Practice Areas Review: Complex International Transactions

Complex M&A Transactions in Ukraine



Legal Director, DLA Piper Ukraine LLC


DLA Piper Ukraine LLC

77A Chervonoarmiyska Street, Kiev,
03150, Ukraine ,
+380 44 490 9575, 490 9577

DLA Piper is a global law firm with offices throughout the Americas, Asia Pacific, Europe and the Middle East, which provides a broad range of legal services to local, regional and international clients. In 2008, 2012 and 2014, DLA Piper was acknowledged as Foreign Law Firm of the Year in Ukraine (Legal Awards Ceremony, Ukraine).


Areas of practice in Ukraine

Corporate and M&A: set up and termination of businesses, corporate governance, M&A, including due diligence, corporate restructuring and reorganization; corporate investigations and compliance, and legal support of day-to-day operations.


Finance and Projects: M&A and regulatory work in the banking and finance sector, asset, debt and capital markets transactions, structured finance, project finance, real estate finance, aviation finance, debt restructuring, infrastructure and PPP projects, litigation in debt and insolvency-related matters.


Real estate and construction: acquisition/sale and lease transactions for real estate and land; registration of associated rights; establishment of business presence, expansion and structuring of retail business, construction and planning matters, industrial and infrastructure projects, real estate due diligence, structuring of real estate transactions and construction investment projects, real estate contracts, mortgage lending and environmental issues.


Tax: corporate tax, VAT and customs, tax driven restructurings (domestic and international), as well as M&A transactions from the tax perspective, tax due diligences, reviews of tax profiles of entities, tax controversy, litigation and transfer pricing.


IP and Technology: registration and protection of IP in Ukraine and overseas, IP portfolio management, IP due diligence, structuring of IP ownership and commercialization of IP, unfair competition issues, parallel import and counterfeits, licensing and assignment agreements, IT outsourcing, internet, e-commerce, domain names and telecommunications, data protection, software and hardware, technology transfer.


Competition law and regulatory: permits for concentrations; for concerted practices, leniency program advice; advice on protection from unfair competition, compliance advice and audits, obtaining of preliminary conclusions from the AMCU; abuse of dominance advice; advice on commercial agreements and trade practices, natural monopolies and public procurement; support during investigations by the AMCU, as well as competition litigation.


Despite the hard times that Ukraine has been facing for the last two years, it still remains rather attractive for foreign investors, especially in the agricultural, IT and pharmaceutical sectors. It is a buy-time in Ukraine, as assets are rather cheap, as are the costs of running a business.

The purpose of this article is to give a brief outline of major legal challenges that investors may face in Ukrainian M&A transactions, as well as to touch upon main issues that are worth considering in preparing for such transactions.

Types of Acquisitions and Choice of Law

There are two main types of acquisitions in Ukrai- ne — acquisition of assets and acquisition of shares.

Asset deals are most frequently subjected to Ukrainian law, as the law is rather developed in this regard. In case real estate or land is acquired, use of Ukrainian law is mandatory. There are no restrictions on purchase of real estate or land by non-Ukrainian residents, except for purchase of agricultural land — the right to acquire ownership title to agricultural land belongs only to citizens of Ukraine and Ukrainian legal entities (founded by the citizens of Ukraine or by Ukrainian legal entities).

As regards complex share deals, practice shows that Ukrainian businesses are getting more prepared for international transactions. Use of foreign law rather than Ukrainian one is the most frequent choice in complex international transactions where the target is located in Ukraine. There are several reasons for this.

Vendors perform pre-sale restructuring building vertically integrated holding structures in foreign jurisdictions being on top of the Ukrainian target. The aim of such restructuring is both tax efficiency of the transaction, and ensuring that use of non-Ukrainian law is possible. In such set-ups the purchaser acquires the shares of a holding company located outside Ukraine.

With respect to share deals Ukrainian corporate law is not that flexible as compared to, say, English law. Such common for English law concepts as representations & warranties and indemnities are hardly enforceable if the agreement is governed by Ukrainian law. Furthermore, if the deal implies that a certain stake rather than 100% in the target shall be acquired and the parties shall further run the business jointly, English law would be a more frequent choice. If compared to Ukrainian law, which has strict mandatory rules on corporate management, English law gives the partners more freedom to regulate their relations according to their business needs. If the partners wish to regulate their relations by non-Ukrainian law, the deal shall be structured in a way that the shares of a holding company located outside Ukraine are acquired and the shareholders’ agreement is concluded at the level of such holding company. In such set-up the shareholders’ agreement shall regulate the decision-making process in the holding company and such decisions shall be implemented at the level of the Ukrainian target by the holding company which is the target’s sole shareholder. Ukrainian law does not allow the conclusion of shareholders’ agreements subjected to non-Ukrainian law between the direct shareholders of Ukrainian companies, and, in this case only Ukrainian law shall be applied.       

Preparation for the Transaction

Preparation usually starts with putting on paper general terms and conditions of the future transaction, for which purpose memorandum of understanding (MOU) or letter of intent (LOI) is prepared. If such document is governed by Ukrainian law, it can hardly be made a binding document. To make such a document binding under Ukrainian law, it should be prepared in the form of a preliminary agreement. A preliminary agreement should stipulate all material conditions of the future agreement between the parties and the parties should conclude the final agreement not later than 1 year following the date of the preliminary agreement. If MOU or LOI is governed by English law it can be made binding or non-binding.

Another important preparatory stage is due diligence of the target. Legal, financial and tax due diligence is a must in complex acquisitions. Other types of due diligence (environmental, technical, IP, etc) may also be recommended, depending on the sector where the target is operating.

The main legal issues which are usually revealed in the course of due diligence of Ukrainian targets:

— defects in title to shares entailing the risk of title loss;

— defects in title to core assets and land entailing the risk of property loss;

— defects of material contracts and agreements entailing the risk of their  recognition null and void, risk of litigation;

— violation of antitrust legislation (anticompetitive actions, abuse of dominant position, lack of required permits of the regulator, etc) entailing the risk of significant fines to be imposed by the regulator and/or unwinding of the transactions;

— absence of the required licences, permits entailing the risk of suspension or prohibition of the company’s activity, imposition of penalties;

— violation of labor legislation entailing risk of labor disputes;

— absence of IP registrations entailing the risk of IP theft.

If the due diligence results are satisfactory enough the parties proceed to preparation and negotiation of transaction documents. Depending on the complexity of the transaction these could be several agreements or a significant bunch of these. Issues to be considered while preparing the documents:

— calculation of the purchase price taking into account various factors of the target’s activity;

— the techniques of transfer (shares/assets via payment);

— representations and warranties;

— enforceability of claims and indemnities;

— conditions precedent (e.g. per-transaction restructuring and pre-transactional cleaning up, preliminary regulatory permits, etc);

— protection mechanics for purchaser (e.g. deferred payment, retention of purchase price in escrow, personal guarantees of beneficiary owners, etc);

— non-compete arrangements;

— post-completion formalities and managing the business upon completion if a part of the business was acquired.

Ukrainian Regulatory Issues

Depending on the sector where the target operates, various regulatory permits may need to be obtained before the deal is completed. The antimonopoly permit is the one that is required almost in every complex transaction. Ukrainian antitrust legislation has extraterritorial effect, which means that even when the deal is performed outside Ukraine, but the target group has assets or sales in Ukraine, the preliminary permit of the Antimonopoly Committee of Ukraine may be required.

The following types of transactions are considered as concentration which may require a preliminary permit from the Antimonopoly Committee of Ukraine:

— merger of entities or takeover of one entity by another;

— incorporation by two or more entities of a new entity;

— direct or indirect acquisition of shares (or management right over shares) equal to or exceeding 25% or 50% of the votes in the supreme management body of an entity;

— direct or indirect acquisition of control by other means (purchase of assets, management of assets, leasing or concession, appointment of a person as a member of managing body, etc).

Almost in every complex M&A transaction the vendors will have non-compete obligations. In Ukraine such obligations are considered as anticompetitive concerted practices and may require the receipt of separate preliminary clearance from the Antimonopoly Committee of Ukraine.

The law gives an exhaustive list of grounds when the concentration and anticompetitive concerted practices are exempt from clearance. Unless exemption applies, the clearance for concentration and/or anticompetitive concerted practices is required when:

— the aggregate value of the assets or the aggregate volume of sales (in and outside Ukraine) over the last financial year of the concentration (concerted practices) participants, taking into account legal entities and individuals connected with them by relations of control, exceeds an amount equivalent to EUR 12 million; and

— the aggregate value of the assets or the aggregate volume of sales (in and outside Ukraine) of at least two participants of the concentration (concerted practices), taking into account legal entities and individuals connected with them by relations of control, exceeds an amount equivalent to EUR 1 million; and

— the aggregate value of the assets or the aggregate volume of sales in Ukraine by at least one participant of concentration (concerted practices), taking into account legal entities and individuals connected with them by relations of control, exceeds the amount equivalent to EUR 1 million or the share in the Ukrainian market of one or all participants of concentration (concerted practices), taking into account legal entities and individuals connected with them by relations of control, exceeds 35%.

The importance of antitrust clearance cannot be disregarded as the fines for violating Ukrainian antitrust legislation are high and in separate cases the transactions may be even unwound. Preparation for clearances should be performed well in advance, as these should be obtained before the deal is completed and the timing for the clearances’ issuance by the regulator can take up to 3.5 months from the date all the required documents are filed.