The National Securities and Stock Market Commission approved Resolution No. 950 “On Amending Certain Regulations of the Commission (regarding debt-to-equity swaps)” (the “Resolution”). The Resolution amends a number of existing regulations which deal with changes in the share capital of a joint stock company (a “JSC”). By having adopted the Resolution, the Commission established a long-awaited regulatory basis for debt-to-equity swaps in Ukrainian JSCs. The main changes introduced by the Resolution are as follows:

  • the debts or obligations of a JSC can now be converted into equity by way of an increase of the JSC’s share capital
  • a right of claim under a monetary obligation is now treated as a valid means of payment for the newly issued shares in the JSC (except for the rights of claim related to salary payments, tax or duties and other payments owed to the state or local budgets in Ukraine);
  • payment for newly issues shares by means of setting off the rights of claim under monetary obligations between the JSC and a creditor results in termination of such monetary obligations; and
  • a set-off agreement (a set-off act or a similar instrument) is considered as a valid proof of payment for the newly issued shares.

We expect that the changes introduced by the Resolution should be positively welcomed by Ukrainian JCSs and their creditors. In particular, JSCs’ creditors have received an effective tool for liquidating the debt while at the same time receiving shares in the JSC. Importantly, debt-to-equity swaps in Ukraine should allow JSCs to improve their financial position (by decreasing the amount of their liabilities in the balance sheet) and give more flexibility in their commercial activities (in particular, in so far as it concerns relations with creditors).