On 7 March 2018, the long-awaited Law of Ukraine “On Privatisation of State-Owned and Municipal Property” (the “Law”), which changes the conceptual approach to privatisation in Ukraine, came into force.
The declared purpose of the Law is to foster privatisation process by providing clear and transparent rules and procedures, as well as to attract capital investments to the country. As reported previously in our law-now on the same topic, the key changes include the breakdown of privatisation assets into large-scale and small-scale assets with two different sets of applicable privatisation procedures, new qualification requirements for bidders, introduction of a possibility to apply the laws of England and Wales to large-scale privatisation sale and purchase agreements, etc.
Municipal property is also covered
While the initial draft law covered privatisation of state-owned assets only, the Law also deals with the privatisation of municipal assets. Local councils are expected to approve lists of municipally-owned assets subject to privatisation. The procedure of municipal assets privatisation will not differ from the privatisation of state-owned assets.
Governing law and dispute resolution
The highly-awaited novelty of the Law is the introduction of a possibility to apply the laws of England and Wales to privatisation sale and purchase agreements (only in case of a large-scale privatisation). Also, the Law preserves an opportunity to refer disputes to international commercial arbitration courts (with the Arbitration Institute of the Stockholm Chamber of Commerce being a default forum).
Additional guarantees for investors
The Law lists the transactions which cannot be executed without a prior approval of the privatisation authorities during the period commencing on the date when a decision on privatisation of such asset was adopted by the privatisation authorities and ending upon transfer of the ownership title to a winning bidder. For example, such list includes entry by the target company into:
- any transactions with a value exceeding 10% of the value of such target company’s assets for the preceding financial year;
- any loan or credit agreements, factoring agreements, debt assignment agreements, suretyship agreements;
- agreements on sale or purchase of land plots or real estate or agreements leading to diminution of value of such property; and
- any transactions with shares and other securities.
Determination of starting purchase price
Given that privatisation auction is one of two available privatisation methods, the Law also introduces rules as to the determination of a starting purchase price of an asset subject to privatisation. In particular, the starting purchase price for large-scale assets will be determined by an advisor (if involved) or an auction committee in accordance with a valuation methodology approved by the government (if an advisor is not involved).
No merger clearance exemption
The Law does not provide for any relief from merger clearance in case of an acquisition of assets in the course of privatisation, meaning that the parties should seek merger clearance from the Antimonopoly Committee of Ukraine in cases provided by Ukrainian law, prior to completion of the privatisation.
Generally, the adoption of the Law has already been positively welcomed by various international organisations and Ukrainian businesses. By changing the privatisation procedure, the Law is expected to simplify and make the privatisation process in Ukraine more investor-friendly.
Legislation: Law of Ukraine “On Privatisation of State-Owned and Municipal Property” No. 2269-VIII dated 18 January 2018