Ukraine
Some of the key areas affecting the giving of security are as follows.
Capacity
It is important to check the constitutional documents of a company giving security to ensure it has power to do so and there are no restrictions on the directors' powers. Ukrainian law does not recognize the 'corporate benefit' concept. Under corporate law, certain transactions (including the granting of security) are subject to corporate approval by a company's shareholders/participants or the board of directors at a general meeting.
Insolvency
Security may be at risk of being set aside under Ukrainian insolvency law if the security is granted by a company within a certain period of time prior to the onset of insolvency. This would be the case if the company giving the security received considerably less consideration, and as such, the transaction was at an undervalue. For such transactions to be set aside, certain statutory criteria needs to be met, including the requirement that security has been given within three years prior to the onset of insolvency of the affected company. Security may also be challenged on other grounds relating to insolvency.
Financial assistance
This applies to certain types of legal entity including banks and joint-stock companies. For example, banks are not allowed to extend loans to third parties for the purposes of acquiring the bank's shares or any third party bank's shares (this includes subordinated loans to banks). Joint-stock companies are also not allowed to lend funds (including the granting of security) for the purposes of acquiring their shares or securities.
Are there any restrictions on lending and borrowing?
Lending
Generally, lending is a regulated activity only in relation to consumer lending. Lending made available to borrowers by financial institutions at the expense of attracted funds are also regulated. The lender (being a bank or financial institution) must be authorized by the National Bank of Ukraine or Financial Authority. Corporates and individuals may rely on statutory exemption.
Borrowing
Borrowing is generally not a regulated activity but note that consumer borrowers are afforded more beneficial legal protection than other borrowers.
What are common lending structures?
Lending may be structured in a number of different ways depending on various factors.
Number of parties
- Bilateral loans (one lender to one or several borrowers)
- Syndicated loans (multiple lenders)
Note that syndicated structures are rarely seen between local banks and borrowers, however, it is quite common for Ukrainian borrowers to structure their borrowings as syndicated deals with foreign lenders outside Ukraine.
Loan security
- Secured loans
- Unsecured loans
Types of facility
- Term loan facility
- Revolving term facility
- Overdraft facility
- Bridging loan
Repayment profiles
- Amortizing payment
- Balloon payment
- Bullet payment
What are the differences between lending to institutional / professional or other borrowers?
Ukrainian law does not contain sophisticated regulation in relation to lending to institutional/professional borrowers. Generally, the regulation is less onerous on lenders to institutional/professional borrowers.
Do the laws recognize the principles of agency and trusts?
For a long time, Ukraine as a civil law jurisdiction did not recognize trust structures. The Law of Ukraine ‘On Amendments to Certain Legislative Acts in relation to Stimulation of Investment Activity in Ukraine’ dated 20 September 2019 introduced the concept of security trust in Ukrainian law. The fulfilment of debtor’s obligations may be secured by way of transferring to the creditor, acting as a trustee, of the property owned by a debtor or a third party. A trustee receives an ownership right to the secured property, however, cannot alienate it, except for the enforcement purposes.
A trust shall be documented by a trust agreement in writing. A trust over immovable property must be notarised and becomes legally binding upon its state registration with the State Register of Proprietary Rights to Immovable Property. It is important that the trust property shall not be included into the liquidation estate neither of a trustee, nor a trustor. Furthermore, there is a carve-out for the trust property ringfencing it from moratorium under the insolvency law.
Are there any other notable risks or issues around lending?
Cross-border loans
After liberalization of the Ukrainian currency market, effectiveness and validity of the cross-border loans (and amendments thereto) between foreign lenders and Ukrainian borrowers is no more linked to their registration with the National Bank of Ukraine. Instead, the bank servicing the cross-border loan notifies the National Bank of Ukraine on the loan in the automatic information system. The mandatory interest cap rates were also cancelled, so the parties have more flexibility in agreeing terms of financing.
Specific types of lending
Ukrainian legislation provides special requirements for specific types of lending, for example, consumer lending.
The Law of Ukraine ‘On Consumer Lending’ dated 10 June 2017 introduced specific requirements in respect of the following.
Promotion and origination of loans
- Advertisements for consumer lending must indicate all service fees and expenses.
- Consumers must be informed of fees and costs of third parties, including insurance companies and valuers.
- Compulsory assessment of borrower's affordability is also a requirement.
Administration and repayment of loans
- Outstanding principal amounts shall be repaid first.
- Outstanding interest and principal payments shall be repaid second.
- Default interest and penalty amounts shall be repaid third.
Standard form documentation
Loan Market Association (LMA) standard documentation is predominantly used for cross-border lending, but this is uncommon in local transactions.
Bail-in
Ukrainian legislation sets out bail-in arrangements which give a regulator special powers to make a conversion or writing down of a bank's liabilities to its related parties (and in some circumstances to non-related entities) by way of exchange of additionally issued shares in the amount of unencumbered monetary liabilities owed by the bank to its related parties. Bail-in legislation applies only to banks under local law.
Are there any other notable risks or issues around borrowing?
Borrowing is generally unregulated activity under Ukrainian legislation.
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