Corporate Reorganisations in Ukraine 2021

The Civil Code of Ukraine defines a corporate reorganisation in its narrow meaning as a transformation of the organisational form of a legal entity and legal succession of its assets, rights and liabilities. Such corporate reorganisation may take one of the following forms: amalgamation, merger, transformation, split or spin-off (also referred to as ‘a statutory corporate reorganisation’).
However, in business practice, a corporate reorganisation is usually interpreted in a broader sense. In addition to the above forms of reorganisation, it may also include transactions between companies of the same group (under the same control) leading to changes in the corporate structure through the acquisition of shares or assets, closure of branches or representative offices of a company, incorporation of new companies (eg, for transfer of assets).

The number of internal group corporate reorganisations shows growth year to year, and we expect this trend will go on, as several significant changes have been introduced into the Ukrainian regulatory framework involving corporate entities. The main changes are new rules for corporate governance, squeeze-out provisions and taxation of controlled foreign companies.

The covid-19 crisis has also led to some businesses optimising their business processes.

In a global context, international processes such as base erosion and profit shifting (BEPS), along with associated initiatives, have a considerable impact on the Ukrainian landscape. Local businesses dealing with foreign counterparties and multinational players with a presence in Ukraine consider international requirements to transparent business structures.

In February 2019, Ukraine ratified the Multilateral Convention to Implement Tax Treaty Related Measures to Prevent BEPS (MLI), which introduces significant changes to international treaties related to avoidance of double taxation to which Ukraine is a party. Since December 2019, a number of the MLI provisions have already entered into force. The introduced novelties encouraged businesses structured through holding companies to assess the effectiveness of their corporate structures amid the operation of the MLI.

Stricter and more thorough compliance control, which banks have recently been reinforcing, has become a real challenge for businesses.

Within the past few years, corporate governance in Ukrainian companies has been constantly developing. In March 2020, the National Securities and Stock Market Commission introduced the Code of Corporate Governance implementing the best practice in corporate governance (we were among experts who drafted the Code). Progressive businesses and major state-owned enterprises are gradually moving to globally accepted standards and best practices. Implementation of good corporate governance often goes in parallel with the corporate reorganisation of a company and restructuring of the group of companies.

These new conditions triggered a noticeable trend for more effective corporate structures, including for groups of companies. We anticipate corporate reorganisations will tend to occur more frequently in Ukraine.

The Law of Ukraine ‘On Limited Liability and Additional Liability Companies’ entered into force in 2018, modernised the regulatory framework for LLCs and encouraged companies to transform from highly regulated joint stock companies (JSCs) into LLCs. The law introduced the long-awaited shareholder agreements and the first judicial practice supported enforceability of such agreements. The law also removed the restriction on one LLC being the sole shareholder in two or more subsidiary LLCs. To overcome the latter restriction, a shareholder of several LLCs had to engage an additional nominee shareholder with a technical minority share (eg, 0.1 per cent). This legislative change is a good opportunity to simplify corporate structures that include nominee shareholders and to eliminate the related risks such as challenging companies’ resolutions.

Within the past few years, regulation for JSCs has been advanced too. Shareholders of JSCs also may now enter into shareholder agreements.

A JSC may be either public or private depending on whether it has offered its shares to the open market. Until recently, the corporate governance for public and private JSCs was essentially the same. The requirements for private JSCs have been gradually reduced, and now they are closer to those for LLCs rather than public JSCs. Given higher administration costs for private JSCs compared to LLCs but somewhat similar regulations, some companies transform from private JSCs into LLCs.

Another novelty that the market has already used is the squeeze-out procedure implemented in June 2017. It facilitates corporate reorganisations allowing a shareholder (a group of shareholders) owning 95 or more per cent of the registered capital of a JSC to buy the shares of the rest of the shareholders for fair consideration without their consent. This option allows JSCs that are no longer public but still have a high number of shareholders (sometimes thousands) to minimise and, hence, simplify governance in the company. Such ownership concentration in turn enables further corporate reorganisations. Many JSCs consider squeeze-out as an interim step before a transformation into an LLC as a less regulated and more cost-efficient form. More than 350 majority shareholders have already used their right to buy minority shareholdings under the squeeze-out procedure.

There is another driver for corporate reorganisations in the banking sector. In 2017, banks were allowed to merge following the simplified procedure with reduced terms. The National Bank of Ukraine estimated the average term of a merger to be reduced from 1.5 years to 3 months. There have been four such reorganisations since 2017 involving eight banks (out of about 100 in total). In May 2020, the deadline for banks to carry out such mergers has been moved from 1 August 2020 to the same day in 2024.

In May 2020, the law introducing the controlled foreign companies (CFC) rules for tax purposes has come into effect. The CFC rules allow Ukraine to tax profits of foreign companies controlled by Ukrainian residents, while also granting Ukrainian residents the interim right to dissolve CFCs tax-free. The entry into force of the CFC rules has been postponed until 2022, but businesses had already started revising corporate structures to meet the forthcoming rules.

Solvent businesses may be structured through a variety of methods depending on the needs and goals of the companies affected by the reorganisation. We outline the most typical structures below.

Mergers and amalgamations

An amalgamation is a combination of two or more companies into a newly established company. As a result of an amalgamation, the amalgamating companies cease to exist, whereas a newly established company receives all their assets and assumes all their liabilities. A merger results in the passing of all rights and liabilities of one or more companies to another existing company that is the only one surviving the merger.

Splits and spin-offs

A split is a type of reorganisation where all assets and liabilities of a company are divided between two or several new companies under the transfer protocol. Upon the split and passing of assets and liabilities to legal successors, the former company terminates its legal existence.

A spin-off also results in the formation of a new company but, unlike in a split, without dissolution of the company being reorganised. Only a part of the assets and liabilities of the reorganised company pass to one or several new companies under the transfer protocol and the rest of the assets and liabilities remain with the reorganised company.

Transformation

A transformation occurs where a legal entity changes its legal form of conducting business, for example, transforms from a JSC to an LLC. In that case, the former company ceases to exist and a new company with a new legal form receives all assets and assume all liabilities of the former company.

All of the above corporate reorganisations are quite long procedures. In practice, it takes six months or more to follow all the necessary stages, that is, a tax audit, notification of creditors, repayment of obligations, etc.

Acquisition of shares

In a group of companies, internal reorganisations are often structured through the purchase of shares in the target company by one intragroup company from another intra-group company. Such transactions are much easier than corporate reorganisations as described above and, therefore, may be done much quicker. In some cases, intra-group restructuring is a combination of acquisitions of companies with their statutory corporate reorganisation.

Acquisition of assets

The reorganisation may also involve the acquisition of the target’s particular assets. Ukrainian law allows for the acquisition of an ‘integrated property complex’ of a target company – a specific real estate object that includes buildings, facilities and equipment of the company. Such acquisition often requires approval from the Antimonopoly Committee of Ukraine. Acquisition of assets may sometimes be less tax efficient compared to the acquisition of shares due to VAT applicable to the former.

When undertaking a corporate reorganisation, companies should consider the following key laws (as amended):

• the Civil Code of Ukraine of 16 January 2003 (Chapters 7 and 8);
• the Commercial Code of Ukraine of 16 January 2003 (Chapters 7 to 11);
• the Law of Ukraine ‘On Limited Liability and Additional Liability Companies’ of 6 February 2018 (Chapter VI);
• the Law of Ukraine ‘On Joint Stock Companies’ of 17 September 2008 (sections XI and XVI);
• the Law of Ukraine ‘On State Registration of Legal Entities, Private Entrepreneurs and Civic Formations’ of 15 May 2003;
• the Law of Ukraine ‘On Protection of Economic Competition’ of 11 January 2001 (section V);
• the Law of Ukraine ‘On Securities and Stock Market’ of 23 February 2006 (to be restated as the Law of Ukraine ‘On Capital Markets and Organised Commodity Markets’ on 1 July 2021);
• the Tax Code of Ukraine of 2 December 2010; and
• the Labour Code of Ukraine of 10 December 1975.

The above list is not exhaustive. Banks should consider the Law of Ukraine ‘On Banks and Banking Business’ of 7 December 2000, and the Law of Ukraine ‘On Simplification of Procedures for Reorganisation and Capitalisation of Banks’ of 23 March 2017. For issuers of securities, there are regulations of the National Stock Market and Securities Commission and the National Depository of Ukraine. There may be additional regulations for companies operating on regulated markets, for example, the financial market.

Different state authorities may be involved in the procedure depending on the type of corporate reorganisation, the volume of assets of the companies partaking in the reorganisation, their industry and market share.

Tax authority

The companies affected by a statutory corporate reorganisation (except a transformation) or closure of a branch or a representative office are subject to an extraordinary audit by the tax authority.

Antimonopoly Committee of Ukraine

If a corporate reorganisation reaches financial thresholds provided by law, then it is qualified as a concentration and requires approval from the Antimonopoly Committee of Ukraine. For this purpose, a corporate reorganisation includes amalgamation, split, acquisition of assets or shares and incorporation of a new company.

National Securities and Stock Market Commission

When a corporate reorganisation involves an issuer of securities, it has to make some filings with the National Securities and Stock Market Commission (NSSMC). If a corporate reorganisation is structured through the acquisition of shares of a target JSC, an acquirer who intends to buy 10 or more per cent of shares in the JSC must notify the NSSMC. In a statutory corporate reorganisation, the JSCs involved have to undergo procedures related to their shares such as cancellation of existing shares and issue of new shares.

It is also necessary to obtain consent from the NSSMC to acquire or increase a substantial shareholding (10, 25, 50 and 75 per cent) in a company operating on the securities market (brokers, custodians, etc).

State registrar for companies

The state registrar is involved at different stages of corporate reorganisation. At the first stage, the shareholders of a company must notify the state registrar within three business days after they resolved on reorganisation. The reorganisation procedure is officially completed after the state registrar records the dissolution of the former entity (if necessary) and the formation of a new entity in the Companies Register. Since 2016, notaries, including private ones, have been officially allowed to act as state registrars for companies (as well as for real estate – see the next paragraph). So, businesses may apply for registration either to a state registrar or to a private notary who usually renders services in a more effective and customer-friendly way but charges an
additional fee for it.

State registrar for real estate

Some corporate reorganisations result in the conveyance of real estate to the legal successor of the reorganised company. This is also the case when assets are transferred under the sale and purchase agreement. In such cases, an acquirer of assets (a purchaser or a legal successor in a statutory corporate reorganisation) must apply to a state registrar or a notary for registration of property rights over the real estate in its name. The state registrar or the notary records the acquirer as a new owner (lessee, etc) of the real estate in the Real Estate Register.

State Land Cadastre

In addition to the register for real estate, passing title to land plots is also subject to registration in the State Land Cadastre.

National Bank of Ukraine

A reorganisation of a bank in Ukraine requires the approval of the National Bank of Ukraine (NBU). The NBU also approves the reorganisation plan submitted by the bank.
It is also necessary to obtain a consent from the NBU to acquire or increase a substantial shareholding (10, 25, 50 and 75 or more per cent) in a Ukrainian bank or other financial institution.

Other filings (IP, industry licensing, etc)

Other filings and mandatory submissions may follow a corporate reorganisation. To name a few, intellectual property rights, cars and other machinery are subject to registration in the name of the legal successor. The same relates to special licences and permits issued by the state on regulated markets. A corporate reorganisation generally requires a surviving company to apply for licences and permits anew unless reorganisation is structured through the sale of shares or the law provides otherwise.

A comprehensive and accurate due diligence, especially of legal, tax, accounting and financial aspects, is extremely important when undertaking a corporate reorganisation. The scope of legal due diligence depends on the areas in which the relevant entities conduct their business and, therefore, may vary, but usually includes investigation of corporate, regulatory, real estate and other assets, IP, contracts, employment and other areas.

We also recommend reasonable communication with the key stakeholders of the companies before the reorganisation to conduct it smoothly and without conflicts and other impediments from third parties. Another recommendation is to check agreements with banks, customers and suppliers. They may contain change-of-control clauses that may require a prior notification, trigger early termination of the contract or provide for other consequences. All such requirements should be considered in advance as they do not always have carve-outs for intra-group reorganisations.

Generally, a corporate reorganisation does not affect the rights or obligations of employees. After a corporate reorganisation of the company, its employees are automatically transferred to the legal successor. The employees’ consent for such transfer is not required. All employment terms and conditions remain the same unless employees are made redundant due to a reorganisation.

When a company decides to lay off employees or change employment terms in the course of the reorganisation, it must comply with the statutory procedures and collective bargaining agreement. In particular, the company must notify its employees at least two months before the effective date of changes in employment terms. The owner of the company being reorganised must notify the local trade union in three months and consult with it on the measures to prevent layoffs in the course of the reorganisation.

Some categories of employees have a pre-emptive right to retain their position and stay further employed in case of reorganisation. The Labour Code grants such rights to employees with higher qualifications and efficiency. Such employees as the sole breadwinners of their families, on-the-job students, employees with a long continuous employment record have the priority right to retain their job if the qualification and efficiency of all employees do not differ.

The company must ensure statutory guarantees, such as severance payments, to all redundant employees. An employee may claim for a severance payment of at least one average monthly salary if he or she is laid off owing to reorganisation or redundancy. The employer is free to pay a higher 'exit' compensation.

The corporate reorganisation does not affect employees’ pensions and other benefits except for the right to a severance payment.

Joint stock companies (JSCs) and LLCs may not provide loans for the acquisition of their shares and guarantees for the loans provided by third parties for the acquisition of shares.

A company may acquire its shares subject to approval by the shareholders. In JSCs, the acquisition has to occur at the market value and the number of shares owned by a JSC may not exceed 20 per cent of the registered capital. A JSC acquiring its shares has to sell or cancel them (which results in a reduction in the registered capital) within one year. An LLC acquiring its shares has to reduce the registered capital proportionally to the shares acquired or raise additional reserve capital equal to the price of the shares acquired. If an LLC acquires its shares without a proportionate reduction in the registered capital, it has to sell the shares within one year.

An increase of a share of the state or a municipality in the registered capital of a company is a state aid that is prohibited if it distorts competition. The Antimonopoly Committee of Ukraine may approve ad hoc eligibility of state aid.

Among the most commonly overlooked and frequently asked questions in a corporate reorganisation are the following:

• prior approvals from state authorities required to undertake a corporate reorganisation;
• tax consequences of the contemplated reorganisation, including assignment of the tax credit of the reorganised company, etc;
• post-reorganisation measures that the legal successor should take;
• effectiveness of licences, permits and agreements transferred to the legal successor of the reorganised company;
• effectiveness of property rights to assets, including real estate and land plots, transferred to the legal successor, and necessity of registration of property rights in the name of the latter;
• archiving of the documents of the company being reorganised;
• vicarious liability of the companies participating in the reorganisation;
• compatibility of certain forms of legal entities (farms, private enterprises, non-government organisations, etc) for a transformation into more widespread forms of companies (LLCs, JSCs, etc);
• procedure and time frame required to complete a corporate reorganisation;
• corporate governance as well as a shareholder agreement after the reorganisation, especially in a group of companies; and
• compliance requirements, specifically as regards ownership structure, which must be transparent for the state, banks and other parties dealing with the company.

The accounting rules that apply to corporate reorganisations depend on the type of reorganisation. The participants of a particular reorganisation approve a transfer protocol or a distribution balance sheet listing the transferred assets and liabilities and their book value.

The corporate reorganisation of a state or municipal enterprise or a company with a state or municipal share in its equity requires market valuation of assets by the certified appraiser. In other cases, the company or companies being reorganised may apply to the certified appraiser voluntarily.

First, the companies affected by a corporate reorganisation (except a transformation) are subject to an extraordinary audit by the tax authority.

Generally, the surviving company or the successors assume all tax liabilities, profits and losses of the reorganised company. However, outstanding tax liabilities of the reorganised company usually significantly complicate the reorganisation procedure, as in this case the reorganisation needs the tax authority’s approval.

If the company being reorganised has a tax debt, the reorganisation plan of such company has to be agreed with the tax authority.

In terms of corporate income tax (CIT), a corporate reorganisation is a neutral transaction under the national accounting regulations (standards). The Tax Code of Ukraine does not provide for adjustments of the financial result of companies involved in the reorganisation. Accordingly, a corporate reorganisation does not lead to any CIT.

The Tax Code of Ukraine excludes a statutory corporate reorganisation from taxation by VAT. Businesses sometimes utilise this exception and convey valuable assets, such as real estate, through a spin-off instead of a buy-sell deal that is subject to VAT. If a reorganisation involves the sale of shares, it is VAT exempt, but the income from the sale is taxable. If specific assets only are transferred under a sale and purchase agreement, VAT occurs and the income from the sale is taxable.

Some operations in the course of a corporate reorganisation may be treated as dividends, for example, sale of undervalued (ie, not valued on an arm’s-length basis) assets to a non-resident of Ukraine or payments to a non-resident of Ukraine in connection with its exit from a company.
An important matter that needs to be considered starting from 2022 is the controlled foreign companies rules. If a corporate reorganisation involves foreign companies or trusts, their income will be taxable in Ukraine as the income of their Ukrainian beneficial owners. Also, some operations of controlled foreign companies (CFCs) will be subject to the arm’s length principle as it is defined in Ukrainian law. Moreover, beneficial owners will have to report on their CFCs.

A company for which shareholders have decided to conduct a corporate reorganisation must notify its creditors. Under the law, the creditors may request early fulfilment of the company’s obligations or security for them. The reorganisation may be accomplished only after all creditors’ claims are satisfied. Creditors have from two to six months after the announcement of a reorganisation to file their claims to the company planning the reorganisation.

In some cases, consents, approvals of the government authorities or notifications to them may be required.

Any type of a statutory corporate reorganisation requires the approval of the general shareholders’ meeting save for mergers of joint stock companies (JSCs) where the surviving JSC already owns more than 90 per cent of voting shares in the dissolving JSC, which may be approved by the supervisory board. Voting requirements for general meetings may vary depending on the company’s articles. In JSCs, they may not be less than three-quarters of the votes of the shareholders attending the meeting. In LLCs, the minimum voting requirement set by law is threequarters of all votes, which may be reduced in the articles to not less than a simple majority of all votes. Sometimes, shareholder agreements and articles of association require the consent of all shareholders for reorganisation to protect minority shareholders.

A shareholder in a JSC who has registered at the general shareholders’ meeting and voted against a corporate reorganisation may require the company to buy out its shares at the market value.

Some transactions in the course of a corporate reorganisation (eg, transfers of shares or assets) may fall under regulations for material and related-party transactions, which require approval by the general meeting, the supervisory board or the management board.

Shareholders may agree upon approval for the sale of shares of the company in its articles or the shareholder agreement. The latter may even set a lockout period during which the shareholders cannot sell their shares. Start-ups often use this limitation to preserve the corporate structure until a certain business development milestone or a round of investment.

Shareholders of LLCs have the statutory right of first refusal, in other words, the preferential right to acquire shares that the other shareholder offers to a third party. In that case, the share must first be offered to other shareholders on the same terms as offered to a third party. An external buyer may acquire a share in the company only if none of its shareholders has accepted the offer within 30 days or any other period fixed in the company’s articles. Nevertheless, shareholders of an LLC may limit the right of first refusal in the articles of the company, in which case the shares will be free for sale to third parties.

Agreements providing for shared assets and services must be checked before a corporate reorganisation to ensure that the use of shared assets and provision of shared services will not be disrupted by a corporate reorganisation. Leases may be terminated as a result of a corporate reorganisation and liens usually require the creditor’s consent in case of a reorganisation. Title to assets must be checked in the course of pre-reorganisation due diligence. If a part of shared real estate is involved in a reorganisation, a company may need to divide the real estate and update the details on the title in the Real Estate Register.

Participants of a statutory corporate reorganisation may enter into a reorganisation agreement and define therein the terms for the transfer of assets and liabilities to the legal successors.

Transferring the assets between the related companies is generally allowed, subject to additional internal approvals for material and related party transactions.

Transfers of assets between a Ukrainian company and its related foreign company may be qualified as controlled transactions under the transfer pricing rules. Transactions with a counterparty may be treated as controlled if the total annual amount of such transactions exceeds 10 million Ukrainian hryvnias. Commercial terms of such transactions must comply with the arm’s length principle. Otherwise, the Ukrainian company may suffer negative tax consequences.

Moreover, according to the latest amendments to the Tax Code of Ukraine, the company carrying out controlled transactions shall file a three-tier pricing report to the tax authority.

In companies without a state or municipal share in it, assets and shares may be transferred for less than their market value as long as transfers within the corporate group in controlled transactions comply with the arm’s length principle. The amount of undervaluation in controlled transactions may be taxed with withholding tax and corporate income tax.

In companies with a state or municipal share in it, assets have to be transferred at the market value determined by the certified appraiser.

If a company transfers assets under a sale and purchase agreement, there are rules of valuation for VAT purposes. The value of the assets previously purchased from a third party may not be less than the purchase price paid for those assets. The value of the assets produced by a company has to be market, and the value agreed by the parties to an agreement is treated as the market value unless the tax authority proves otherwise. The value of fixed assets may not be less than their book value.

If a natural person resident in Ukraine transfers his or her shares in a Ukrainian company to a related non-resident counterparty or a counterparty resident in an offshore jurisdiction (the list of which the government approves), the transfer has to be at the market value. The price agreed by the parties to an agreement is treated as the market value unless the tax authority proves otherwise.

No, a corporate reorganisation may not be backdated or deemed to have already taken place. A corporate reorganisation is completed from the moment of the state registration of the dissolution of the reorganised company (if it is dissolved) and state registration of its legal successors in the Companies Register.

The documents depend on the type of corporate reorganisation. A legal entity implementing a corporate reorganisation will require at least internal (corporate) approvals; notices for creditors; a transfer protocol or a distribution balance sheet; the restated articles of association; documents for filings with the Companies Register and other registers; documents for filings with the National Securities and Stock Market Commission for cancellation of existing shares or issue of new shares (for joint stock companies).

Ukrainian law generally does not recognise representations, warranties and indemnities. There are provisions of law and contractual terms in Ukrainian law that may give an effect somewhat similar to that of representations, warranties and indemnities, but they are not widely used. Instead, parties sometimes include, by analogy with common law, representations, warranties and indemnities in share or asset purchase agreements governed by Ukrainian law. However, the enforceability of such provisions in courts is not as proven as in common law.

Nevertheless, warranties and representations are rarely used for corporate reorganisations between the members of the same group, as risks also remain within the same group as opposed to transactions with the third parties.

The right to carry out a corporate reorganisation does not depend on whether the assets constitute a business as a going concern. To discourage a disproportionate split of assets and liabilities in spin-offs and splits, an entity involved may be held vicariously liable for obligations of another entity involved if the latter fails to meet the obligations.

Tax implications of a transfer of a business as a going concern and a transfer of assets depend on how the transfer is structured. If the business (assets) is transferred through a statutory corporate reorganisation, the transfer is VAT exempt. If the business is transferred through a sale of shares, it is also VAT exempt, but the income from the sale is taxable. If the assets are transferred under a sale and purchase agreement, VAT liabilities occur and the income from the sale is taxable.

From the company law perspective, transfers of assets and a business as a going concern usually require corporate approvals by the general meeting or the supervisory board. In the case of a transfer of a business as a going concern or assets under the share or asset purchase agreement (as opposed to a statutory corporate reorganisation), the companies participating in the arrangement are not (legally) deemed reorganised. Thus, they usually do not deal with reorganisation formalities such as applying for licences, updating information in state registers, etc (unlike in the case of a statutory corporate reorganisation).

In a corporate reorganisation of a legal entity (without a state or municipal share in its registered capital), the assets may be transferred at their book value. If the companies with a state or municipal share pass through a corporate reorganisation, the value of assets transferred has to be determined by the certified appraiser.

In the course of a corporate reorganisation, a public company has to disclose information on corporate events such as the closure of branches, related party transactions or changes in shareholdings, to the NSSMC and a stock exchange.

Corporate reorganisations of the legal entities with a state or municipal share in them require approval by state or municipal authorities managing those entities.

A reorganisation of a non-profit legal entity into a for-profit entity is not allowed. The opposite reorganisation – from a for-profit entity into a non-profit entity – is allowed upon the unanimous consent of all shareholders of the for-profit entity.

Post-reorganisation steps (mostly in cases of statutory corporate reorganisations) usually include the following:

• registration of title to real estate in the Real Estate Register in the name of the legal successor;
• update of the company file with the banks;
• application for new licences and permits;
• for JSCs (exceptions may be made for private JSCs with the sole shareholder), disclosure of information about the events occurred as a result of reorganisation (eg, change of officers, changes in shareholdings);
• filings with the patent and trademark office;
• execution of a new tax reporting agreement with a tax authority;
• updating electronic signatures of the officers of the company; and
• updating the company’s books and records.

Ukrainian businesses tend to be efficient and flexible, on the one hand, and compliant and transparent for stakeholders, on the other hand. The trend for groups of companies to downsize will proceed. The state and banks with their compliance control will further motivate businesses to have clear corporate structures. Investors also prefer lean and transparent organisational structures for financing.

We expect that changes in taxation, particularly the controlled foreign companies rules, will push Ukrainian groups with foreign holding or trading companies to align their corporate models with new approaches in taxation.

Land reform is high on the list of the ongoing reforms. In March 2020, the Ukrainian Parliament passed the law allowing natural persons owning agricultural land to sell it from 1 July 2021. Ukrainian legal entities with Ukrainian citizens as shareholders will be allowed to own agricultural land starting from 1 January 2024. The right to own agricultural land for other companies will be subject to a referendum. The lifting of a long-term moratorium on the sale of land will encourage agricultural businesses to revise their corporate structures, particularly in connection with structuring land banks and meeting statutory thresholds for land ownership.

We anticipate that the demand for good corporate governance will grow. This process often goes in parallel with corporate reorganisations. Owners of businesses may seek new opportunities from the implementation of the best practices, particularly given the recently updated Corporate Governance Code.

In company law, some statutory terms were prolonged due to quarantine measures, for example, the statute of limitations, deadlines for disclosure of information and annual general meetings, terms of service of board members. Some issuers of securities may not be able to comply with quarantine measures during general meetings due to the large number of people involved. Thus, the National Securities and Stock Market Commission (NSSMC) has passed interim regulations allowing the issuers of securities to hold remote general meetings. The NSSMC has also initiated the draft law on joint stock companies (JSCs) allowing remote general meetings permanently (as an alternative to physical meetings). The parliament has preliminarily approved the law, and the next reading is pending.

During the pandemic, clients should revise their corporate structures, dissolve dormant companies and transfer their assets to the main entities in the group. This may reduce management costs, simplify business processes and make corporate structures more efficient in the eyes of potential investors. In corporate governance, a trend is to move from physical to digital means of interaction, and current quarantine measures better enable that move. Ukrainian law already allows digital interaction, although with some limitations (eg, remote general meetings in JSCs were not allowed before the pandemic).