Category: Ukraine

On July 22, 2021, CEE Legal Matters reported that CMS Kyiv had helped Stakelogic obtain a B2B supplier license from the Commission for the Regulation of Gambling and Lotteries in Ukraine. CEE In-House Matters spoke with Stakelogic CEO Stephan van den Oetelaar to learn more about the matter.

CEEIHM: To start, tell us a bit about Stakelogic and its activities in Ukraine.

Stephan: Stakelogic is an online slot games developer and supplier. At this moment Stakelogic operates 150 casino games for 500 online casino’s around the world. Stakelogic employs 150 staff and has offices in 6 countries. At the end of 2021, Stakelogic will start its operations in the US. In 2018 Stakelogic published its IT vacancies on international recruitment sites. Ukrainian game designers and software developers, with excellent resumes, responded. As a result, at the beginning of 2019 Stakelogic started contracting the first Ukraine developers. Today Stakelogic employs about 50 staff in Ukraine and has its office in the Gulliver Business Center in the center of Kyiv.

CEEIHM: What does the B2B supplier license entail and why was it needed for Stakelogic to obtain it?

Stephan: The provision of remote gaming software in Ukraine is regulated – both the supplier and operator are required to hold remote gaming licenses issued by the Ukrainian regulator. Once Stakelogic obtained its local B2B license, it was allowed to enter into contracts with online casino websites operators holding B2C licenses in Ukraine. This way, both parties are able to conduct their business in accordance with local regulations in Ukraine.

CEEIHM: What did the process of applying for the license entail – what did you handle in-house and what aspects of it did you delegate to CMS?

Stephan: The process of applying entailed the joint efforts of the legal department of Stakelogic and external counsel from CMS law firm. Stakelogic’s legal department ensured preparation, legalization, and apostilles by the Dutch Court on the documents related to the Stakelogic company group. Considering that the parent company and UBO’s of the applicant company are based in the Netherlands (headquarters of the Stakelogic company group), it was easier for Stakelogic to handle the described matters locally. CMS took care of the translation and legalization of the documents in Ukraine. They also submitted the documents to the regulator and supervised the application process to the moment the license was granted to Stakelogic Ukraine LLC.

CEEIHM: What was the most complex and/or lengthy part of the process from your perspective?

Stephan: We were actually very pleased with the efficiency of the whole licensing process. After having the first meeting with CMS to discuss the list of required documents, it took around one month for Stakelogic’s legal team to complete the collection and submission of the documents. Afterward, once again it took just a bit over a month for Stakelogic to be granted the license. Considering this, we are glad to acknowledge that Stakelogic and CMS cooperated very well to receive the Ukrainian license in a significantly short term and with no further complications.

CEEIHM: Lastly, why did you choose CMS as your advisor on this matter?

Stephan: In 2019 Ukraine was a “foreign country” for Stakelogic. Therefore Stakelogic looked for legal advice from an international law firm that could help to build business operations in Ukraine. The relationship with CMS started in Kyiv, where CMS Partner Olga Belyakova took ownership over the Stakelogic account. CMS established the legal entity, organized accountancy services, drafted (Ukrainian) contracts, handled bank matters, and provided legal and fiscal advice. Initially, Stakelogic only operated a software development center in Ukraine. As the Ukraine authorities announced to regulate the online gambling market, CMS immediately informed Stakelogic and offered its legal services to help Stakelogic to apply for the Ukraine online B2B gambling license.

With the support of CMS, Stakelogic managed to obtain the Ukraine B2B gambling license as one of the first game suppliers in Ukraine.

Originally reported by CEE In-House Matters.

CMS has advised CWP Europe on the acquisition of a 73-megawatt wind project under development in the Kherson region.

CWP Europe is a Southeast European renewable energy development platform, with over 1400 megawatts in development. It is owned by CWP Global, an international energy infrastructure development company operating in Europe and Australia. 

According to CMS, “the wind project located in the Kherson region in Southern Ukraine will enter construction in 2023, bringing EUR 76 million of investment and creating 360 jobs.”

CMS’s team included Partners Vitaliy Radchenko and Ihor Olekhov, Counsel Maryna Ilchuk, Senior Associates Orest Matviychuk and Viktoriia Stavchuk, Associate Ihor Pavliukov, and Lawyer Denys Hatseniuk.

CMS could not provide more information on the deal.

Avellum has advised PJSC MHP on the acquisition of MHP Food UK Limited, formerly known as Braintree Meats Limited.

According to the firm, MHP is the largest producer and exporter of chicken in Ukraine and a leading producer of poultry meat in Europe. The company specializes in the production of chicken and the cultivation of cereals and other agricultural activities. MHP Food UK is an England-based company and importer of meat and poultry. 

According to Avellum, the transaction allows MHP to expand its business activities into the UK.

Avellum’s team included Managing Partner Mykola Stetsenko, Senior Associate Anton Arkhypov, and Associates Iryna Fonotova and Valeriia Lepska.

Avellum did not reply to our inquiry on the matter.

CMS has advised mobile operator Vodafone Ukraine and parent company Neqsol Holding on the acquisition of Vega Telecom from the SCM Group.

The deal was signed in June 2021 and closed in September 2021.

Vodafone Ukraine is a Ukrainian mobile operator providing a wide range of services, including 3G and 4G data transmission, mobile voice communications, messaging, fixed internet, and mobile TV to around 20 million subscribers.

Vega Telecom, operating in 22 regions in Ukraine, with over 420,000 subscribers and 150,000 internet users, provides integrated telecommunications solutions involving broadband access, fixed and IP telephony, cloud services, data transmission, and storage services.

“We are delighted to have assisted Vodafone Ukraine and Neqsol Holding on this strategic and high-profile deal to acquire Vega Telecom,” commented CMS Partner Tetyana Dovgan. “Navigating the various complex issues and bringing the deal to a successful closing required much creative thinking and pragmatic solutions.”

The CMS team was led by Dovgan and included Partner Olga Belyakova, Senior Associates Vitalii Mainarovych, Louise Cakar, Mariana Saienko, Viktoriia Stavchuk, and Nataliya Nakonechna, Associate Ihor Pavliukov, and Lawyer Denys Hatseniuk.

On June 14, 2021, CEE Legal Matters reported that the former DLA Piper office in Ukraine had merged with Kinstellar. We spoke with Co-Managing Partners Olena Kuchynska, Margarita Karpenko, and Senior Counsel Daniel Bilak – the Management Committee of the combined team – to learn more about the merger and their plans going forward.

CEELM: Let’s start with the beginning – what brought about this merger?

Karpenko: I believe that we, as DLA Piper, served as the catalyst of the process. DLA has been considering its geographical footprint for a while, and the firm decided that Ukraine is not the place where it should keep a direct business presence. There were several reasons for this decision. In particular, the conflict with Russia caused professional and personal tensions in the office, since many of DLA’s major clients are based in Moscow.

We got in touch with an excellent recruitment firm, the Marsden Group. They helped us identify Kinstellar as an ambitious, forward-looking firm seeking to increase its presence in Ukraine and the region. Jonathan Marsden and Nick Paleocrassas introduced us to Jason Mogg and Daniel Torsher at Kinstellar and we started an eight-month discussion leading to us becoming a part of Kinstellar.

Bilak: I’ve known Jason Mogg, Senior Partner and one of Kinstellar’s founders, since our law school days at McGill. I reached out to him last year on behalf of some investors and we began discussing a possible role for me to assist with the firm’s further expansion in emerging markets. As it turned out, the first major expansion project was Kinstellar’s Kyiv office! Olena Kuchynska had just become Managing Partner and my role was to help her take the office to the next level. Then, in December 2020, Jason told me we were approached by DLA Piper with a merger proposal. I knew many of their partners and I had great respect for their reputation. It is a very successful practice with a global reach and has significantly boosted our position in the market.

Kuchynska: From my perspective, this was a logical extension of the changes that had already begun since a leadership change last summer. We felt that we had a good profile in the market and expertise in different sectors of practices, and were reassessing our strategic direction. We did not want to be just another law firm on the market – we wanted to grow. We also knew that organic growth needs some time, but life is moving fast, and we seized this opportunity.

CEELM: When you first met Daniel and Jason, what were the first discussion points on the agenda?

Karpenko: Initially, we had discussions with Jason about the upcoming merger and how to make it smooth. The spirit of our partnership was slightly different, for instance, in terms of partners’ compensation – while Kinstellar uses the lockstep system, DLA Piper had a different partner compensation model in place. It took about three months to convince partners about the merger and discuss all the peculiarities of a new compensation system.

Bilak: As I mentioned, I saw this as a great opportunity. I had spent the last three years as the head of the Ukrainian Government’s investment promotion office, UkraineInvest. The market had become more dynamic than when I had left private practice and having a scalable practice seemed important to achieving success. Kinstellar opened its office in Kyiv in 2016 with less than 20 lawyers, and we had to quickly grow and develop a successful startup. When Jason told me that we had been approached by DLA Piper, I knew instantly that it would be a great deal – I knew the market and had personal connections with many DLA partners. In particular, I had a great deal of respect for Margarita. It was a very successful practice with a global reach.

In terms of challenges, this is my fourth merger – they seem to follow me around! It’s been my experience that you succeed when you choose the best practices of each firm and try to create something new. The human factor is very important in this process. Despite different experiences of how practice and compensation work, partners from both legacy firms got along very well from the beginning. The legal market here is relatively small, and many of us already knew each other, which has been a great advantage.

CEELM: Looking back, is there anything that went surprisingly smoothly, or something that you did not expect to be this easy?

Bilak: One of the biggest surprises was the degree of synergy that we found among lawyers. We discovered that our corporate practices, skillsets, and values were virtually complimentary across the board. We did not encounter any significant disagreements. Our goal was to keep the business moving forward without any interruption by encouraging partners to do what they do best and by ensuring effective communication. We were also conscious of leaving behind certain practices from our legacy firms and of reflecting on lessons learned.

Kuchynska: As Daniel mentioned, we were trying to implement the best practices of both teams. During our decision-making process, a key element was that everyone was keen to make compromises, and it was encouraging that everyone was committed to successful integration.

CEELM: You touched upon the corporate practice being quite complementary – what were the key synergies between the two teams?

Bilak: We have four highly professional and capable female corporate partners. There’s not much for me to tell them about how to run their practice. We did not have much overlap in many areas, but there were still some risks for complications. However, the ladies went out, discussed the prospects, key drivers, and their plans for the future between themselves, and came up with the suggestion for two Co-Heads of Corporate and M&A in Kyiv. It was a fantastic example of the cooperation, compromise, understanding engendered by the merger and I am very proud of this flagship practice – aside from classic M&A, it also involves technology and other areas.

CEELM: Looking at the whole process, what would you count as Day One, and what were its main challenges and successes?

Karpenko: For us, Day One was in mid-June. Continuation of business was our top priority. We faced some difficulties, adjusting to the system of time-reporting, billing, IT. But surprisingly, everything was resolved very smoothly and quickly. We also had to engage in a lot of client communication, and I was glad that virtually all of our clients followed us through the merger.

Kuchynska: For me personally, Day One lasted for a couple of months – it was a process. We had to inform the people in advance and to keep our ongoing business away from any dramatic changes. Even though DLA Piper and Kinstellar were different in size, we shared the same values, which was the most important aspect of success.

Bilak: For me, Day One was our first pre-merger partner gathering. I was a bit nervous – you rarely get a second chance to make a good first impression. However, right after our first evening together, I knew that we were compatible and that we would get along very well. I believe that law is not a complicated business, yet how you approach it can be decisive. Even after that, without a glass in our hands, everybody was fully vested in achieving a successful result.

CEELM: When you bring teams that have a considerable weight in the market, conflicts might happen. What was your approach to the potential conflicts?

Karpenko: Even before the merger, we tried to identify the potential conflicts using Kinstellar’s conflict search system, which worked well. We did not discover any serious issues that we couldn’t manage.

Bilak: I believe there were only two conflicts, out of which we resolved one and with the other, with the client’s consent, we “built a Chinese wall”. That is another example of how complementary our businesses were. We were quite fortunate, since often during a merger, groups of partners feel compelled to leave because they do not want to lose clients over unresolvable conflicts.

CEELM: If you were to do the whole process over again what would you make sure to pay close attention to?

Karpenko: I would make the process quicker. The decision to merge was a difficult one for the partners and my goal was to keep the whole team together and to continue growing. We considered three merger options and the choice of Kinstellar was made reasonably quickly. Yet, the process still took some time.

Kuchynska: It is hard to say what could have been done differently. COVID-19 has had a considerable impact on the integration. It was and remains our biggest challenge, which slightly delayed and complicated the process.

Bilak: We were not independent decision-makers. We had to ensure that the decisions at the corporate level worked for all the partners. If I could do it all over again, I would probably implement more team-building and integration activities early on, as there is some frustration among people in getting to know one another, especially resulting from the lockdown. Unfortunately, there is not much that we can do. There are no manuals on how to deal with lockdowns – even governments are making up rules spontaneously.

CEELM: Now that the dust is settling, what are your mid-term goals? What can we expect from you in the near future?

Bilak: We want to be the gateway to Ukraine, the go-to law firm for foreign investors and clients. Our relationship with DLA Piper is very important, but not exclusive. We plan to focus on targeting the US market more and to do more as an ESG-compliant law firm – this is not just a branding exercise but affects and impacts how we do business.

Karpenko: I would add that we need to complete our integration process – due to the COVID-19 pandemic, it still remains a challenge. We have moved all of our personnel into one building. I believe that sharing offices, having lunch together and, overall, physical presence will make the integration process more effective.

Kuchynska: I want to stress that in the context of ESG, we would like to create an attractive work environment for our employees and continue to engage top talent. We understand that, in this environment, focusing purely on being more profitable and growth for its own sake is not very sustainable internally. Young talent appreciates a new generation of employers, and we want to be the employer of choice in this market.

Let me start with a provocative statement: it is really easy and safe to do business in Ukraine today. As discussed in the article below, this is not a naive view of a Ukrainian lawyer but pure facts and statistics. Moreover, if you compare Ukraine with its neighbors, the contrast is startling: information transparency of companies coupled with super-fast registration procedures and special regime for IT companies are astonishing.

Soviet past

When Ukraine appeared from the collapse of the Soviet Union, it barely had any commercial businesses and little private property. As a result, Ukraine spent the first decade of its independence privatizing the vast majority of large and small Soviet enterprises, transferring land and apartments into private ownership, and allowing commercial businesses to appear and flourish. By 2000, Ukraine had an established (albeit developing) market economy that suffered from corruption, raiding, and enormous bureaucracy. It had the Soviet legacy mixed with the Wild West style of doing business. To see how things changed, it is better to compare Ukraine in 2000 with its current state in 2021.

Public registers

In 2000 Ukraine only had 4 publicly accessible registers that focused primarily on company registration. In contrast, in 2021, Ukraine has nearly 70 public registers accessible online that provide helpful information to companies in most business areas. Services such as Opendatabot enable comprehensive searches on any company and instant notification on any changes in the registers to its shareholders and management. You can even see financials that companies regularly submit to the state authorities.

Starting a business

When I started my career in February 2000, it took me 30-40 days to register a new business in Kyiv and involved 14 different procedures. Today, if you are really in a hurry, you could register a company (usually an LLC) in just 2 hours and complete most procedures (up to 6) online. Numerous notaries around the country will be happy to help you if you want to do it in person.

Minority shareholder protection

Doing Business Report by World Bank in 2007 ranked Ukraine 142 out of 175 countries in protection of minority shareholders. Today, Ukraine ranks 45, and further improvement is expected soon with the adoption of the new law on joint stock companies. Ukrainian corporate law now provides enormous flexibility for private companies’ corporate governance, shareholders’ agreements are gaining popularity, and court practices have filled in most ambiguous gaps in corporate disputes. At the same time, the latter are significantly less prone to corruption since procedural laws were substantially improved in the last 5 years.

Licensed activities

As a post-Soviet bureaucratic state, Ukraine required licenses for 65 types of activities in 2000. Many more permits and authorizations were required at that time, too. This number of licenses dropped to 34 today, with many licenses now issued online and searchable. Ukraine abolished numerous redundant permits altogether.

Work permits

Work permits for foreign nationals used to be notorious, with long waiting lines, review periods of at least 30 days, and the often absurd discretion of state officials. It now takes up to 7 days to get a work permit. In some cases, waiting is not required at all.

Property registration

Real estate registration was no less notorious, often requiring up to 90 days to register a building or apartment and cost 4,3% of the total value of the property.

Registration with the Bureau of Technical Inventory (BTI) was a top-3 source of corruption in Ukraine for many years. Today it takes one day to register your new apartment in the public register without any need to deal with the BTI, and the cost dropped to 1.7% of the value. In most cases, a private notary will act as a one-stop-shop, with whom you can buy or sell land, buildings, or apartments.

International treaties

Ukraine nearly doubled the number of international treaties (including bilateral investment treaties) from 2,405 in 2000 to 4,647 in 2021. It gives confidence to investors that in case of a dispute with the government, an investor may seek protection in investment arbitration.

Diya City

As I prepared this piece, the Law on Stimulation of Data Economy in Ukraine came into force. It created a special regime for qualified IT companies at least for the next 25 years. Among other things, it envisages flexible employment of IT specialists and even more flexibility in contracts and corporate governance. If this regime proves popular in the future, it is likely to be expanded to other industries throughout Ukraine.

This is not to say that Ukraine has nothing to improve. On the contrary, the Ukrainian legal community works hard to implement further improvements in Ukrainian law and fully harmonize it with the EU legislation. However, the progress is remarkable and deserves praise and attention both from foreign and local investors.

By Mykola Stetsenko, Managing partner, Avellum

In 2020, Ukraine’s government awarded the first two concessions in the history of Ukraine – 35-year concessions of the assets of Kherson and Olvia, two significant ports on the Black Sea. Building on this success, in October 2020, the government made a media splash by releasing a roadmap for further public private partnership (PPP) projects and held various promotion events since then.

The government’s infrastructure pipeline consists of a number of potential concession projects in relation to sea ports, airports and other infrastructure facilities such as railway stations, as well as other PPP projects concerning, in particular, motorways. In the past, Ukraine’s government was mulling over the toll-based concessions for some of the motorways. While the government would be most happy to proceed with an output-based arrangement that places the revenue risk with the private party, it has been largely accepted now that, in the absence of long-term traffic data in addition to the general country risk, road concessions in Ukraine are unlikely to attract private sector interest and, therefore, availability-based PPPs are more viable.

In more developed economies, there currently seems to be a growing disenchantment with the availability payment structures as these can be significantly more expensive when compared to straight government debt and less flexible, e.g., cannot be refinanced in recessionary times. In the context of Ukraine, in the opinion of financial experts, these concerns can be easily balanced out by minimising cost overruns and delays by using private sector expertise in relation to not only construction but also long-term operation and maintenance.

Terminology: PPPs, PFIs and Concessions under Ukraine law

Ukraine has generally adopted the international terminology in relation to PPPs, however, not without a twist. A conversation around Ukrainian infrastructure opportunities with a potential investor or financier often starts with sorting out the basic definitions – PPP, PFI and concession.

Under the Act of Ukraine on State and Private Partnership 2010 (PPP Act), a public private partnership may take form of a concession, “an arrangement for management of an asset that provides for investment obligations of the private party”, a joint venture, or other forms. The second form may be seen to resemble what is commonly referred to across Europe as private finance initiative (PFI). This said, in the absence of a concise notion, experts in Ukraine casually refer to projects that are not concessions as PPPs, although, strictly speaking, concession is also a type of PPP under Ukraine law.

Concession has been set aside from other types of PPPs in Ukraine because of the different legal framework. As mentioned, concession is regarded a type of PPP under the PPP Act. However, it is primarily governed by different law – the Act of Ukraine on Concessions 2019 (Concession Act) which provides that the PPP Act applies to a concession “only when expressly provided by the Concession Act”. There is only one instance where this is actually the case.

Public Sector Contribution to a PFI Project

Similar to other jurisdictions, the public sector contribution to a PFI project will be primarily in the form of availability payments, i.e., regular payments made by the grantor to the private party once the piece of infrastructure has been commissioned into operation (i.e., has become “available”). Recognising the importance of a robust legal framework for availability payments, in May 2021, Ukraine’s parliament adopted in the first reading a bill on amendments to the Budget Code of Ukraine to provide for medium term budgeting for availability payments and allow changes to the state budget for the current year to accommodate any extraordinary liabilities such as termination payments. These amendments are expected to be voted on by the end of 2021.

Under existing Ukrainian law, the state or a municipality may also make its contribution to a PFI project by other means, referred to in the law as “state support”. In addition to availability payments, the grantor may commit to certain other actions, including (a) making other payments to a project company from the state or municipal budget that may include milestone and completion payments during the construction period, (b) purchasing of a pre-determined amount of services provided by the project company, (c) supplying goods and/or providing services to the project company (potentially, on terms that are better than otherwise available in the market) and (d) constructing or upgrading the adjacent infrastructure (such as rail tracks, communication lines and utilities network), which is not part of the project but is “necessary for the performance of the PFI agreement”. Also, importantly, the state support may be theoretically provided in the form of a state or municipal guarantee.

While the law is not elaborate on this point, a guarantee would make the most sense as an instrument securing obligations of the project company under the credit documentation for financing of the project. At present though, such a structure would not work because of special rules on state and municipal guarantees under the Budget Code of Ukraine.

Public Sector Contribution to a Concession Project

A concessionaire would seek an agreement that provides for availability payments if user charges are not sufficient to pay the anticipated project costs in full, as well as to achieve the private party’s targeted return. The Concession Act addresses, in particular, a situation when a concession project first relies on availability payments in the early stages in addition to the user charges. Later on, when the project starts generating larger revenues, the public party stops making availability payments and the concessionaire makes reverse concession payments to the grantor. 

A concession project in Ukraine may also benefit from state support in the form of (a) purchasing a pre-determined amount of services provided by a project company, (b) supplying goods and/or providing services to the project company and (c) constructing or upgrading the adjacent infrastructure at the state’s or municipality’s cost. Unlike the PPP Act, the Concession Act does not list a state/municipal guarantee among the forms of state support for a concession project though. While this makes sense in the context of a revenue generating brownfield concession project, it is probably a shortcoming in relation to a concession project that relies on availability payments, as discussed above.

A PFI project may be fully financed by availability payments under Ukrainian law. A concession project may benefit from availability payments only to a certain extent. As can be concluded based on several provisions of the Concession Act, the amount of availability payments (combined with the state support in other forms, if any) may not exceed the amount of the concessionaire’s investment and cover the larger part of the operational risk, including the demand risk. Therefore, a concession project must generate revenue in the form of user charges that, over the lifetime of the project, must be at least equal to the amount of the availability payments. Based on the foregoing, the concessionaire’s debt services expenses and profit would need to come exclusively from the user charges.

At the moment, the Ukrainian government is working on feasibility studies for the concession and PFI projects that will be granted via competitive tenders in 2022, as well as on changes to Ukraine’s Budget Code that would address concerns related to the government’s ability to make availability and other payments during the lifetime of the project. We hope that the government will keep up the momentum and other PPP projects will follow the successful seaport concessions of 2020.

By Andriy Nikiforov, Partner, Redcliffe Partners 

Sayenko Kharenko has advised joint lead managers J.P. Morgan and Dragon Capital on the USD 300 million eurobond issuance by Ukrainian Railways, the exclusive state-owned provider of rail transportation services in Ukraine.

According to Sayenko Kharenko, “the transaction was a loan participation notes structure, with the notes having a 5-year tenor and bearing interest at 7.875% per annum. The proceeds of the issue will be used to refinance the existing facilities of Ukrainian Railways, which is expected to improve its liquidity condition and rebalance its debt portfolio.”

Sayenko Kharenko’s team included Partners Igor Lozenko and Nazar Chernyavsky, Associates Oles Trachuk, Vladyslava Mitsai, and Sofiia-Mariia Kuzminska, and Junior Associate Oleksandr Motin.

Sayenko Kharenko did not reply to our inquiry on the matter.

Editor’s note: After this article was published, CEE Legal Matters learned that Asters, working with Dechert, has advised JSC Ukrzaliznytsia, the Ukrainian public railway company, on the deal. The firm’s team included Senior Partner Armen Khachaturyan, Partner Constantin Solyar, and Senior Associates Olena Nikolenko and Roman Podzizei.

The COVID-19 pandemic has triggered substantial social changes and a seemingly never-ending rollercoaster of legislative amendments and re-adoptions. Both social and legislative changes occurred in the Employment Sector, inevitably including the sphere of Personal Data Protection (PDP).

Remote working and the desire of employers to monitor the performance and processes of their employees has given rise not only to a series of legislative amendments but also to a series of misconceptions about these amendments and about compliance with existing legislation.

One of the first rounds of COVID-related changes in Ukraine included the establishment of a new exception to the requirement of consent for personal data processing: a data subject’s consent is not required when the processing is necessary for the purpose of combating the virus. This was a common headline in the news in April and May of 2020. However, this exception is only applicable to specific entities (i.e., the Ukrainian Ministry of Digital Transformation), and does not apply at all to most private businesses. The processing of personal data (especially sensitive data) remains subject to many restrictions and additional compliance actions must be taken before, during, and after processing (for sensitive data).

Another common misconception is that video-surveillance does not constitute the processing of personal data. Even though it’s very tempting to trust this statement, it is misleading and should not be relied upon. It has been well established that an image of a person contained in a video is in itself personal data. When using such monitoring instruments, an employer (or anyone conducting monitoring) must follow the usual “compliance steps” for personal data processing.

The pandemic has also provided fertile soil for remote work tracking and monitoring software. Most of the software packages offered on the market contain built-in confidentiality disclaimers and personal data processing consent. However, these do not offer a panacea for PDP compliance. One should choose software that provides an option for the person being monitored to pause the monitoring. This will ensure that no excessive personal data is collected (especially sensitive data). For example, financial data, private correspondence (conversations with other employees on non-work-related topics might also include private life details), etc.

It is commonly (and incorrectly) understood that where someone consents to processing, the processor is free to collect any data (or all the data provided for in the consent). Again, data processing consent is not a magic shield from PDP-law violation. It is well established that even when a personal data subject consents, if the scope of data collected and processed exceeds what is necessary to process for the purpose at hand, such processing is unlawful.

For example, when tracking an employee’s activities, software can collect data regarding time spent by an employee on a project that helps the employer monitor and assess the employee’s performance; but if the software collects and transfers to the employer such data as screenshots of bank account details or online payment information, etc., even when included in the consent, this exceeds the lawful purpose of processing and constitutes a PDP-law violation. Moreover, collecting sensitive personal data will trigger additional compliance requirements (such as sensitive data processing notification).

Furthermore, the earlier described “lawful data” is usually used for a lawful purpose (such as work performance evaluation). However, an employer should still be on guard when, for example, a decision related to an employee is made based exclusively on this data. Ukrainian law specifically protects data subjects from any automated decision affecting their rights. Depending on the particularities of the software and the procedure by which the decision (for example, to fire an employee or to distribute bonuses) is adopted, such decision could potentially result in a PDP-law violation. The same is true for profiling.

Evidently, most of the PDP law that was already in place is still applicable and relevant to “COVID-19 amended relations,” and businesses simply need to consider it as carefully as possible and not rely upon tempting but misleading statements.

All of this is also applicable to subcontracting relations and the data collected from subcontractors when monitoring their services.

By Maria Orlyk, Managing Partner, and Diana Valyeyeva, Associate, CMS Reich-Rohrwig Hainz, Kyiv

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

According to Arzinger Managing Partner Timur Bondaryev, competition investigations, investment disputes, and white-collar crime matters have been keeping his team particularly busy these last few months. CEE Legal Matters sat down with him to learn more about the driving forces behind these areas in Ukraine.

CEELM: Let’s start with an overview of 2021. What would you point to as the busiest practices for your firm for 2021?

Timur: While the last few months have been solid in terms of the pipeline of transactions we’ve been working out, the main three areas, where I would say we’ve been particularly well-positioned in, were competition matters, in particular in terms of investigations and litigations, investment dispute arbitrations, and white-collar crime matters.

CEELM: Looking at each of the three, what do you feel drove up your work in those areas?

Timur: Taking them in order, I see competition investigations as something that reflect a global trend, with agencies actively pursuing players all over the world at all levels – may it be globally, regionally, or locally. That’s also compounded with competition agencies sometimes being used as a means to advance some political agenda, and Ukraine is no exception in this regard. What I think is something particular to the Ukrainian market is the tendency of state agencies to try and regulate the prices of what they deem as socially important goods or services. There is a case to be made for that, sure, given the relatively weak Ukrainian economy – despite massive progress over the last few years – but I still see the state as having the bad habit of trying to involve itself a bit too much, in terms of regulating the market.

CEELM: Is this a rather new trend?

Timur: Not at all. You need to keep in mind that these kinds of investigations tend to last a very long time – and litigations that might result from them might take even longer. For example, we recently represented Imperial Tobacco, which received one of the largest fines for an alleged cartel. The fine was challenged, and it took years before it got to the Supreme Court, which finally canceled the fine.

CEELM: While on the topic of competition, are clearances keeping you busy these days?

Timur: Yes, but I expect (and hope!) that will change. Ukrainian merger control is simply outdated in terms of thresholds at the moment, despite the fact that the threshold for requiring a merger clearance was increased 4-5 years ago. It seems they will be streamlining the process further, so we hope things will be better on this front soon.

CEELM: Why do the current thresholds disadvantage you, though? Don’t they simply represent more work for the firm?

Timur: That is the case, yes. For us, as a law firm, the current thresholds generate some nice bread and butter work, but that’s not what we’re targeting – we’d prefer freeing up our resources to focus on larger matters, to cease working on a mass product, and focus more on the sexy work.

CEELM: You mentioned a lot of work on investment dispute arbitration as well.

Timur: Ukraine has certainly been a very litigious ground recently. One of the main reasons for this is the huge stakes involved in the Government’s decision to significantly reduce green energy tariffs. Following this move, many companies have already filed their claims, with several others at a level of trigger notice. There are still some that are hesitating, because their corporates need to decide if they will attempt to negotiate with the Government.

I am not surprised it got to this point. Ukraine was extremely generous towards green energy – primarily as a result of the drive to get rid of the dependency on Russia. It simply did not count on such an influx of projects and, when they drew a line and realized it wouldn’t be sustainable from a budget perspective, they decided to retroactively reduce their incentives. You can imagine that all involved, from the developers to banks offering the financings for these projects, were not too happy with the call.

CEELM: What about the white-collar crime work? What’s been the main driver there?

Timur: It is, in many ways, similar to the competition investigations we spoke about. There’s certainly a huge push towards cleaning up the market, but there are also a few cases resulting from the state coming up with… let’s call them creative solutions to block certain transactions, especially if a merger control mechanism is not feasible.

CEELM: You also mentioned a healthy pipeline of transactional work. What’s behind it?

Timur: The main element is the privatization program. I can now comfortably say that the Government is finally serious about selling state assets. Several alcohol plants have already been sold off as well as several smaller assets, such as hotels.

This push has certainly built a solid pipeline of transactions, especially because it was complemented by a number of consolidations in the agricultural market, a few private equity deals in healthcare/pharma, international interest in real estate apparently returning to the country, and, last but definitely not least, a boom in the IT sector – both in terms of consolidations of teams, but also in terms of basic elements such as investments in larger real estate for office spaces (despite the COVID-19 pandemic).

CEELM: Who are the most important buyers in the country in terms of this transactional pipeline?

Timur: I wouldn’t really say it’s private equity firms – there’s only really around two-three firms that are strong locally. The risk appetite of the types of hedge funds you’d see in other countries in the region tends to be quite low, and they are built to try to leverage a transaction in such a way that they end up looking at an almost risk-free deal. Based on that, it comes as no surprise then that they barely have a pipeline.

When it comes to the privatizations we spoke about, we’re traditionally seeing interest from the local guys. These strategic buyers don’t just have a different risk appetite, but they also know the pitfalls of the market, as well as any skeletons in the closet of the companies they look at.

But I think they will benefit massively from the clean-up push we’re seeing at the moment. Within the current context of white-collar crime investigations booming, I think these local players have a great opportunity to take these companies and clean them up, in terms of corporate governance, thus making them far more attractive in a market that I hope will be progressively less perceived as plagued by corruption and a lack of transparency.

CEELM: Taking a step back, is there a legislative update in the works that you believe would further enhance the country’s attractiveness and/or your transactional pipeline?

Timur: Probably most noteworthy is that the moratorium on agricultural land sale is to be lifted. As of July 2021, agricultural land can start exchanging hands, which will definitely add to our workload, despite the fact that FDI will still not qualify to purchase such land. The hope is that, with this huge amount of land coming to the market, we’ll also see a huge cash influx.

Beyond that, FDI screening is being discussed and will likely be enacted soon. Sure, opponents to the idea argue that it will be an obstacle for investors, but it is a global trend and Ukraine is one of the last few exceptions in Europe that don’t employ it. I believe the market will remain very much open to investments, irrespective of this screening – except for competition clearances, that is.

CEELM: Overall, would you say you are optimistic over the outlook of the next 12 months? Why/why not?

Timur: I believe there are plenty of reasons for which to have a positive outlook. The Government seems to have a very, very, very, positive attitude towards privatizations. I see them being done in a truly proper manner. If in the past these sales seemed to always be tailored to some local guy, I find the current ones to be carried out in a very transparent and well-structured manner – they are conducted online, and all can see that the highest bid truly ends up being the winning one.

And it’s not just about the process. The state seems set to put up any reasonable asset – even a prison was privatized recently, again, in a very transparent manner.

Between this drive, a potential game-changing land reform, and the ongoing judicial reform, I believe we’re in a prime position to witness a skyrocketing economy in the next few months.

Of course, there are always pitfalls that one must be on the lookout for. The biggie in my mind is that the political class may not fulfill all it has promised. I have gotten used to seeing skepticism in the eyes of my clients, resulting from years of them seeing a lot of good promises that were not delivered on. This, of course, is an issue everywhere and not just in Ukraine, but I feel it is all the more important for us not to disappoint those looking at the country at the moment. We’re in a pivotal place where we have the opportunity to prove that we can do it.

This Article was originally published in Issue 8.6 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.