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High Court Rules to Permit Lending and Suretyships by Legal Entities and Individuals
Baker & McKenzi, Kyiv, Ukraine, Thursday, August 16, 2012
On 18 July 2012 the Supreme Court of Ukraine issued a ruling ("Ruling") confirming that legal entities (other than financial institutions) and individuals (other than private entrepreneurs) (together, the "Non-Financial Persons") are capable of granting interest loans and suretyships (the "Quasi-Financial Activities"). The Ruling is a powerful signal to Ukrainian courts to follow the same logic in similar cases.
The core of the problem was to determine whether the Financial Services Law applies to Non-Financial Persons engaged in Quasi-Financial Activities.
The Financial Services Law indicates that Semi-financial activities are in fact types of financial services. Accordingly, the Financial Services Commission often insisted that they can be rendered only by qualifying (i.e., licensed) financial market participants other than Non-Financial Persons.
On the other hand, the Civil Code of Ukraine does not mention any restrictions on the providers of Quasi-Financial Activities. Accordingly, the regulatory limitations of the Financial Services Law have often been criticized as artificial and in conflict with the Civil Code.
In its Ruling the Supreme Court of Ukraine clearly outlined that the Financial Services Law is a specific law which applies only to participants in the financial markets. Accordingly, Non-Financial Persons can carry out Quasi-Financial Activities based on the Civil Code, but not within the framework of the Financial Services Law.
The legal position in the Ruling is a significant relief for Non-Financial Persons because it (a) removes doubts about whether they can actually carry out Quasi-Financial Activities, and (b) confirms that they do not have to comply with the regulatory and licensing requirements of the Financial Services Law. Although some Ukrainian courts upheld the same position in the past, we hope that the Ruling will bring sufficient consistency and clarity to both court and market practices.
Additional notes
This LEGAL ALERT is issued to inform Baker & McKenzie clients and other interested parties of legal developments that may affect or otherwise be of interest to them. The comments above do not constitute legal or other advice and should not be regarded as a substitute for specific advice in individual cases.
