Mergers and Acquisitions in Ukraine

In many countries where M&A transactions have been carried out for many years, there are established practices, rules and necessary state regulations. In Ukraine these transactions are still relatively new, and those regulations and rules which have already been generally accepted in other countries are still in the process of being developed in the Ukrainian market.

Many instruments that are easily used by investors in other countries do not exist or simply do not work in Ukraine. For example, escrow accounts used in many countries can not be used in Ukraine in their classical form.

Instead, investment accounts are considered to be a typically Ukrainian instrument. Such accounts introduced by the National Bank of Ukraine on request of tax authorities usually create problems for investors looking to acquire any kind of investment in Ukraine. Existing currency control procedures are also considered obstacles during the investment process in Ukraine.

Gaps and discrepancies in Ukrainian law, as well as high level of corruption in the courts give rise to a great number of hostile takeovers. As a result, foreign investors are forced to invent sophisticated schemes in order to succeed.

Peculiarities of M&A deals

M&A transactions may be carried out either through share or assets deals or through a joint venture between Ukrainian and foreign investors. Reorganisation of a company (merger, amalgamation, separation, transformation or spin-off) is also often used in M&A deals as a preliminary step for or a way to implement a share deal.

In Ukraine, share deals are better regulated and can have better benefits than asset deals. In an asset deal, the transfer of assets does not lead to transfer of rights and obligations of a target company to a buyer, whereas in a share deal a buyer acquires not only all assets and licences of a target company but also its liabilities.

Share deal

The share deal structure depends on the type of a target company.

For example, shareholders of a limited liability company have pre-emptive rights to purchase the shares of those shareholders who are willing to sell them off. Consequently, a duly legalised waiver of all members to purchase the share of the selling member and their consent for sale to the third parties as well as a duly notarised spouse's consent for sale are important documents in the share deal with limited liability companies.

The final step in transferring the corporate rights in a limited liability company is the state registration of relevant amendments in the company's charter.

If the shares of joint-stock companies are issued in a documentary form, the share certificate is to be transferred to a buyer and respective changes are to be made in the shareholders ledger.

In some cases the parties should seek preliminary clearance of the State Antimonopoly Committee of Ukraine for concentration prior to making a deal.

Asset deal

Unlike share deals, asset deals with a company as an object of a transaction are not frequently made in Ukraine, due to a lack of regulatory procedures in the legislation.

An enterprise (as an integrated property complex) can be an object of a transaction. Such a transaction is considered to be a transaction with a real estate object even if an enterprise does not have any real estate objects on its balance sheet.

As a result of a transaction, all assets and liabilities, which can be assigned, are transferred from the target company to the buyer and the buyer becomes a successor of the target company on those assets and liabilities which have been assigned.

Sale of state enterprises should be carried out exclusively through tender procedures which are regulated by the State Property Fund of Ukraine and the Cabinet of Ministers of Ukraine. Similar to share deals these deals are also subject to prior permissions of the State Antimonopoly Committee of Ukraine in the cases provided for by law.

Joint Venture

Currently, Ukrainian law contains two different approaches to understanding a joint venture. According to the first approach the parties (legal entities or individuals) may associate under a joint venture agreement without incorporating a legal entity for achievement of common objectives.

Another form of a joint venture is formation of a joint enterprise (separate legal entity), such a venture is an enterprise based on the joint capital of a Ukrainian business entity and a foreign business entity with joint management, joint results and risk sharing.

Currently, joint ventures are very suitable instruments to attract foreign investments into Ukrainian economy. It should be mentioned that joint ventures with incorporation of a legal entity currently prevail. Mostly, the parties start their joint business in the form of a limited liability company. Incorporation of a legal entity enables parties to protect themselves from a joint liability in case of possible breach of the law in the process of a joint venture's activity, while a joint venture without incorporation of a legal entity does not provide such opportunity to its participants.