• Andriy Kolupaev

    Partner, Lexwell & Partners

  • Olena Tregubova

    Senior Associate, Lexwell & Partners

Lexwell & Partners

ADDRESS:

Sophia Business Centre,

6 Rylsky Lane, 5th Floor,

Kyiv, 01001, Ukraine

Tel.: +380 44 228 6080

E-mail: lexwell@lexwell.com.ua

Web-site: www.lexwell.com.ua

 

Lexwell & Partners is a Kyiv based Ukrainian law firm which offers high-end professional legal services to major international and leading Ukrainian companies since 2005. We focus on a complex and high-profile national and cross-border matters and have a strong expertise in foreign investments, M&A, tax, real estate, litigation and international arbitration. We earned an excellent reputation which is highly ranked by the Legal 500, Chambers and Partners, IFLR1000, Ukrainian Law Firms, Kyiv Post, Legal Practice, Legal Newspaper. Among our achievements:

– No.1 by gross revenue (Yuridecheskaya Practika Publishing, 2018);

– No.1 by revenue per lawyer (Yuridecheskaya Practika, 2018);

– No.1 in high-value disputes (Yuridecheskaya Practika, 2016);

– Tier 1 for dispute resolution (The Legal500, 2018);

– Tier 2 for tax, real estate, commercial, corporate and M&A (The Legal500, 2018);

– Recognized Practitioner in Dispute Resolution: Arbitration (Chambers & Partners, 2019).

Lexwell & Partners key clients are multinational and leading national companies, including ABN Amro, AET, Amstar, ArcelorMittal, Bridgestone, Bunge, Cargill, Chicago Mercantile Exchange, CRH, DuPont, East Metals, Eurobank, Evraz, Honda Trading, ING, Interpipe, Intesa Sanpaolo, Pfizer, PHV (Calvin Klein and Tommy Hilfiger), PwC, Rabobank, Red Bull, Marubeni, Millhouse, Morningstar, Naftogaz (National Oil & Gas Company), Schenker, Sojtz, Subaru, Sumitomo, Suzuki, Toyota, VS Energy.

 

2020: New Opportunities for Investments and Mechanisms for Protection of Investors’ Rights

Enhancement of the investment climate has been announced one of the key priorities for the current Ukrainian Government today. Certain measures aimed at attracting new investors and improving mechanisms for protection of investments have recently been taken and are planned to be taken in future, including at the legislative level. A part of such measures is aimed at creating new investment opportunities for businesses by opening new and extending existing, spheres of investments. While the other part of such measures is expected to ensure improvement of the investment climate in general, by making it easier to do business and making it more transparent, and providing investors with more reliable mechanisms for protection of their rights. Below we’ll analyze some innovations, which have already been launched and are planned to be implemented in the near future.

 

Accelerating Investments by Facilitating Privatization of State-owned Enterprises

It is well known that a large number of Ukrainian enterprises, including those with significant property complexes, have been used inefficiently for a long period of time due to various reasons. Experience has proven that the state’s resources and its bodies were not sufficient to organize effective management of those enterprises, given their number and absence of respective system to have them recorded. Therefore, the need for implementation of active and transparent procedures for transferring them to private investors has been discussed for quite a long time; however, active steps in this direction have started to be taken not long ago.

Thus, starting from early 2020, the arrangements for and commencement of a large-scale initiative on privatization of state-owned enterprises, which was launched by the Government is being actively pursued in Ukraine. More than a thousand state-owned enterprises are awaiting privatization, 500 of them have already been prepared for privatization and transferred to the State Property Fund of Ukraine for commencing privatization procedures.

In order to make privatization processes more transparent, limit the risks of corruption to the maximum extent possible, and enhance protection of investors’ rights the New Law of Ukraine No. 2269-VIII On Privatization of State and Communal Property was adopted as far back as
18 January 2018, which underwent several amendments during the first year after its adoption; all amendments were aimed at improving the same.

In general, the most notable innovations introduced by the New Law include cancellation of complex multilevel classification of targets (objects) of privatization, which provided for six groups and two types, instead two-groups classification was introduced — the targets of minor and major privatization with simple criteria for differentiation of the same. The targets of major privatization include objects of state and communal property with their assets value exceeding UAH 250 million according to their financial statements for the last reporting year. The remainder are treated as being targets (objects) of minor privatization.

The said Law also classified, simplified and unified the procedure for privatization of state and communal property, making them more transparent for investors. Thus, the targets of minor privatization are sold exclusively through e-auctions, which are regulated by the Cabinet of Ministers of Ukraine. The targets (objects) of major privatization may also be sold only through auctions in accordance with established procedure, except for cases expressly contemplated by the law, where an investor shall be entitled to purchase the respective object without participating in competitive (auction) procedures. E.g., it is possible if an investor has rented the object of investment prior to privatization of the same and has improved it significantly — in such a case the investor shall be entitled to purchase the same without participating in competitive (auction) procedures, in accordance with procedures as contemplated by the law. At the same time, the procedures for conclusion of sale and purchase agreements with investors who are going to purchase the targets (objects) of privatization and procedures for amending the same do not lack normative regulation.

All information pertaining to all targets of privatization as available for sale — both major and minor privatization — are published on the publicly available official web site of the State Property Fund and e-platforms for respective auctions. Therefore, the legislative foundation has been created in order to reduce corruption risks and significantly simplify privatization procedures.

 

Simplifying Procedures for Leasing the State and Communal Property

Starting from 1 February 2020 the new Law of Ukraine On Lease of State and Communal Property No. 157-IX of 3 October 2019 entered into force, which replaced the previous law in respective field, and which was adopted to enhance the efficiency of lease relationships, to simplify the procedure for leasing state and communal property and make it more up-to-date, to ensure competitiveness of state and communal property in terms of lease-related relationships. The new law is aimed at enhancing economic development processes, attracting additional investments, improving protection of lessee’s rights, etc.

Law No. 157-IX introduced new mechanisms for transfer of property to the lessee by holding an e-auction, determined the means to prevent abuses during the leasing of state and communal property, etc. The adoption of Law No. 157-IX
is also expected to reduce corruption risks in the respective sphere and improve the investment climate in the sphere of lease of state and communal property.

 

Granting of Special Permits (licenses) for Subsoil Use on a Competitive Basis

A significant step has been made towards increasing the transparency in the sphere of granting, by the State Service of Geology and Subsoil of Ukraine, of special permits (licenses) for minerals extraction (subsoil use). Thus, an experimental procedure (initiative) according to which special permits (licenses) for subsoil use are sold by the State Service of Geology and Subsoil of Ukraine exclusively through auctions held in the ProZorro system, which was launched in 2018, has been extended to 1 October 2020. For these purposes, the Cabinet of Ministers, by its Regulation No.960 of 23 October 2019, renewed and restated the Temporary procedure for implementation of the experimental project on introducing auctions for the sale of special permits for subsoil use through e-auctions. Such practice on the sale of special permits for subsoil use through public auctions is expected to be continued in future, and to turm into a permanent one instead of being an experiment. One positive innovation is that all information on all special subsoil use permits available for purchase is now publicly available.

 

Measures Taken to Enhance the Protection of Investors’ Rights and Improve Investment Climate

When attempting to simplify the procedures for attracting investments and making them more transparent, the State is also planning to undertake certain steps to improve the investment climate and strengthen guarantees for protection of investors’ rights. Thus, an independent Temporary Special Commission of Verkhovna Rada of Ukraine for Protection of Investors’ Rights is planned to be established under the Verkhovna Rada of Ukraine shortly (respective draft law has been registered and is pending review by the Verkhovna Rada of Ukraine). The aim of the Commission shall be reform of legislation in the sphere of investment activities, systematization of the same, as well as creating a reliable system of protection of investors’ rights at legislative level. At the same time, a number of draft laws that provide for additional tax benefits to be granted to investors, including income tax benefits, is being developed and are planned for adoption. The Government is also involved in active discussions regarding an Investment nanny initiative designed to assist investors and protect their rights, as announced by the President of Ukraine, and is to be launched shortly. The initiative provides that each investor who invests USD 100 million in Ukraine or more shall have a separate contract with the state pursuant to which a personal manager shall be appointed to assist the investor (Investment nanny), who will be available 24/7 and who will act as the investor’s advisor, and who will assist in maintaining a dialogue with competent authorities and settling the investor’s issues within the legal framework.

 

Efficiency of Legal Protection of Investments

The above-listed legislative measures expand investment opportunities substantially, enabling investors to purchase or lease (on a competitive basis) new objects for conducting their business. It is also expected that the said measures, that have been launched and planned by the Ukrainian Government, shall really result in enhancement of the investment climate. At the same time, it should be understood, that taking such specific measures in the short run, even though they are positive, may, in our view, be still regarded by investors as an additional incentive for them to accelerate their activities, whilst the need for stability of laws and practice of their application, as well as for giving real effect to the rule of law remains a priority. When pointing out certain positive developments in this area, it is worth noting, that there is still a great need for comprehensive legal support in doing business, making and implementing decisions on launching new and developing existing investment projects.