Legal due diligence in Ukraine

We can provide you with legal and tax due diligence and audit of Ukrainian companies, businesses and property. With more than 10 years of experience our team has all needed knowledge to bring confidence and security for your investment or property acquisition in Ukraine. Regardless the type of asset that you intend to buy in Ukraine, we offer you independent and professional legal and tax due diligence. Investigation of businesses is what we do with full responsibility and clear understanding of every issue. 

Legal due diligence in Ukraine

Every responsible investor has to have a clear picture about the asset that is to be purchased. Among all the types of due diligence, probably legal part of audit can be called as the most important one. Legal due diligence in Ukraine has to be made to evaluate the risks of investor or buyer and to have enough information to take the final decision. Due diligence is something very needed for successfull M&A process.

Regardless the type of asset, it can be real estate, plant, company or all in one, for example a company that is an owner of plant that is located on land. So the attorney or a law firm that will conduct the due diligence has to be skilled in real estate and land law, corporate and civil law, tax law and others fields of jurisprudence. All even potential risks has to be evaluated. We are sure that insufficient due diligence is the one when the acquirer found out some problem after the asset has been purchased.

So if you have found an asset, property or a business that you want to buy in Ukraine, please make sure that the lawyer that will conduct risk assessment is a skilled one. Of course the law firm that will conduct due diligence in Ukraine must be selected by investor. Such lawyers can not be friends or partners of the seller or the business sale agent. Always remember that the vendor and agent are mostly always interested to sell the asset, especially if the asset has a problem. You know that the dirtier the asset is the greater the seller’s intention to sell. Consider that the legislation of Ukraine is not the perfect one and mostly differs from EU. It is not so easy to prosecute the seller of a bad asset in Ukraine. Although if all needed legal tools has been used, the vendor unlikely to cheat.

Lately the legislation of Ukraine has been adopting to European Union requirements and regulations. But still there is a long path to full conformity. Consider also that mostly it is useless to use the services of foreign lawyers that do not have Ukrainian law degree. Consider that the law firm or a lawyer shall issue and sign the due diligence report. This document must be compiled in accordance with the legislation of Ukraine. Solicitors has to be responsible for the results of asset checkup as well as the buyer. Consider also that counselors and attorneys at law have to check all the information for 3 years. The final stage of due diligence is always a report where all the problems are mentioned. After that the acquirer reviews the analysis the decision on business transaction is being taken.

Needed steps for due diligence of Ukrainian company or business

The preliminary agreement is the first document to be signed between the parties. It is very unlikely that the seller of business will allow your lawyers and auditors to check the documents of his company without preliminary contract and NDA. This agreement may include the non-disclosure requirements as well. Parties can also sign legal due diligence memorandum, that will regulate rights and obligations of both parties.

Depending on business structure, the Ukrainian lawyer shall have a clear understanding of what to check and all the due diligence issues.

What shall legal due diligence in Ukraine include? If it is a production or a factory, the following is to be checked:

  • Direct and proved debts (this can be check from fiscal or tax authorities under official request; Ukrainian register of court decisions can be a source of potential debts as well; information from execution service of Ukraine);
  • Licenses and permissions (depending on what is the final product of the business; consider that there is no general business license in Ukraine and there are only special licenses and permissions, depending on the product or service; some businesses do not require special licenses or governmental approval);
  • Property checkup (this is one of the most important concern of foreign investment due diligence; all the property and real estate documents shall be perfect to avoid any risks; legal due diligence firm especially shall check the stage when the property has been acquired previously; property tax payments shall be checked as well);
  • Corporate issues (probably it will be shares or parts of capital of a company that you will buy so the corporate issues is a very important part of due diligence; many things has to be checked, as dividends, company corporate regulations and acts, previous ownership of the company; the shares of Ukrainian middle and big businesses are owned by companies from foreign jurisdictions, like Cyprus, Panama, British Virgin Islands and others, so those companies are also to be checked);
  • Agreements and employee relations (this is so called primary legal documents, like labour contracts, agreements with suppliers and others; this is one of the stages when both lawyers and accountants shall make the research together, as it is very important to check not just the contracts but also how the payments are and has been processed; consider also that the labour legislation of Ukraine is a bit hard and to avoid penalties all the documents and payments shall be almost perfect; at this stage of due diligence indirect or so called potential debts are to be investigated);
  • Competition law regulations (if the company is big one, you need to )

Due diligence of Ukrainian property or real estate

As it was mentioned above, this is a very important issue if you intend buying any business that has a property (land or real estate) as one of the basis. Property laws are not perfect in Ukraine so you will need a skilled solicitor to get a clear picture. See more about property due diligence in Ukraine in our other article.

What benefits can due diligence bring?

If something with the documents is not ok or if some issues has been discovered during due diligence of Ukrainian business, it can be a strong ground for bargaining. Of course, it is acceptable only if the problems are small and can be just the matter of time or/and small payments. Our lawyers and auditors helped to reduce the cost of business almost during every due diligence that we have participated in. To find a problem and to find the solution is what we like the most. But of course confidence and clear understanding of risks is the main benefit that company legal and tax audit brings to the buyer.

The other gain of legal due diligence is the possibility to understand how the certain business or an asset in Ukraine works. Every country has some special features of doing business, as well as Ukraine. If you are going to make money in Ukraine in some certain field, the process and results of due diligence will help you to understand more how the things are in Ukraine. Of course lawyers and you as the customer should not disclose the information about some certain company (if NDA has been signed). But from other side everyone do understand that information, experience and understanding that you gain during and after the audit of an asset can not be taken back.

One more very important benefit that due diligence brings is the possibility to compare the quality and features of few companies or businesses.  Even the fact that the seller knows that you are shopping brings him the understanding that he is not the only one and that usually makes the vendor more soft. It is always easier to make a right decision during business acquisition if you have the possibility to choose and when you do have the confidence in the quality of asset.

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