Legal Digest #3

In August 2022, we witnessed a series of changes in corporate law, changes in the requirements to implementation of large investment projects, updated ethical conduct requirements for collectors, resumed deadlines for filing documents/information by financial service providers, etc.

Below you may find a brief summary of changes and comments of Deloitte professionals.

Project requirements changed based on Law “On investment nannies”

According to Law “On investment nannies” No. 1116-ІХ dated 17 December 2020, the implementation of a large investment project requires the preparation of a feasibility report (“Report”) that is subject to validation by the Ministry of Economy. Requirements to an applicant and the Report are set by the Cabinet of Ministers of Ukraine (“CMU”).

On 09 August 2022, the CMU clarified and simplified certain requirements to the contents of a large investment project Report (CMU Resolution No. 515 dated 19 May 2021), in particular:

• The Report should specify how the project goal is related to the priorities as set forth in the State Strategy for Regional Development and relevant regional development strategies.
• There should be prepared an environmental impact assessment report and a strategic environmental assessment report.
• The estimation of time and resources (project team, advisors and other stakeholders with the description of their functions and responsibilities), list of interested parties and beneficiaries, are no longer required.

Furthermore, the CMU changed the requirements to the applicants and the methodology for assessment of large investment projects (CMU Resolution No.819 dated 28 July 2021, CMU Resolution No. 648 dated 23 June 2021):

• It is allowed to involve joint investment institutions in the projects. Net investment cash flow sufficiency criterion will be applied.
• If legal entities file a joint application they are required to submit an agreement on cooperation in project implementation.
• There are established the specifics of project implementation by companies whose shares are traded on a foreign stock exchange included in the list of foreign stock exchanges approved by the Ministry of Economy.
• For those applicants raising funding from the international financial organizations or governmental financial organizations, the deadline for assessment of a large investment project has been reduced to 45 calendar days.
• The application form has been updated.

In our opinion, the clarified requirements to Report and the reduced term for investment project assessment will increase the attractiveness of this mechanism and be conducive to the implementation of investment projects in Ukraine. Contact our professionals to learn more about the implementation of investment projects and legislation provisions.

New Law of Ukraine “On joint-stock companies”

On 27 July 2022, the Verkhovna Rada of Ukraine adopted a new Law of Ukraine “On stock-joint companies” (“Law”), which replaces current law of 2008 and is intended to harmonize and improve on legislation in accordance with EU requirements.

Inter alia, the Law provides for:

• Electronic voting at the general meetings;
  
  
• Changes in the company management structure: in addition to a two-level management model, one-level management model may be built that must include a board of directors to supervise and manage the company’s activities;
• Introduction of a new institution: corporate rights advisor – a legal entity that analyzes disclosure of regulated information, provides advice and recommendations on the exercise of voting right by shareholders;
• Changed procedure for merger, acquisition, split-up, and spin-off;
• A wider number of persons having the right to appear in court on behalf of a legal entity in disputes involving compensation for losses caused by an official.

Moreover, a number of changes have been made to the Law of Ukraine “On limited and additional liability companies”, in particular:

• Henceforth, corporate agreement may be both free of charge and paid: parties may choose applicable law in accordance with the Law of Ukraine “On private international law”.
• The database of the Central Securities Depository may be used for keeping records of the companies’ shares.
• Restriction on the general meeting’s authority to decide on the issues that fall within the exclusive competence of other management bodies of the company.
• Annual general meetings must be convened annually.
• Those members who hold 5% of the share capital will have the right to propose issues for the agenda of the general meeting.
• Those members who hold 50% of the share capital may withdraw from the company without consent of the other company members.
• Expanded company management system: independent director and non-executive director. An independent director is a person who is not influenced by any other persons when he/she takes decisions as part of performance of his/her duties. A non-executive director’s functions include supervision, risk management and control over the activities of the company and executive directors, however, without, the right to interfere with the company’s operational activities.

Law of Ukraine “On stock-joint companies” comes into effect on 01 January 2023. Meanwhile, joint-stock companies must bring their charters and internal regulations (by-laws) in line with the new requirements. We believe that businesses should estimate legislative developments and their impact on future activities of the companies. In our opinion, share accounting in the depository database and the expanded corporate management are the most interesting novelties for LLCs/ALCs. We expect new sub-laws to be adopted that would regulate share accounting in a depository database.

Our team has a considerable experience in corporate law, in particular, in bringing charters in compliance with legislative requirements, and will be happy to assist you upon your request.

Law of Ukraine “On Payment Services”

The Law of Ukraine “On Payment Systems” stipulating for the advanced regulation of the payment sphere was supposed to come into effect from 01 August 2022, but its effective date was delayed until 01 December 2022.

In particular, the Law has introduced the following developments:

• Clear classification of payment services and a range of their providers;
• A provided opportunity for branches of foreign payment systems to render services in the territory of Ukraine;
• A possibility to open payment accounts, issue payment cards and e-money by non-banking financial service providers;
• A detailed process of issuing and using e-money;
• An obligation set for a payment service provider that services accounts to provide anytime access, upon a customer’s consent, to their accounts and financial information to other payment service providers (open banking) that will come into effect from 2025.

Non-banking financial institutions and mail service operators that have licenses for cash transfers without opening accounts may continue rendering the services based on the earlier obtained licenses within six months from the effective date of the Law, i.e. until 01 June 2023, whereupon the licenses become ineffective.

We believe that, in order to elicit the complete potential of the new Law, the time will be needed, alongside with sub-statutory regulation on behalf of the NBU. At the same time, we may even now estimate certain provisions and their impact on the activities of payment service market participants.

Resumed Deadlines for Bringing the Activities of Financial Service Providers in Line with License Terms and Conditions

In August 2022, the NBU amended a range of regulatory requirements in the market of financial service providers and resumed deadlines for bringing their activities in line with license terms and conditions. To recap, in May, those deadlines were suspended to the time of termination/cancellation of the martial law in Ukraine.

By 10 October 2022, financial service providers should bring their activities in line with license terms and conditions and submit to the NBU supporting documents. In addition, Resolutions of the NBU dated 12 August 2022 introduced a range of new obligations for financial service providers, in particular:

• by 10 October 2022, prepare and submit to the NBU documents on compliance with business reputation requirements;
• by 09 November 2022, provide the NBU with information about whether direct or indirect significant impact owners have/do not have citizenship/tax residence of the country that commits military aggression against Ukraine;
• by 14 November 2022, prepare and submit to the NBU documents on compliance of direct and ultimate significant impact owners with the requirements to financial health and property (applicable only to non-banking financial institutions).

There is a feeling that the regulator pays a significant attention to resuming activities in the market of financial service providers. We believe that financial service providers may do considerable homework in rather tight deadlines.

Our experts are ready to provide a comprehensive advisory support in respect of the above regulatory changes and related business issues.

Updated Ethical Conduct Requirements for Collectors

On 05 August 2022, Resolution of the NBU No. 170 “On Approving the Regulation with Regard to Setting Additional Requirements to Interaction between Financial Service Consumers and Other Parties in the Course of Settling Past Due Payment Obligations (Ethical Conduct Requirements)”, (the “Resolution”), came into effect. We think that financial service providers that engage collectors in order to settle past due payment obligations should familiarize themselves with the Resolution and estimate its impact on interaction with collectors.

The Resolution details certain interaction procedures with financial service consumers, in particular:

• The number of interactions with a financial service consumer shall be limited to two times per day and the function of automatic redials to a financial service consumer to 30 minutes per day.
• A notification form is determined as to the transfer of a consumer’s personal data and rules for interaction with close persons of the financial service consumer.
• A procedure is regulated in respect of storing documents/information about providing consents to interaction under consumer loan agreements.
• Actions shall be limited that relate to collecting, storing, adapting, using, and disseminating data from the phone directory of a financial service consumer.
• Quality criteria are established for interaction with a financial service consumer in the course of settling past due payment obligations.
• A list of prohibited actions is determined on behalf of a lender/collector in the course of settling past due payment obligations.

More than one year has passed since the adoption of the “Collectors Law”, but a number of unregulated issues remain that relate to interaction with a financial service consumer when settling past due payment obligations. We believe that the NBU’s Resolution will allow to resolve areas of concern and protect a consumer from inappropriate actions in the course of settling past due payment obligations.

Simplified Access to Bankruptcy Legal Proceedings in the Martial Law Period

On 16 August, the Verkhovna Rada of Ukraine approved in principle Draft Bill No. 7442 dated 07 June 2022 on Amending the Code of Ukraine on Bankruptcy Procedures in respect of applying bankruptcy legal proceedings in the martial law period.

In particular, it is proposed to stipulate the following:

• Satisfying demands of lenders through the imposed arrest on the property (movable/immovable) held not only by a debtor, but also by those parties who bear subsidiary or joint responsibility together with the debtor;
• A debtor’s obligation to make it possible for a property administrator to have a direct access to the information stored in the databases (including electronic ones) used by the debtor’s officials for maintaining financial, tax, and management accounting records, as well as preparing financial, statistical, and tax reports;
• Supplementing a list of the debtor’s amounts due not subject to restructuring and compensating for the damages caused by criminal offences.

In addition, for the period of the martial law and within six months from the date of its termination/cancellation, it is proposed to stipulate the following:

• A possibility to hold meetings (committees) in the remote mode – by videoconferencing or through inquiries;
• A possibility for a court to extend certain terms under bankruptcy proceedings;
• A possibility to consider a bankruptcy case or certain matter of procedure through written proceedings;
• Stopped accrual of interest on the restructured obligations of a debtor to lenders. Besides, no penalty sanctions for a debtor’s failure to fulfill such obligations shall be accrued, and the past due payment obligations under the plan for rehabilitation or restructuring of the debtor’s amounts due shall be subject to deferring for the period of fulfilling the plan for rehabilitation or restructuring of the debtor’s amounts due.

However, we draw your attention to the fact that final amendments to the Code of Ukraine on Bankruptcy Procedures will be known after the new Law adopted by the Verkhovna Rada of Ukraine is signed by the President of Ukraine and made publicly available. We will continue monitoring the Bill’s further consideration and share valuable information with you.

Government Statistics Harmonized with the EU’s Statistical Systems

On 16 August 2022, the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Official Statistics” to become effective from 01 January 2023 that is going to supersede the current Law of Ukraine “On Government Statistics”.

The new Law establishes conditions under which government statistics agencies will be able to operate in compliance with generally accepted principles of the European statistical practice, in particular:

• A priority is set for using the available data from public registers for the purpose of reducing the reporting load on respondents;
• A possibility is stipulated for creating an IT platform that would ensure automated and unified processes of data loading and dissemination without human interference;
• An obligation is established that legal entities and individual entrepreneurs submit their statistical reports and financial statements solely in an electronic form.

In our opinion, this Law is an important step on the way to paperless state services and improved efficiency of official statistics that would ensure a more complete and qualitative satisfaction of public demand for information, without overloading the system with additional reports.

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