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Mergers and acquisitions in Ukraine - GTDT 2017

Nobles has contributed to the Ukraine chapter of «Getting The Deal Through: Mergers & Acquisitions 2017».

An overview covers M&A transactional requirements and procedures in Ukraine, including: types of business combinations, applicable laws, filings and public disclosure requirements, substantial shareholding regulations, duties of directors and controlling shareholders, shareholder rights of approval and appraisal, hostile transactions and frustration of additional bidders, governmental influence on transactions, conditional offers, minority squeeze-out, cross-border transactions, waiting and notification periods, tax and labour issues.

1.Types of transaction How may businesses combine?

Basically, there are three common ways of business combinations in Ukraine. The respective legal schemes may be classified as follows:

  • statutory mergers,

  • share purchases; and

  • asset acquisitions (which also includes a specific for Ukraine - purchase of an integrated property complex).


Ukrainian laws envisage two main forms of mergers: amalgamation and absorption. Amalgamation is a merger of two or more companies into a new company. Under amalgamation, the merging legal entities cease to legally exist, whereas all their property and liabilities are transferred to a newly established company. Merger by absorption occurs when the undertaking, property and liabilities of one or more companies are transferred to another existing company that is the only one surviving the merger.

Share purchases

Given the complexities and long-lasting procedures associated with statutory mergers in Ukraine, the most common scheme for business combinations are takeovers though share purchases. Such share purchases may take a form of direct purchase of shares in the Ukrainian target company or, as is quite often the case, through a purchase of shares in the offshore companies holding control over such Ukrainian target company.

Asset acquisitions

Under Ukrainian law, it is also quite common for business combinations to be structured through acquisition of the target’s particular assets. In addition, Ukrainian law envisages a specific possibility to acquire the target company integrated property complex - a specific form of real estate common in post-Soviet jurisdictions that usually includes buildings, facilities, equipment and related liabilities.

2. Statutes and regulations What are the main laws and regulations governing business combinations?

There is no separate takeover statue in Ukraine. The main laws and regulations that govern various aspects of business combinations, including takeovers, in Ukraine are as follows:

  • the Commercial Code of Ukraine of 16 January 2003;

  • the Civil Code of Ukraine of 16 January 2003;

  • the Law of Ukraine ‘On Companies’ of 19 September 1991;

  • the Law of Ukraine ‘On Joint-Stock Companies’ of 17 September 2008;

  • the Law of Ukraine ‘On Protection of Economic Competition’ of 11 January 2001;

  • the Law of Ukraine ‘On State Registration of Legal Entities, Private Entrepreneurs and Non-governmental Organisations’ of 15 May 2003;

  • the Law of Ukraine ‘On Securities and Stock Market’ of 23 February 2006;

  • the Law of Ukraine ‘On Regime of Foreign Investments’ of 19 March 1996;

  • the Law of Ukraine ‘On Re-establishment of Debtor’s Solvency or Declaring it Bankrupt’ of 14 May 1992; and

  • the Labour Code of Ukraine of 10 December 1975.

3. Governing law What law typically governs the transaction agreements?

The transactions agreements for business combinations are typically governed by Ukrainian law. However, with some exceptions, Ukrainian rules for conflict of laws allow the parties to choose other applicable law when one of such parties is qualified as a foreign person. Foreign investors and the biggest local business groups tend to choose other laws, in particular, English, German or Swiss laws, in combination with submission of the agreement to the jurisdiction of international arbitration tribunal, which provides more flexibility and comfort to such investors in terms of enforcement of the agreed contract mechanisms.

In any case, it is mandatory to apply Ukrainian law, among other things, to the provisions on legal capacity of the Ukrainian contract party, transfer of securities, internal corporate matters of the Ukrainian target company, merger essential conditions, transfer of real estate located on the territory of Ukraine.

4. Filings and fees Which government or stock exchange filings are necessary in connection with a business combination? Are there stamp taxes or other government fees in connection with completing a business combination?

Competition clearance with the Antimonopoly Committee of Ukraine (the AMCU)

If a business combination (treated broadly as catching almost all possible types of change-in-control transactions) reaches the financial thresholds below, then notification and formal approval of such a business combination by the AMCU is required. The thresholds mentioned are set forth in Law of Ukraine ‘On Protection of Economic Competition’ as follows:

  • worldwide sales or assets of all parties exceed €30 million and sales or assets in Ukraine of at least two parties exceed €4 million; or

  • sales or assets in Ukraine of the target exceed €8 million and sales of either party exceed €150 million worldwide.

The official filing fee for merger notification is approximately €680.

Notifying a stock exchange and the National Securities and Stock Market Commission

If the target is a joint-stock company (JSC), an acquirer is obliged to notify in writing the National Securities and Stock Market Commission and each stock exchange where the target underwent the listing as well as publish a respective announcement notice in the official press (eg, the daily Bulletin Securities of Ukraine). All these notifications shall be properly made at least 30 days prior to acquisition of shares.

The notice shall include the following information:

  • name of the target company and its registration code;

  • if applicable, the number, type or class of the target’s shares already belonging to the potential buyer (each buyer) and each of its affiliates; and

  • the number of shares potential acquirer (acquirers) intends to acquire.

Companies Register

Information on merger (amalgamation, absorption), change in charter capital or, for limited liability companies (LLCs), participant structure must be filed with the Ukrainian Companies Register. In this case, the fees depend on the type of filing, whether it is registration of changes or a newly established legal entity. However, the registration fees are insignificant and usually are around €20.

Other filings

There could be other additional filings or mandatory submissions depending on the peculiarities and industry where the business combination takes place (as discussed in question 17). As a side note, in practice, getting certain approvals can be a highly bureaucratic and formalistic process.

5. Information to be disclosed What information needs to be made public in a business combination? Does this depend on what type of structure is used?

There are special disclosure requirements that are applicable only to companies that have issued securities (the issuer).

In accordance with respective by-laws, the target company must disclose certain details of the following events relevant to business combinations:

  • change in shareholders who own 10 per cent or more of voting shares (including as a result of takeover) upon obtaining a respective notification from depositary;

  • a decision of the competent body of the issuer or the court on termination (including through a merger) upon such decision being approved; or

  • change in officers (directors) of the issuer (including as a result of a takeover) upon such a decision being approved by the competent corporate body.

In addition, the company must also disclose information on the following events that may be relevant to particular structures of business combinations:

  • a decision on issue of securities for an amount exceeding 25 per cent of the share capital;

  • a decision to repurchase its own shares;

  • facts of listing or delisting of securities on the stock exchange;

  • obtaining a loan or credit for an amount exceeding 25 per cent of the assets of the issuer;

  • a decision of the issuer to reduce the share capital; and

  • initiation of bankruptcy proceedings against the issuer, ruling on its reorganisation.

The company management must make a disclosure of information by way of publication on a special publicly available web database administered by the Commission (, publishing of a statement in the official printed edition, publication on the company’s own web page and by submission of a respective form to the Commission.

The disclosure must be made in the following terms:

  • at - within one business day after the date of a respective event, but not later than 10am on next business day following the date of such event;

  • printed publication - within five business days from the date of a respective event;

  • page on the internet - within five business days from the date of a respective event; and

  • submission to the Commission - within seven business days from the date of a respective event.

6. Disclosure of substantial shareholdings What are the disclosure requirements for owners of large shareholdings in a company? Are the requirements affected if the company is a party to a business combination?

Disclosure of ultimate beneficiaries

All companies are obliged to disclose their ultimate beneficial owners. To this end, an ultimate beneficial owner is an undertaking that owns directly or indirectly 25 per cent or more of the registered capital or that can exercise significant influence or control over the company. However, this requirement is not extended to NGOs, religious organisations, state-owned companies, government bodies, registered law societies, chambers of commerce and industry, etc.

Disclosure of substantial shareholders

As indicated above (see question 5), JSCs are obliged to make public certain information on shareholders with substantial shareholding (10 per cent or more).

Additionally, if an undertaking whether jointly or individually intends to acquire a shareholding that will result in holding directly or indirectly more than 10 per cent of company’s shares shall not later than 30 days before the date of acquisition submit the written notice of its intention to the company, to the National Securities and Stock Market Commission and to each stock exchange where the company’s shares are listed (if applicable).

Disclosure of all participants

LLCs disclose their participants upon registration and any further membership. Information regarding participants in LLCs is contained in the company’s charter and can be found in the online Unified State Register of Legal Entities, Individual Entrepreneurs and NGOs in free access ( (in Ukrainian). It is possible to obtain information regarding identification data of the participant (name, address, identification code) and the amount of the equity share.

7. Duties of directors and controlling shareholders What duties do the directors or managers of a company owe to the company’s shareholders, creditors and other stakeholders in connection with a business combination? Do controlling shareholders have similar duties?

The directors and managers in both JSCs and LLCs must act in the best interests of the company. The controlling shareholders are generally free to act in their best interests.

In JSCs, the directors and managers and controlling shareholders (holding 25 per cent or more shares) have a duty to disclose any conflict of interest (personally or through the members of their respective families) that they may have in a business combination (if any) within three business days after such conflict arises.

In addition, shareholders holding 10 per cent or more shares can file a lawsuit on behalf of the company against directors and managers who caused damages to the company due their unlawful actions (exceeding of power, etc).

Under general prohibition, during takeovers of a JSC, the directors and managers are not allowed to take any measures to preclude the takeover bids.

8. Approval and appraisal rights What approval rights do shareholders have over business combinations? Do shareholders have appraisal or similar rights in business combinations?

Approval rights

Acquisition of shares requires neither approval of shareholders in JSC nor of participants in LLC. However, with respect to LLCs Ukrainian laws foresee the mandatory disclosure of all participants in the company’s charter, and accordingly the amendments to the LLC charter (including those introducing new participants as a result of any sale and purchase agreements) requires approval of the general meeting of participants (shall be approved by the participants having more than 50 per cent of all votes in the LLC).

Statutory mergers require approval of both the general meeting shareholders in a JSC and the general meeting of participants in an LLC.

Appraisal rights

Shareholders in JSCs who have registered at the general shareholders meeting and voted ‘against’ a decision on:

  • a merger or (going private);

  • acquisition of another company (if such acquisition constitutes a substantial transaction under the law - with a value of more than 25 per cent of the company’s assets - or according to the charter of such company);

  • sale or acquisition of assets (if, also, such acquisition constitutes an interested-party transaction or a substantial transaction under the law - with a value of more than 25 per cent of the company’s assets - or according to the charter of such company); or

  • change (decrease or increase) of the share capital,

  • shall have the right to claim from the company to buy out their shares at the market value. Such shareholders can excise this right within 30 days of the relevant general shareholders meeting took place, and the company shall buyout the shares within 30 days of the receipt of the respective shareholder’s request.

Moreover, in JSCs in the case of a purchase of the controlling shareholding (ie, more than 50 per cent of the shares), the new majority shareholder (acting alone or with its affiliates) is obliged to offer to remaining minority shareholders to buy out their shares at the market value. The offer shall be made within 20 days following the acquisition, and the minor shareholders may exercise the right to sell their shares within a specified period (not less than 30 days).

The law provides no statutory appraisal rights to participants of LLCs. However, participants of LLCs have a general right to exit the company upon a notice with the demand to pay the proportional amount of assets, as envisaged by law and the charter.

9. Hostile transactions What are the special considerations for unsolicited transactions?

Ukrainian law does provide some limited regulation on unsolicited takeover bids. However, given that there are very few companies that are truly public (with a disseminated ownership) and most of companies are privately held, such type of transactions are extremely rare.

Generally, as in some other post-Soviet jurisdictions, hostile transactions in Ukraine have rather been associated with some illegal corporate raiding schemes. Lately, however, Ukrainian laws have been updated to counteract these type of illegal transactions more effectively.

10. Break-up fees - frustration of additional bidders Which types of break-up and reverse break-up fees are allowed? What are the limitations on a company’s ability to protect deals from third-party bidders?

There is no specific regulations with regard to break-up and reverse break-up fees. Therefore, general commercial and civil law principles apply to this provision. Generally, limitations on a company’s ability to protect deals from third-party bidders. However, it is advisable for the parties to have a genuine intention to conclude a fair deal and act reasonably and in good faith, otherwise such deal can be declared null and void by a court.

11. Government influence Other than through relevant competition regulations, or in specific industries in which business combinations are regulated, may government agencies influence or restrict the completion of business combinations, including for reasons of national security?

Except for competition and industry regulations (banks, etc), government agencies are generally not empowered to restrict a business combination. To some extent, business combinations that involve Russian companies, citizens (or companies controlled by them, or both) as buyers are restrained. For example, Russian companies and citizens as well as companies controlled by them cannot participate in state company privatisation tenders, be founders or participants of a local broadcasting organisation, or if a Ukrainian company performs a licensed activity and its ultimate beneficial owner is changed to another with a Russian registration, the licence will be revoked.

The only limitations that can influence the completion of business combination are currency restrictions introduced by the National Bank of Ukraine (NBU) in 2014. Mainly they can influence payment arrangements between the parties if the payments are made in hard currency and involve cross-border transfers. The principal restrictions that affect foreign investors are the restriction on transferring currency received from dividend distribution (partly abolished in 2016 regarding the dividends accrued in 2014-15), selling the shares or participatory interest, decreasing the charter capital and withdrawal from the company.

12. Conditional offers What conditions to a tender offer, exchange offer or other form of business combination are allowed? In a cash acquisition, may the financing be conditional?

Ukrainian laws provide for restricted regulation on tender offers or exchange offers. In particular, conditions to a tender offer are statutorily limited to the following: in JSCs (whether public or private) the shareholder who acquired more than 50 per cent of the shares (directly or indirectly) is obliged to make a public offer to the remaining minority shareholders to buy out their shares at a price of no less than the market value. Such public offer shall be made within 20 calendar days from the date of acquiring the controlling shareholding, and the minority shareholders may exercise their right to sell the shares within the period from 30 to 120 calendar days. The public offer is irrevocable and binding, and the majority shareholder is obliged within the specified period to buy out the shares of minority shareholders who accepted the offer. In such a case, financing may not be conditional. In other cases, financing in a cash acquisition may be made conditional; eg, the availability of financing may be a condition precedent a share-purchase agreement.

Other forms of business combination in relation to unlisted companies, save for the exception with the private JSC as mentioned above, may be contingent on any condition the parties may agree apart from cases when such agreements contradict the principles of good faith according to the Civil Code of Ukraine. The most common conditions are obtaining corporate approvals or merger clearance from the national competition authority or clearance from the authorised state bodies in regulated areas (financial, insurance, etc).

13. Financing If a buyer needs to obtain financing for a transaction, how is this dealt with in the transaction documents? What are the typical obligations of the seller to assist in the buyer’s financing?

In a public offer, as mentioned above, the buyer (ie, majority shareholder) is obliged to buy out the shares of minority shareholders who accepted the offer within 30 days after expiration of the term for acceptance of the offer. In such a case, Ukraine’s Law on Joint Stock Companies does not contemplate any options to make financing conditional.

In all other cases, Ukrainian laws do not explicitly govern the issue of financing in mergers and acquisitions transactions, except for some restrictions set forth by the law of Ukraine ‘On Joint-Stock Companies for newly issued shares, ie:

  • shares shall be paid for with money or if the parties agree so, with property or moral rights, having monetary value, or with some securities or other property;

  • the investor is not allowed to pay for shares by undertaking obligations to provide some services; and

  • JSCs are not allowed to grant a loan for investors to buy their shares.

Formally, there is also no obligation on the seller to assist the buyer in this process. As a rule, the buyer either finances the transaction from his or her own capital or uses borrowed funds for this purpose. The method of deal financing should be indicated in the transaction documents (eg, as a condition precedent). Although the seller is not obliged to assist in the buyer’s financing, the parties, while structuring the deal, may agree that the seller provide financial support or that the buyer pay the purchase price in instalments over certain periods. Such deal structure usually provides for additional guarantees (security) on the part of the buyer.

14. Minority squeeze-out May minority stockholders be squeezed out? If so, what steps must be taken and what is the time frame for the process?

Ukrainian law does not provide for a possibility to squeeze out minority shareholders at this point.

15. Cross-border transactions How are cross-border transactions structured? Do specific laws and regulations apply to cross-border transactions?

Cross-border transactions are usually subject to strict Ukrainian currency control and financial monitoring regulations. Ukrainian law in force has imposed severe restrictions with respect to currency transactions and cross-border payments. Pursuant to these restrictions, certain payments in hard currency made by Ukrainian residents to non-residents are temporarily prohibited (including payment for the shares), whereas the rest are subject to special scrutiny, monitoring, limitations and approvals by the NBU. It is, however, possible for foreign investors to perform a wide range of investment activities in Ukrainian currency (without or with only partial repatriation of profits abroad at this point) through special investment accounts opened with Ukrainian banks.

Due regard must be paid to the cross-boarder taxation issues, as Ukrainian withholding tax is applicable to Ukraine-source income of non-resident companies from cross-border M&A transactions (as discussed below).

16. Waiting or notification periods Other than as set forth in the competition laws, what are the relevant waiting or notification periods for completing business combinations?

Each transaction is specific and may imply different structures and combinations which in turn affect relevant waiting and notification periods; however, the basic ones can be limited to those listed below.

Period for exercise of certain shareholders’ rights

A shareholder of a private JSC shall notify other shareholders having the pre-emptive right to purchase shares on his or her intention to sell its shares. The company charter may set a notification period. The waiting period for exercising the said pre-emptive right may last from 20 calendar days to two months. A similar rule is applicable for LLCs, and the participants are generally entitled with their pre-emptive rights in proportion to each participant’s share.

If shares are to be purchased through an additional issue, the company has to make a notification thereon at least 30 days prior to its start. The waiting period for the existing shareholders to exercise their pre-emptive purchase right is set forth by the charter.

A person intending to buy shares in a JSC, which together with its other shares, including those held by affiliated persons, will make up 10 per cent and more of the JSC’s authorised capital, shall notify the company, the National Securities Commission and each stock exchange on which it is listed of its intention at least 30 calendar days prior to purchase, as well as make an announcement in an official print medium.

The notification period on the upcoming general shareholders’ (in a JSC) or participants’ (in an LLC) meeting may not be less than 30 calendar days.

Period for exercise of certain creditors’ rights, in case of reorganisation of a local entity

In a merger procedure, the JSCs participating therein and ceasing to exist as the result of the merger, shall notify their creditors and the stock exchange on which they are listed within 30 calendar days after the respective decision is taken by the general shareholders’ meeting of the last participating company. Such creditors may, within 20 calendar days thereafter, request the early fulfilment of the company’s obligations or granting a security. The merger may not be accomplished until all the creditors’ raised claims are satisfied. In accordance with the Civil Code of Ukraine, similar rules are applicable for other types of companies including LLCs. Generally, the creditors shall have at least two months after the publication of merger notification to file their demands.

Approval of relevant state authorities

The shareholders (participants) of a company shall notify the competent state registrar within three business days after the decision on merger is taken. In addition, if a business combination implies an increase of the charter capital, change of shareholders and other actions that may entail registration of a document with the state register; additional waiting periods have to be considered.

In case of purchase of a Ukrainian bank, the notification period of the NBU about the intention to purchase a substantial shareholding (10, 25, 50, 0r 75 per cent) is three months. Within this period, the NBU shall issue its approval or disapproval of the intended purchase.

As regards purchase of shareholding in other financial institutions, the respective period is one month (the competent authority is the Financial Markets Commission).

17. Sector-specific rules Are companies in specific industries subject to additional regulations and statutes?

Strategic industries

There are specific industries where only Ukrainian state enterprises can operate. Those include railways, security services to strategic state-owned objects, forensic activities and the manufacture and launching of spacecraft.

TV, radio and media

In TV and radio broadcasting, non-resident companies may not be direct founders of local broadcasting companies. Nevertheless, they can either set up another local company, which, in its turn, would be a founder of a new broadcasting company, or acquire shares and become shareholders (participants) in already existing companies. Non-residents registered in offshore jurisdictions in Russia and those controlled by Russian residents cannot be participants (shareholders) in Ukrainian TV and radio broadcasting companies. In the news media, non-resident companies may not hold more than 35 per cent in the authorised capital of a Ukrainian information agency.

Banking and finance

Ukrainian law sets specific rules for M&A in the banking and financial sectors.

As regards banks, any reorganisation process (including merger) within a bank in Ukraine shall be approved by the NBU. The latter also approves the plan of such business reorganisation. If someone intends to acquire or increase a substantial shareholding in a Ukrainian bank (10 and more per cent of the charter capital or voting rights), this person must obtain consent from the NBU.

It is also required to obtain the relevant approval for acquiring or increasing a substantial shareholding (10, 25, 50 and 75 per cent of the charter capital or voting rights) in other financial institutions that provide certain financial services, eg, insurance companies, leasing companies, investments funds, etc. A potential investor is obliged to obtain a written consent from the National Commission for the Regulation of Financial Services Markets.

18. Tax issues What are the basic tax issues involved in business combinations?


The sale of shares (or the purchase of those during an emission) is not subject to Ukrainian VAT. However, if an investor makes an in-kind contribution to the capital of a company (as opposed to a cash contribution) in exchange for its shares, it will trigger Ukrainian VAT payable by the target company (subject to VAT credit and refund). The same applies to an acquisition structured as an assets deal (as opposed to a share deal), in which case the purchase transaction is subject to (refundable) VAT.

Mergers of companies do not trigger any additional VAT obligations, either to the shareholders or to the companies themselves that consolidate their assets.

Repatriation taxes

Profit derived by a foreign investor from the sale of shares in a Ukrainian company is considered its Ukrainian-source income. Therefore, such profit (calculated as a positive difference between the investor’s income from the sale and its expenses for the initial purchase of the shares) is subject to Ukrainian withholding tax (15 per cent) if the seller is a legal entity, or personal income tax (18 per cent plus 1.5 per cent of temporary war tax) if the seller is an individual. The existing double taxation treaties may provide for lower applicable tax rates.

Pre-merger tax audit

Any merger procedure in Ukraine (fusion, amalgamation) is placed under special scrutiny and merging companies are subject to an extraordinary audit by Ukrainian tax authorities. Although the company established as the result of merger generally takes over all the tax liabilities, profits and losses of the merged companies, it should be noted that outstanding tax liabilities of the latter might potentially impede the transaction in certain cases, since prior approval of the tax authorities may be required.

19. Labour and employee benefits What is the basic regulatory framework governing labour and employee benefits in a business combination?

Under Ukrainian law, employees generally do not enjoy any formal approval rights as regards a business combination. Theoretically, a collective bargaining agreement may stipulate some duties of the target company’s management to consult a local trade union. In practice, this is rather uncommon and unusual.

The change of control in the target company during a takeover does not per se affect the existing labour relationships, unless it is accompanied with or followed by justified organisational and structural changes in the company.

If two companies merge into a new company or one company merges with another (surviving) company, employees of the merging companies automatically become employees of the new or surviving company, unless they are made redundant due to reorganisation. Their consent to such ‘transfer’ is generally not required. In an assets deal, that is, when a manufacturing facility is entirely sold to another entity that also intends to take over the employees working there, it has to procure their consent to the transfer.

If during organisational or structural changes in the company, the latter laysoff employees or makes alterations of essential labour conditions, such as remuneration, social benefits and working time, such company must respect the statutory procedures and collective bargaining agreement. In particular, the management must observe the respective notification periods with regard to employees and public authorities (which is at least two months prior to the effective date), negotiate with the local trade union and, in certain instances (such as layoffs), procure its consent; and it must ensure statutory guarantees, such as severance payments, to redundant employees.

Lastly, the change of control causes the existing collective bargaining agreement to expire within one year after the change occurs. Meanwhile, the parties shall negotiate the terms of a new agreement.

20. Restructuring, bankruptcy or receivership What are the special considerations for business combinations involving a target company that is in bankruptcy or receivership or engaged in a similar restructuring?

The general rule of Ukrainian insolvency law provides that as soon as a competent commercial court opens a bankruptcy procedure, the affected target entity-debtor may no longer enter into a business combination without prior consent of an appointed administrator or creditors’ committee (meeting) or both. Certain peculiarities exist for banks and other financial institutions, where the insolvency procedure is largely administered and directly run by the Individual Deposits Guarantee Fund, the NBU and administrators appointed by these bodies.

The first stage of a bankruptcy proceeding opened by a competent commercial court is receivership, which entails a moratorium with respect to creditors’ claims; the receiver appointed by the court is authorised to administer the debtor’s assets, give consent to all major transactions, including M&A and additional emissions of shares. Interested investors may submit to the receiver their proposals as to the rehabilitation of the debtor, including a rehabilitation plan, which is subject to approval by the creditors’ meeting and the court.

As soon as the court approves the rehabilitation plan, the next stage - rehabilitation - commences. The court appoints an administrator (with the functions similar to those of the receiver) who runs the company in accordance with the plan. Interested foreign investors can also be invited to take part in rehabilitation according to the plan, to which they must consent. Their functions are quite limited, though. Possible measures to restore debtor’s solvency, include its reorganisation, as an investor may buy shares or assets of the debtor in return for the repayment of its debts, or capital increase and additional contributions to the authorised capital by the existing shareholders or new investors or both.

If receivership or rehabilitation fail, a liquidation procedure of the debtor is started and no further business combinations are possible.

21. Anti-corruption and sanctions What are the anti-corruption, anti-bribery and economic sanctions considerations in connection with business combinations?

The general rule provides that any transaction or legal act, including business combinations, entered into or issued in violation of the anti-corruption legislation, may be declared null and void, with the total restitution and compensation of caused damages being legal consequences thereof. Due to this, special attention should be paid to business combinations in which senior Ukrainian public officials and politicians (who generally may not combine their official capacity with any business function and are therefore under scrutiny of anti-­corruption agencies) or companies or assets under their control participate.

All Ukrainian legal entities shall conduct regular assessment of corruption risks in their business and take necessary anti-corruption measures. Each employee of a legal entity is obliged to inform the CEO and respective corporate officers within the legal entity of any breach (or its attempt) of anti-corruption laws as well as of any conflict of interests. Business combinations involving the public sector (ie, legal entities in which the state or a local community has a controlling share or those participating in public procurement) shall also adopt these anti-corruption programmes and employ compliance officers.

It should be noted that relatively recently Ukraine has adopted a concept of criminal liability of legal entities. Such liability may be applied additionally to criminal liability of corporate officers of a company for certain white-collar crimes committed in the interests or for the benefit of that company, including commercial bribery. The sanctions that may be imposed on the company include fines, the confiscation of assets and forced liquidation.

Recently, some sanctions have been imposed by the government against a number of Russian individuals and companies, as well as their Ukrainian subsidiaries, in the context of the annexation of Crimea, Russian support of separatist movements in Eastern Ukraine, and persecution of Ukrainian political prisoners in Russia. The sanctions include, in particular, an entrance ban, the suspension of financial transactions, freezing of assets and cancellation of licences.

In addition to this, Ukrainian law has set some specific restrictions for companies owned (wholly or partly) or controlled by Russian investors. Such companies may not hold licences to conduct certain trading activities (banking, insurance, stock exchange, etc) and shall forfeit the existing licences; neither can they act as buyers in the course of a privatisation of state property.

Updates and trends

Return of notarisation requirement

In October 2016, the Ukrainian parliament re-introduced a requirement to notarise the statutory documents of legal entities, any amendments thereto, in particular, pertaining to the change of shareholders, as well as respective shareholders’ meetings resolutions submitted to state registrars. In the previous period, when this notarisation requirement was abolished, statutory documents were often forged and this was misused for numerous raider attacks (illegal takeovers) on Ukrainian companies. Currently, state registrars accept only documents properly certified by notaries, a measure set to reduce unlawful corporate raiding activities.

Tax changes

Another relevant change concerns the sphere of taxation, in particular, the ongoing reform of the tax office into a servicing rather than controlling agency and transformation in 2017 of tax reporting, and communication with the tax office into an electronic instead of paper form service.

In addition, the rules on the transfer of an accrued VAT credit in case of a business combination have been clarified. Such transfer of the VAT credit to a taxpayer’s successor(s) shall occur in a reporting period immediately following the execution of a handover report (for merger, accession, transformation) or a division balance sheet (for division), provided that the indicated tax credit amount is confirmed by a tax audit.

Draft law on limited liability companies

During 2016, the competent government agencies and legal professionals community actively discussed the highly anticipated draft Law on Limited Liability Companies. Among the most crucial and long expected changes for the statutory framework governing business combinations of limited liability companies are the introduction of discretional participant agreements, enabling the establishment of a supervisory board with independent members, the introduction of a debt to equity conversion mechanism and a concept of significant and interested-party transactions.

M&A activity and regulatory regime in Ukraine

The simmering military conflict in Eastern Ukraine coupled with the deteriorated economic relations with Russia, internal political instability, still somehow high-level of corruption and lack of progress in reform have stood in the way of swift economic recovery, gaining of trust from potential foreign investors and, therefore, rise in the M&A area in Ukraine. Nevertheless, since there have been some signs of macroeconomic recovery in 2016, the local and international business community is expecting a further loosening of the tough regulatory framework, in particular, the currency control restrictions regarding repatriation of dividends and investments. There have also been proposals to open or expand certain state-owned industries to privatisation, such as the railroads and energy. And, of course, further deregulation, the pending judicial reform and elimination of corruption in the government could give a positive boost to M&As and business combinations in the years to come.

Improvement of corporate governance is on the way

In the end of March 2017, the Ukrainian parliament adopted two draft laws that introduced a possibility for shareholders of joint stock and limited liability companies to conclude shareholders agreements. Moreover, lawmakers added provisions to Ukrainian legislation that allow parties to conclude option agreements and use escrow settlement. Another significant change is the introduction of the squeeze-out right for a shareholder of a joint stock company owning 95 per cent or more shares. All these amendments will come into force after the President’s signature and official publication which is due to take place in April 2017.

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