Category: Ukraine

Last week, the Antimonopoly Committee of Ukraine commenced a public discussion of strategic changes to Ukrainian competition law.

The reform focuses on the following topics:

• merger control rules;
• improved leniency programme & new settlement procedures; and
• joint and several liability.

Here is a short overview of the suggested changes.

Merger control rules

The regulator intends to:

• shift its focus to transactions with reasonable local nexus; and
• lift off unnecessary administrative pressure from businesses.

The regulator suggests carving out the remaining part of the seller group from the jurisdictional test, if the seller ceases to control the target upon completion. In contrast, currently, financials of the whole seller’s group are counted towards the jurisdictional test. This often results in parties having to obtain merger control clearance for the acquisition of an insignificant business or business having no local nexus.

The regulator also suggests introducing additional jurisdictional thresholds. Under the new thresholds, parties to a transaction must obtain prior merger control clearance when the transaction results in:

• reaching or exceeding 25% or 50% of votes in the highest governing body of a target or in the acquisition of control over it;
• the acquisition of control over a target through the purchase or lease of assets; and
• entering into a contractual arrangement granting control over a target,

provided that:

• a target’s Ukrainian turnover or value of assets exceeds EUR 2 million, and combined Ukrainian turnover or value of assets of all parties exceeds EUR 30 million; OR
• a target’s Ukrainian turnover or value of assets exceeds EUR 2 million, and worldwide turnover of at least one other party exceeds EUR 150 million.

At the same time, currently existing jurisdictional thresholds will continue to apply to a transaction that results in:

• the merger of companies or company takeover;
• the establishment of a joint venture; and
• the acquisition of control through appointment of management.

In such case, the parties have to obtain prior merger control clearance, if:

• Ukrainian turnover or value of assets of each of at least two parties exceeds EUR 4 million, and combined worldwide turnover or value of assets of all parties exceeds EUR 30 million; OR
• Ukrainian turnover or value of assets of at least one party exceeds EUR 8 million, and worldwide turnover of at least one other party exceeds EUR 150 million.

In addition, the regulator suggests introducing the full-functionality criterion for joint ventures into Ukrainian competition law. Currently, this criterion is contained in the regulator’s non-binding guidelines and often creates uncertainty in its enforcement practice when it comes to the assessment of whether the establishment of a non-full functioning joint venture is subject to merger control rules.

Improved leniency programme & new settlement procedures

The existing leniency programme for cartel participants has proved to be unpopular among businesses due to the local business mentality and vague regulation for its application.

The improved leniency programme will set out clear guidelines for those who wish to benefit from it and will encourage businesses to disclose cartel activities by offering reduced fines. In particular, a cartel participant would be able to apply for leniency, if it:

• cooperates with the regulator during an investigation;
• provides sufficient evidence;
• ceases cartel activities, unless the regulator instructs otherwise; and
• is not a ringleader.

The regulator would grant full immunity from a fine to the first one who applies for leniency and meets the above conditions. Subsequent leniency applicants would be able to apply for a reduced fine:

• up to 50% for the second applicant;
• up to 30% for the third applicant; and
• up to 20% for others.

In addition, the regulator intends to introduce settlement procedures in cartel and abuse of dominance cases. Under settlement procedures, parties would be able to admit to the regulator’s objections and in return receive a 15% reduction in the fine.

Joint and several liability

Over the years, the regulator has encountered difficulties with the enforcement of fines. Some businesses employ aggressive tactics to avoid liability for competition law infringements. For example, there are reported cases when a defendant company often transfers its assets to a related entity and then files for liquidation or bankruptcy.

In addition, to impose a fine on a group of companies, the regulator has to split the fine and apply it to each company separately in different amounts depending on the severity of an infringement. To enforce the fine against several group companies, the regulator has to initiate court proceedings against each company.

To tackle these challenges the reform would:

• allow the regulator to impose fines on a group of companies; and
• introduce the concept of joint and several liability making controlling entities liable for infringements of their subsidiaries, which should prevent the avoidance of fines.

It is expected that the Ukrainian Parliament will pass the reform later this year and it should be adopted by the end of 2020 or early 2021.

By Anton Arkhypov, Senior Associate, Avellum

CMS has helped the PrimoCollect Group secure the approval of the National Bank of Ukraine for its acquisition of a substantial interest in the Kredyt-Kapital LLC financial institution. 

According to CMS, “the NBU has taken on this new regulatory role following the introduction of the ‘On Amendments to Some Legislative Acts Regarding the Improvement of the Functions of State Regulation of Financial Services’ law (also known as the ‘Split Law’), which came into force on July 1, 2020. The Split Law reduced the number of regulators in the non-banking financial sector by liquidating the National Commission for State Regulation of Financial Services Markets, which had previously acted as the regulator of non-banking financial institutions. Its financial markets regulation duties were then split between the NBU and the National Securities and Stock Market Commission. The NBU started to supervise non-banking financial institutions, such as insurance companies, credit institutions, financial companies, leasing companies and other non-banking financial institutions.”

The PrimoCollect Group is a debt recovery agency operating in Ukraine and Russia. According to CMS, the company “provides its customers with effective solutions in the field of debt collection, offering extensive operational capabilities in debt acquisition, outsourced debt collection and related scoring and risk management consulting.”

CMS’s team included Partner Ihor Olekhov and Lawyers Ivan Pshyk and Iryna Kravchenko.

Integrites has successfully defended the interests of Dominoni, an Italian manufacturer of agricultural machinery, in an unfair competition claim made to the Antimonopoly Committee of Ukraine.

According to Integrites, “the background of the case included another manufacturer who had been selling its agricultural equipment marked as ‘analogous to Dominoni’ on the Ukrainian market at a much lower price.” The firm reported that “the design of the equipment was similar to [that] manufactured by Dominioni, but its technical characteristics differed significantly.”

At the session held on November 5, 2020, the AMCU made mandatory recommendations for the competitor to stop its unfair practices.

The Integrites team consisted of Partner Serhiy Shershun, Attorney Mykola Boichuk, and Associate Orest Turkevych.

Marchenko Partners has advised the Western NIS Enterprise Fund on a loan to Walnut House, a bakery based in Lviv, Ukraine.

Financial details of the transaction were not disclosed.

The loan was provided through the Impact Investing Program established in 2016 by WNISEF, Kredobank, and Oschadbank, with the help from Marchenko Partners (as reported by CEE Legal Matters on November 25, 2019).

Walnut House, which was founded in 2012, offers bakery, catering, and lunch delivery services. Marchenko Partners describes it as a “social enterprise that transfers 40% of its income to the support of the social projects of Walnut House Fund, including a center of integral care for women in crisis.” The firm reported that, “the bakery’s mission is to overcome poverty, using the tools of social business.” 

WNISEF is a regional fund which primarily focuses on investing in small and medium-sized companies. Since its inception, WNISEF’s cumulative investments have totaled over USD 186 million in 130 companies, employing around 26,000 people.

Marchenko Partners’ team included Partner Roman Shulyar, Associate Bogdan Burlaka, and Junior Associate Oleksandr Pozniakov.

Ilyashev & Partners, working pro bono on behalf of the Ukrainian Red Cross Society, has persuaded a large network of medical centers in Ukraine to discontinue its illegal use of the Red Cross emblem.

According to Ilyashev & Partners, “the network used the Red Cross image in its trademark and placed the trademark on its business signs, on its website, in advertising, and business documents. This use of the emblem is a gross violation of Ukrainian legislation … and international treaties to which Ukraine has acceded.”

According to the firm, the Ilyashev & Partners Intellectual Property team “managed to persuade the infringer to stop using the Red Cross emblem and to start rebranding. The network’s obligation to stop using the Red Cross emblem was formalized in an amicable agreement approved by the economic court within a framework of a court action.”

The Ilyashev & Partners team was supervised by Managing Partner Mikhail Ilyashev and included Attorney Dmytro Nikulesko and Lawyer Olena Sereda.

 

DLA Piper has advised TechHosting LLC on the lease of 7,656 square meters of office space to serve as the company’s new co-working space.

According to DLA Piper, “TechHosting will consolidate several offices to occupy [all] five floors of the Voronin Business Center, a class A office space located at 3 Korolenkivska Street in Kyiv. The business center was under construction during negotiations and was completed by the time of the closing of the deal.”

DLA Piper’s team included Partner Natalia Kochergina and Associate Yevhen Husakov. 

On September 8, 2020, CEE Legal Matters reported that Integrites had successfully protected the interests of Lifelong Meditech, an Indian producer and exporter of medical equipment, in a safeguard investigation initiated by the Ukrainian producer Hemoplast concerning the import of syringes into Ukraine. CEEIHM spoke with Hamendra Srivastava, the CEO of Lifelong Meditech, to learn more about the investigation.

CEEIHM: To give our readers a bit of background, tell us a few words about Lifelong Meditech.

Hamendra: It is an Indian company based out of New Delhi. We manufacture disposable syringes and register over USD 22 million in revenue a year. We are the second-largest manufacturer of disposable syringes in terms of production capacity and we are the largest exporter in India. 

CEEIHM: What was the basis of the investigation initiated by Hemoplast and how was the process carried out?

Hamendra: I believe a bit of background is needed here. Hemoplast’s objective has long been to stop the imports of syringes into Ukraine. It first initiated an antidumping inquiry in Ukraine a few years ago which targeted imports from Turkey, China, and India. We participated in that investigation because we had been exporting to the country for a few years already. The investigation back then looked not only at the countries of origin but also the specific companies involved. That was their first shot really – an attempt to place tariffs on imports from these three countries. We were told that the investigation was dropped with no consequences. 

Now, they initiated a safeguard investigation inquiry. This was not about targeting individual players, rather arguing that any imports coming into Ukraine are harming the interest of the local producers — in this case, Hemoplast. 

CEEIHM: What was the end result of the investigation and how has it affected your operations – both during it as well as going forward?

Hamendra: We put up all the necessary documentation and the investigation was, again, closed, again with no consequences. At the end of the day, neither of these efforts had any impact. Of course, we had to spend a lot of time, energy, and money, including in terms of hiring lawyers in India and in Ukraine the first time around (this time we only needed assistance in Ukraine). It simply was a huge distraction with a lot of time spent by the team on documentation. In the end, both ultimately resulted in no consequences. As of now, anybody can export to Ukraine, so for us, it’s business as usual in the country.

CEEIHM: Integrites reported it protected the interest of the company during the investigation. What was the firm’s mandate specifically on the matter?

Hamendra: When we discussed the mandate with them, the instruction was to defend us in the investigation, with all that entails. Naturally, aside from the standard remuneration, we agreed on a success fee as well. In terms of actual work, what stood out was the element of direct representation in front of the commission hearings. Last time around I traveled personally to attend them, but I couldn’t now due to the lockdown.

CEEIHM: And why did you opt to turn to Integrites, in particular, to assist with this investigation?

Hamendra: We first learned of Integrites through a common business partner. We found the firm to be quite professional. They were clear in their approach, and always, we felt, asked the right questions. Solid communication and collaboration were critical during the phase of documentation- gathering, both within our own internal team and with the firm and we feel that went quite smoothly.

Originally reported by CEE In-House Matters.

Sayenko Kharenko has advised Wind Farm LLC on its entry into an engineering, procurement, and construction agreement with Powerchina for the joint development of an 800 megawatt wind farm in the Mangushskyi and Nikolskyi districts of the Donetsk region in Ukraine.

Wind Farm is a Ukrainian developer of wind power plants. The company has developed wind farms with a total capacity of 1.3 gigawatts.

Powerchina is a Chinese state-owned investor and developer of low-carbon energy, water resources, and environmental construction. The company provides investment financing, planning, and design, construction contracting, and equipment manufacturing and management.

Sayenko Kharenko’s team consisted of Counsel Marina Hritsyshyna and Senior Associate Nataliia Hutarevych.

The Odessa office of Ilyashev & Partners has successfully represented Challenging Shipping Ltd. in its appeal of a decision of the State Ecological Inspection of Ukraine imposing an administrative penalty onto the captain of one of its ships, New Challenge, for contaminating the harbor waters in the Mykolayiv seaport.

According to Ilyashev & Partners, the case involved a July 12, 2020 event in which, “when unloading a 12-ton forklift from m/v New Challenge, a forklift fell on the berth from a height of four meters due to a breakage of the rope on a ship’s crane hook, which resulted in a significant damage to the berth and a pipeline of the neighboring oil terminal. As a result, about ten tons of sunflower oil spilled on the berth, some of which got into the port water area.” Administrative sanctions were levied against the captain of New Challenge for causing the pollution, and the shipowner was fined over UAH 5 million. According to the firm, “the total amount of claims against the vessel amounted to about UAH 13.5 million.”

According to Ilyashev & Partners, the “Zavodskyi district court of Mykolayiv, acting as the first instance administrative court, acceded to the legal position of the attorneys, which was based on demonstrating the essential discrepancy between the inspector’s conclusions provided in the disputed decision and factual circumstances of the case, and also on numerous procedural violations during the completion of the materials and consideration of the administrative offence case.”

“As a result,” the firm reports, “the court [refused] to reverse the unlawful decision of the inspector of the State Ecological Inspection and discontinue the proceeding on bringing the captain to administrative responsibility due to the absence of the event of the administrative offense in his actions. The decision of the court was not appealed and has come into legal force.”

Several months ago, also acting on behalf of Challenge Shipping Ltd., Ilyashev & Partners secured the acceptance by Ukraine’s State Ecological Inspection of a British protection and indemnity club’s letter of undertaking as a sufficient security for the maritime claim (as reported by CEE Legal Matters on July 28, 2020).

 

Asters has helped the Tabletochki Fund organize the DobroRun charity race, involving over 1200 individuals from Ukraine and 16 other countries.

Tabletochki is a charity that supports children with cancer and their families in Ukraine. The fund focuses on targeted support to children, systematic support of cancer departments in Ukrainian hospitals, advocacy of the rights of children with cancer and their families, and contribution to the professional development of Ukrainian doctors. More than 4,500 children with cancer have received targeted assistance over the nine years since the fund has been active.

According to Asters, “DobroRun’s principal feature was in its broad inclusivity: anybody could participate at any place and time worldwide. Notably, DobroRun involved both individual and corporate participants including teams of AB Soft, Blood Agents NGO, AgileEngine, Be-It Health, Bosch Ukraine, Dentsu Ukraine, Dobrobut, Foodex24, Integrites, McCann Kyiv, Redhead Family Corporation, Rehau, Selih in Partnerji (Slovenia). The largest corporate donation was made by the Snapchat Ukraine team.”

The DobroRun charity race helped raise over UAH 1.1 million for the Tabletochki Charity Fund, which will use it, Asters reports, to “purchase vitally important medicines for Ukrainian children fighting cancer.”