Category: Ukraine

On 15 December 2021 the Law of Ukraine “On Mediation” No. 1875-IX (“Law”) entered into force. The Law introduced mediation as a voluntary alternative dispute resolution method for the first time at the legislative level.

Certain features of mediation

• Mediation is conducted upon parties’ consent and according to the principles of voluntariness and confidentiality, as well as independence, neutrality, and impartiality of the mediator.
• Mediation may be invoked in any kind of disputes except those that affect or may affect the rights and legitimate interests of third parties who do not participate in the mediation.
• Mediation is available at any stage of a dispute (from preparation for initiation of court/arbitration proceedings up to enforcement proceedings).
• A mediator is not allowed to give any advice or recommendations to the parties in mediation regarding the merits of the dispute, disclose confidential information, or represent any of the parties in the same dispute.
• Following mediation, the parties shall enter into an agreement that sets out the obligations agreed upon by the parties, the manner and timing of their fulfilment, and the consequences of their non-performance or inadequate performance.

Impact on litigation

• Mediation does not affect the limitation period.
• The court may adjourn the preparatory hearing if the parties have agreed to mediation.
• The court is obliged to suspend the proceedings for a maximum of 90 days if the parties have agreed to enter mediation and submitted a respective motion to the court.
• The claimant may reimburse from the state budget 60% of the court fees paid for the submission of the claim, appeal or cassation appeal, provided that the parties reached a settlement, the claimant withdrew its claim or the claim was admitted by the defendant and such result was achieved following a successful mediation.

We welcome the adoption of the Law. We believe that in some cases mediation may be a quick and efficient alternative to classiс dispute resolution methods.

By Anna Vlasenko, Associate, and Nelli Kichigina, Junior Associate, Avellum

The capital markets in Ukraine have been a sleeping topic until recently. On June 19, 2020, the Ukrainian Parliament has restated the Law of Ukraine on Capital Markets and Organized Commodity Markets (Law). The restated Law became effective in July 2021, introducing a whole new framework for the issue of securities in Ukraine. It implements the most important EU capital markets regulations, including MiFID II, MiFIR, and CRD IV.

One of the key developments of the Law is that the issues of the bonds have been largely aligned with the procedure followed on international capital markets. In particular, it has introduced a number of changes aimed to protect the bondholders’ rights in the most efficient manner. The changes introduced include, among others, (1) strict disclosure requirements applicable to the issuers, (2) procedures for the bondholders’ meeting and the exercising of the bondholders’ collective rights, (3) the introduction of the concept of the administrator of the bond issue, which is similar to the concept of the bond trustee in the common law jurisdictions.

Local Bonds – What to Expect

After the adoption of the Law, the interest for local bonds issued in Ukraine has increased significantly. However, despite the readiness of the market to test the new framework, quite a few stoppers are still on their way.

The Law provides for the framework regulation of bond issuances in Ukraine. Namely, it introduces key concepts and principles for the issue of local bonds. However, a detailed procedure for the issue of the bonds must be established by the secondary legislation.

As of now, the secondary legislation reflecting the described developments introduced by the Law has not been adopted yet. At the same time, old secondary legislation regulating the issues of the bonds remains in full force and effect and has to be complied with. This creates a situation where the issuers aiming to issue local bonds have to maneuver between the old and the new legislative frameworks.

Despite these problematic aspects, there have been precedents on issuing local bonds after the amendments introduced by the Law. However, those issues were made under the private placement procedure. The public offerings of the bonds have not yet been tested in practice since the Law has entered into force.

Taking into account the existing tendencies and the increased interest of market participants, we anticipate that the fully-fledged Ukrainian local bonds market may kick off in 2022.

Eurobonds by Ukrainian Issuers – Present Trends

Until recently, all Ukrainian issuers (other than the state of Ukraine) had to apply the loan participation notes structure (LPN) for eurobond issuances out of Ukraine. The LPN structures were widely used by state-owned entities, such as Naftogaz of Ukraine, Ukrainian Railways, and Ukreximbank. For the last few years, there were two key reasons why a direct eurobond issuance was not a viable option for Ukrainian entities: (1) currency control restrictions and (2) tax considerations.

In April 2021, the Ukrainian currency control regulations were amended to allow repayments under the debt securities outside of Ukraine, to the applicable annual limit for the cross-border transactions established by the National Bank of Ukraine (which equals EUR 2 million as of today). Such changes had a positive impact on Ukrainian issuers’ ability to make a direct issue of eurobonds from Ukraine, however, did not resolve all applicable concerns.

Ukrainian law does not exempt payments of Ukrainian sourced income under eurobonds from the standard withholding tax regime. On the contrary, the LPN structures allow applying a 5% reduced withholding tax rate, subject to compliance with certain criteria. Thus, the LPN structures remain a better solution for the Ukrainian issuers, subject to one exception. In cases where the anticipated eurobond issuance is benefiting from a state guarantee, the direct issue could be a viable option. Payments of interest income under borrowings supported by sovereign guarantees are exempt from Ukrainian withholding tax, therefore tax considerations are not applicable to issuances made under the state guarantee. A great practical example of the direct issue structure is a debut eurobond issuance by the State Agency of Motor Roads of Ukraine (Ukravtodor).

Thus, despite the changes to the local framework indeed improving the conditions for the direct issue of eurobonds from Ukraine, there is still some work ahead before the LPN structures become a thing of the past. We are, however, quite optimistic that Ukrainian legislation is moving in the right direction.

By Glib Bondar, Senior Partner, and Anastasiya Voronova, Senior Associate, Avellum

This Article was originally published in Issue 8.11 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Sayenko Kharenko has advised Elementum Energy Limited on its acquisition of a majority stake in Lymanska Vitroelektrostantsiia from Ukraine Power Resources.

According to Sayenko Kharenko, Lymanska Vitroelektrostantsiia is developing a wind park exceeding 100 megawatts near Odesa, Ukraine. “The project is being developed in cooperation with Ukraine Power Resources, which remains a minority shareholder.”

Elementum Energy is the largest international investor in the renewable energy sector in Ukraine, according to the firm. The company currently owns and operates a portfolio of 28 solar power plants.

Ukraine Power Resources is a US company founded by Peter Gish and Geoff Berlin that is developing renewable energy and storage projects in Ukraine.

Sayenko Kharenko’s team included Partner Oleksandr Nikolaichyk, Senior Associate Mykhailo Grynyshyn, and Associate Zarina Khalimon.

Oleksandr Markov, Head of Tax and Tax Litigation practice at Redcliffe Partners, has been promoted to Partner at the firm.

Former Counsel Oleksandr Markov has joined Redcliffe Partners in 2017. Prior to that, he spent over two years with Sayenko Kharenko, preceded by three years with PwC. He also worked for two years with Tarasov & Partners.

“I am grateful to Redcliffe Partners who supported and coached me, as well as to my team,” Markov comments. “I am confident that the new challenges, responsibility, and opportunities will contribute to our practice’s and firms’ growth and development.”

“Promoting Oleksandr is an important step in the firm’s growth strategy,” adds Managing Partner Olexiy Soshenko. “I am proud of the dedication and hard work that Oleksandr and his team have demonstrated throughout his tenure at Redcliffe Partners. I look forward to the leadership and insights he will provide to the firm in the coming years.”

Comprehensive legislative overhaul, thriving business sectors, and new opportunities for foreign investors – these are the hot topics in Ukraine right now, according to Integrites Partner Illya Tkachuk.

“A lot of attention is currently focused on the border situation, but we’re used to that by now,” begins Tkachuk. “Of course, while it might not be that stressful to us – it is impacting the market and is making international financing a bit harder to acquire.” Tkachuk believes that the ongoing elevated status of friction on the border with Russia will pass in the next few months, but admits that it is difficult to predict for sure. 

“Apart from that, we have seen some good trends in 2021 which are continuing over into 2022,” he says. Tkachuk reports that M&A transactions are on the up and up and that there are more investment and infrastructure projects in development. “There has been a substantial overhaul of the legal framework, which caters to M&A deals, especially so to investments from abroad,” he says. “New rules that govern the way deals are structured, corporate governance, shareholder agreements – these are all now available for foreign investors.” He reports that investor confidence has increased as a result and that there is more activity in Ukraine because of it.

“There is an ongoing wave of concessions, privatizations, and PPP deals right now,” Tkachuk says. “This is a direct result of the regulatory and legal overhaul. Just recently, following a number of successful seaport concession projects, another one was announced as in preparation,” he says. And, on top of that, the privatization framework is now “more efficient and there is strong activity in this area as well.”

Tkachuk shares that he is feeling quite positive about ongoing movements on the market, throughout a number of business sectors. “The most active sectors are IT, agriculture, mineral resources, telecommunications, infrastructure, and real estate – especially commercial,” he says. “These are, despite everything, very exciting times.” 

Finally, commenting on other legislative developments, Tkachuk mentions a new regime for IT companies called Diia City. “In December 2021 a new regime was devised by the parliament which aims at improving the legal framework for the operation of IT companies,” he reports. “We have already seen a lot of interest from our clients in exploring these possibilities.” 

In conclusion, Tkachuk says there is still much to be done in terms of legislative updates. “Ukraine’s obligations undertaken as part of the EU accession process are, essentially, those of legislative harmonization. This is the leitmotif of all changes and updates,” he says. “There is still much to be done, especially in terms of the outdated labor legislation.”

Head of Avellum’s Competition practice Mykyta Nota has been promoted to Partner, as of January 1, 2022.

According to the firm, with over 14 years of experience, Nota specializes in competition & antitrust law, including merger control, concerted practices, abuse of dominance, state aid, unfair competition, and competition litigation.

Nota rejoined Avellum in 2020 as a Counsel – he had previously spent close to six years with the firm, as a Senior Associate, between 2010 and 2015. Between the two Avellum terms, he spent four and a half years as a Counsel with Kinstellar. Earlier, he was an Associate with Spenser and Kauffmann for almost three years, from 2007 to 2010. 

“It’s a great honor and responsibility for me to join the Avellum partners’ team, which unites leaders of their practices and sets the highest work standards on the Ukrainian market,” Nota said. “I appreciate partners’ trust and aim to bring Avellum’s Competition practice to the top level as well. Avellum brought together a truly remarkable team that advises on the most landmark cases and provides a full range of legal services. I am happy to contribute to its success.”

“We welcome Mykyta to our partnership,” Managing Partner Mykola Stetsenko commented. “Mykyta shares the Avellum values and the excellence-in-work approach. This promotion is yet another example of how a talented and diligent lawyer has grown to become a partner at our firm.”

Arzinger has advised Siriusproject Lviv on the refinancing of the shopping and entertainment mall King Cross Leopolis in Lviv.

Siriusproject Lviv is a part of the Italian developer King Cross Group.

King Cross Leopolis, covering 105,000 square meters, is the largest shopping and entertainment mall in Western Ukraine.

“Having splendid business relationships with the banks involved in the project and understanding the requirements and approaches, we were able to close the project on short notice and give all stakeholders careless New Year holidays,” Arzinger Partner and Head of Banking and Finance Oleksander Plotnikov commented.

Arzinger’s team included Plotnikov, Partner Markian Malskyy, and Associates Natalia Anokhina, Olena Ohonovska, and Kyrylo Senyshyn.

Sayenko Kharenko, working with the Italian office of Bird & Bird, has successfully represented Sistema Prosecco before the Supreme Court of Ukraine in an unfair competition case over a Ukrainian wine producer using the Prosecco brand for its wines.

According to Sayenko Kharenko, “although the Antimonopoly Committee of Ukraine ruled in favor of Sistema Prosecco, protecting the original Italian producers of sparkling wine, the court of appeal did not recognize this decision as lawful. Nevertheless, after several attempts, the Supreme Court canceled the court of appeal’s decision and ruled in favor of Sistema Prosecco. The Supreme Court considered evidence in favor of Sistema Prosecco, including consumer surveys on the possibility of confusing the product of Niva with the original Italian brand.”

According to the firm, “the Supreme Court prioritized consumer surveys over IP expert examination in cases related to unfair competition. As a result, the prohibition on the use of Prosecco imposed on NIVA by the Antimonopoly Committee of Ukraine remains in force. The respective decision is final and may not be appealed.”

Sayenko Kharenko’s team was led by Partner Yaroslav Ognevyuk and included Senior Associate Pavlo Kovalchuk, Associates Khrystyna Ivanytska and Natalia Gorodetska, and Junior Associates Danyila Zubach and Anastasia Rotaienko. 

Valentyn Zasukha has joined Hillmont Partners as Partner and Head of Corporate and M&A Practice.

Before Hillmont Partners, Zasukha spent over six years as a solo practitioner. Prior to that, he spent over seven years with Clever Management, a year as a Senior Lawyer with Dragon Capital, and, earlier still, almost two years in-house with HVB Bank Ukraine.

“Delivering legal services in ways that align with the business strategies of clients is my personal calling,” Zaukha said. “I felt grounded and inspired by working shoulder to shoulder with Hillmont Partners in a joint effort to develop a tailor-made winning legal strategy. The firm and I have now stepped up our cooperation and taken it to the next level by entering into this partnership.”

“We are very excited about Valentyn joining our partnership and the team,” added Co-Managing Partner James Hart. “He brings the highest level of expertise and project management in cross-border corporate and finance legal matters involving businesses from Ukraine. Over the past two years, our firm has worked closely with Valentyn Zasukha on some very complex client mandates related to debt restructuring in international courts.”

Asters, working with Slaughter and May, has advised Arawak Energy Ukraine B.V., a member of the Vitol group of companies, on the sale of 50% of shares in Geo-Alliance Oil-Gas Public Limited to gas producer Geo Alliance Group Limited. 

Vitol is an independent energy trader with an annual capacity to ship more than 350 million tonnes of crude oil and products. In 2020 the company’s revenues amounted to USD 140 billion.

Asters’ team included Senior Partner Armen Khachaturyan, Partners Yaroslav Petrov, Alexey Pustovit, and Constantin Solyar, Counsels Olena Radko and Maksym Tereshchuk, and Senior Associate Yurii Dmytrenko.

Asters could not provide additional information on the deal.