Over the past few years there has been some relevant new legislation in the commercial sector; most notably the new Joint Stock Company Law entered into force in 2009. In addition, certain areas of activity for corporate and individual entrepreneurs have been deregulated to the extent that licences are no longer required. However, there remain important gaps and inconsistencies in the commercial law sector. In particular, whilst the new Joint Stock Company Law (the "Law") has generally been positive, protection of minority shareholders remains a problem and many changes such as provisions on the issue of convertible shares have been left to be regulated through adoption of regulations pursuant to the new Law and such regulations have not yet been adopted.
Partly as a result of the financial crisis and the conditions imposed on further IMF funding, Insolvency and Tax law reform have been identified by the government as a priority reform for the next strategy period. There has been limited progress in reforming the judiciary and related institutions which remain ill-equipped to meet investors’ expectations when compared with other EBRD countries of operations. This was exemplified during the last strategy period when a Supreme Court resolution stated that shareholders' agreements relating to a Ukrainian company must not be governed by foreign law and Ukrainian courts must have exclusive jurisdiction to resolve any related disputes. As a result, foreign investment in Ukraine has largely been made in off-shore holding companies where shareholder rights can more clearly be enforced by other courts and arbitral tribunals under foreign law.
- Access to Finance
- Capital Markets
- Contract Enforcement and Judicial Capacity
- Corporate Governance
- Debt restructuring and bankruptcy
- Electronic Communications
- Energy and Resource Efficiency
- Energy legal and regulatory reform
- Public Procurement
Access to Finance
In the last couple of years, Ukraine has undertaken considerable reforms in the field of commercial law, in particular in relation to secured transactions. The adoption of new Civil and Commercial Codes and specific laws related to security over movable property and immovable property, together with extensive work on the supporting institutions such as registers, have fundamentally changed the conditions in which commercial transactions take place. Despite some confusion and uncertainty (not unusual in transition economies), these changes have largely been positive. The financial crisis, however, has hit Ukraine’s real estate and mortgage finance particularly hard and this is unfortunately demonstrating the weaknesses that exist in the institutions surrounding debt enforcement.
In 2014 the EBRD conducted an assessment on secured transactions which examined the availability of collateralising different types of assets regardless of the underlying legal instruments used to achieve the establishment of secured creditor’s rights. In addition to the classic security interests (pledges and mortgages the assessment also covered usual types of quasi security, such as sale and lease back transactions. The assessment also covered related issues such as enforcement and syndicated lending. The links below take you to the assessment results for Armenia.
In 2007, the EBRD benchmarked the securities markets legislation of Ukraine against the “Objectives and Principles of Securities Regulation” published by IOSCO. The assessment showed that the national framework is in “high compliance” with international standards (see chart above), but it lacks comprehensive regulation on bonds and derivatives. In order to understand how securities markets legislation works in practice, in the same year the
EBRD undertook a Legal Indicator Survey asking practitioners in the region to comment on a hypothetical case study. The Survey concentrated on effectiveness of prospectus disclosure requirements, private and public enforcement mechanisms and authority of the market
regulator. The Survey revealed that IPOs are not common in Ukraine. Information included in the prospectus can be incomplete. Private enforcement mechanisms allow for limited course of action and they are generally lengthy and burdensome. Finally the capacity of courts, regulator and prosecutors in investigating complex securities cases needed to be improved. As a result, national authorities should consider implementing some specific actions in order to improve the capacity of institutions in effectively implementing the legislation.
The EBRD’s 2007 Corporate Governance Sector Assessment assessed the quality of corporate governance legislation in force in November 2007. According to the results of the assessment, Ukraine was in “very low compliance” with the OECD Principles of Corporate Governance, showing a framework in urgent need of reform in all sectors under consideration.
The new JSCs Law has improved the framework in many respects, but authorities should now make sure that the improvements established by the JSCs Law are fully implemented in practice.
Debt restructuring and bankruptcy
At present, bankruptcy and insolvency in Ukraine are primarily governed by the “Law on Restoring Debtor’s Solvency and Declaring a Debtor Bankrupt” of 14 May 1992 (“Insolvency Law”). As reflected in the graph below, the EBRD’s 2009 Insolvency Sector Assessment found that the Insolvency Law is in “low compliance” with the EBRD’s Core Principles for an Insolvency Law Regime, based on five core areas most relevant to the sector. These results are in line with assessments conducted by other international organisations, which have measured Ukraine’s insolvency legislation against international insolvency standards, such as those set by the IMF, the World Bank, the Asian Development Bank and the United Nations Commission on International Trade Law (UNCITRAL).
Important judgements are generally published and accessible to practitioners and the public, affording the legal system a certain level of transparency. There is a right of appeal from first-instance court decisions, and a right of judicial review of administrative action. There are constitutional and other formal guarantees of judicial independence. However, although Ukrainian laws provide a legislative framework for an independent judicial system, concerns persist about a lack of impartiality and independence of the courts. Corruption is perceived to be one of the main obstacles to a fully effective judiciary in the country. Ukraine ranked 146th among the 180 surveyed countries in the Transparency International 2009 Corruption Perceptions Index. Further, in the EBRD – World Bank Business Environment and Enterprise Performance Survey 2008-2009 (BEEPS), only 19% of the participants believed that the courts were fair and uncorrupted. Further, only 17% of business respondents considered the court system to be efficient.
In what may prove to be a positive development, the Judiciary Act was amended in 2010 in order to provide that certain decisions of the Supreme Court are binding on courts below and constitute a formal source of generally applicable law. This reform was part of a suite of amendments which in fact limited the jurisdiction of the Supreme Court in many respects, devolving greater powers to the higher specialised courts (e.g. the Higher Commercial Court). However, one important function still performed by the Supreme Court is to hear cases which concern divergent interpretations of law by courts below. In such matters, a decision of the Supreme Court is formally binding on all courts and administrative authorities in Ukraine. The end result of this reform may be greater uniformity in judicial decision-making.
The communications sector in Ukraine is currently governed by the laws “On Telecommunications” (2003) and “On the Radio Frequency Resources of Ukraine” (2000), as well as the Decree of the Cabinet of Ministers “On Approving Provisions on the National Commission for Communications Regulation” (NCCR) (2007). The sector is formally regulated by the NCCR, the responsibilities of which include licensing and registration of operators, tariff regulation, interconnection, management of numbering resources and resolution of disputes between operators or between operators and consumers.
Energy and resource efficiency
The Ukrainian legislative framework on renewable energy and energy efficiency
comprises the following laws: “On Renewable Energy Sources” of February 2003, “On
Combined Generation of Heat and Electric Power and Use of Waste Energy
Potential” of April 2005 and “On Energy Saving” dated July 1994. In 2009 the Law
“On Electricity Sector” was also amended to introduce measures to promote the use
of renewable energy.
These laws are complemented by a variety of policy documents (strategies and
programmes) approved in recent years, such as the “Energy Strategy of Ukraine for
the period till 2030” issued by the Cabinet of Ministers of Ukraine on March 2006;
and the “Memorandum of Understanding on Co-operation in the Energy Sector”
between EU and Ukraine, signed in December 2005. The fuel diversification
prospects for Ukraine are set out in the Energy Strategy, which aims to promote a
five-time increase of the energy output from nuclear and renewables by 2030.
A reform of the electricity sector, which should result in the establishment of a fairly liquid wholesale market by 2015, is ongoing. Along with a certain degree of competition, it is expected to attract the interest of foreign electricity players.
Energy legal and regulatory reform
In the recent energy sector assessment Ukraine was found to perform poorly with respect to some other countries in the region; below average for both electricity and gas.
Taking into account its recent status of ‘observer’ of the European Commission, the
regulatory framework appears to be well designed, mainly in terms of authority of the regulatory body (NERC) and tariff structure, whereas progress has still to be made with respect to independence. A reform of the electricity sector, which should result in the establishment of a fairly liquid wholesale market by 2015, is ongoing. Along with a certain degree of competition, it is expected to attract the interest of foreign electricity players.
A new law on Public Private Partnership (“PPP Law”) was enacted on 31 October 2010. The PPP Law is a framework act and governs such forms of PPPs as concessions, joint ventures, production sharing and other types of activities.
The Law on Concessions clearly defines its scope of application. The provisions regulating the project agreement provide relatively clear guidance on the main issues to be covered, and yet the existence of an optional non-binding model agreement makes it sufficiently flexible for the parties to freely negotiate its terms. This law was rated as being in “medium compliance” with international standards according to the EBRD 2008 assessment of concessions laws, which examined concessions legislation in EBRD countries of operations. Amongst the areas that are still in need of improvement are: tender rules relating to the pre-selection procedure; the institutional framework and wider-government support; and the availability of instruments and mechanisms to secure lenders’ interests. Nevertheless, the Concessions Law as it stands constitutes a relatively solid legal basis for concessions.
Public procurement in Ukraine is regulated by the Public Procurement Law (“PPL”) which entered into force on 1 July 2010. The PPL covers procurement by national and local government and state-owned companies, but does not include specific rules for the utilities sector.
The EBRD 2010 Public Procurement Legal Frameworks Assessment results show that the Ukrainian public procurement framework is in low overall compliance with international standards and best practice, both in relation to integrity and efficiency dimensions. The low scores for integrity and transparency indicators suggest that the procurement process may be affected by corruption. The PPL is relatively uniform and adheres to the principle of fair competition; however it is not so strong in relation to integrity, transparency, and accountability features. In addition, the evident lack of legal stability may lead to frustration among the stakeholders. In general, the PPL leaves room for inefficiencies and irregularities to occur in the public procurement processes.