How does the current raiding looks like?
What are the most common manifestations of raiding, what issues can cause troubles, what’s worth special attention?
How to protect your business from raiding (prevention and counterattack)?
What government bodies and how should be involved in the fight?
Read about all of this and even more in an interview with ESQUIRES’ partner Opanas Carline for Legal Practice newspaper.
What do you think are the reasons for the recent raiding actualization?
The change of government still leads to redistribution of markets and spheres of influence. Both initial seizures of enterprises property and near-illegal returns of the previously selected are observed. In many respects, the intensification of these processes is facilitated by the unique conditions caused, oddly enough, by the consequences of progressive reforms. First of all, its related to reforms in the field of state registration and law enforcement agencies. The first led to the simplification and partial digitalization of registration processes, which created “convenience” not only for conscious copyright holders. It has also generated a quasi-judicial body – the Commission for the complaints proceeding in the field of state registration, whose activity clearly does not contribute to the establishment of the principle of legal certainty. The second reform significantly weakened the law enforcement bloc, by eliminating (I hope, temporarily) the principle of punishment inevitability. As a result, the raiders received additional tools and lost their fear of retaliation.
Do raiders’ work patterns differ in the 90s and at present?
Firstly, the focus of the attacks has shifted somehow. For example, now not only enterprises and buildings, but also land (including for agricultural purposes) and property rights to it are popular objects of gaining possession. Enterprises are of interest for raiders not only in connection with their property (land, buildings, means of production), but also in connection with the availability of right for claim, tax credit, and procedural status in an important process.
The raiders’ work schemes have also undergone changes, primarily due to changes in legislation and the implementation of the above-mentioned reforms. Registrars, notaries, the Commission for the complaints procession in the field of state registration, police, courts frequently become conscious or unconscious “accomplices” of raiders.
The metamorphoses of state formulations about manifestations of raiding are also illustrative. If earlier the emphasis was on violating of the privatization rules of state enterprises, then in 2014 the decree of the President of Ukraine “On Strengthening Counteraction against Raiding” refers to the forms of raiding: unlawful takeover and seizure of business entities, deprivation of ownership rights and, what is important, the usage of courts for raiding.
Yes, the “classic of the genre” is raiders’ usage of court decisions: deliberately unlawful (often delivered without calling the parties in one meeting with artificially falsified jurisdiction), not entered into legal force, fully or partially falsified (both in paper and in electronic form).
Another constant tendency is the falsification of documents: title documents, charter documents, protocols of general meetings of founders, and even letters. Falsified, expired or withdrawn powers of attorney are also actively used.
The raider schemes submitted to the public judgment repetedly provoked legislative changes. The procedural codes were corrected in terms of possible measures to ensure claims, corporate standards were improved.
The distinctive feature of Ukrainian reforms and legislative technology is the quick forgetting of the original reason of previously made changes. On the third, and sometimes already on the second cycle of changes, norms that were previously condemned as encouraging raiders can be returned.
There are plenty of examples. At first the establishment, and then the abolition of the principle of extraterritoriality in the field of state registration, were equally praised as “anti-raider” reforms. The transfer of state registration functions to utility companies accredited by the Ministry of Justice was aimed to support the fight against raiding and corruption. Paradoxically enough, but these good goals have to be ensued by the selection of such powers from utilities, that is proposed by the Ministry of Justice . The Justice Ministry does not see any contradictions in this.
The current provisions of the Laws “On Limited and Additional Liability Companies” and “On State Registration of Legal Entities, Individuals-Entrepreneurs and Public Associations” relating to fixing the will of participants at general meetings deserve special attention.
The norms of these laws not only contain contradictions, but also allow you to make changes to the USR on the basis of documents that do not contain any signature of the participants. Such legislative gaps have been used by raiders more than once.
Summarizing modern realities, I would emphasize on a significant increase in the importance of independent adoption of prevention measures and counteraction against raiding.
What are the indicators of business vulnerability to a raider attack?
Based on practical cases, the source of the danger of raiding are mainly: business partners, co-founders of companies (including minority or nominal), management (including the former), corporate structure and debt (creditors).
Among the «signals» of the possibility of the raider attack can be: litigations initiated by partners / competitors, criminal proceedings, corporate conflicts, increasing credit debt, inaccurate loan servicing.
What is included into the minimum package of preventive measures?
Preventive measures, ideally, should be integrated into all business processes: selection and verification of partners, management, personnel, verification of counterparties, control of assets and economic activities, etc.
It is advisable to start with the improvement of statutory documents and local acts. They can fill the gaps in the law, introduce the necessary restrictions and ways to control the managers. Restrictions of the executive body on the amounts and types of transactions should be recorded in the USR. It is also possible to include in the Charter the mandatory signing of the Minutes of the General Meeting of Participants by all participants present. Do not neglect the conclusion of an employment contract with the Director, approval of job descriptions, workflow policies (in particular, rules for document vising).
A separate tendency, that requires constant monitoring and improvement, is the technical, organizational and legal protection of data.
An extremely important aspect of protecting business is the proper development and improvement of the ownership structure. On the one hand, it must be transparent and simple for cost minimization, to attract investors and international counterparties, as well as to simplify communication with banks (including domestic). On the other hand, the organization structure must perform the functions of business protecting, taxation optimizing.
The corporate structure have to be reasonable: provide the correctly selected foreign element, the engagment of investment funds, trusts. If possible, the risks should be segmented, the main functions should be divided between business entities (production, storage, trade, IP, logistics).
For some industries it is extremely important to have a well-organized process of review and improving of contracts. For example, agricultural business is dependent from “land bank,” which requires increased attention to the correct conclusion, execution and extension of land lease agreements, registration of property rights.
You can easily be deprived of a substantial land mass or get stuck in protracted litigations due to trivialities: the landlord’s rights, that are standardly outlined in the lease agreement, to terminate the contract ahead of schedule, or incorrectly prescribed conditions that enable to challenge the transaction.
Recently, property protection through controlled encumbrances (arrests, mortgages, prohibitions on registration actions) has become quite popular. Such measures are appropriate, taking into account the fact that it’s not exactly cure-all solution, meaning that the use of preventive measures does not exempt from the need for permanent monitoring of registries, including using the SMS Mayak service.
This is an approximate but not complete list of effective preventive measures. You should be aware that any measures do not able to protect the business fully from a raider attack, however, well-implemented protective mechanisms will significantly reduce risks, complicate the invasion and give a lot of advantages in a potential fight.
What is role of lawyers in building a system of anti-raider protection and response?
As it was correctly mentioned, this issue has include a system of measures, but not only individual actions. At the core of this system formation have to be a correctly selected legal model, which implementation and maintenance also requires legal support.
As we see from the above list of preventive measures, the development and implementation of many of them is within the competence of lawyers practicing in the areas of corporate and business protection. A worthy response to a raider attack is also impossible without legal support with the correct use of the possibilities of registrars, the Commission for the processing of complaints in the field of state registration, the Council of the Business Ombudsman, law enforcement agencies, courts, etc.
What are the peculiarities and problems of cooperation with various bodies in the process of repelling a raider attack?
In my practice, the most effective (at least fast) way to cancel an illegal registration act was to apply directly to registrar who conducted it.
Sometimes, under the threat of liability, the registrars agree to “cancel” conducted actions themselves. Technically, they have such an opportunity. But in such case it is important not to fall into the trap, since the registrar does not entitled to cancel his registration act, he can only correct the misspelling.
In practice, there are cases when the Commission for the processing of complaints in the Field of State Registration or the courts found it unlawful / canceled the actions / decisions of the registrar concerning canceling of their registration action / decision, “legitimizing” in such way the initial illegal registration action / decision.
The Commission for the processing of complaints in the field of state registration, unlike the courts, does not tend to unify the practice, and therefore it is extremely difficult to predict the results / terms of the consideration of the complaint. The conditions for applying to the Commission (except for formal ones) are violations of the state registration procedure the registrar, in the absence of: a court dispute (decision) between the same parties, on the same subject, for the same reasons; a dispute regarding property; re-registration of property law. However, there is a practice of complaints сonsideration without observance these conditions. Also, there are quite paradoxical decisions, for example, a complaint filed by an improper subject is partially satisfied, etc.
Another “oddity” is that the decision on the results of the complaint consideration is formalized by order of the Deputy Minister of Justice, which does not outline the reasons for the decision. The Signatory of the Order is not a member of the Commission. The motives are indicated in the conclusion of the Commission, which is not sent to the complainant. He can be requested in a separate request. An outside observer can assume that such system was created with the aim of “eroding” the responsibility for making decisions on complaints and complicating further appeals.
An extremely important institution in the process of repelling a raider seizure is the Council of Business Ombudsman. Having predominantly consulting and advisory authority, the Council of the Business Ombudsman, however, forces the state bodies to fulfill their direct responsibilities. For example, there is nothing can’t be done without such an additional “motivator” in cooperation with law enforcement agencies. An important condition for cooperation with the Council of the Business Ombudsman is the maximum involvement of the applicant in the process: you must do everything possible to protect your rights and, if it does not work, apply to the Business Ombudsman.
It is a mistake to believe that a petition for committed criminal act will launch (as it is prescribed by law) an inevitable independent mechanism for the criminal prosecution of your oppressors. Most likely, you will have to apply to the Investigating Judge even for registration of criminal proceedings. However, the widespread passivity of law enforcement bodies does not mean that you should not apply to them. Criminal proceedings can be an important (but preferably not the only) tool in protecting the business, providing opportunities: legal pressure on opponents, alternative (sometimes more effective) evidence gathering (as well as to ensure law proceeding ), breaking into the premises, encumbrance of disputed property in order to ensure criminal proceedings.
How the legislative initiatives that are currently in parliament can improve the raiding situation?
The greatest expectations are laid on bill draft No. 8121 of 03/14/2018, that has passed in the first reading. The project offers additional dispositive rules to protect the rights of conscious owners and participants of business entities from raider attempts, for example, they will be able to make and register in the appropriate register a decision on mandatory notarization of transactions related to their property / corporate rights. Also, it is planned to exеtend the information of registries, the possibility to prolong automatically the terms of rent agreement in the register of property rights, the integration of state registries, provide the access to registrars.
What determines the effectiveness of raiding opposition in Ukraine, both in the context of individual cases, and globally?
The key to success in defeating a raider attack is a state of readiness (to take preventive measures beforehand), as well as to take in a die time proactive position of a “leader”(and do not walking behind)