Effective from 21 December 2017, the National Bank of Ukraine (the "NBU") has updated its regulations to allow the actual use of escrow accounts in Ukraine. This step by the NBU is part of efforts to implement amendments made to the Civil Code and other laws of Ukraine earlier in 2017 thus bringing into life this new and long awaited concept.
The new regulations of the NBU now enable Ukrainian banks to open escrow accounts in different currencies, both for Ukrainian residents and foreign investors.
While escrow accounts have been introduced primarily to support recent corporate governance reform, which contemplates squeeze-out and sell-out mechanisms for Ukrainian joint-stock companies, these accounts may be used in many other areas as well.
One of the obvious uses, which comes from more developed jurisdictions is dealing with counterparty risk. Essentially, it helps to balance the rights and interests of the parties, while relying on the services of an escrow agent (a bank) they both trust. In particular, we expect to see the use of escrow accounts more often going forward in all types of M&A and secured lending transactions in Ukraine.