Nowadays it is not a secret that the raiding seizures have become a ‘common phenomenon’ and ‘rather a business rule’ than an exception to the same. This issue is pressing both for the national companies and foreign investors.
The comments on this topic were provided to us by the Partner of Syutkin and Partners Firm of Attorneys, Natalia Osadcha.
To start with, I’d like to consider the notion of the ‘raiding seizure’.
Raiding seizure is an illegal seizure of real estate, corporate rights, and/or intellectual property objects by the other business entities, individuals and public authorities.
As the experience shows, it is the public authorities which play the major role in implementation of the raiding seizure schemes.
It is hard to classify the seizure schemes in view of their great diversity, from the commonplace seizure of an average company by its director and President to the well-planned seizure of big real estate objects and land with the help of the public and law-enforcement bodies.
What is common to these cases and which mistakes are made by the owners of business which were subjected to illegal seizure, since far not all companies become the subject of seizure?
Firstly, it is necessary not to neglect the seemingly insignificant events, which can be the forerunners or grounds for illegal seizure.
As the experience shows, the following events may become the basis of the raiding seizure:
1. Issue of the general powers of attorney to the third parties for attending of the general meetings of LLC members/joint stock companies’ shareholders (without limitation of the representative’s power to certain legal actions).
2. Issue of promissory notes by the company, at which the facility is registered.
3. Neglecting of inspection reports issued by the controlling/prosecutor’s bodies establishing the fact of illegal actions of the company at which the facility is registered.
4. Failure to re-execute the title-establishing documents to the facility and/or constituent documents (the company name is not changed; the new certificate is not obtained etc.)
5. Conclusion of the premise lease agreement on behalf of the building owner providing for the lessee’s right to make improvements.
6. Existence of insignificant debts to the contractors.
7. Initial privatization of the real estate object and/or redemption of the facility from public authorities or local self-administration bodies.
8. Assignment of a part of the corporate rights of the company at which the facility was registered to the third parties (directors, president etc.)
Secondly, one shouldn’t neglect the high-quality legal accompaniment at the facility acquisition stage.
The skilled lawyer can draw its conclusion on the legal risks and their eventual negative impact and present its suggestions regarding their minimization at the early stages already.
Otherwise, the customer may obtain a conclusion on impossibility to purchase a certain facility because of the high risk inherent to it. Certainly, the final decision is always made by the investor, but at least this decision is conscious and informed, taking into account all pros and contras.
Thirdly, you should reasonably assess the situation formed in Ukraine with regard to illegal seizure of the property objects and not think that you will never face it.
It doesn’t mean that there is no business opportunity in Ukraine at all. Contrarily, Ukraine is an attractive country for foreign investors due to its dynamically developing market economy.
"It is the public authorities which play the major role in implementation of the raiding seizure schemes."
However, for successful conducting of business in Ukraine it is required to take special steps for investment protection yet before the eventual occurrence of issues.
Besides, the ‘legal prevention’ costs are incomparably less than those incurred by the owner during active defense against seizure.
Our company developed special types of legal services aimed at prevention of the raiding seizure, such as the legal analysis of the business/investment objects for detection of illegal seizure risks, development of the risk minimization schemes and their direct implementation.
Certainly, there is no all-purpose protective measure suitable for everyone; they are developed individually based on the realities and current legal position of the client. However, I may state that any big deal related to acquisition/privatization of property needs continuation from the prospective of illegal seizure risks management.
Leaving the deal ‘as is’, the investor is running a risk of loosing the facility due to the change of the public authorities’ position and/or competitors’ proactive actions.
I’d like to give an example from our practice. One of our clients who redeemed the facility (a land lot) from the local council, having paid a significant amount for its acquisition, faced the issues after the prosecutor’s office ‘concluded’ that the facility had been purchased in breach of regulations of the Land Code of Ukraine.
Such position of the prosecutor’s office was expressed in the claim for invalidation of the land sale and purchase agreement.
Meanwhile the issue of restitution (repayment of funds) to the investor wasn’t raised at the proceedings at all. However, even if the court had awarded the repayment of funds to the investor, the enforcement of such award would have been impossible because of the lack of funds with the local council.
Between acquisition of land by the client and appearance of ‘issues’ in the form of illegal seizure more than 3 years have passed and if the above client timely took steps for minimization of legal risks inherent to the deal, he wouldn’t have faced such issues.
In any case, I’d like to draw your attention to the fact that timely detection of illegal seizure risks is the ‘prevention’ of eventual troubles and pledge of success of any business.
The article was prepared by:
Partner of Syutkin and Partners Firm of Attorneys, Natalia Osadcha
Syutkin and Partners
Firm of attorneys
Tel/fax +38044 25 33 221
E-mail:[email protected]
Site: www.syutkin-partners.com
