Practice of investment support and M&A

Investment support and M&A

Legal support of domestic and foreign investors is a case involving the most competent team of Attorneys at Law “Bachynskyy and Partners”. Under the conditions of an unfavourable investment climate, we are ready to undertake an objective evaluation of potential profitability to risk level and comprehensive support of an investment project from selecting offers and preparing necessary agreements to control its implementation and dispute resolution.

In the past three years, we have carried out the support of more than 50 investment projects and M&A agreements in real estate, industrial sector, agro-industries, IT etc. To increase expertise level in performing tasks that were set experts of investment support and M&A involve lawyers of the Attorneys at Law “Bachynskyy and Partners” who practice corporate and IT law, migration services, real estate (link).

Apart from designing and analyzing agreements, conducting audits of an investment object, we also offer services of participation in negotiations between investment project parties, preparation recommendations in risk management in project implementation, representation of client`s interests in relations with state and local government authorities, protection of client`s interests in investment disputes.

Support of foreign investments

Thanks to the experience gained, professionals of the Attorneys at Law “Bachynskyy and Partners” are ready to provide a wide scope of consulting services in strategies and peculiarities for investing in Ukraine, conduct search and selection of investment attracting assets in Ukraine, coordinate the process of concluding investment contracts at all stages.

We can work with different kinds of investments including portfolio investments. But we prioritize direct foreign investments – Brownfield and Greenfield projects.

The scope of services for a potential investor includes: choosing an investment object → its legal and financial audit (Due Diligence) → structuring an agreement of purchasing such an object → legal support in project implementation (if required).

Particularly, support in drafting corporate documents, conducting registration or re-registration is provided. In the case of including foreign managers in an entity`s management body, work permits are issued. If necessary, we assist foreign citizens in obtaining tax ID and opening bank account.

We carry out legal support of investment in the high-tech industry and IT sector, transport infrastructure and power industry, agriculture and construction industry as areas with high economic potential (high value-added).

Investment is conducted via:

  • Establishing a new business, including – investing in startups;
  • Mergers and acquisitions;
  • Participation in joint ventures;
  • Purchasing corporate rights (shares) in an existing business;
  • Purchasing real estate.

Investment in real estate

Today, Ukraine continues to hold the status of one of the most favourable countries to invest in real estate. Compared to Spain, the USA, Germany, and Israel, buyers recover their investments quicker. A good profit may be gained by purchasing real estate either for selling, or for renting out – thanks to relatively real estate price and increase of the rental cost.

Experts of the Attorneys at Law “Bachynskyy and Partners” may undertake to provide main components of the success of such investment projects – selection of objects and their comprehensive legal and financial audit. In cooperation with real estate lawyers legal support of real estate purchase is conducted from the moment of reservation and placing an advance payment to the moment of concluding the main agreement.

As the most perspective objects in sight of potential investors are new buildings in such large cities as Kyiv, Lviv. Odesa, Dnipro, Kharkiv and residential and commercial property in historical districts of a capital city and other cities of Ukraine that are attractive to tourists. Our team is experienced in purchasing objects in the stage of construction, primary and secondary market.

Legal audit of a real estate object consists of:

  • Verifying the title – confirmation of a valid ownership right of an object seller (if a title document is a decision of a court, then a huge risk for a buyer takes place), absence of encumbrances: pledges, arrests;
  • Tracing the history of an object – who and when had built/begun building an object, what documents were grounds for building, what was the chain of title;
  • Audit of a land plot – ownership and use of land (existence of an ownership right or a superficies), availability of necessary agreements of allotment, seizure, change of targeted designation;
  • Inspection of permits and technical documentation – developer`s licenses, urban-planning conditions and restrictions, expert conclusions concerning a project, building permits, technical conditions for connection to facilities, certificate of commissioning etc;
  • Inspection of a seller – an absence of tax debt, judicial and enforcement proceedings, if an authorized person has a right to sign a sales and purchase agreement etc.

Support of business purchase

Investment in an existing business is both a promising and risky opportunity. Sometimes sellers use the method of “pre-sales preparation of a business”. For a buyer, a fake image with good indicators of financial performance is created. Also, legislative requirements in corporate, anti-trust, contract law, intellectual property are violated (so-called intangible assets).

Our team offers an effective algorithm to minimize risks for business buyers and create preconditions for gaining maximum benefit, which includes the following steps: an independent evaluation of business value → full support of a contract concerning a business merger or investment in a share → structuring of an investment contract → obtaining authorization for the concentration from the Antimonopoly Committee of Ukraine if necessary.

While structuring an investment contract concerning the purchase of business tax risks are calculated and reduced, if necessary – holding structure is designed, a question, regarding under who a business/part of purchased assets is registered, is solved.

Upon evaluation of a business cost, the following criteria must be taken into consideration: capitalization (existence of real estate, own production equipment), duration of an activity in the market, dynamics of business development (turnovers, dynamics of profitability in recent years, EBIDTA, stability in work, team, counterparties, prospects of development etc.

Obtaining a concentration permit from the Antimonopoly Committee of Ukraine

The list of actions having signs of concentration is stipulated by Article 22 of the Law of Ukraine №2210-III “On the Protection of Economic Competition” as of 11.01.2001. The notion of “economic concentration” is interpreted as the merger of economic entities and market assets, resulting in the monopolization of product markets.

Since M&A contracts lead to concentration, after concluding such agreements it is necessary to undergo a concerted actions procedure in the Antimonopoly Committee of Ukraine, and if the thresholds set in Article 24 of the Law №2210-III are exceeded – obtain authorisation for the concentration. If a law provides an obligation to authorize concentration in the Antimonopoly Committee of Ukraine, but such authorization is not obtained, sanctions in the form of fines are imposed on the business subject. An amount of fine is up to tens of millions UAH.

The list of mergers and acquisition contracts support services of the Attorneys at Law “Bachynskyy and Partners” includes:

  • Receiving a preliminary decision from the Antimonopoly Committee of Ukraine concerning a necessity or absence of necessity to obtain authorization for the concentration/concerning a necessity to issue authorization or denial of its issuing;
  • Submitting an application along with the set of documents and obtaining authorization for the concentration from the Antimonopoly Committee of Ukraine.

Legal structuring of M&A contracts

To protect the client`s interests as a party to a merger and acquisition contract, lawyers of the Attorneys at Law “Bachynskyy and Partners” carry out:
– a comprehensive analysis of all stages of contract in compliance with the law;
evaluation of possible risks;
– development of a thorough plan to fulfil the necessary steps in contract implementation;
– support in the preparation of necessary documents and their legal assessment.

For each specific contract, an optimal structure is developed, where the following components are defined:

  • Procedure for title transfer;
  • Parties to a contract;
  • Price (procedure for its determining and adjustment);
  • Selection of taxation form for a created structure;
  • Procedure of payment;
  • Solving the issues concerning compliance with anti-trust laws and other regulatory restrictions;
  • Possibility and procedure for concluding additional contracts;
  • Rules for dispute resolution.

Preparation of a partnership contract

Just as in marriage a prenuptial agreement could be effective prevention of protracted property disputes, a partnership contract or a joint venture agreement may dot the in joint investments. Parties to such a contract could be either a physical person, a legal entity, or a sole proprietor.

The Attorneys at Law “Bachynskyy and Partners” offers its services of preparation, expertise and support of the conclusion of a partnership agreement to: a) partners who have already invested in a business; b) persons who plan to establish a partnership in a business.

Since concluding partnership agreements is not a popular practice among Ukrainian entrepreneurs, our experience in concluding similar documents is significant. Friendship and mutual compatibility between business partners may change, but well-defined terms of an agreement are constants that under certain conditions may help to protect personal interests.

The partnership agreement consists of the following conditions:

  • Conditions of entry into a partnership (particularly, how much each partner invests in a business);
  • Possible reasons and conditions for leaving a partnership/dissolution of a partnership;
  • Division of responsibilities among partners in business;
  • Opportunities of partnership extension (as new partners may join the business);
  • Principles of assessing results of work and partner`s achievements;
  • Division of profits and losses;
  • Procedure for dispute resolution.

The attraction of investments via a franchise

As a direction of investment activity legal support experts of the Attorneys at Law “Bachynskyy and Partners” provide services concerning the attraction of investments via a franchise. In addition to a legal package, we provide an analyst of a financial model and its marketing packaging through our partners.

Thanks to the experience of legal support in franchising we can provide for clients a preliminary evaluation of prospects for project implementation and get answers to a critical question if it is worth starting the work at all. We are ready to highlight real opportunities and potential pitfalls according to a chosen business niche and a target budget.

Our services for franchisers include:

  • Trademark registration support;
  • Preparation of a commercial concession agreement;
  • Legal support of international business projects – master franchises (so-called “golden franchises”);
  • Representation in negotiations between franchisor and franchisee;
  • Due Diligence of potential franchisees.

Due Diligence in investing

The main modern instrument to minimize risks in investing is a comprehensive legal audit of an investment object (Due Diligence). Such an audit takes an important place in a package of services the “Bachynskyy and Partners” provides to potential investors.

Legal Due Diligence covers an analysis of a large list of criteria. Firstly, the following questions are investigated: a) observation of corporate, tax, labour, anti-trust, intellectual property law – if an investment object is an existing business; b) in urban planning, land-related legal issues, protection of property rights – if an investment object is a real estate.

The algorithm of conducting Due Diligence by professionals of the Attorneys at Law “Bachynskyy and Partners” consists of: writing technical requirements → sending requests for obtaining information → data collection and interpretation → providing a report on results of a conducted audit.

Due Diligence is different from legal consultation and an expert legal conclusion, as it provides a more comprehensive and wide-ranging analysis of documents, as well as an internal and external legal environment of an object.

Due Diligence in business investments includes investigation of the fooling aspects:

  • History of establishment and development of a business (including change of beneficiaries);
  • Structure of property and system of corporate management;
  • Constituent, corporate and human resources documents, contracts with counterparties;
  • Legitimacy of activity – availability of licenses, certificates, permits, observation of competition law;
  • Formation of charter capital;
  • Legitimacy of appointment/powers of an administration body executive officer;
  • External economic activity;
  • Accounts receivable;
  • Rights to real estate (particularly – disclosure of encumbrances) and intellectual property objects;
  • Current and past litigations concerning the company`s activity.

Investment returns are a result of systematic work with professionals and slight luck. Team of investment support and M&A practice lawyers of the Attorneys at Law “Bachynskyy and Partners” is ready to provide resolution of all project legal issues. It is a big contribution in establishing a base for your success as an investor.

Articles
A new law on virtual assets: the picture is formed, but without details. On September 8, 2021, the Verkhovna Rada has finally adopted the long-awaited law "On Virtual Assets", which clarified many ambiguous points. This is especially true for the status of cryptocurrency and the rules of its circulation in the country. Let`s take a closer look at novelties. An ambiguous term Let's start with what the legislator actually means by "virtual assets". There are the following features:  they are an intangible good (cannot be represented on tangible media)  fall under the list of objects of civil rights (that is, they can be owned and be disposed of)  represent an electronic form of a set of data (essentially, they are blocks of information put in order);  the existence and circulation of assets are due to software tools (specific electronic environment). From these features we can draw the following conclusion: virtual assets are not limited to cryptocurrency. Digital currency is part of the concept, but other instruments, such as tokens, NFTs, or even in-game items, fall under the definition. Actually, the actual existence of most digital products, having a certain value, is due to the software environment (ecosystem), either it is blockchain technology, a trading platform, or an online game server. It should be noted that the attempt to define virtual assets was already made in the adopted Law of Ukraine in counteracting money laundering. In this act, they understand it as digital means of payment, which goes against the new definition. As a result, there are now two different explanations for virtual assets, which causes significant confusion not only in regulation but also in interpretation. It is definitely necessary to expect clarifications from competent state bodies. Let's return to the new law. Its application covers legal relations in which the "Ukrainian element" is present:  provider or recipient of services represented in Ukraine;  an agreement according to which the turnover of virtual assets is carried out in accordance with Ukrainian legislation;  the acquirer of assets (or both counterparties) is a resident(s) of Ukraine. The law also introduces an interesting division of all virtual assets into two groups: secured and unsecured. Here again, there is a problem of interpretation. The first category includes products exchanged for (state) currency, the second category includes instruments that can be exchanged only for other digital assets. There is an alternative opinion: that the turnover of secured assets is supported by real goods (money or other property), while unsecured ones are not supported by anything. The latter interpretation is the most credible, as the new law stipulates that virtual assets are NOT means of payment. Moreover, they cannot be exchanged for real goods, be they property, services or money. This significantly narrows the potential for the use of virtual assets not only for commercial but also for civilian purposes. About obligatory licensing The new law states that in some cases, the use of virtual assets will require licensing. The 4 types of activity are mentioned:  storage and management of virtual assets (or its` keys)  servicing of exchange operations with virtual assets (both for other analogues and for real goods);  translation of digital assets;  any intermediary services. A list is quite impressive, but there are some important exclusions:  if your service works with cryptocurrency wallet (it means users can dispose of accumulations into cryptocurrency independently);  If your service works on smart contracts or decentralized protocol, based on which internal transfers are performed. As to intermediary services, everything is more compicated. Actually, any mediation is based on the public share offering. That is why it is subject to licensing. How to get a license? A company that wishes on legal grounds to engage in virtual assets must satisfy legislative requirements. The key role is played by the minimum amount of the statutory capital, which equals 1,19 million hryvnyas (for non-residents it is 5,95 million hryvnyas) in case of storage and administration. For other types of activity (trading, translation and mediation services) the minimum size of the statutory capital amounts to 595 thousand hryvnyas (for non-residents is 2,98 million hryvnyas). The order of the registration of license:  to compose an application and prepare documents.  to pay state fee (68-136 thousand hryvnyas for residents and 340-680 thousand hryvnyas is for non-residents).  to pend review of the request (30 days).  to get a license. The duration of the license is 1 year. No norms about the continuation of legal force of permission are set (we are expecting amendments or explanations from the Ministry of Digital transformation of Ukraine). Notably that non-residents must pay a far greater sum, than domestic companies. The Ukrainian legislator obviously encourages an internal market, getting rid of a strong foreign presence (that, in fact, coincide with modern politics of the state on the whole). Together with an application, the following documents must be prepared: The access code to the copy of the Statute of the company (or the foundation agreement) kept in an electronic file in the database of the Unified State Register of Enterprises and Organizations (USREO);  Funding sources of the statutory capital (where the money are taken from);  confirmation of the actual injection of money;  information about beneficiaries (special attention must be paid to business reputation);  the information about the director and founders;  the check about payment of state fee;  the internal regulations, in accordance with which ones, the privacy policy rules are regulated. In the terms of volume of necessary documentation of licensing is very alike with complete registration of legal entity. It is understood that the state wants the severe adjusting of activity of organizations that will engage in virtual assets. Is it already possible to get a license? The adoption of the law by the parliament is a significant step forward in adjusting and legal market of virtual assets creation in Ukraine. However, the new rules haven`t come into effect yet - their term of introduction depends on making amendments in the Internal Revenue Code. It is yet unknown, when a legislator will decide to enter the renewed system of taxation for such assets. Being "IT-hub" and territory, where cryptocurrency enjoys large popularity, the question of taxes must be decided maximally safely. Despite the presence of obvious gaps in interpretation, a new law on virtual assets gives the official narrative of what takes place and that, how the legal relationships related to cryptocurrency will be regulated. It is to be hoped that in the nearest time the Ministry of digital information will give out the detailed explanations concerning debatable norms.
20/01/2022

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