, withholding tax is a form to collect corporate income tax from non-residents. General withholding tax rate is 15%. However, lower rates apply if provided for by the applicable double taxation treaty.

Withholding tax is assessed, reported, withheld and paid by Ukrainian residents or permanent establishments. However, the relevant tax is not due from them but is merely administratively collected from foreign entities. It is unclear, therefore, whether the Measure should result in increase of the withholding tax due from affiliated companies. If so, it may affect non-affiliated payees since the tax burden is placed on them. Also, technically it would be more correct to assert that the Measure should not apply to such tax payments as the taxpayer (non-resident company) is not an affiliated entity. This issue may be further clarified during review of the bill in the Parliament.

In case the Measure applies to withholding tax, it will fall into the scope of treaty protection available to eligible non-residents. If the non-resident company is the tax resident of a state with effective double tax treaty with Ukraine, such tax treaty will prevent Ukraine from collecting withholding tax exceeding the maximum rate provided for by the treaty. Most of Ukrainian treaties establish tax rates for passive income that are lower than statutory 15% withholding tax rate. Therefore, increase of the tax rate to 22.5% by the Measure would not be effective because of the applicable treaty protection.

Non-discrimination rules and the Measure

Another interesting question is whether the Measure is in line with non-discrimination obligations of Ukraine in effective double taxation conventions. Such provision prohibits: 

• To impose on permanent establishments of residents of treaty state taxation which is more burdensome than applicable to tax on domestic enterprise of the host state carrying out similar activity; and
• To impose on subsidiaries of residents of treaty state taxation which is more burdensome than applicable to tax on enterprise carrying out similar activity whether owned by a person of the host state or the third state.

The Measure discriminates permanent establishment of Russian residents and Ukrainian entities with Russian capital. Therefore, Ukraine would need to cancel its double tax treaty with Russia in order to apply the Measure.

As for effect of the other double tax treaties, the position is not straightforward. It is recognised that the non-discrimination provision in the tax conventions is not per se the most favoured treatment clause. The Measure applies equally to companies with capital from any state (apart from Russia) and is dependent on the business such company or another part of its international group carries out. It gives proper grounds to argue that the Measure is non-discriminatory towards entities with non-Russian capital. 

Exemption

The bill proposes that the Measure will not apply if the relevant company is involved in an activity of social, humanitarian, or economic significance for Ukraine. This may include supply of goods and services which are not produced in Ukraine (the list of qualifying goods and services to be approved by the Government).

There are no specific requirements or thresholds to apply the exemption. Certain companies may use it as a loophole for the abuse of the proposed rules. They may supply insignificant amounts of qualifying goods or services to avoid application of the Measure.

Wartime losses

The war dramatically influenced the revenues of all Ukrainian businesses, either related to Russia or not. It is highly unlikely that any of them will have taxable profits in 2022 (or even in years to come).

Apart from that, business affiliated with Russia face extreme dropdown in customer demand and sales levels. One of multinational food retail stores experienced 50% drop in sales after the corporation announced it is not leaving Russia. 

In such circumstances, economic effect of the Measure with respect to corporate income tax is highly questionable. There are reasonable doubts as to whether any businesses will report profits subject to tax. Especially businesses deemed affiliated with Russia. It seems the Measure is not likely to have actual impact with respect to income tax position.

Impact of the Measure on other taxes

Other taxes to be hiked by the Measure are not directly linked to the bottom line in companies’ P&L statement. But what if we have a closer look on the Measure in that respect.

Environmental tax is far not the cornerstone of Ukrainian fiscal system. Its overall impact on businesses is not crucial. Although some of the industries may face higher amounts of environmental tax payable, it is seldom a market-maker on the tax arena. We would not expect its increase by 1.5 times to have drastic impact on tax collections.

Property tax apply to certain types of real estate and has higher impact in land-based business. In particular, impact of property tax is significant in farming and development businesses. Companies in these industries may be heavily affected. For other types of business property tax is not a major expense.

Rent tax (royalty for use of subsoil and other resources) is much more interesting area. Rent tax is not directly linked to profit. For some types of resources, it is linked to income or value of the extracted minerals (i.e., ore, oil, natural gas, etc.). For this industry the effect of the Measure may be considerable as well.

The most significant effect of the Measure, however, is likely to be for companies subject to rent tax for radiofrequency use. It is a major tax cost for mobile operators. If any of them is deemed as a Russian affiliated company, its tax bill will have a dramatic impact on the company’s financial position.

The first suspect here is one of leading Ukrainian operators “Kyivstar”. “Kyivstar” is among the top 20 biggest Ukrainian taxpayers. Application of the Measure to the rent for radiofrequency will most likely push them up to the top 10 or top 5 Ukrainian taxpayers. This will constitute a significant economic effect for the Ukrainian state budget (and for the business) unless such mobile operator qualifies for the exemption.

Is it an indulgence?

One of the major threats of the Measure, in our opinion, is not tax related. As we mentioned, corporations that did not break their ties with Russia are subject to huge international pressure both from customers and investors. Such pressure is a significant factor in their consideration whether to abandon Russian market. Until recently, Russia was a lucrative place to do business (it is not likely to be so after economic effect of all recent sanctions is fully unraveled). Negative impact of dealing with Russia on the corporation’s bottom-line or share price should have been very material to push management to exit Russia.

It is extremely unlikely that the Mesaure will result in such material effect on large multinational enterprises. Ukrainian business is seldom big enough to general sufficient tax increase as a result of the Measure. On the other hand, payment of increased tax in Ukraine may be used by companies to justify their continued involvement in dealings with Russia or to partially remedy the negative effect on the public opinion. Corporations may try to showcase compliance with the Measure as a sufficient and only hurdle required by Ukrainian government to continue doing business and paying taxes to Russia. This will contradict and even undermine the object and the purpose of the Measure as it is.

Therefore, concerns with ultimate economic effect of the Measure and its possible “indulgence” outcome, in our view, significantly outweigh fiscal gains which may reasonably be expected. We call all civilized world to continue ban and boycott of Russia-related business and provide further support to Ukraine.

Slava Ukraini!

By Vadim Medvedev, Partner, and Viktoriia Shvydchenko, Associate, Avellum

Recent changes in the work of Ukrainian intellectual property institute (Ukrpatent), which performs the functions of the National Intellectual Property Office (NIPO).

Ukrpatent continues its work in normal mode but with some peculiarities caused by wartime conditions: 

• Filing the documents in hard copy is temporarily ceased. 

• The documents related to the applications or certificates/ patents, applications under the Law of Ukraine “On Citizens’ Appeals”, attorneys’ requests, etc. should be submitted in electronic form at the email address office@ukrpatent.org signed by qualified electronic signature (QES). 

• The copies of power of attorney, assignment agreements, other attached documents must be signed by QES. 

• National applications for industrial property objects should be filed in electronic form via electronic systems (СПЕЗ-1, СПЕЗ-2, СЕВ ЗЕС) or can be filed at the email address office@ukrpatent.org and signed by QES. 

• PCT applications should be filed to the receiving office at the Ukrpatent’s email address office@ukrpatent.org and international trademark applications should be filed using the Madrid eFiling and СЕВ ЗЕС. 

• Ukrpatent will send the documents via electronic systems or by email. 

• Work on examination of applications for inventions, utility models, and layout designs, trademarks, industrial designs and geographical Indications of Ukrpatent continues in normal mode. 

Suspension and extension of terms

On 13.04.2022 was published the Law of Ukraine “On Protection of Persons’ Interests in Intellectual Property during the Martial Law, imposed in connection with the military aggression of the Russian Federation against Ukraine”, which provides for the suspension of the expiration of the protection and acquisition of intellectual property rights provided by special legal acts on the protection of specific intellectual property objects.

1) The law provides for the suspension, including but not limited to the following terms:​

· To file an opposition to the application or to the effect of the international registration.

· To appeal the decisions of the NIPO on the application to the court or the Appeals Chamber.

· To file an application for the invalidation of the right to an invention.

· During which the missed deadlines may be renewed,

except for the terms necessary for acquiring the rights to plant varieties.

2) Expiration of these terms continues (taking into account the time that elapsed before their suspension) from the day following the day of termination or cancellation of martial law. 

3) Validity of the certificates and patents shall not be suspended.

4) In case of expiration of intellectual property rights during martial law, starting from 24.02.2022, they remain valid until the day following the day of cancellation of martial law.

5) If the validity of the trademark certificate, the period of extension or maintenance of the intellectual property rights falls on 24.02.2022 or another date during martial law, this period continues for 90 days from the day following the day of termination or cancellation of martial law.

Missing of the time-limits 

The imposition of martial law in Ukraine does not relieve the rightsholders and applicants from executing the obligations prescribed by law within the established time frames. At the same time, by its notification dated 21 March 2022 Ukrpatent informs that if the deadlines related to filing of applications on registration of IP objects are missed, it is possible to renew them if an applicant/rightsholder: (1) files an appropriate application for renewal and explains the reasons for missing the term; (2) relies on the letter of the Ukrainian Chamber of Commerce and Industry (UCCI) dated 2 December 1997 No. 671/97-VR on existence of force majeure circumstances. 

In the letter in question, UCCI confirms that the imposition of martial law in Ukraine is extraordinary, unavoidable and objective circumstances for business entities and / or individuals inter alia under obligations the fulfillment of which occurred in accordance with legislative or other regulations and the fulfillment of which became impossible in the set deadline due to the occurrence of such force majeure circumstances (force majeure). 

The applicants are obliged to fulfill their obligations prescribed by law after the martial law is canceled. It is important to bear in mind that Ukrpatent is precluded from amending IP legislation even in wartime. It is only empowered to provide an explanation and to inform applicants/rightsholders on their possible actions. Consequently, the notification dated 21 March 2022 is solely of informative nature.  

Wartime activity of the Appeals Chamber of NIPO 

Consideration of the objections and applications by the Appeals Chamber on the merits, even via videoconference, is temporarily ceased. According to point 5 chapter 3 section II the Rules of the Appeals Chamber, the Appeals Chamber may consider the objections in written proceedings based on the available documents upon party’s request. It is advisable to file the objections and applications at the email address office@ukrpatent.org signed by QES.  

Copyright registration in wartime 

• The applications on copyright registration and assignment agreements shall be filed in electronic form at the Ukrpatent’s email address copyright@ukrpatent.org and must be signed by QES. 

• Signing the documents by QES is available via the website czo.gov.ua/. Ukrpatent published the Instructions for signing documents related to the application for copyright registration and agreements related to the author’s right of work. 

• Applications, related documents for copyright registration and agreements concerning the author’s right to a work shall be sent in one complete item. The documents in one email must relate to one specific application. 

• The application and a copy of the work in one email should not exceed 250 MB. If the copy of the work exceeds 250 MB, the application may be sent by several emails, attaching to each of them one of the parts of the copy of the work, which divided into parts of the ZIP-archive. 

• The applications on copyright registration, agreements concerning the author’s right to the work, copies of the work, power of attorney shall be filed in pdf format. 

• Copies of works submitted as part of applications for copyright registration and agreements relating to the author’s right to a work shall be submitted in the following formats.

• Applicants whose applications are pending may submit to Ukrpatent via e-mail copyright@ukrpatent.org a request for electronic correspondence on the application. 

European Union Intellectual Property Office (EUIPO) 

The EUIPO in its letter from 9 March 2022 informed the following:​

• The EUIPO has issued a one-month extension of time limits from 24 February 2022 for all parties in proceedings before the Office having their residence or registered office in Ukraine and will review the need for further extensions and additional measures. 

• The already identified entries in EUIPO’s EUTM and RCD registers indicating the region of Crimea, Donetsk and Luhansk with the State identified as being Russia instead of Ukraine will systematically be amended. 

• The EUIPO will discontinue collaboration held in the framework of the Memorandum of Understanding signed in July 2017 with the Federal Service for Intellectual Property of the Ministry of Economic Development of the Russian Federation (Rospatent) and suspend collaboration held in the framework of the Memorandum of Understanding signed in March 2019 with Eurasian Patent Organization (EAPO), intergovernmental organization with the participation of Russia and the Republic of Belarus. 

By Daria Ganzienko, Senior Associate, Head of IP, Integrites

On 24 February 2022, the National Bank of Ukraine, in response to the introduction of the martial law in Ukraine initially imposed for 30 days but subsequently extended currently until 25 May 2022, issued Regulation No. 18 on banking system operations during martial law to prevent unproductive capital outflows from the country and to ensure the reliable and stable functioning of Ukrainian banking system during the time of war.

This Regulation has implemented temporary restrictions affecting cross-border payments, which restrictions have been gradually softened but still limit the ability of Ukrainian financial institutions, companies, and individuals to transfer money abroad, repatriate foreign investments and purchase foreign currency.

Cross-Border Payments Moratorium

A temporary moratorium has been imposed on all cross-border payments from Ukraine or into correspondent accounts of foreign banks opened in Ukrainian banks, effectively blocking all transfers from Ukraine abroad subject to certain exemptions. Purchase of foreign currency by Ukrainian residents has been prohibited unless foreign currency is purchased to make exempt payments.

Moratorium Exemptions

The following payments, inter alia, have been exempted from the moratorium:

Payments by the Government of Ukraine, for instance, under sovereign bonds and other state borrowings;
Transactions carried out by Ukrainian banks, including settlements under letters of credit/guarantees/counter-guarantees opened (confirmed, provided) by Ukrainian banks prior to 24 February 2022;
Transactions carried out by international financial institutions (such as EBRD, IFC, EIB, BSTDB, NEFCO, NIB, etc.) and the transfer of funds by Ukrainian residents to international financial institutions, for example payments under loan agreement with IFIs;
Settlements under sale and purchase agreements in relation to purchases by Ukrainian residents of vital import goods after 23 February 2021;
Payments under instruments secured with state guarantees;
Payments authorised under a separate permit of the National Bank of Ukraine.
Payments under Cross-Border Loans

Any payments by Ukrainian borrowers to offshore lenders under cross-border loans are prohibited unless:

The borrower is a Ukrainian bank whereas making prepayments and changing the loan maturity is not allowed;
The loan agreement is executed with an IFI as lender;
The loan agreement is secured with a state guarantee;
The borrower obtains a special NBU permit; however, currently there is no procedure for obtaining such permits.
Settlements under Export-Import Contracts

The National Bank has reduced the deadline for settlements under the export and import of goods to 90 calendar days applying to transactions carried out from 5 April 2022.

By Olexiy Soshenko, Managing Partner, and Evgeniy Vazhynskiy, Senior Associate, Redcliffe Partners 

Due to the armed aggression of the Russian Federation against Ukraine, not only military and infrastructural objects of the state and territorial communities but also private objects of Ukrainian and foreign business are being destroyed. 

Although Ukraine has just started preparing mechanisms for compensation for damage caused by the armed aggression, businesses should already properly record the facts of damage to and destruction of their property yet now. The correct fixation of such facts will be a precondition for determining the amount of damage caused and, consequently, for obtaining compensation. 

Relying on our experience, we suggest adhering to the following algorithm: ​

1. Securing safety of documents 

The first thing worth doing in order to ensure further compensation is to keep documents safe in a proper manner. Based on our experience, we recommend securing safety of the following documents in the first place: 

• incorporation documents of the company – owner of the property; 
• documents evidencing the ownership right in property as well as technical passports, design and estimate documentation, etc.; 
• documents evidencing the ownership of equipment and other items/goods located inside the property; 
• documents regarding the economic activity of the company, accounting documents, in particular, inventory documents. 

The above-mentioned documents, together with other evidence, will subsequently be necessary for an objective assessment of damage caused to the company. 

Therewith, if a company is located on the territory of active military actions, the documents should be relocated to a safer place that would guarantee their safety. In other cases, where a company has its registered office outside places of active military actions, we recommend making an audit of existing documents and, if possible, ensuring recovery of the missing documents. 

Moreover, if possible, it is necessary to make electronic copies of documents and save them in cloud file storage (Google Drive, Dropbox, etc.). 

2. Notifying law enforcement and other authorized bodies

We recommend contacting the police as soon as you become aware of the incident: 

• orally (by phone) asking law enforcement bodies to visit the place and draw up the on-site inspection report; 
• in writing (by e-mail or by filing a statement of criminal offence).  

After recording the fact of the incident, law enforcement bodies must provide an excerpt from the Unified Registry of Pre-Trial Investigations. 

In addition, if necessary, it is useful to apply to the bodies of the State Emergency Service. Based on the results of the visit to the incident site, the SES authorities draw up a document confirming the damage, for example, a fire report. 

Importantly, obtaining copies of documents drawn up by authorized bodies on site and as well as in a result of case consideration is a crucial step in the procedure of recording damages caused to the company. Therefore, it is so important to keep such documents safe and, if possible, make electronic copies thereof. 

3. Fixing condition of property

In order to properly show the condition of the company’s property, we recommend: 

1) Making video and photo recordings of the property “before” and “after” the incident 

One needs to make photo and video recordings outside and inside the damaged property, as well as of its certain parts and other valuables located therein. For the purpose of comparison, it will be especially useful to find photos and videos of the property before it was damaged. 

The proper photo recording involves the following actions: ​

• to take landscape photos, which intersect to form a complete picture around (if possible, you should fix markers pointing to the north and other details that can show the location of the incident site on ground (road signs, unique signs, etc.); 
• to take close-up photos of individual objects and details on the incident site (if available, you may use a ruler or objects to help display and subsequently determine the actual size of the object being recorded). 

In the case of video recording, it is necessary to: ​

• show your face, record your first and last name, patronymic, date of birth, place of residence and passport data (if possible), current date and time; 
• say out loud the date and time (if the information is available), as well as the place of the incident; 
• describe and display in the video file what you see around and describe in as much detail as possible the condition of the property and the character of the damage or destruction. 
• If a frame captures, in addition to the maker of the video recording, other people, it is necessary to make sure that all of them have given their consent to being recorded and understand the purpose for which it is made. 

It is important to remember that before and during photo and video recording, the site of the incident should remain intact and unchanged. 

If photo and video recording are performed using a device with a geolocation function, such as a smartphone, you should enable this feature in its settings before starting the recording. 

It is also important to remember that photo and video files created as a result of fixing the damage must be stored unchanged and unprocessed on local media or cloud file storage (Google Drive, Dropbox, etc.). This will secure safety of metadata that might be lost when files are sent via messengers or email. It will be very useful to record the name of the device used to capture the incident and its serial number (including IMEI). 

At the same time, it is necessary to remember that people who are witnesses to the incident may also have photo and video files related thereto. This also applies to CCTV files and any other recorders in the neighbourhood. Immediate obtainment of copies of these files will secure safety of such electronic evidence and may be used as additional proof of the incident details. 

2) Drawing up a protocol/ report of inspection of the property condition 

The protocol/ report is drawn up by a commission (representatives of the company-owner of the property and independent persons) in free form and must include: ​

• date and time of the report; 
• list of individuals present at the moment of drawing up the report (first and last names, patronymics, positions of persons, their passport data and registration addresses, telephone numbers, and other means of communication); 
• name and identification data of the owner of the damaged or destroyed property; 
• name, description, and location of the property (if possible, we recommend using the information contained in state registries); 
• character of damage to or destruction of the property; 
• reasons for damage to or destruction of the property (if available). 

We also recommend, if possible, drawing up a plan or a scheme to locate damage to or destruction of the property and its parts. For this purpose, one may use, for example, the plan of premises from the technical passport. 

Furthermore, if the inspection reveals any property belonging to another person, we recommend that you notify that person of any damage to or destruction of its property and coordinate your actions with that person for further fixation of the damage. ​

4. Recording witnesses’ testimony

First of all, it is necessary to make a list of witnesses to the incident and establish their contact details, in particular, first and last name, patronymic, address of registration and residence, telephone number, and other means of communication. ​

Further, it will be efficient to obtain a notarized statement of each witness (if possible in the existing circumstances). The statement must contain the following information about the witness:​

• first and last name, patronymic, 
• place of residence (stay) and place of work, postal code, 
• registration number of the taxpayer’s account card (if any) or passport number and series, 
• telephone numbers and e-mail addresses (if available), 
• circumstances known to the witness, the sources of information from which the witness learnt about the circumstances, 
• confirmation of being aware of the content of the law on criminal liability for giving false testimony and of being ready to appear in court upon subpoena to testify. 

In the absence of a notary, the authenticity of the witness’s signature on the statement may be certified by an official of the appropriate local self-government body (in a rural area) or consular office (abroad). 

5. Fixing evidence showing that damage to or destruction of property resulted from armed aggression of Russian Federation. ​

If you have information about the individual directly involved in the destruction of property, it is necessary, if safe and possible, to record first and last name, patronymic of such person, date and place of birth, military rank, and other details. 

If the property was destroyed as a result of detonation of munition and its remains are present at the site, it is necessary, if safe and possible only, to make a detailed photo and video recording of these remains with identification data (serial number, markings, etc.). 

6. Fixing online  

To provide authorized bodies with information on the fact of damage to or destruction of property, such information and the collected evidence can be sent to the following official online resources: 

• gov.ua(established by the Prosecutor’s General Office with Ukrainian and international partners for proper documentation of war crimes and crimes against humanity committed by the Russian army in Ukraine); 
• in.ua(founded by the KSE Institute together with the Office of the President of Ukraine and the Ministry of Economy to create the most complete list of property destroyed as a result of the war that Russia has waged against Ukraine). 

Recording damage on these resources will provide information on damage to and destruction of the property to authorized bodies to exercise their powers, rather than additionally record the damage caused to the company. According to the provided information, these sites are intended to help assess the damage suffered by Ukraine as a result of Russian aggression and prepare lawsuits against Russia to international courts for compensation. 

7. Saving materials and publications 

In addition to all the steps described above, we recommend keeping safe: 

• any materials of online and offline media; 
• documents, notifications and publications of state and local self-government bodies, military command, other authorized bodies on the facts of shelling, bombing, existing prohibitions, obstacles or restrictions on economic activity carried out by the company, etc.; 
• publications on social networks about events related to damage to or destruction of the company’s property (individual posts, screenshots).  

All these materials and publications will additionally confirm the time, circumstances and, maybe, the true reasons for the damage caused to the company. 

By Kristina Shyposha, Senior Associate, and Marta Hrunska, Senior Associate, Integrites

Avellum has advised Kernel Holding on the sale of several of its farming entities to a company controlled by Andrii Verevskyi.

According to Avellum, “the land bank held by the entities comprises around 134,000 hectares of farmland and related farming infrastructure. The consideration to be paid to Kernel is USD 210 million. Andrii Verevskyi controls Kernel’s largest shareholder and is also the chairman of Kernel’s Board of Directors.”

According to the firm, “the aim of the transaction is to de-risk the business and improve mid-term liquidity of Kernel, amid a blockade of Ukrainian Black Sea ports caused by Russia’s unprovoked military aggression against Ukraine.”

Avellum’s team included Partner Yuriy Nechayev and Associate Maryna Buinytska.

Asters has successfully represented PrivatBank before the Central Commercial Court of Appeal in a UAH 152 million dispute regarding the ownership rights over its Dnipro head-office building.

Initially, “in November 2020, the Commercial Court of the Dnipropetrovsk region upheld the claim of the company connected with the bank’s former owners and top management,” Asters informed. “The court annulled the ownership rights of PrivatBank to the office building, acquired three months prior to nationalization as the result of the foreclosure on a mortgage to repay a loan owed to a person connected to the bank’s former owners.”

According to the firm, on April 25, 2022, the Central Commercial Court of Appeal overturned the decision of the court of first instance, dismissing the plaintiff’s claims and confirming PrivatBank’s ownership right over the building worth UAH 152 million to be legal.

The Asters team included Partner Andriy Pozhidayev and Senior Associate Oleksiy Ananiychuk.

An in-depth look at Olexiy Soshenko of Redcliffe Partners covering his career path, education, and top projects as a lawyer as well as a few insights about him as a manager at work and as a person outside the office.

Career:

• Redcliffe Partners, Managing Partner, 2015-Present
• Clifford Chance, Counsel and Head of Banking & Finance in Ukraine, 2008-2015
• CMS Cameron McKenna, Associate, 2007-2008
• Chadbourne & Parke, Associate, 2004-2007
• Altheimer & Gray, Associate, 1998-2004

Education:

• University of Minnesota Law School, LLM, 1997
• National ‘Jaroslav the Wise’ Law Academy of Ukraine, Degree in Law, 1996

Favorites:

Favorite out of office activity: Swimming, Gardening, Cider making

Favorite quote: “If I got rid of my demons, I’d lose my angels.” – Tennessee Williams

Favorite book: Three Comrades by Erich Maria Remarque

Favorite movie: The Big Short

Top 5 Projects:

• Advising a syndicate of European banks, led by ING and UniCredit, in a debt restructuring of up to USD 850 million loan portfolio of Donetsksteel Group, which lasted from 2008 to 2011, and followed by an up to USD 500 million refinancing of some of the existing debt of the Donetsksteel Group;
• Advising J.P. Morgan Securities Plc (debt coordinator), EBRD, NEFCO, BSTDB, Proparco, Finnfund, IFU, FMO, and Green for Growth Fund in connection with an EUR 262 million secured term loan to Ukrainian project company Syvashenergoprom to fund the construction of a 250-megawatt wind power plant near Syvash Lake;
• Advising EBRD in connection with a 30% equity investment in JSC Raiffeisen Bank Aval;
• Advising IFC and EBRD on a USD 74 million senior secured loan to MV Cargo LLC for the greenfield development of an oil and vegetable terminal in Yuzhny seaport in Ukraine;
• Assisting EBRD on financings of up to USD 150 million to Gastransit to finance the construction of a gas compressor station and then the expenditure of 70 km of parallel pipelines in the south-western part of Ukraine.

What would you say was the most challenging project you ever worked on and why?

Soshenko: I would single out the first big corporate debt restructuring in Ukraine, i.e., the restructuring of the Donetsksteel group, which resulted from the global financial crisis of 2008. There were a number of difficult elements, which made that transaction rather complex and challenging, but at the same time rewarding once the deal was closed. The difficult bits were a long line of different creditors, such as Western banks, local banks, Russian banks, trade creditors, etc., some willing to cooperate, some being rather aggressive. The majority of creditors were foreign banks and they wanted to do a classic debt restructuring under English law, introducing such instruments as standstill and override agreements, cash pooling, etc., most of which were not heard of in Ukraine. On top of that, we had very rigid currency control regulations, which made it even more difficult to put everything together. 

And what was your main takeaway from it?

Soshenko: The main takeaway is there are no impossible things. You just need to understand the client’s needs and adapt them to the local realities.   

What is one thing clients likely don’t know about you?

Soshenko: When I was seven, I was going in a new Soviet trolley bus on one of the largest avenues in my native town, Kharkiv, in eastern Ukraine. The avenue was full of lights and illumination, and I looked at all that and thought: “What would we do if there were no Grandpa Lenin?”

Name one mentor who played a big role in your career and how they impacted you.

Soshenko: There were two of them playing an equal role in my professional development. These are Volodymyr Baibarza and Adam Mycyk. We worked together first at Altheimer & Gray and then at Chadbourne & Parke. Volodymyr Baibarza is one of the first recognized practitioners in independent Ukraine, who focused on international private law. Adam Mycyk is an American lawyer of Ukrainian descent. Having practiced law in Ukraine for around 25 years, I would say that Adam knows Ukrainian law better than many Ukrainian lawyers. So, I learned a lot both from Volodymyr, as a Ukrainian senior lawyer, and from Adam, as an American lawyer.

Name one mentee you are particularly proud of.

Soshenko: I am particularly proud of Olesya Mykhailenko, who joined our team as a paralegal and was promoted to counsel this year. Olesya is focusing on general banking, fintech, financial regulatory, and derivatives. She is a great professional, intelligent, hard-working, focused, and active. Olesya is a great example and a perfect role model for juniors.

What is the one piece off advice you’d give yourself fresh out of law school?

Soshenko: I would quote here Ralph Waldo Emerson: “Always do what you are afraid to do.” I’ve been always keen and happy to face challenges and that always secured further success, but with this advice perhaps I would be even further on the edge of excitement, or maybe not.

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.

The constitutional right to judicial protection is not subject to restrictions under martial law. At the same time, some courts, taking into account the real situation in the region, may establish special modes of operation.

In particular:

• promptly and temporarily suspend the consideration of cases in open court hearings, until the elimination of circumstances that pose a threat to security; 
• limit the reception of incoming correspondence; 
• adjourn cases (except for urgent court proceedings) and withdraw them from consideration, since a large number of participants in court proceedings are not always able to apply for an adjournment of the case; 
• to consider cases that are not urgent, only with the written consent of all participants in the proceedings. 

Temporary reduction of court staff and judges who may exercise their powers is allowed. It is possible to change the territorial jurisdiction of court cases and transfer them to the closest territorial court (currently civil courts of Kyiv, Zhytomyr, Kharkiv, Chernihiv, Donetsk, Luhansk (including the Court of Appeal), Kherson (including the Court of Appeal), Zaporizhzhia regions). 

The Council of Judges of Ukraine recommended a balanced approach to issues related to various procedural documents, leaving them without motion, setting various deadlines, and if possible, extending them at least until the end of martial law. 

Consider it impossible to postpone court hearings, which should consider the issue of choosing or continuing a measure of restraint in the form of detention. Also, some powers of the head of the relevant prosecutor’s office have been expanded and some powers of the investigating judge have been transferred to ensure pre-trial investigation, extension, and detention for up to 30 days under certain articles closely related to war crimes. 

Reducing or speeding up any form of litigation is prohibited. 

To obtain up-to-date information on the activities of both the judicial system of Ukraine in general and individual courts, we recommend that you check the updates on the website of the Judiciary of Ukraine. The administration of justice is in a state of dynamic change. 

We also recommend that you copy your litigation documents to ensure that litigation can be resumed if it is lost. 

By Oleksandr Onishchenko, Partner, Integrites

According to the CEE Legal Matters CEE By The Numbers report, between 2019 and 2021, Ukraine saw a large decrease in the number of ranked law firms and lawyers at ranked firms. While in 2019 the number of Ukrainian law firms ranked by Chambers & Partners and Legal 500 was 95, in 2021 the same number decreased to 69. Similarly, the number of ranked-firm lawyers decreased from 1,579 in 2019 to 1,338 in 2021. The decreasing trend is particularly visible in comparison to other CEE countries.

Key Trends in the Ukrainian Legal Market

Merger Trend?

While some law firms notice an obvious trend of the decrease in the number of registered law firms through consolidation, others explain the statistics by the ranking methodology.

Integrites Managing partner Oleksiy Feliv and Asters Co-Managing Partner Oleksiy Didkovskiy believe that the COVID-19 pandemic-related shrinking workload was the main driver for the decreasing number of ranked law firms. “The decline in the number of law firms and lawyers might be explained by ‘natural selection,’” Feliv says. “Smaller firms had to leave due to the challenges imposed by the pandemic but those with a long market track record and substantial clientele remained,” he explains. For him, a good example of such a trend is “three teams joining the Integrites over the last five years.” In addition, he names DLA Piper’s merger with Kinstellar and Agreca law firm’s merger with Arzinger as examples of a noticeable merger trend last year.

Didkovskiy highlights the drastic change in terms of the number of registered new law firms. In 2021, “the number of registered new law firms compared to the number of the closed ones was equal to 3:1 while in 2019 this proportion was 20:1.” He believes that this change is largely influenced by the pandemic, forcing small and medium-sized law firms to leave the market. According to him, “big law firms were more capable to rearrange their operations, rethink strategies, and optimize budgets,” and similarly, “boutique law firms with strong presence also managed to overcome the challenges.”

Avellum Managing Partner Mykola Stetsenko and AGA Partners Partner Iryna Moroz agree that there is an obvious trend of law firms merging, and the main driver for the merger trend is profitability. For local firms, according to Stetsenko, “mergers provide an opportunity to grow their revenue and, potentially, increase their margins.” Moroz adds: “During 2018-2019 there was a certain merger trend, mostly inspired by the idea of attracting more clients and work when operating as a full-service law firm.”

Taylor Wessing Local Managing Partner Olena Stakhurska, Everlegal Managing Partner Yevheniy Deyneko, and Peterka & Partners Partner Taras Utiralov say that the consolidation trend was particularly noticeable with small or boutique law firms. Stakhurska says that large national firms tried “to gain additional expertise and partners by taking over strong but small law firms specialized in some specific areas.” According to her, there is also a tendency of small law firms “to seek for a union with larger national law firms that provide infrastructure and a stable client-portfolio.” Deyneko agrees that there is a trend of Ukrainian law firms absorbing local boutique firms to start or boost new practices. “Some examples include a pharma and healthcare legal boutique joining CMS and a transport/infrastructure-focused legal boutique joining Arzinger,” he says, noting that “the trend can be explained by the increasing significance of such industries in Ukraine and resulting increase in the associated legal work.”

Ilyashev & Partners Law Firm Managing Partner Mikhail Ilyashev, on the other hand, points out that “there was a demand for the establishment of boutique law firms, but it seems that it did not work. The boutiques must compete with full-service law firms and, in fact, in years boutiques eventually became full-service law firms too.”

International Law Firms Leaving

Utiralov and Stetsenko also highlight a trend of international law firms leaving the Ukrainian legal market. For Stetsenko, this can be explained “by the fairly low profitability of the legal market for large international firms.” Utiralov agrees but points out that these international firms that left Ukraine in the past few years, were not so well represented on the market. “Some foreign firms opened their offices in Kyiv, but these firms have usually less than 5 offices globally, so are mostly focused on one native jurisdiction, while their other offices usually support its activities. So those international clients seeking international law firms with clear international standards and other related characteristics still have limited choice,” he says.

Baker McKenzie Managing Partner Serhiy Chorny, on the other hand, is skeptical about the decrease in registered law firms. According to him, “there were some significant movements in the legal market in Ukraine over the last year, but these were singular rather than indicating a trend.” Chorny says that “DLA Piper left Ukraine and substantially all of their local team moved to Kinstellar,” however, except for DLA Piper, international or foreign law firms have not left Ukraine recently. “This does not seem to be a trend, at least not as yet and regardless of high-security concerns in Ukraine in view of the continuing threat of escalation of the Russian aggression,” he adds. 

Similarly, Hillmont Partners Partner Valentyn Zasukha and Mamunya IP Managing Partner Oleksandr Mamunya point out that the legal market has not changed as much. “The market has not witnessed many mergers during the last two years,” Zasukha says, noting that some transformations and exits are rather single incidents. Mamunya agrees that “neither the firms merging trend nor the trend for the massive leaving the market” was noticeable in recent years in Ukraine.

Ranking Methodology

Zasukha and Mamunya explain the numbers by pointing to rankings methodologies and firms’ drives. According to Zasukha, “several small law firms have switched to a closed format of work, they are no longer interested in any marketing activities, including rankings.” Zasukha adds, that “the admission strategies cultivated by the top legal rankings have changed drastically,” making it difficult for local law firms to be ranked internationally. Mamunya also explains the data by pointing out that Ukrainian law firms attempt to reduce costs, “inter alia, by reducing the back-office staff, including those in PR and marketing functions.” As a result, he says, “Ukrainian firms mostly aimed at domestic clients failed to file their Chambers and/or Legal 500 submissions in 2020 which could result in the decline in the number of ranked Ukrainian law firms.” And Didkovskiy argues that international legal rankings “like Chambers & Partners and Legal500, have high entry criteria that many law firms fail to meet. Even a law firm that is already in the ranking needs to prove its expertise annually. If a law firm does not provide undisputable performance evidence, it disappears from or falls in the ranking.”

Competition Is in the Air

The great majority of law firms reported that the Ukrainian legal market remains at least as competitive, as it was before. Some law firms, on the other hand, feel that the competition has been even higher recently.

Feliv, Chorny, Utiralov, Deyneko, and Moroz believe that competition among law firms has been constantly growing, especially in specific practice areas. “Definitely, there is no less competition,” Chorny reports. On the contrary, “because of a decrease of the volume of work in certain areas, the competition has increased dramatically. This is especially the case for transactional practices, such as finance,” he says. “My personal feeling is that the legal market constantly gains new opportunities from the economic and political situation in the country,” Moroz agrees, noting that the development of new practices, such as white-collar crimes, criminal law, intellectual property, and IT law, has led to more competition. “Ukrainian firms get stronger by merging in the local branches of international law firms or picking up partners and teams with international experience,” Feliv points out. “This brings them into competing with the international firms on the market for international clients.”

Entry for new players, either from abroad or from existing firms, is very hard, Utiralov adds. “The market of the legal labor force is also very competitive: it is always a challenge to find a talented English-speaking lawyer, either a post-graduate or an experienced one.”

Zasukha believes that competition levels might differ depending on a law firm’s practice area. “Cross-border dispute resolution and international investigations keep leading as the most profitable areas of legal work,” he says, noting that “local litigation work, advisory support of corporate/commercial activities, and counseling on regulatory matters see the highest competition.” In contrast, commodity legal products, such as “registration of legal entities, trademarks, and patents, etc., face even more competition and lose to automated legal solutions and legal marketplaces. Such legal work turns cheap and is no longer economically viable,” he concludes.

On the other hand, CMS Managing Partner Graham Conlon and Mamunya believe that there are no significant changes in the Ukrainian legal market, in terms of competition. “We feel neither less nor more competition. Just the same,” Conlon says. “The market isn’t changing much in terms of big picture items. Corporate/M&A and energy continue to generate the majority of work, with technology and IT being a strong growth sector in Ukraine.” Mamunya agrees: “My feeling is that there haven’t been any significant changes on the market since 2019. Some market players gradually lose their market share and some firms, including new ones, are gradually growing.”

EPAP Ukraine Managing Partner Oksana Ilchenko, however, reports that competition has decreased. “As more clients started having panels and ultimately, for them, the selection of legal advisors is happening once in a couple of years, which was generally not the case in the past, which contributed to decreasing the level of competition,” she explains. According to her, some clients are “reluctant to try new advisors as they believe that the risks related to new collaborations are higher these days. The same is true with respect to the previously established cross-border collaborations between the law firms.”

The Prognosis for the Coming Years

While assessing the potential evolution of the Ukrainian legal market, the vast majority of lawyers highlighted the instability and security challenges faced by the country.

“Ukraine now is completely different from what you may name as ‘stable situation’, so we are rather pessimistic for the upcoming year,” Ilyashev says. “2022 is really hard to predict for Ukraine, because of the potential Russian aggression factor,” Stetsenko agrees, saying that “it already chilled the business activity in January and may have a chilling effect through the summer.”

Stakhurska and Zasukha also point out that smaller law firms might have to face an increasing number of challenges. “The gap between large law firms and small or alternative legal service providers will increase,” Zasukha says, adding that the same will happen with legal fees. “We expect that smaller law firms will continue to search for ‘safe harbors’ with larger national law firms while concentrating on their specific areas of interest and knowledge,” Stakhurska agrees. “For reputable law firms, this would be a win-win situation by receiving access to potential new clients as well as expanding their professional services for existing clients or gain new clients interested in specific legal services.”

Finally, Stakhurska and Deyneko are rather pessimistic about international law firms entering the Ukrainian legal market. “We do not expect an increase in international presence by foreign law firms as many of them are happy with the existing partnerships with the national advice received locally,” Stakhurska says.

“We also do not expect the entry of new international players into the market,” Deyneko agrees, adding that to see that Ukraine will need several years of significant and steady economic growth and inflows of FDI.

Consequently, the active development of the legal market is expected, Moroz concludes, noting that the “forecast is that this trend is provisional,” and dependent on “the political situation in Ukraine, which influences the Ukrainian legal market.”

This article was written before the advent of the war in Ukraine and was originally published in Issue 9.2 of the CEE Legal Matters Magazine on March 1, 2022. More current articles on developments in Ukraine can be found in our #StandWithUkraine section. If you would like to receive a hard copy of the magazine, you can subscribe here.