Ukrainian M&A deals: trends and developments



The political and economic environment in Ukraine put on hold a number of M&A deals at the end of 2013 and into the first quarter of 2014. However, in view of the forthcoming elections to determine the President of Ukraine, and long awaited financing from the International Monetary Fund, the prognosis in regard to potential foreign investment into Ukraine is more optimistic than in 2013.

In view of the above, this article highlights key aspects of M&A deals and common problems that foreign investors usually face in Ukraine.

M&A deal structuring

In Ukraine, M&A transactions are usually structured in foreign jurisdictions. This allows parties to choose a more flexible jurisdiction (common law jurisdictions are the most frequent choice) and a reputable and reliable arbitral tribunal to settle any potential dispute between seller and purchaser.

Although a new double taxation treaty was signed between Ukraine and the Republic of Cyprus in 2013 and entered into effect on 1 January 2014, replacing the highly favourable double taxation treaty (1982), Cyprus-based holdings owning shares in Ukrainian companies still remain the most popular structuring tool.

Choosing a Cypriot holding company could be explained by the simplicity of Cypriot company registration and corporate governance, recognition of almost all tools of common law in Cyprus, including shareholders agreements, and the absence of burdensome requirements for foreign investment. BVI and Belize holdings are usually used as shareholding companies for Cypriot holdings, due to their offshore status and lack of respective double tax treaty with Ukraine.

Applicable law governing M&A deals

The most popular choice for governing law is English law, which offers additional benefits to the parties compared to Ukrainian law, in particular the concept of warranties and indemnities which are not supported by Ukrainian law, general and specific disclosures, a flexible structure for corporate governance and the formation of corporate bodies of the company. The opportunity to choose a reputable and reliable arbitral tribunal is another key benefit under English law.

Enforcing shareholders agreements in Ukraine

Ukrainian legislation establishes that the shareholders may enter into a shareholders agreement, but does not specify the permissible scope of issues to be covered by it and whether it is possible to deviate from the mandatory corporate governance rules established by the applicable law. This statutory provision remains largely untested in Ukrainian courts so far.

As a result, since the applicable law does not allow the shareholders to establish at their own discretion the quorum, the decision-making procedures and some other basic issues usually covered by the shareholders agreement, its execution at Ukrainian level may have a limited effect and, if so, will not serve the interests of shareholders.

Non-recognition in Ukraine of shareholder agreements governed by foreign law is another reason to structure the deal under a foreign jurisdiction. In addition, Ukrainian corporate law does not recognise the concept of call and put options, drag-along and tag-along rights, which enable parties to the transaction to arrange flexible and transparent tools in regard to transferring target shares.

Pre-emptive rights of other shareholders

There are no pre-emptive rights available to shareholders of public JSCs in connection with the transfer of shares in JSCs. Therefore, shareholders are not required to notify JSCs of the contemplated acquisition of shares in public JSCs.

Pre-emptive rights are granted to shareholders of private JSCs provided that such rights are set out in the JSC’s Articles of Association.

Pre-emptive rights are also enjoyed by participants of LLCs who are required by law to be notified of the contemplated transaction and transaction details (share price and purchaser, etc.) before a share purchase agreement is executed. If this rule is not followed, the share purchase agreement is highly likely to be set aside in court.

Squeeze-out procedures in Ukraine

Unfortunately, current Ukrainian law does not provide for a squeeze-out procedure in the case of acquisition of control over JSCs by one entity. This is a topical problem for lots of public JSCs with a substantial number of minority shareholders exceeding 100, mostly those established as a result of the privatisation of state enterprises in Ukraine. Given that historically a lot of Ukrainian JSCs have hundreds and even thousands of minority shareholders (mostly, former employees), the procedure of buying shares appears burdensome, lengthy and resource intensive.

Numerous attempts of majority shareholders to get rid of minority shareholders through various methods have failed so far.

However, the draft law establishing a squeeze-out procedure has been put forward by the Securities Commission and is currently under public discussion. If passed, this draft law will provide a legal basis for the majority shareholder holding 95 percent of shares to reduce the number of JSC shareholders.

Merger clearance consent

Merger clearance is a typical pre-closing undertaking for a substantial number of M&A deals in Ukraine due to the very low financial thresholds envisaged by current Ukrainian antitrust laws.

It is expected that respective financial thresholds may be increased. According to the draft law, Ukrainian merger clearance would be required if the following conditions are met: (i) the worldwide total asset value or aggregate sales turnover in the last financial year, by all parties to the transaction, exceeded an amount equivalent to €30m based on the exchange rate of the National Bank of Ukraine effective on the last day of such financial year and the total asset value or aggregate sales turnover in Ukraine of at least two parties exceeded an amount equivalent to €2.5m; or (ii) the total asset value or aggregate sales turnover in Ukraine of at least one party to the transaction exceeded an amount equivalent to €30m based on the exchange rate of the NBU effective on the last day of such financial year and the worldwide total asset value or aggregate sales turnover during the last financial year, by any other party to the transaction, exceeded an amount equivalent to €30m. The said amendments have not yet been passed.


Anna Babych is a partner and Oksana Krasnokutska is a senior associate at Vasil Kisil & Partners. Ms Babych can be contacted on +380 (44) 5817777 or by email:

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Anna Babych and Oksana Krasnokutska

Vasil Kisil & Partners

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