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Senior Partner, AVER LEX Attorneys at law
Partner, AVER LEX Attorneys at law
2 Khrestovyi Alley, 5th Floor,
Kyiv, 01010, Ukraine
Tel.: +380 44 300 1151
AVER LEX is the leading WCC boutique law firm in Ukraine, with a focus on high-profile economic crimes and politically-motivated prosecutions, cases on defence of corporate executives in criminal proceedings and corporate security matters. The firm stands out for its mature highly-specialized team, and commands unrivalled capacities for being the preferred criminal defense counsel in particular compound and complex WCC litigations in Ukraine.
The majority of cases are unique and first hearing cases that set precedents for the criminal judiciary system in Ukraine and established practice for future hearings. These cases are highly public; require massive, regular and open communication with the entire spectrum of media outlets in Ukraine.
The client portfolio includes state officials and high net worth individuals looking for protection from politically-motivated prosecutions, consulting and law firms, big corporate clients from a range of economic sectors. During this period of martial law, significant legal assistance is being provided on a PRO BONO basis to military personnel, including prisoners of war, missing persons, and members of their families in matters related to military service, obtaining financial assistance, facilitating entry into the lists for the exchange of prisoners of war, as well as legal defense during investigation of military criminal offenses, etc.
Complex legal decisions
The firm advises on all aspects of criminal law, providing both the traditional services of legal prosecution and defence, and new requirements of preventive criminal law and corporate compliance. Expertise encompasses:
- White-Collar Crime;
- Business Crime, Fraud;
- Corruption and Bribery;
- International Criminal Law;
- Protection of personal and business data;
- Risk Assessment;
- Criminal Due Diligence, etc.
AVER LEX provides for complex legal decisions in corporate security aimed at identifying and minimizing criminal risks in business; defence of legal rights of detained and convicted persons during provisional arrest; measures to release from custody; comprehensive legal defence during operational search activities and pre-trial investigations by law-enforcement bodies; successful advocacy in court hearings within criminal proceedings; legal aid to complainants; judgments on recovery of damages.
AVER LEX was recognized as Chambers Europe (Band 1), Legal 500 EMAE, Best Lawyers, Who is Who Legal, Legal Awards etc. in White-collar crime and Criminal Defense.
To ensure the rights of our clients and to prevent them being violated, the Firm has developed a strong best friends’ network of firms throughout the world, and is well equipped to handle cases with cross-jurisdictional elements. Also, the Firm cooperates with a number of leading worldwide and local human right organizations within the framework of ongoing matters.
Risks for Top Management Due to Past Legal Relations with Counterparties from Russian Federation & Republic of Belarus
Since the beginning of Russia’s full-scale invasion of Ukrainian territory, many companies have been facing challenges that don’t have a straightforward solution. Some of them are related to legislative changes adopted in March 2022 in the Law of Ukraine On Grounds for Expropriation of Assets of the Russian Federation and its Residents in Ukraine and in May 2022 in the Law of Ukraine On Amendments to some Legislative Acts of Ukraine to Increase the Effectiveness of Sanctions related to the Assets of Individuals.
These norms, which are extremely important for our state, can create negative risks for many Ukrainian and foreign companies, especially for CEOs and other top managers. Despite their participation in doing business in Ukraine, from which funds are transferred to the state budget, they may have problems due to relationships with counterparties from the Russian Federation and the Republic of Belarus, regardless of the time period in which their cooperation took place, or if the counterparties have ultimate beneficial owners from these countries.
The managers of such companies are, due to the implementation of a complex set of legal relations, are actually “blocked” in their positions and are limited in their ability to quit. At the same time, in addition to the risk for managers of being brought to administrative and criminal liability, sanctions can also be imposed on such businesses: stopping the implementation of debit transactions by servicing banks on accounts, prohibiting the fulfillment of obligations in which legal entities act as creditors, prohibiting notarial acts, etc.
І. Sanctions and Сriminal Law Risks
Under the applicable law of Ukraine, a full range of sanctions can be applied to companies and their top management based on their possible links to residents of the Russian Federation/Republic of Belarus. Guided by these provisions and also provisions of Art. 3 of the Law of Ukraine On Sanctions, the following sanctions can be widely imposed on individuals and legal entities suspected of having links with the aggressor country:
- freezing of assets;
- seizure of assets owned by a private individual or legal entity and also assets in respect of which such an individual can directly or indirectly (through other individuals or legal entities) perform actions identical in content to the exercise of the right to dispose of them in favor of the state;
- restriction on trade transactions;
- prohibition on the movement of capital outside Ukraine;
- suspension of execution of economic and financial obligations;
- prohibition to participate in the privatization or lease of state property;
- complete or partial prohibition to perform transactions with securities issued by designated persons;
- prohibition to increase the authorized capital for entities, companies;
- prohibition to acquire land plots, etc.
The highest risk of being placed on the sanction lists is that there is essentially no standard of proof for the initiators of the lists or refutation procedure for those placed on the lists. The imposition of restrictions takes place very quickly, and no possibility is provided to challenge the decisions on their introduction.
Simultaneously with sanction risks, there are also the risks of criminal prosecution. There have already been several cases when, under the pretense of fighting the accomplices of the aggressor state for public resonance the companies were, in fact, prosecuted by law-enforcement agencies based on the methods already “known” to businesses: allegations of tax evasion with elements of a criminal offense (Art. 212 of the Criminal Code of Ukraine), legalization (laundering) of money obtained through criminal means (Art. 209 of the CC of Ukraine), forgery in office (Art. 366 of the CC of Ukraine), etc. These cases are currently at the pre-trial investigation stage, although all possible measures of restraint have already been applied to the assets of top managers.
ІІ. Financial Risks of Criminal and Legal Nature in Labor Relations
Imposition of wide restrictions on legal entities, the operation of which may be linked to the aggressor state, usually affects the financial condition of a company, especially if it has credit relationships with other companies that also may be experiencing financial problems. The ban on executing obligations before a creditor also has an impact on the situation, as it stops payments to the account of the suspected company, as does suspension of debit transactions by banks servicing the accounts of suspected companies, as a result of which borrowing companies may incur a debt, inflationary costs and penalties.
Financial difficulties do not exempt any of the parties in credit relationships from certain obligations. For example, the obligation to pay wages to employees even in the case of such “forced” suspension of operation. Under the applicable law, the idle time through no fault of the employee shall be payable by at least two thirds of the tariff rate (salary) set for the employee (Par. 1 of Art. 113 of the Labor Code of Ukraine).
Termination of employment on the grounds of Par. 1 of Art. 40 of the Labor Code of Ukraine (changes in the production and labor organization, including liquidation, reorganization, bankruptcy or conversion or enterprise, institution, organization, staff downsizing) is not a good option under these circumstances, as it also involves a considerable financial load on the company. In addition to pay severance pay to all employees (Art. 44 of the LCU), the company also needs to pay out salaries for at least two months after an employee is notified of his/her dismissal (Art. 492 of the LCU).
Therefore, despite the introduced restrictions, companies must continue to pay salaries. Otherwise, in the event of violation of the established terms of salary payment, failure to pay salary or non-payment of salary in full may result in administrative (Art. 41 of the LCU) or criminal (Art. 175 of the CC of Ukraine) prosecution of the company’s director and other top managers, and additional financial sanctions may be applied to the company.
ІІІ. Risks Related to Bankruptcy of the Company
The financial burden on a company with a legal organization form of a limited or additional liability company leads, in conditions of impossibility to collect receivables and/or alienate fixed assets of the company (property, vehicles), to a substantial decrease in the value of its net assets. As a result, under the applicable law, the company’s officials have additional liabilities.
The executive governing body of a company must convene a meeting of the company’s shareholders within 60 days from the date of the decrease in the company’s net assets by more than 50% compared to the net assets as of the end of the previous year. Failure to comply with this obligation and recognition of bankruptcy of the company before the end of a 3-year period after a decrease in the value of the company’s net assets will entail the members of the executive governing body bear joint and several liability under the company’s obligations (Par. 3, 4 of Art. 31 of the Law of Ukraine On Limited and Additional Liability Companies).
The risk of being recognized as bankrupt for businesses finding themselves under restrictions due to their alleged links to the Russian Federation is very high. At the same time, the CEO of the debtor may, under the provisions of the Code of Ukraine On Bankruptcy Procedures, be held jointly and severally liable for the company’s debts. Pursuant to the procedure, a debtor shall file a statement with a commercial court within a period of one month to commence proceedings in the event that satisfaction of the demands of one or more creditors will lead to the impossibility of fulfilling the debtor’s financial obligations in full to other creditors (threat of insolvency) (part. 6 of Article 34 of the Labor Code). If the debtor’s CEO has committed a violation of these requirements, he is jointly and severally liable for failure to satisfy the creditors’ demands.
IV. Actions the CEOs and Other Top Managers are Advised to Take to Minimize the Above Risks and Protect their Own Rights:
- ensure availability of documents and other information to confirm activity as the CEO or other official under the applicable law; if necessary, change the ownership structure; seek qualified legal assistance;
- ensure performance of additional liabilities in the event of a substantial decrease in the value of net assets or in event of a threat of insolvency;
- formulate and offer to creditors alternative ways of settling the property claims of creditors;
- settle the issue of labor relations with the employees of the company depending on specific circumstances in a timely manner. For example, by giving employees unpaid leave of absence, suspension of the labor contract, etc.;
- terminate labor and corporate relations with the company in accordance with the procedure or by filing a claim with a court to recognize labor relations terminated in order to prevent new risks in the future.