On 19 June 2020, the Ukrainian parliament passed Draft Law No.2284 “On Amending Certain Legislative Acts of Ukraine in relation to Investment Attraction and Introducing of New Financial Instruments” (Capital Markets Law), which also introduces changes to procedural codes in Ukraine and to laws on alternative dispute resolution.

By introducing bonds administrators as new actors of the capital markets, the Capital Markets Law empowers bonds administrators to act on behalf of bondholders in disputes on the protection of bondholder rights and bondholder interests in administrative, civil, commercial, criminal proceedings, and arbitrations.

In addition, the amendments affect other Ukrainian legislation, including the Code of Commercial Procedure, Code of Civil Procedure, Code of Administrative Procedure, Criminal Procedural Code, Bankruptcy Code, the law “On Enforcement Proceedings”, the law “On Arbitration Courts” and the law “On International Commercial Arbitration”.

Important changes contained in the amendments include:

  • Definition of a claimant in administrative proceedings (e.g. claims on challenge of actions of authorities) extends to bonds administrators acting on behalf of bondholders.
  • Actions of bonds administrators in administrative and commercial proceedings that may negatively impact the interests of bondholders are only allowed upon consent through a meeting of bondholders. Such actions include refusal of a claim, change of the subject of a claim, conclusion of a settlement agreement, withdrawal of the appeal or cassation complaint, etc.
  • Concept of the civil plaintiff in criminal proceedings extends to bonds administrators acting on behalf of bondholders.
  • Bonds administrators are allowed to withdraw their civil complaint in criminal proceedings upon obtaining the consent of the meeting of bondholders.
  • Injunction relief within civil and commercial proceedings in the form of a seizure of funds (e.g. the seizure of funds in criminal and enforcement proceedings, on accounts in the National Bank of Ukraine or other banks, which were opened for the Central Securities Depository or clearing institutions to ensure payments) is directly prohibited.
  • The bonds administrator may act as the creditor in bankruptcy proceedings on behalf on bondholders having duly confirmed claims against the debtor.
  • Based on the parties’ agreement, international disputes between bonds administrators, bonds issuers or parties providing collateral for such bonds can be submitted for international commercial arbitration.
  • Arbitration agreements can be concluded in a new form, by stipulating an arbitration clause in a securities prospectus (e.g. a decision on issuance of securities).
  • Legislative changes to make existing rules compliant with the new law.

The specified changes will offer better protection for bondholder rights and open up opportunities for effective alternative dispute resolution in the Ukrainian capital markets.

The Capital Markets Law is awaiting a signature from the Ukrainian President and – with the exception of certain provisions – is scheduled to come into effect on 1 July 2021.

For more information on this draft law or the Ukrainian capital markets, contact your regular CMS advisor or local CMS experts: Maria Orlyk, Pavlo Bogachenko, Olexander Martinenko, Ihor Olekhov, Olga Shenk.

Authors:

Maria Orlyk, Partner, maria.orlyk@cms-rrh.com

Pavlo Bogachenko, Associate, pavlo.bogachenko@cms-rrh.com

Olexander Martinenko, Senior Partner, olexander.martinenko@cms-cmno.com

Ihor Olekhov, Partner, ihor.olekhov@cms-cmno.com

Olga Shenk, Councel, olga.shenk@cms-cmno.com