Category: Issue 11.12

The Digital Operational Resilience Act (DORA) is a central component of the EU’s Digital Finance Package. The aim is to enhance information and communications technology (ICT) security and digital operational resilience in the financial sector. Financial institutions and ICT service providers have until January 17, 2025, to fully implement the requirements.

What Is DORA?

DORA creates a unified legal framework to boost financial institutions’ resilience against digital threats in the EU. It applies to most regulated financial institutions, including investment firms, credit and payment institutions, and third-party ICT service providers. Specialized financial institutions with simplified risk management and microenterprises are mostly exempt. The principle of proportionality ensures implementation varies based on size, risk profile, and the complexity of services and operations.

DORA introduces new compliance requirements for financial institutions. Management must oversee ICT risk management, establish governance frameworks, monitor IT risks continuously, and prepare for emergencies. Standardized regulations mandate handling IT disruptions with strict reporting of incidents and regular IT audits.

To prepare for ICT-related incidents, DORA mandates an extensive testing framework to prepare for ICT-related incidents. In particular, institutions in the scope of DORA must maintain and review a robust and comprehensive IT resilience testing program, including threat-led penetration testing to address vulnerabilities. These tests can be carried out by independent internal or external parties. In the case of internal testers, conflicts of interest must be ruled out.

Additionally, DORA is not only applicable to institutions but also covers certain third-party service providers, being undertakings that are providing ICT services to institutions on an ongoing basis. DORA also has extraterritorial reach, requiring entities outside of the EEA that provide ICT services to institutions within the EEA to comply with its regulations. A significant aspect of DORA in this context involves specifying contractual terms that must be included in agreements with ICT suppliers.

While DORA will be implemented alongside existing regulatory guidelines of similar nature (particularly the EBA Outsourcing Guidelines) and essentially elevates some of the rules contained in these guidelines to directly applicable law, there are currently some distinctions between these two frameworks. The EBA is already working on a gap analysis and an update of the EBA Outsourcing Guidelines is expected to be published early next year.

What Challenges Need To Be Considered During Implementation?

DORA requires extensive adjustments to internal processes, risk management, and IT infrastructure by means of investing in new processes and technologies. Small to medium-sized companies can face challenges with providing the necessary human and financial resources to fulfill the requirements. Another difficulty is the process of harmonizing requirements for third-party providers. To date, there are no uniform market standards in this area, particularly among international ICT service providers, which will be very important due to the dependence on external ICT services.

What Are the Benefits?

DORA will significantly enhance protection against cyberattacks, thereby bolstering customer confidence in the financial sector. The framework places a strong emphasis on transparency and accountability, ensuring that customers are well-informed about the operational resilience of financial service providers. This is further underscored by the stringent incident reporting requirements mandated by DORA.

The regulation is also anticipated to foster close collaboration between ICT service providers and financial institutions. This partnership is expected to drive technological innovation, merging the traditional expertise of banking units with the cutting-edge advancements of ICT service providers. This synergy will likely result in superior digital solutions for financial service customers, enhancing the overall quality and reliability of financial services.

Supervision and Sanctions

ICT third-party service providers critical for financial institutions will be supervised by the European Supervisory Authorities (ESAs), with one authority (EBA, ESMA, or EIOPA) as the lead. This designation is based on the institution’s primary financial supervision type. The lead supervisory authority has the right to obtain information, conduct investigations, request the preparation of reports, and make recommendations in order to fulfill its duties.

Financial companies must comply with the DORA framework, which will be monitored by the national competent authorities (e.g., the FMA in Austria). National competent authorities can impose administrative penalties for breaches, defined by national law. Member States may also impose criminal sanctions, ensuring cooperation between law enforcement and the ESAs, with guaranteed information exchange. In Austria, the DORA Implementation Act will take effect on January 17, 2025, imposing administrative penalties of up to EUR 150,000 on officers and managers, and the higher of EUR 500,000 or 1% of annual turnover on institutions.

By Robert Wippel, Partner, and Balint Ozsvar, Associate, Baker McKenzie Austria

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Markets in Crypto-Assets Regulation (MiCAR) has just been launched, and this brings big changes for crypto-asset markets in the European Union. MiCAR applies to both crypto-asset service providers (CASPs) and crypto-asset issuers, but it focuses mainly on CASPs due to the higher risks involved with their activities. Each EU member state has the option to set its own transition periods for implementing the CASP regulations.

In Lithuania, the transition period is only five months, starting from January 1, 2025. CASPs must receive licenses as financial market participants until June 1, 2025. This means that any CASP operating in Lithuania (currently there are around 250 CASPs in the country) must obtain a license to continue its activities after that date. Given that Lithuania has always been a crypto-assets start-up hot spot, the CASP licensing process will attract a lot of attention.

Getting a CASP License in Lithuania

Formally, the process of reviewing a CASP license application in Lithuania should take up to 65 working days. This timeline can be extended to 85 working days if there are issues with the documents or application. However, the process will probably take no less than five months because the Lithuanian supervisory authority (the Bank of Lithuania) usually requests more information if the submitted details are incomplete or incorrect.

It is important to note that the Bank of Lithuania places a strong emphasis on the reputation and experience of the people behind the CASP. When applying for a license, CASPs must provide proof of the reputation of their shareholders and managers. The supervisor wants to ensure that these individuals are credible and have the necessary expertise to manage a crypto-asset business.

Additionally, applicants must provide full details about the source of their funds. This includes the shareholder’s business history and the financing scheme used to capitalize the company. The Bank of Lithuania would consider it good practice for a CASP to have a sufficient capital buffer to cover foreseeable and unforeseeable operational losses.

Why Transparency and Reputation Matter

The Bank of Lithuania is very strict when it comes to transparency and accuracy. It will not tolerate shell companies or entities that fail to provide full or correct information. For this reason, CASPs should ensure that all required documents are submitted and that those documents are accurate and clear. The Bank of Lithuania is not only looking at the quality of the application but also the credibility of the people behind the business. Companies with any connection to fraudulent or unethical activities may find their application rejected.

Factors Leading to CASP License Rejection

The Bank of Lithuania has broad powers to refuse a license. This goes beyond the standard provisions of MiCAR. If a CASP fails to meet the licensing requirements or provides misleading information, the Bank of Lithuania can reject the application for objective and justified reasons. The supervisor has the right to refuse a license if the applicant or other persons with close links to the applicant create conditions that prevent the effective exercise of supervisory functions.

Furthermore, the Bank of Lithuania can refuse a license if the laws, regulations, and administrative provisions of a third country governing the applicant or those with close links to it obstruct the effective exercise of supervision. This includes assessing the applicant’s management competence, business model reliability, and ability to manage risks associated with crypto-asset services.

Preparing for the Licensing Process

It is crucial for any CASP looking to operate in Lithuania to prepare thoroughly for the licensing process. Companies should start by ensuring that they have all required documentation ready and that they understand the licensing requirements in detail.

Applicants should pay particular attention to the following elements: (1) reputation checks (ensuring that the company’s shareholders and managers have an impeccable reputation in the industry); (2) clear financial documentation (source of capital and any complex ownership structures); and (3) complete application (all forms and supporting documents are complete and correct before submitting). Given that the Bank of Lithuania places high importance on transparency, applicants should not hesitate to seek legal or regulatory advice if they are unsure about any part of the process.

Conclusion

The upcoming implementation of MiCAR will significantly change how CASPs operate across the European Union. Only licensed entities will be allowed to continue offering crypto-asset services. The licensing process requires more than just submitting an application – CASPs must demonstrate the credibility and experience of their shareholders and managers, disclose the source of their funding, and ensure that their corporate structure is clear and transparent. The Bank of Lithuania is committed to ensuring that only trustworthy and capable entities are allowed to operate in the market.

By Ausra Brazauskiene, Partner, Widen

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

A credit institution typically possesses funds belonging to depositors. However, there may be situations when the institution also holds property that belongs to third parties. This article aims to examine the concept of third-party property in the case of a credit institution’s insolvency.

Pursuant to the Credit Institutions Law, the list of properties of a credit institution shall include deposits and interest on deposits but shall not include other properties belonging to third parties that are held by the credit institution.

First, it is necessary to define the term “holding.” “Holding” implies having actual power over an asset that is owned by another.

The Credit Institutions Law does not provide a legal definition of the term “third party.” It does stipulate that a “creditor” is a person bound by a contract that has a claim against a credit institution. A third party also has a claim against a credit institution, so that characteristic is not decisive in determining whether a person is a third party or not.

Furthermore, in accordance with the Credit Institutions Law, a “customer” is a person to whom a credit institution provides financial services. Consequently, we can presume that a third party is a person to whom the credit institution does not provide financial services.

The Senate of the Republic of Latvia in the decision of March 29, 2019, in case No. SPC–3/2019 has indicated that: “In order for the balance of funds in the client’s account to be included in the credit institution’s assets [..] it is insufficient to establish the account balance on the day of [the] insolvency application. It is also necessary to make sure that the funds are not the property of a third party, especially in a situation where the customer of a credit institution indicates in the application to the administrator the circumstances due to which it considers that the funds should be recognized as the property of a third party.”

Consequently, the credit institution is obliged to make sure the funds are not considered to be the property of a third party.

The Financial and Capital Market Commission (FCMC) considers that the concept of a “property owned by third parties and held by the credit institution” is to be interpreted narrowly. As such, the provision in question does not provide for the inclusion of funds that are in the possession of the credit institution and not in holding and are reflected in the balance sheet of the credit institution – i.e., the credit institution is entitled to use them.

The FCMC explains that property owned by third parties and held by a credit institution is considered to be funds that, in accordance with the concluded agreement, are kept separately by credit institutions from other property of the credit institution.

This raises one question: if a credit institution has terminated its business relationship with a person but the funds remain with the credit institution, should that person be regarded as a “creditor” or a “third party”? To answer this, it is essential to examine and clarify the legal and practical implications that result from a credit institution’s termination of its business relationship with a client.

According to the Law on the Prevention of Money Laundering and Terrorism and Proliferation Financing of Latvia, a credit institution has the right to terminate business relations with a client on its own initiative by closing the relevant client accounts and transferring the funds to the same person’s account in another credit institution. Thus, upon termination of the business relationship, the credit institution is no longer entitled to provide any financial services to the person, and the credit institution is obliged by law to transfer the funds.

It can be concluded that in cases where a credit institution has terminated its business relationship with an individual and subsequently becomes insolvent, the funds belonging to the individual are considered assets of a third party in the possession of the credit institution. Therefore, these funds must be excluded from the institution’s property used to satisfy creditor claims.

By Armands Rasa, Partner, and Anete Boze, Attorney, Widen

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The Russian aggression against Ukraine has reshaped the landscape of cross-border finance in the country. While the initial shockwaves of the conflict saw financing dry up almost entirely, with most support directed toward the government, a gradual but significant shift has occurred.

In the immediate aftermath of the invasion, all lending to Ukraine understandably stalled, with only emergency funding provided to the Ukrainian government, which was responsible for keeping the country’s financial system from collapsing. On its part, the National Bank of Ukraine (NBU) used its currency control mandate to impose an almost complete ban on making cross-border payments from Ukraine. Nearly three years after the full-scale invasion, the financing situation is far from what it was pre-2022, but participants and regulations have adapted.

The Shift in Funding Sources

As is often the case under similar circumstances, while private lending froze, support continued to flow from international financial institutions (IFIs) like the EBRD and IFC. Since 2022, the EBRD has deployed over EUR 4.5 billion in Ukraine and intends to continue supporting the country in different sectors and industries. The IFC has invested USD 1.6 billion in Ukraine, more than double the average annual financing provided before the invasion.

In addition to IFIs, foreign governments have been providing substantial support to Ukraine in many forms at a government-to-government level. Many foreign governments have also designated private-sector programs for Ukrainian businesses. These are usually implemented through export credit agencies or national development banks. The projects cover different products, ranging from portfolio guarantees for banks, smaller and medium-sized trade finance, and large project finance.

Faced with unprecedented challenges, private lenders have primarily focused on managing their existing investments in Ukraine. This has often involved restructuring debt and deferring payments rather than taking on new risks. In some cases, private lenders have participated in new financing under the protective umbrella of governmental agencies or ECAs, mitigating their exposure to the volatile environment.

Regulatory Adaptation

Recognizing the need to stimulate investment and facilitate reconstruction, the NBU has adopted a pragmatic approach to regulating cross-border finance. A key element of this approach has been to provide greater flexibility for projects backed by highly reputable institutional lenders, including IFIs. In these cases, borrowers are granted considerable freedom to service and repay their debt, a move designed to incentivize further investment from these crucial sources.

This regulatory flexibility stands in contrast to the more restrictive environment faced by private lenders. While they are permitted to receive interest payments on pre-existing debt that was not in default as of February 2022 (with additional conditions attached), principal repayments remain restricted. To encourage private lending, the NBU has introduced a specific regime for “new money” private lending, where funding has been provided since June 2023. Only funds lent from outside of Ukraine would be eligible (i.e., a foreign lender using funds held in Ukraine to provide a loan would not be able to take the benefit of getting repaid to a foreign account). For these projects, both servicing and repayment are allowed. Still, limitations on early repayment are in place, meaning that once parties agree on a repayment date or repayment schedule, the borrower will be forced to stick to it. Finally, the NBU has reintroduced a requirement that was abolished many years ago – a so-called “maximum interest rate,” a cap on interest, fees, and all servicing payments other than the principal repayment. This rate is currently set at 12% per annum, adding another layer of complexity for private lenders to consider.

The Outlook for Cross-Border Finance

The future of cross-border finance in Ukraine remains closely tied to the trajectory of the war and the ongoing and future recovery efforts. In the immediate future, the present categories of lenders are expected to continue playing a key role in providing new financing due to the security situation. At the same time, beyond the immediate security concerns, a persistent challenge to attracting finance from any source is the availability of bankable projects with sound legal structures and viable business models. Ultimately, to ensure Ukraine’s long-term economic recovery, businesses, the government, and regulators must collaborate to establish a transparent and adequate regulatory framework, develop attractive projects, and leverage cross-border finance for the nation’s reconstruction and recovery.

By Anton Korobeynikov, Partner, Sayenko Kharenko

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In our Looking In series, we talk to Partners from outside CEE who are keeping an eye on the region (and often pop up in our deal ticker) to learn how they perceive CEE markets and their evolution. For this issue, we sat down with Baker McKenzie Stockholm Partner and a member of the firm’s Global Executive Committee Anders Fast.

CEELM: What was your first interaction with the CEE region?

Fast: My personal journey with the CEE region began in the late nineties when I did my first transactions involving the CEE region. Since then, I have had the pleasure of working on numerous projects and transactions in the region.

Witnessing the transformative changes in the CEE markets has been incredibly rewarding. Since the opening of our first CEE office in Budapest in 1987, Baker McKenzie has significantly expanded its footprint. With close to 400 lawyers in six markets, we are now one of the biggest international law firms in the region.

CEELM: What has been keeping you busy in the last 12 months?

Fast: The CEE region is very diverse, and businesses operating in the region are faced with complex legal landscapes, significant compliance challenges, and fluctuating market conditions. We advise our clients in the region on a broad mix of transactional, contentious, and advisory matters across multiple sectors.

In Hungary for instance, compliance and investigation work surged for us in the past year, partly driven by the rise of AI, which presents novel legal challenges. We have also seen strong demand in the private M&A sector, with a focus on mid-market transactions, as well as foreign direct investments in the automotive industry.

Distressed M&A, carve-outs, and post-M&A dispute work have been prominent in Austria. Insolvency work has also kept our teams in both Austria and the Czech Republic busy. Our lawyers in the Czech Republic have also advised our clients on a significant number of M&A transactions, in particular in the IT, energy, pharmaceuticals, and healthcare sectors.

The rebound of the commercial real estate market in Poland has generated various workstreams for our transactional teams. We have also advised several Polish companies active in Ukraine’s reconstruction efforts and seen an uptick in tech sector disputes as well as energy transition projects – an area in which we have strengthened our capabilities this year with the addition of Agnieszka Skorupinska in Warsaw.

In Ukraine, we had a strong focus on transactions in the infrastructure, energy, and agricultural sectors, along with banking regulatory work and sanctions compliance advice for both international and domestic businesses.

CEELM: What are the sectors or industries poised for growth in CEE?

Fast: The CEE markets’ competitive edge has long been rooted in the manufacturing sector. The Czech Republic, Poland, and Hungary consistently rank among the top industrial performers globally, with Hungary poised to be Europe’s number one battery cell producer by 2026. While Europe’s electric vehicle (EV) market saw a slowdown in 2024, the CEE region is expected to see growth through investments, in particular in the Czech Republic.

At the same time, the growth model of the region is evolving, with a gradual shift toward higher value-added services. For instance, the technology sector – particularly AI and digital services – is rapidly expanding in Hungary, the Czech Republic, and Austria. The defense, military technology, and advanced manufacturing sectors, including drone technology, also present new opportunities.

Despite the ongoing conflict, Ukraine’s infrastructure shows significant growth potential by 2033. Polish companies are already investing in Ukraine, leveraging cultural proximity and knowledge in public procurement in sectors such as energy, transport, and construction.

Lastly, the energy sector will continue to grow in the region, with a focus on renewables, nuclear energy, and modern energy infrastructure development, in particular in Poland, Hungary, Austria, and the Czech Republic. This is driven by a combination of EU sustainability goals and national initiatives.

CEELM: What are the most promising markets in CEE? What about the most challenging?

Fast: Poland’s economy is projected to grow by 4% in 2025. Over the past three decades, the country’s rapid GDP per capita growth has made it a prime destination for FDI, particularly in the EV supply chain. Its strong industrial base, growing tech sector, and strategic location make it a promising market.

Meanwhile, in light of the ongoing war, Ukraine is currently the most challenging market but is also likely to present significant opportunities in the longer term. The country’s legal and institutional framework, along with its natural and human resources, make it a promising market for reconstruction-focused investment, particularly in the energy and transport sectors, as well as investment in its titanium and lithium resources.

At a macro level, financing costs and regulatory hurdles across the region continue to pose significant challenges. Embracing innovation and new technologies will be pivotal in evolving the growth model and driving future economic development.

CEELM: What is your perspective on international companies in CEE? How will their presence evolve?

Fast: The presence of international companies in the CEE region is expected to grow, building on what global businesses already see as a favorable environment. Investment volumes across the CEE-6 region reached EUR 5 billion in 2024, with Turkiye alone recording USD 417 million in FDI inflows via equity capital. This is driven by the CEE’s proximity to major markets and the region becoming a hub for manufacturing sectors such as electronics, machinery, and high-value goods, and a destination for Shared Service Centers and Business Service Centers (BCSs). More than 200 multinational corporations operate BCSs in Hungary alone.

Several elements suggest that this trend will continue, although global geopolitical risks may slow the pace of international expansion. The International Monetary Fund predicts that the CEE region’s real GDP growth will surpass the G7 average by 2027, and industrial production is expected to grow at an average rate of 2.8% from 2025 to 2030. More tech giants are establishing themselves in the region too, making CEE a hub for research and development activities with Poland, the Czech Republic, and Hungary being particularly attractive. The region is also a nearshoring hotspot for multinational companies, offering advantages such as geographical proximity, business resilience, and greenfield opportunities.

CEELM: What types of work do you expect to see the most in the next 12 months in CEE?

Fast: Although high interest rates and inflation remain challenging, the CEE region’s strengths, adaptability, and market maturity provide a solid foundation for growth. From an M&A perspective, we anticipate the value of deals will increase, with a focus on larger, strategic investments.

Nearshoring will continue to attract FDI, particularly in higher value-added sectors such as IT and business services. There will also be continued emphasis on attracting strategic investments in sectors like digital infrastructure, clean technologies, and AI, which are crucial for maintaining competitiveness and fostering innovation. This will pick up in Hungary, the Czech Republic, and Poland, where the ICT sector is expanding due to digitalization and their skilled workforce.

It is also important to recognize the impact of global dynamics on regional activity. The global energy transition remains a focal point across the entire region, with significant investments in renewables, nuclear projects, and infrastructure modernization on the horizon. Meanwhile, Austria will likely see more distressed M&A opportunities, particularly in sectors such as retail, hospitality, startups, and manufacturing, which are more vulnerable in the current economic context.

Despite global shifts, some regional sectors will maintain strong momentum. Hungary’s automotive industry, a cornerstone of the economy, will see steady growth even amid uncertainties. Poland’s real estate market – in particular in terms of office spaces and ESG upgrades – is also projected to remain robust, reflecting sustained investor confidence and demand.

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

In 2024, the financial market in Ukraine has remained resilient and stable even though the Russian full-scale military aggression against Ukraine approaches its third anniversary. This has been possible due to the continuing financial support coming from Ukraine’s allies and international donors. Notably, G7 leaders have recently announced a USD 50 billion lending package for Ukraine to be repaid with revenues from Russian frozen assets.

In 2024, the European Commission started disbursing a EUR 50 billion Ukraine Facility to provide mixed financing for the public and private sectors in Ukraine. This is another significant milestone that is expected to bring private investments to the country along with funding needed for urgent public projects.  At the same time, international finance institutions and development banks have doubled their investments in energy, infrastructure, and agriculture industries. Banks and financial institutions have received substantial support in the form of risk-sharing facilities from international donors to finance SMEs and export trade. Also worth mentioning is the invaluable financial and technical assistance provided by USAID, GIZ, and other governmental and non-governmental institutions toward developing sound policies and a framework for financial markets.    

2024 was also marked by the emergence of breakthrough war risk insurance products in Ukraine. In particular, DFC has provided a USD 50 million reinsurance facility for ARX, a subsidiary of Fairfax Financial, which is the first part of a larger USD 350 million war risk insurance mechanism for Ukraine. Another vivid example is EBRD’s commitment to providing EUR 110 million loss-covering guarantees to global reinsurers underwriting war risks in Ukraine. The Ukrainian government has also proposed a new law specifically regulating the insurance of war risks by the State Agency for War Risk Insurance to be established soon. In addition, the Ukrainian Export Credit Agency has successfully issued EUR 48 million in guarantees to protect investments in Ukraine against war risks. Finally, export credit agencies are set to continue backing new foreign equity investments in Ukraine against political violence risks. It looks like the last missing piece of the puzzle is coming into place for risk-averse foreign investors to change their minds and pour investments into Ukraine.     

Generally, the last 12 months gave cautious hope to capital markets players. Sovereign borrowings set the baseline. Foreign and local currency domestic government bonds (so-called “War Bonds”) have remained popular among investors thanks to their relatively high interest rates and their “good deed” vibe of fending off Russian and Belarussian aggression supported by assault weapons and troops by Iran and North Korea.  Approximately USD 20.5 billion of Eurobonds and the state-guaranteed debt of the State Agency for Restoration and Development of Infrastructure (ex-Ukravtodor) were successfully restructured with a significant cut of principal and a reduction of the coupon. Later, new sovereign Eurobonds backed by economic growth expectations rolled out, and investors lent money in exchange for 2027 cash flows, with excitement picking up after Donald J. Trump became president-elect on a vague promise to quickly stop the war against Ukraine.

For the first time since 2021, the Ukrainian corporate sector issued private bonds, starting with NovaPay, which, in 2024, placed UAH 300 million in unsecured bonds. Earlier in Q1, the securities regulator allowed law firms to become trustees, adding them to banks and other financial institutions as the fallback option, thus expanding the investor base free of conflict of interests. In Q2-Q4, Integrites proudly helped devise Novus’s innovative UAH 400 million mortgaged-backed trustee bond issue – our firm became the first ever trustee beyond financial sector licensees.

Riding the market trend, the securities regulator issued the new Corporate Bond Issuance Regulation in Q3 2024, effective in parallel with the 2018 general regulations. The new act clarifies aspects of specialized bonds’ issuance, administration, and circulation. A negative, albeit expected, development happened in November 2024, when Ukrenergo, the country’s electricity transmission system operator, suspended payments and declared technical default on the country’s first green and sustainability-linked Eurobonds due in 2028.

Noteworthy, the National Securities and Stock Market Commission is put in liquidation and a new entity with the same name is being set up after Ukraine’s Securities Market Authority Act was adopted in Q1 2024 to meet the EU acquis benchmarks.

By Igor Krasovskiy and Oleh Zahnitko, Partners, Integrites

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Simplifying access to financing for farmers can increase the productivity and profitability of the industry, allowing producers and processors of agricultural products to invest in the latest technologies and innovative solutions, enhancing efficiency.

Supporting the agricultural sector, stimulating the growth of domestic production, and strengthening Ukraine’s food security were key priorities underpinning the introduction of agrarian notes as a new instrument that became available for the market as of January 2025.

This reform was a good example of applying a lessons-learned approach as a lot of attention was paid to such angles as new technology, accessibility, and convenience of the issuance and circulation of relevant financial instruments.

Agrarian Notes in a Nutshell

An agrarian note is a security that records the unconditional obligation of the debtor (producer or processor of agricultural products), secured by collateral, to either deliver agricultural products or pay the relevant amounts on terms agreed upon between the debtor and the creditor. The debtor can be an individual or a legal entity that owns or uses an agricultural land plot. It is expected that creditors will typically be suppliers, distributors, banks, traders, and processors of products. Creditors can be both local and foreign investors.

Business Models for Using Agrarian Notes

An agrarian note can not only be used as a tool for attracting financing but also for making payments under contracts. Unlike previous instruments linked to agricultural products, agrarian notes have a broader use as they may be transferred free of charge by the owner, sold, inherited, etc.

Collateral for Agrarian Notes

An agrarian note involves the pledge of future agricultural products, which may include crops, livestock, and/or primary processing products. This provides financing opportunities for a wide range of agricultural producers. Moreover, the performance of obligations under an agrarian note can be additionally secured by any type of eligible collateral. The collateral for an agrarian note can be insured by the creditor or the debtor, as agreed between the parties. If the creditor is designated as the beneficiary under such an insurance contract, the creditor’s receipt of the insurance payout is set off against the debtor’s obligation.

Mechanisms for Protecting Creditor Rights

If the received agricultural products are insufficient to fully fulfill the debtor’s obligations, any other agricultural products produced on the respective land plot become collateral for the agrarian note until the obligations are fully performed unless otherwise agreed between the debtor and the creditor. In case of loss of the agricultural products that are the collateral for the agrarian note, the debtor is obliged to replace the collateral with other identical or similar property by agreement with the creditor. Otherwise, the creditor may foreclose on any other agricultural products produced on the respective land plot.

Additionally, the creditor may accelerate the debt through the court. The creditor has the right to oversee the adherence to the technology of producing the agricultural products that are the collateral and may independently or by engaging third parties complete the production cycle of such products in case of a technology breach.

Technological Procedure for Issuing and Circulating Agrarian Notes

An agrarian note is issued and exists in electronic form, recorded in a securities account in the depository system, with the details of the agrarian note reflected in the Agrarian Notes Register. The registration of agrarian notes in the depository system provides access to organized capital markets, which allows transactions with agrarian notes to be conducted on the organized market and potentially expands access for foreign creditors through correspondent relationships of the Central Securities Depository.

The Agrarian Notes Register is maintained by the Central Securities Depository, which exercises control over the process of issuance of agrarian notes through electronic information exchange between the Agrarian Notes Register and state registers. The Agrarian Notes Register has electronic cabinets for all relevant parties, providing the necessary functionality for them to exercise their rights and obligations.

Enhanced Mechanism for Forced Execution

In order to enforce obligations under agricultural receipts, the creditor generates a special extract from the Agrarian Notes Register and instructs the Central Securities Depository to submit it for execution through electronic interaction with the automated enforcement system.

By Borys Lobovyk, Partner and Head of Law Practice, and Nataliia Shevchenko, Tax & Law Practice Manager, EY Law Ukraine

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

The past year has demonstrated that an ongoing conflict is not an obstacle to development and investment. Despite infrastructure being targeted by shelling, Ukraine’s real GDP grew by 4% in the first nine months of 2024, with expectations that this figure will reach 4.3-4.6% in the coming years. To maintain this growth, Ukraine must actively engage private investments to rebuild its damaged infrastructure and assets.

In this article, we focus on two key areas currently receiving significant attention in Ukraine: (i) the overhaul of the public-private partnership (PPP) legal framework and (ii) the rapid expansion of industrial parks.

Upcoming PPP Overhaul

The Ukrainian Parliament is currently preparing for the second reading of Bill No. 7508, titled On Amendments to Certain Legislative Acts of Ukraine to Improve the Mechanism of Private Investments Attracted under the Public-Private Partnership Mechanism to Accelerate Restoration of Objects Destroyed by War and Construction of New Objects Related to Post-war Rebuilding of the Ukrainian Economy (Bill).

The Bill was developed under tight deadlines in 2022 to address two main objectives: (i) further enhancing Ukraine’s PPP regulations following the successful reform in 2019, and (ii) establishing a viable and efficient PPP framework for rebuilding efforts. The Bill was adopted in the first reading on October 6, 2022, and has since undergone additional scrutiny and review by both Ukrainian lawmakers and European industry experts.

Among other changes, the Bill introduces an electronic system for procurement of PPP projects, foresees the development of standard tender documentation and agreements, and makes other general improvements to the framework to align it with industry best practices.

More significant changes include the categorization of PPP projects into three types: (i) “minor” PPP projects with a value not exceeding EUR 5.538 million, (ii) “rebuilding” PPP projects, and (iii) other types of PPP projects. A key difference here is the removal of the requirement for a feasibility study for “minor” and “rebuilding” PPP projects. Typically, developing a feasibility study takes around a year, so this change will significantly shorten the time needed to prepare such projects for procurement.

Another major change is the expanded scope of PPP applications, which will also cover residential construction. This expansion aligns with the introduction of rebuilding PPP projects, which focus on restoring war-damaged infrastructure and real estate and benefit from a simplified procurement process. The Bill introduces dedicated lists of rebuilding PPP projects and special commissions responsible solely for organizing tenders and acting as a single point of contact for potential private partners. Additionally, the Bill allows for the shortlisting of private partners to further streamline the procurement process of rebuilding PPP projects.

These changes are expected to be widely welcomed, as PPPs are considered one of the key tools for the reconstruction of Ukraine’s infrastructure damaged and destroyed during the war.

Rapid Development of Industrial Parks

Industrial parks are essential for infrastructure development, offering businesses a centralized space with access to efficient transportation, utilities, and communication networks.

In recent years, there has been a notable increase in the establishment of industrial parks, with 31 new parks registered in 2024 alone, bringing the total number to 99. This surge in interest can be attributed to the finalization of the legal framework. It now includes comprehensive laws and bylaws, and the attractive benefits that industrial parks offer to their participants. These benefits include full or partial compensation of loan interest rates for the development of industrial parks (unfortunately, this benefit does not apply during the period of martial law), non-refundable financing for park development, and/or compensation for connecting to engineering grids (non-refundable financing), exemptions from corporate income tax, value-added tax, and customs duties, as well as reduced real estate and land taxes.

The Ukrainian Government allocated approximately EUR 23 million in the 2024 state budget to provide non-refundable financing. Most of these funds have already been distributed across various industrial parks. Although, as of now, the 2025 state budget does not provide funds specifically for non-refundable financing, it allows the government to reallocate income from certain other sources to support this and other forms of state aid.

Industrial parks are becoming a cornerstone of Ukraine’s infrastructure development, driving investment and economic recovery through their strategic benefits and state support. As the regulatory framework improves and interest continues to grow, industrial parks will play a pivotal role in driving the infrastructure development of the country.

By Maksym Maksymenko, Partner, and Rostyslav Mushka, Senior Associate, Avellum

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

As Ukraine continues to resist the Russian Federation’s invasion, its M&A market in 2024 demonstrates both resilience and adaptability. While the early months of the full-scale war in 2022 likely represented an all-time low for dealmaking, today’s landscape appears far more dynamic. Although reaching and surpassing pre-war levels of activity will take time, the market is showing clear signs of recovery.

Domestic Buyers and Outbound Ventures

Ukrainian buyers continue to make their mark across a range of sectors. Local businesses have proven impressively resilient. Rather than merely holding their ground, many are actively pursuing strategic acquisitions in energy, fuel retail, manufacturing, building materials, and agriculture, among other industries. Building on past trends, Ukrainian companies this year continue to look outward. Instead of waiting passively for foreign investment to return, several businesses are exploring opportunities in foreign markets, with Poland and Romania emerging as popular destinations. These outbound transactions serve as a pathway to sustainable business growth.

Global Defense Companies and Venture Capital: A Growing Footprint

Another positive development in 2024 is the arrival and expansion of large international defense companies into Ukraine. Global players such as Rheinmetall, KNDS, and Roshel are partnering with local defense firms to set up production and repair facilities. Although still cautious, these strategic moves signal the long-term potential they see in Ukraine’s manufacturing and defense infrastructure. Simultaneously, venture capital interest in the defense technology sector is on the rise. From autonomous systems, drones, and robotics to dual-use technologies, the scope of innovation is broadening. Among the pioneers in this space, MITS Capital, D3 Venture Capital, Green Flag Ventures, and Darkstar are actively investing in Ukrainian defense startups. Deals involving companies like Himera, Swarmer, and Zvook highlight a growing confidence in Ukraine’s ability to deliver technological solutions tailored to the complexities of modern warfare. These funds not only provide essential capital but also foster strategic connections that can help Ukrainian firms scale beyond their home market.

Telecommunications, Technology, and Real Estate

Several noteworthy deals have emerged in the telecommunications and real estate sectors. NJJ Holding, the investment firm owned by Xavier Niel, led a consortium on the acquisition of Datagroup-Volia, Ukraine’s leading fixed telecom and pay TV provider, and Lifecell, the third largest telecom operator in Ukraine. Horizon Capital played a major role in getting this deal done, while EBRD and IFC provided USD 435 million in financing for this transaction. Another significant deal is the USD 200 million investment raised by Creatio, a leading no-code platform for automating CRM and enterprise workflows. The round was led by Sapphire Ventures with existing investors Volition Capital and Horizon Capital also participating in the round. These investments show sustained interest in Ukraine’s digital and communication infrastructure.

In real estate, prominent deals – such as the acquisitions of Parus Business Center and Hotel Ukraine in Kyiv – reflect renewed confidence in the country’s core commercial assets. Similarly, the purchase of West Gate Logistic by the retail chain Avrora demonstrates a growing attention to logistics and supply chain resilience, which has gained particular importance in the current regional security climate. Finally, Dragon Capital acquired the Karavan Outlet shopping mall – the largest outlet destination in the capital – from DCH Investment Management.

Agriculture

The agricultural sector continues to show impressive endurance. Strategic acquisitions like MHP SE’s purchase of Ukrainian Meat Farm LLC indicate that businesses are investing not just to weather the storm but to strengthen their overall market positions.

Banking

In October 2024, TAS Group, led by Ukrainian businessman Serhiy Tihipko, agreed to acquire 100% of Idea Bank Ukraine from Poland’s Getin Holding for a base amount of USD 34 million, which might signal a renewal of M&A activity in the banking sector as well.

Conclusion

Looking ahead, we are cautiously optimistic. While the war has introduced an undeniable layer of complexity and difficulties, Ukraine’s M&A market in 2024 reveals a remarkable capacity for adaptation and renewal. Domestic companies, whether solidifying their presence at home or seeking opportunities abroad, are actively shaping the market’s trajectory. As stability improves, we anticipate a steady return of foreign strategic buyers, adding another dimension to Ukraine’s evolving M&A ecosystem. If these trends continue, Ukraine appears poised for a more vibrant and sustainable economic recovery once peace and stability are ultimately restored.

By Andriy Romanchuk, Partner, Avellum

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.

Montenegro’s real estate sector is undergoing significant transformations due to recent legislative changes and proposed reforms, particularly in the tourism sector. These novelties will impact investors, developers, and most certainly the entire economy of Montenegro, but it remains debatable if the impact will be positive.

Focusing on tourism, Montenegro has adopted amendments to the Law on Value Added Tax, which will become effective as of January 1, 2025.

Namely, the amendments introduced the repeal of the VAT rate of 0% for the delivery of products and services for the construction and equipping of facilities in tourism in the category of five or more stars for investment values exceeding EUR 500,000. This change means that such supplies will now be subject to the standard VAT rate of 21%, increasing construction costs for luxury hotel projects. The same amendments included a new VAT rate of 15% for service of accommodation in hotels – more than double compared to the 7% VAT rate that was applicable before.

It is not without reason that the business community has expressed concerns since these incentives in particular have attracted many large-scale investments in tourism over the past years. These concerns are exacerbated by the current trend of decreasing foreign direct investments while the country faces hardships familiar to many developing countries: inadequate infrastructure and limited connectivity, increasing competition from neighboring countries, complex administrative procedures, etc.

Furthermore, there are discussions to repeal exemptions related to communal fees for the development of hotels with at least four stars operating under mixed-use and condo models. Currently, Montenegro’s legal framework provides that investors pay a fee for the communal equipment of the construction land only for the accommodation units that are subject to individual sale. The potential changes conflict with Montenegro’s tourism development strategy, with some projects on the verge of feasibility potentially abandoned due to the significant increase in communal fees (amounting to millions).

The communal infrastructure fee in Montenegro is intended as a bilateral contractual obligation to fund public infrastructure, but it has effectively functioned as a one-time levy on investors for the past three decades. This practice is evident in numerous projects stalled due to incomplete public infrastructure and even legal actions initiated by investors.

Consequently, in order to avoid delays or even the discontinuation of their projects, investors often find themselves compelled to independently equip their parcels, bearing significant costs for constructing essential utilities and undertaking extensive procedures to secure necessary approvals. Even in such scenarios, local authorities refuse to offset mutual claims, leading to a situation where investors effectively pay twice for communal equipping. On a different note, Montenegro is considering replacing the existing Law on Spatial Planning and Construction of Buildings with two new laws: the Law on Construction of Buildings and the Law on Spatial Planning.

The drafts were put to public debate in May 2024 and propose reinstating construction and usage permits as a mandatory prerequisite for all construction undertakings (leading to lengthier and more expensive procedures), the decentralization of spatial planning processes, the ability to directly download urban-technical conditions online, etc. Recent discussions suggest that the published drafts have undergone significant changes. Some of them refer to a provision that the preparation of planning documentation in Montenegro will only be entrusted to state-owned companies.

The laws are expected to be adopted in the upcoming months based on unofficial information, and whereas the new legal solutions may be a step forward, it is particularly noteworthy that all these reforms happen on rather short notice. Considering the aforementioned VAT incentives that were revoked, the potential increase in communal fees, and new legislation, there is no doubt that the state has moved to a more direct approach in order to increase the budgetary revenue.

In our view, it would certainly be challenging for Montenegro to preserve and attract foreign investments, but the true impact of these changes will only become clear over time.

By Milos Komnenic, Managing Partner, and Desanka Kotlaja, Senior Associate, Komnenic & Partners

This article was originally published in Issue 11.12 of the CEE Legal Matters Magazine. If you would like to receive a hard copy of the magazine, you can subscribe here.