Mergers and Acquisitions in Ukraine are governed by legislation. The main laws regulating M&A; transactions, besides Civil and Commercial Codes, are the Law “On Joint Stock Companies”, “On Renewing a Debtor’s Solvency or Declaring Bankruptcy,” and related legislation on antimonopoly rules, taxation, etc.
There is no definition for “acquisition” in Ukrainian legislation. But, in practice, it means that one company gains control over the assets or shares of another company.
Types of acquisitions:
1. The acquisition of assets. In this case are acquired only the identified assets (and/or liabilities) that the buyer agrees to obtain.
2. The acquisition of debts. According to the Law on Bankruptcy, an insolvency plan can contain the option of exchanging a creditor’s demands for shares and/or assets of the target company (the debtor).
3. The acquisition of shares. In this case the buyer acquires the company together with all its assets, liabilities and obligations.
Types of merger and acquisition transactions in Ukraine:
Note: Companies may not take part in simultaneous mergers, accessions, separations, extractions and/or transformations.
Under Ukrainian law all mentioned above transactions (except extractions) may result in termination of the activity of at least one of the companies involved in the reorganization process by transferring its assets, rights and obligations to its legal successor.
Any M&A; transaction requires the approval of the highest decision-making bodies of the companies involved: simple majority of votes in a limited liability company (“TOV- Tovarystvo z Obmezhenoyu Vidpovidalnistyu”) or 3/4 of the votes of shareholders taking part in a general assembly of a joint-stock company (“AT – Akcionerne Tovarystvo”).
In specific cases provided by law, transactions are initiated by court decision or decision of a government body. As for separations and extractions – they are only carried out pursuant to a court or government body decision. In some cases the law may also require the consent of a government body for terminating a company via a merger or accession.
Since afore-named reorganizations lead to the dissolution of a particular company, the termination is supposed to be performed in accordance with special procedures. In particular, the liquidation of a company is conducted by the liquidation committee, established by the company’s owners or an authorized body (e.g. the Arbitration Court), which estimates the asset value of the company, notifies all the creditors of the companies, as well as the state registrar on the dissolution and merger, draw up the act of the transfer, and so on. The procedure itself differs according to the organizational form of the particular company.
Short overview of the types of Merger and Acquisition transactions in Ukraine:
Note: The merging companies must terminate their activities simultaneously upon the transfer of their rights and obligations to the legal successor.
A legal entity may participate in a merger only with a legal entity with the same organizational form (i.e., a joint stock company cannot merge with, be merged or separated into a limited liability company).
A merger of two or more joint stock companies results in establishing a new entity. In this case the merging companies are dissolved and all their assets, rights and obligations are transferred to the newly created company – legal successor on the basis of a transfer act. The shares of the participating companies’ shareholders are subject to conversion into shares of the legal successor or annulment in the established procedure if bought out by the companies.
Accession (Joining, Unification)
In such transaction one or more companies are absorbed into another existing company. In this case, the companies that are joining an existing company are dissolved and they transfer all their rights and obligations to the company which survives the transaction.
In cases when the surviving company owns more than 90 percent of the ordinary shares of the acceding participant(s), the resulting accession will not require amendments to the charter of the surviving company connected with its shareholder rights.
As a result of the accession, the acceding participant(s) will be subject to termination and their shares will be converted into shares of the surviving participant and allocated amongst the shareholders. Any shares of the surviving company, which were owned by the acceding participant(s), will not be subject to conversion and, instead, will be subject to annulment.
Separation (Subdivision, Split-off)
The separation of a company results in the liquidation of the original company with the transfer of all of its rights and obligations to more than one new company-legal successor.
The separation target’s shares of must be converted into shares of the newly formed companies and allocated amongst the corresponding shareholders. As a result of the liquidation of the separation target, each shareholder of the separation target will receive shares of each of the newly formed companies.
If the separation target must buyout its own shares from shareholders before the separation transaction is completed, then such shares will not be subject to conversion but will be subject to annulment. In the end, each newly formed company will jointly bear subsidiary liability for the obligations of the separation target which arose prior to separation but were transferred under the separation transaction.
The extraction of a company involves the creation of one or more companies out of an existing one without the termination of the existing company. Under an extraction transaction, a portion of the rights and obligations of the existing company are transferred to the newly created company (companies).
Any shares of the extraction target, which were bought out from shareholders by the company during the extraction procedure, may not be transferred to the assets of the legal successor(s) and are not subject to conversion, but are subject to annulment.
As a result of an extraction transaction, the extraction target will bear subsidiary liability for the obligations transferred to the newly formed company (companies). The newly formed company or companies will bear subsidiary liability for the obligations which arose in the extraction target prior to the extraction but did not transfer to the newly formed company (companies). If two or more companies were extracted, then such companies will jointly bear subsidiary liability for the obligations together with the extraction target.
A transformation means the change of a company’s legal form with its liquidation and transfer of all of its rights and obligations to the legal successor. In example, a joint stock company may be transformed or converted into a limited liability company or any other company form under Ukrainian law.
After the transformation, the shareholders of the newly created legal entity become known as “participants”, since most other business forms in Ukraine do not issue shares of stock. The shareholdings of the participants are represented by participatory interests in the authorized capital of the newly created legal entity (for example, a limited liability company). Therefore, the general assembly of participants will need to approve the new founding documents of the legal entity, including the charter, and the election and appointment of the management body.
In distributing the participatory interests in the new business entity to the participants (former shareholders), the joint relations between shares of stock of the shareholders in the original joint stock company in the authorized capital of the company must be maintained for purposes of initial registration. If the company bought out shares from shareholders during the transformation procedure and did not sell and/or extinguish them pursuant to law, then such shares will not be subject to transformation into participatory interests and will be annulled.
Note: In case of issuance securities other than shares of stock, the relevant company must provide the owners of such securities with the same volume of rights that was provided to them before undertaking a transaction. After the M&A; transaction is finalized, each shareholder (participant) will possess the same number of votes it had under their previous shares of stock or participatory interests before the transaction.
It should be mentioned, that shareholders always have the right to refuse to participate in an M&A; transaction and use the right of mandatory buyout of their shares by their companies. In such cases, the shares bought out by the company will not be subject to a conversion procedure. As for conversion cases – the participating companies may choose to receive cash payments instead of shares of stock, taking into account that their charter allows the receipt of cash and a clear cut procedure is provided by either the merger (accession) agreement or the separation (extraction) plan (for detailed information visit Merger and acquisition procedure and anti-monopoly regulations ).
The protection of creditors’ rights is realized by publishing an official notice of the transaction prior to its finalization. Each creditor has the opportunity to either secure his rights or demand premature termination as well as performance of obligations prior to finalization of the transaction.
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