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18 May 2022

Ukraine: New provisions issued in Ukraine

Source: IDI

Potential confiscation of property in Ukraine due to continuation of activities in Russia

In response to the Russian aggression, the Parliament of Ukraine has adopted the Law of Ukraine “On Major Principles of Confiscation in Ukraine of Objects of Property Rights of the Russian Federation and its Residents” No. 2116-IX dated 3 March 2022 (the “Law“). As of today, the Law is applied to the Russian Federation and its residents defined as follows: “legal entities (their branches and representative offices), performing their activities under the Laws of Ukraine and on the territory of Ukraine, whose beneficial owner or participant directly or indirectly is the Russian Federation and/or in which the Russian Federation directly or indirectly or legal entities, which owners or beneficiaries are the Russian Federation, and/or in which the Russian Federation has directly or indirectly share in capital, shares or other participation in any form”.

At the same time, on 15 March 2022, the Parliament of Ukraine registered a Draft Law No. 7169, amending considerably the above definition of the residents for confiscation of property. Particularly, under the Draft Law No.7169 upon the decision of the National Security and Defense Council of Ukraine or the court, individuals or legal entities (notwithstanding their citizenship, place of residence, place of location, major activities, etc.), which have not suspended or terminated their economic and/or commercial activities on the territory of the Russian Federation within the period of martial law, may be regarded as the residents. Thus, their property located in Ukraine may be confiscated.

Even though the Draft Law No.7169 has not been adopted yet, it is crucial for the foreign franchisors, suppliers and principals that have their assets both in Ukraine and the Russian Federation to check the situation and decide how to perform their activities further. For instance, Restaurants Brands International, owing franchise chains both in Ukraine and the Russian Federation, can’t close its restaurants in Russia because the franchisee has refused to terminate franchise – https://www.rbi.com/English/news/news-details/2022/Actions-on-Burger-King-Russia/default.aspx. So the foreign companies shall be ready to duly react to the above situations.

New payment regulation under foreign economic contracts  

For operations on export and import of goods carried out from 5 April 2022, the payment deadlines have been reduced from 365 calendar days to 90 calendar days by the Resolution of the National Bank of Ukraine No.68 dated 4 April 2022.

This means that in case of export of goods, funds must be credited to the accounts of residents in the banks of Ukraine within the time specified in agreements, but no later than 90 days. The term of debt payment is calculated from the date of customs clearance of exported products, and in case of export of works, services, intellectual property rights and (or) other non-property rights – from the date of written invoice or other document certifying their provision (usually, the relevant act of acceptance executed by both parties). In case of import of goods, their delivery must be made within the time specified in contracts, but again no later than 90 days from the date of advance payment (prepayment). The same situation is with import of works, services, intellectual property rights – if they are pre-paid, the relevant documents confirming, rendering of works/services or transfer of IP rights, shall be executed.

Violation of payment deadline by residents entails a penalty for each day of delay in the amount of 0.3 % of the amount of uncollected funds. The total amount of the accrued penalty shall not exceed the amount of unreceived funds under the contract (the value of undelivered goods).

Thus, there is a need to review the provisions of existing agreements concluded for Ukraine and if the deadline for payment constitutes more than 90 calendar days, it is crucial to revise payment conditions.

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