UKRAINE Trends and Developments Contributed by: lllya Tkachuk, Igor Krasovskiy and Inna Kostrytska, INTEGRITES
New deals are being discussed in a way that is much more precautious and reserved. Some of the peculiarities can already be noticed. First of all, the structuring of deals returned back to the “outside of Ukraine level”. This entails creation of a non-Ukrainian holding company (if there is none yet), transfer of IP rights and prod- ucts to the ownership of such holding company and even the transfer of the clients (if possible). Second, the material adverse change (MAC) and the force majeure clauses in agreements became more important than ever. Before the war, the MAC clauses were mostly attributed to deals where the target had fully or substantially relied on the Ukrainian unde - veloped legislation or legislative loopholes. An example can be made with regard to the fintech projects where the development of technologies goes ahead of the statutory regulation. After the war started, the MAC clause governed by Ukrainian law became much more complex and covers not only the local regulation, but also martial law, conscription and relocation of employees, functioning of governmental authori- ties, banks, state registers, etc. In the absence of practice, it remains unclear how the practice of using the MAC clauses will go for the contracts concluded after February 2022. A similar approach applies to force majeure clauses, the provisions of which have been tested during martial law. The provisions which used to be mostly template clauses before the war now have become extremely important. At the same time, the practice of implementation of the force majeure clauses during martial law has not dramatically changed compared to the COVID-19 cases. More specifically, the fact of
war has not become a universal force majeure event, and the impossibility to perform certain provisions needs to be proven in each particu- lar case. Moreover, the war has not become an excuse for non-performing of the payment obli- gations, unless there is no physical access to the bank account. Although the practice has not yet proven the efficiency of these trends, the negotiations on potential M&A are often addressing the ques- tions on different deferral conditions. This applies to the transfer of the title after certain dates; the payment conditions linked to certain events. Evidently, such a trend is mostly caused by the will of the parties to hedge the risks of the The trends which were in place before the war with regard to M&A deals in the IT sector will most probably remain the same and include the following. Corporate structuring The corporate structuring is often a weak point for Ukrainian IT companies, especially for start- ups. Indeed, historically, IT businesses com- monly use the private entrepreneur’s status to benefit from the favourable tax regime. In most cases, service agreements are concluded with IT specialists instead of employment agreements. However, the founders and owners of IT com- panies also often use this model for themselves, especially at the initial stages of the corporate history. Thereafter, the company is growing and building a new structure without a clear separa- tion from the founders. As a result, certain key elements of business, like IP rights or business processes, are divided between the company and its founders. country at war. Pre-war trends
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