 Q: Are there any special requirements of Ukrainian law, if one foreign company wants to buy the shares of a Ukrainian company from another foreign company?
A: Under Ukrainian law, all transactions for the purchase and sale of shares of Ukrainian companies (shares of joint stock companies and participatory interests in limited liability companies) must be conducted through a licensed Ukrainian broker. The failure to comply with this requirement makes the relevant share purchase agreement voidable. In order to retain a broker, one of the parties to the agreement must enter into an agency or commission agreement with the broker. The share purchase agreement must be signed by the broker, on behalf of the party which retained it, e.g., the buyer, and by the counterparty, i.e., the seller.
Moreover, under a conservative interpretation of the applicable Ukrainian legislation, the payments for the purchase of shares of a Ukrainian company must be effected through Ukrainian commercial banks - either through the Ukrainian bank account of the broker retained by one of the parties to the transaction, or through the investment accounts opened with Ukrainian commercial banks by both of the parties to the transaction. This is the case even if both of the parties are foreign companies. Nonetheless, the payments may be made in foreign currency through the parties' or the broker's foreign currency accounts with their Ukrainian banks.
Under the applicable Ukrainian legislation, the other shareholders of a closed joint-stock company - or the other participants in a Ukrainian limited liability company - whose shares/participatory interests are being sold/purchased, have preemptive rights to purchase the shares offered for sale in proportion to the actual shareholdings in the company of these other shareholders. Therefore, in order for the seller to prevent a challenge to the share purchase agreement in the future, the seller must first collect waivers of their pre-emptive rights from all of the other shareholders. There are no preemptive rights of shareholders of an open joint stock company.
The buyer must apply for and obtain the prior written approval from the Anti-Monopoly Committee of Ukraine ("the AMC") of the share sale/purchase transaction if the deal exceeds the following thresholds:
(1) if the aggregate asset value or the aggregate sales volume for the previous fiscal year of:
(a) all of the participants to the transaction exceeds EUR12 million worldwide; and
(b) at least two of the participants exceeds EUR1 million worldwide; and
(c) at least one participant exceeds EUR1 million on the territory of Ukraine; or
(2) the market share of any participant or the combined market share of all of the participants in Ukraine exceeds 35% of the relevant Ukrainian market.
It may take up to 45 days, starting from the date of the submission to the AMC of the relevant application and other required documents, to obtain the AMC's approval. Generally, the parties may submit the final or near final version of the share purchase agreement ("the SPA") to the AMC, so long as it does not differ materially from the final signed version of the SPA. While the parties may sign the SPA before receiving the AMC's approval, they may only close the transaction after receiving it.
Lastly, shares of joint-stock companies may be in documentary form or in non-documentary (electronic) form. In the latter case, they must be held by a custodian, and the only document confirming the ownership rights of a shareholder to its shares is an excerpt from the relevant securities account held by the custodian. If shares are issued and kept in documentary form, the shareholder can prove its ownership rights by presenting its share certificate. In contrast, the participatory interests in a limited liability company are only non-documentary, as they are not securities, but rather only property rights. A participant's ownership rights to its participatory interests are only evidenced by the charter of the limited liability company, registered with the state authorities. There are no certificates evidencing participatory interests and, thus, no custodians are required for limited liability companies.
While these requirements of Ukrainian law may seem "unusual" or "special" to a foreign company, which is accustomed to acquiring shares of companies in countries other than Ukraine, these requirements can all be satisfied and do not create insuperable obstacles to acquisitions of shares of Ukrainian companies. JAMES T. HITCH is the Managing Partner of the Kyiv Office of Baker&McKenzie - CIS, Limited, Kyiv;
Tel: +380 44 590 0101
kyiv_info@bakernet.com
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