LAND REFORM IN UKRAINE: CORPORATE STRUCTURES AND TRANSACTIONS
Asters, Kyiv, Ukraine,
May 13, Wed, 2020
On 31 March 2020, the Ukrainian Parliament voted for the law on agricultural land market. Within our new "Land Reform in Ukraine" project, Asters experts will analyze practical issues or other areas of interest that we anticipate in the course of further implementation of the land reform in Ukraine.
(1) The Law has imposed severe restrictions as to ownership structure of Ukrainian companies entitled to acquire agricultural land (excluding banks in a mortgage foreclosure procedure). In particular, shareholders of such companies may only be:
- Ukrainian citizens
- State of Ukraine
- Territorial communities
Proceeding from the above, Ukrainian companies that wish to acquire agricultural land cannot have other companies (legal entities) as shareholders.
(2) The Law also sets forth an additional corporate safeguard, namely: that until a decision to allow market access to foreigners is adopted through a referendum, companies are prohibited from acquiring shares in the charter capital of other companies (legal entities) owning any agricultural land (excluding banks).
What businesses should know
Literally, restriction (1) should not affect those companies that already own certain agricultural land. However, those companies that intend to create or expand their privately-owned land bank after entry into force of the Law may have to restructure their ownership. And even then their ability of acquire land will be quite limited (due to restrictions on maximum size of the owned land).
There is no certainty how the above restrictions are going to be controlled and enforced. Further regulations and additional instruments within the relevant public registers are yet to be developed to address this.
As regards restriction (2), it is quite clear that any share transfers in Ukrainian companies (starting from 1 July 2021) will need to be carefully checked in relation to ownership of agricultural land by the target company to avoid subsequent implications on such share transfer.
Lastly, it should also be noted that the above restrictions, as currently written, may lead to manipulations and additional risks to creditors holding shares in Ukrainian companies as a security. Should the company, the shares of which are pledged, acquire any agricultural land, enforcement of the pledged shares may be impaired, as in such situation the pledged shares may only be transferred (sold) to a limited number of potential buyers.