Legislative Novelties

Despite the hot summer season a portion of legislative novelties arrived from Parliament and posed lots of questions for precise consideration. We continue to be at the forefront of news and developments. Our expert panel shares its views on the long-anticipated reform of the judiciary, enforcement service, financial restructuring; measures for effective customs procedures, anti-corruption incentives, pharmaceutical regulation.

 

Oleg Malinevskiy,

Partner, FCLEX

On 2 June the Ukrainian Parliament approved On the Judicial System and Status of Judges Act of Ukraine. How will judicial reform affect the legal business?

I am convinced that one long-awaited outcome of numerous legislative changes in the administration of justice should be the restoration of confidence in domestic courts. This, in turn, will make our country attractive for investments and a legal safe harbor for doing business in it. This will multiply the existing economic potential of our country, which is contingent on its special geographical location, natural resources, scientific and technological and human potential.

However, the key to the success of judicial reform is consistency and comprehensiveness of proposed changes and adequate deadlines for their implementation. This is so because, on the one hand, the reform must have definite, acceptable timeframe for its implementation or, otherwise, there is the risk of losing relevance of even the most progressive ideas and changes. On the other hand, the reform should cover all aspects that are crucial for the functioning of an independent and effective judiciary in Ukraine, and primarily: (a) the institutional (who carries out justice), (b) the procedural (which rules of procedure apply), and (c) the psychological (how free and independent the discretion of judges will be) aspects. I am convinced that restoring confidence in the judiciary is only possible on the condition of restoring order in all three above-mentioned aspects.

It is for that reason that I am reserved in the positive assessments of the newly-adopted amendments to the Constitution and laws of Ukraine in terms of justice. After all, those novelties in their essence relate to institutional and, to some extent, the psychological aspects of judicial reform: though eliminating three old and creating two new special courts, reformatting the Supreme Court of Ukraine, changing the rules of formation of the judiciary, increasing certain guarantees of judges will make significant personnel adjustments, they will not be able to correct the existing collisions and procedural gaps and eliminate possibilities for abuse.

Thus, the main task at this stage is to retain the rate of reforms chosen by the legislator. I am convinced that the recently demonstrated unity of political elites in striving for qualitative changes in the domestic justice system is the key to their successful implementation, which gives businesses valid grounds for optimism.

 

Ilarion Tomarov,

Senior associate, Eterna Law

This judicial reform creates highly specialized courts. How will the establishment of the Higher Court on Intellectual Property Issues promote the availability and facilitate protection of intellectual property rights?

The most essential changes in protection of intellectual property (IP) rights concerning further establishment of the Higher Court on Intellectual Property Issues, as a court of first instance, with only two instances for IP cases.

According to the recently adopted Act, this court will hear IP cases as a court of first instance and will probably be situated in Kiev. Its decision will be reviewed in the Supreme Court of Ukraine, which is the highest court in the judicial system. The above-mentioned will not facilitate access to court but won’t allow the choosing of a “convenient” court by adding defendants.

Despite this drawback, the aim of creating such a court is to give an opportunity to consider a case in a more effective manner, bringing together under one roof judges who are the best experts with corresponding work experience in the field of IP. Perhaps it will lead to situation where courts will commission a forensic examination only in cases where specific knowledge in fields is required (which is patent law). Consequently, the process will change from a battle of expert’s opinions into a battle between evidence. For example, similarity to both trademarks or the fact of consumers being misled, should be proven by social survey conducted to rules among the target audience of the brand goods, etc.

As far as reform still continues, today’s amendments contain only the basis and most of the changes will be adopted in future.

 

Olexander Droug,

Counsel, Sayenko Kharenko

Parliament adopted On Financial Restructuring Act. What are the key changes introduced by the Act? How can it contribute to restoring lending in Ukraine?

The initial version of the Draft Act On Financial Restructuring (submitted by the Cabinet of Ministers to the Parliament and adopted in the first reading) was much more ambitious than the version of the Act actually adopted by the Parliament. Its main feature, revised Article 6 of the Ukrainian Bankruptcy Act allowing pre-packaged restructurings to be approved by majority creditors and be binding on all minority creditors, has been removed and the Act adopted by the Parliament addresses fully consensual restructurings only. This would obviously limit the number of cases that could go through the procedures contemplated by the Act and will exclude most high-value and high-profile restructurings where there is always at least one dissenting creditor or group of creditors. At the same time, the adoption of the Act coupled with tax benefits temporarily granted by the Tax Code of Ukraine for a period of three years to all successful restructurings of viable businesses pursuant to the procedures contemplated by the Act, will help to establish a new restructuring culture on the market and hopefully result in a reduction of bank NPLs and growth of the economy. Meanwhile, work on revised Article 6 of the Ukrainian Bankruptcy Act will continue in a separate draft. The plan is to have a revised Article 6 of the Bankruptcy Act signed into law well in time to allow the debtors and creditors to make use of the 3-year period of tax benefits granted by the Tax Code.

 

Volodymyr Yaremko,

Counsel, FCIArb, Spenser & Kauffmann

On 2 June Parliament adopted the Act of Ukraine On State Authorities and Individuals that Enforce Decisions of the Court and Other Authorities, No. 1403-VIII. How can the efficiency of enforcement proceedings be improved?

The Act introduces “a new player” into the enforcement procedure in Ukraine — the private enforcement officer. It was no secret that the enforcement proceedings in Ukraine were inefficient and required significant reform. The reasons of actual non-enforcement of a vast portion of court judgments in Ukraine include possibilities of delay of enforcement actions by the debtor, technical difficulties in fast and proper search of debtor’s property, lack of real liability for not enforcement of court judgments, to name a few. However, the bottom line of the improper functioning of the enforcement procedure has always been the low salaries of state-enforcement officers (bailiffs) and, hence, the low level of their motivation for efficient performance of actually not easy work. With the new Act an enforcement officer can “do his business”. The private profession is now open not only for state enforcement officers, but also for lawyers, who wish to try their skills in enforcement proceedings from another than the usual perspective of party’s representative. The idea behind the Act is good and, if successfully implemented, it shall turn the enforcement procedure into a quicker and more efficient manner.

 

Kostiantyn Likarchuk,

Managing partner, Kinstellar

On 8 June the Government decided to establish the Interagency Task Center and 20 interagency mobile groups to fight corruption at customs and introduced mandatory photo and video recording of customs formalities. How can this affect the efficiency of customs control? And how will this provision help to combat the corruption element in customs?

I do not believe that these innovations will have a significant impact on the level of corruption at customs. First of all, the legal framework, on which these “innovations” are based, is very dubious. In particular, a Resolution of the Cabinet of Ministers of Ukraine cannot introduce changes to the Customs Code and cannot contradict it. It is not clear on what basis, in terms of the Customs Code, the customs control zone will be attended by representatives of the State Border Service and the National Police. I’m afraid that too many subjects of foreign economic activity shall successfully litigate any action of “customs’ hundreds”. Sadly, just as before, the government does not pay much attention to legislation, but acts through method of administrative experiments.

To effectively combat corruption at customs offices there is need to depoliticize the office of State Fiscal Service Chairman, competitive appointment of SFS management and establishment of appropriate working conditions and social guarantees to customs officials. Measures taken by the government are temporary administrative actions that only show that the government (through the Ministry of Finance) has poor control over the SFS’s activities, so the government needs instruments of external control in the form of “customs’ hundreds”, which consist of SFS representatives, the State Border Service and the National Police, but it also means that SFS is not able, for whatever reasons, to carry out fight against corruption within its own ranks.

All measures taken by the government in the field of customs are a copy of the actions of the Ukraine State Customs Service management at different periods of its activity to improve control over customs clearance of goods and to combat violations of law at customs offices. However, while such activities were carried out effectively by the Ukraine State Customs Service independently, without any external intervention and “aid”, and had only some effect, in other respects corruption at customs remained quite substantial.

The current approach of the government is recognition of the SFS’s full institutional insolvency, even in the matter of conduct of minimally necessary measures to deal with violations of customs rules and of the SFS’s complete dysfunction as a public authority.

 

Sergey Protasov,

Senior associate, Trusted Advisors

The Parliamentary Committee on National Security and Defense recommends the adoption of Draft Act No. 4811, which implements the mechanism of recovering unjustified assets even during the pre-trial investigation. What effect can introduction of this mechanism have on the effectiveness of fighting corruption?

On 16 July 2016, Parliament was unable to include Draft Act No. 4811 in the agenda of the session, which resulted in lots of discussions between the supporters and opponents of the document. This Draft was submitted instead of Draft Act No. 4057, which was previously rejected by the Committee and has received a series of comments from the Council of Europe.

According to the authors, its adoption will enable the return of funds illegally received by corrupt officials to the budget. Furthermore, the explanatory memorandum notes that the existence of such mechanisms makes it unprofitable for corruption offenses since the assets acquired without legal grounds shall be seized from them, even if the offenses are not incriminating. The introduction of such institute will, according to the authors, also be preventive in nature.

However, a detailed analysis of the proposed amendments to the Criminal Procedural Code of Ukraine, suggests that, in practice, these changes will allow the prosecuting authorities to initiate the procedure of forced expropriation of the property, belonging not only to the individuals empowered to perform functions of state and local authorities, but also to others, before the offences will be taken legal effect, which are prescribed under Article 191 part 2-5, if it will be committed by an authorized individual who is eligible to perform state functions, as well as under Articles 255, 364, 365, 368 of the Criminal Code of Ukraine. Since the qualifying confiscation, according to the proposed amendments, can be applied to the suspected individuals (justified or not) in the commission of crimes under Article 255 of the Criminal Code, this mechanism will initiate a procedure of qualifying confiscation of the property belonging to an individual, not to the state authority individual.

This Draft Act provides an opportunity to confiscate the assets of third parties, bona fide purchasers, and does not guaranty any protection of the rights of such individuals. In addition, it violates the fundamental principle of presumption of innocence, since the onus of proof of the legal origin of the property does not rest on the prosecution, but on the property owner.

Thus, such deficient norms of the Act relating to the arrest and possible subsequent confiscation of individual’s property, who are suspected of committing acquisitive offence, may be supplemented by such norms of the Act that are beneath any criticism, and will allow the prosecutorial authorities to exert unprecedented pressure both on business and on individuals.

 

The President of Ukraine signed the Act On Amendments to Article 9 of the Act On Medicines regarding State Registration (Re-registration) of Medicinal Products. How will these changes be reflected in the pharmaceutical industry? How does this provision resolve the problem of availability of medicines for citizens?

On 19 June 2016 the Act of Ukraine On Amendments to Article 9 of the Act On Medicines regarding State Registration (Re-registration) of Medicinal Productscame into force. The Act provides a significantly shorter term and less bureaucratic procedure of state registration of medicines previously registered by competent authorities of the USA, Switzerland, Japan, Australia, Canada and the European Union (EU centralized procedure). The value of this novation is hard to overestimate. As the Ministry of Health stated on 7 June 2016, it is not yet possible in Ukraine to provide people with medical aid in accordance with European protocols and formularies due to the fact that 372 medicines of the WHO’s “golden standard” — British National Formulary are absent on the Ukrainian market. The procedure of simplified registration of medicines which have already been inspected and proven to be efficient and safe by these stringent regulatory authorities should help the business to obtain market authorization on many required medicines in a much shorter term and with less expense, which, accordingly, will help Ukrainians to have a broader range of efficient medicines with affordable prices. We are working on the essential by-laws (required to implement the procedure) in cooperation with the Government on a daily basis and we believe that due to the high social importance of the matter such by-laws will be issued shortly, thereby enabling Ukraine to benefit from a bigger and more competitive pharmaceutical market.

 

Oksana Krasnokutskaya,

Senior associate, AEQUO

In September 2015 the amendments to the Act of Ukraine On Television and Radio Broadcasting came into force. How will the amendments affect the transparency of the ownership structure in this field?

In September 2015 amendments to the On Television and Radio Broadcasting Act of Ukraine as of 21 December 1993, No. 3759-XII came into force, which provide for mandatory disclosure of information on ultimate beneficial owners, affiliates and the ownership structure of entities in television and radio broadcasting domain.

Regardless of the very positive effect to the transparency of shareholding structure of mass media companies, the Act contains some inconsistencies and needs to be improved, particularly through imposition of liability for the failure to comply with the said disclosure requirements.

In fact, the Act does not provide for effective disclosure enforcement mechanisms. According to Article 12(4) of the Act, the National Council on Television and Broadcasting is authorized to impose sanctions for failure to submit the above information, for late submission, for submission of unauthentic information.

Refusal to renew the broadcasting license is one of the most efficient sanctions that can motivate the said entities. Article 33(7) of the Act contains an exhaustive list of grounds on which the National Council can refuse to renew the broadcasting license. However, failure to disclose information on ultimate beneficial owners and ownership structure, as well as provision of false information on the said issues is not included on this list.

Certain provisions should be added to the Act allowing the National Council at any time to declare the ownership structure to be non-transparent and to cancel the broadcasting license. It is also necessary to provide for a non-exhaustive list of grounds on which the ownership structure may be declared as non-transparent, since the current wording is too general.

 

Oleg Pryadko,

Lawyer, Gramatskiy & Partners

The Cabinet of Ministers of Ukraine developed a Draft Act On Monetization of Social Benefits. What are the advantages and disadvantages of monetizing social benefits?

The system of social guarantees is succeeded by monetization, which will replace benefits for monetary compensation. Monetization of social benefits by EU countries demonstrates a positive effect. Thus, it is necessary to consider that social reform requires an information campaign and step-by-step implementation with a transition period.

On the one hand, carrying out reform of social payments in Ukraine is extremely necessary as it will allow liquidate inefficient benefits, create a unified database of benefits recipients and unite help of all types into one state program. However, for implementation of the similar mechanism, the state must guarantee commensurate monetary assistance and have a resource for payment of such means, since with the arrival of monetization pressure on the budget will increase. Also, it is necessary to refer to the negative aspects of monetization the fact that from the means received by the population taxes will be withheld.

At the first stage of monetization, the Ukrainian government plans to convert travel benefits by provision of means. Therefore, the right to free transportation remains, but the ticket or a token is to be purchased for the money given by the state.

Therefore, for carrying out effective social reform, the state, above all, should conduct a campaign on informing the population of the efficiency of such reform, guarantee commensurate formula of benefits conversion and provide expenses from the budget.

 

Serhiy Oleksin,

Attorney at law, Pavlenko Legal Group

Draft Act No. 4778 On Operational Investigations has been registered in Parliament. How can its adoption improve the efficiency of operational and investigative activities?

Today in Ukraine the Act of Ukraine On Operational Investigations of 1992 is valid. It should be noted that the mentioned Act has undergone significant changes in the process of reform of the criminal process. However, the actual concept and principles that were set in the Act of 1992 and Criminal Procedural Code of Ukraine 2012 are different. The changes that have been made in to the Act were aimed at its coordination with the Code, but did not affect the principles of the Act.

Currently, Parliament has registered Draft No. 4778 On Operational Investigations. Meanwhile, the mentioned Draft contains quite similar standards to the already existing Act, but there are also some differences. Due to the differences Draft Act No. 4778 is close in its principles to the Code. The main difference is that it has a mechanism on protection of the rights and freedoms of an individual and citizen. The mechanism on protecting the rights and freedoms of an individual disclosed in the Draft by defining a complete list of the operational investigations, which may be made by operational units. There is the list of operational activities specified in the following list, which are violation of the rights and freedoms of an individual. For the application of measures, which are violations of the rights and freedoms of the individual, there is a clear procedure for obtaining the consent of the investigating judge. In comparison with the Act, the Draft provides more extensive supervision over the observance of legality in the process of implementation of operational investigations. This should also help to reduce violations of individual rights and freedoms.