danevychlaw.com

AGRICULTURAL ENTERPRISES’ PURCHASE:

key legal aspects and peculiarities

V International Congress“Profitable Pig Production”

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IN WHAT WAY DOES IT WORK?

Analyzing everything we buy

Identifying and estimating risks

Closing the deal

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OUR TEAM AND EXPERTISE

Our key spheres of expertise:

• Agriculture

• Life Sciences

• Corporate/M&A

• Employment

• Industry

• Energy and Power

Dan-Farm Ukraine

Our Clients in different spheres:

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WHAT SHALL WE CHECK?

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Legal due diligence: WHY IS IT IMPORTANT?

For the Buyer

(on his/her own initiative)

For the Seller

(on his/her own initiative)

Opportunity to estimate real value of the

Object

Identify «deal breaking» risks, or risks, which

may influence the deal cost

Necessary if loan is needed for making a

deal

Opportunity to identify and eliminate/

correct disadvantages/risks, which

may reduce the cost of the Object

immensely or make a deal impossible

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Legal due diligence: what is necessary to check?

If an individual is involved in

alienation procedure, it’s

necessary to submit spouse’s

consent certified by notary;

We recommend to register

alienation on the contractual

basis and notarize as well

Minutes of

shareholders

meetings/Registration

Board of shareholders;

due registration of all

previous Company’s

shares alienation

I. Corporate Company Structure

Declaring of all Company’s deals invalid since

the moment of violation

Correct registration of

statutory documents and

amendments to them

Correct registration of alienation

of shares in statutory capitalCorporate history and

structure

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In some cases, in

order to make this

deal, permission of

AMC of Ukraine is

required

Participants of

concentration (which are

taken into account when

calculating total value of

assets) are legal entities

and physical persons of the

seller and buyer as well as

persons associated with

them

25% or 50% authorized

capital purchase of the

company is considered to

be economic

concentration

Legal due diligence : what is necessary to check?

II. Compliance with antimonopoly legislation

In case of violations – a fine of up to 5% of revenue

received from all sold goods/services of all

participants to the concentration all over the world

for the previous financial year + invalidation of the

sale of Company’s assets

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- Due registration of Company’s contracts

- Current Company’s obligations under contracts

- Liability under contracts

- Having any initiated, current or suspended court

proceedings in which Company is a party

- Having clear enforcement proceedings regarding or in

the interest of Company

Legal due diligence: what is necessary to check?

IIІ. Contracts and litigation

All obligations and risks under current

contracts as well as participation burden in

court hearings and subsequent enforcement

shall be passed to a new owner

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IV. Land

Difficulties with registration of property

rights on land for a new owner

Land rights

(property/ rent)Designated

purpose

Encumbrances

and restrictions

in use

Legal due diligence: what is necessary to check?

Attention! Since January 1, 2013 registration in the State

Register of Mortgages and in the Unified Register of

Prohibitions of Alienations of Immovable Property is

suspended. BUT! Extracts from these Registers can be

obtained in State Register of Ukraine

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Legal due diligence: what is necessary to check?

Attention!

Since January 1, 2013 registration in the State

Register of Mortgages and in the Unified Register

of Prohibitions of Alienations of Immovable

Property is suspended. BUT! Extracts from these

Registers can be obtained in State Register of

Ukraine

Difficulties with registration of property

rights in land for a new owner

Commissioning Encumbrances

V. Real Estate

Documents of

title + technical

documentation

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VI. Permissions and licenses

Legal due diligence: what is necessary to check?

SANITARY – sanitary-epidemiological services’ conclusions

FIRE SAFETY – permission to start work

ECOLOGICAL – permissions and limits re waste disposal, air emissions, special water use, use

of subsoil resources, etc.

VETERINARY – passports for animals

LICENSES FOR SECIFIC KINDS OF ACTIVITY – for instance, trade with genetic resources

LABOUR PROTECTION - instructions on fire, technical safety, floor evacuation plans, protective

clothes and etc.

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Acts/minutes/ reports on conducted

scheduled/non-scheduled inspections of

the Object

Identified violations

Actual implementation of requirements

and recommendations of inspection

authorities

Legal due diligence: what is necessary to check?

VII. Interaction with regulatory authorities.

Inspections.

What is checked?

Penalties imposed on Company and liability of

officials for non-compliance with regulatory

authorities’ prescriptions

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Accounting and financial records of

Company (balance, report on financial

results, report on money transactions +

annexes)

Tax inspections conclusions

Information on current accounts of

Company

Currency regulation

Financial risks

Outstanding tax obligations

Tax risks

Attention! It’s necessary to

inspect documents for the

last 3 years, or since the

moment of conducting last

tax inspection, if it was later.

Negative financial consequences for buyer.

Possible litigations

Attention! Due diligence may reveal the

factors, which can significantly influence

the cost of the deal much

What is checked? What to look for?

Financial/tax due diligence

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Compliance of territories, premises, production

with sanitary, ecological, veterinary,

epidemiological requirements

Presence and validity of permissive

documents, necessary for Object’s activity

Sanitary/veterinary/ ecological/epidemiological

inspections’ conclusions

New Object’s owner will not be able to conduct commercial

activity

Attention! Travelling to location is

strongly recommended to make sure,

that real situation corresponds to the

documented one

What is checked?

Ecological due diligence

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Closing the deal

Choosing the subject of the deal: assets or corporate rights. When choosing, it’s

necessary to evaluate tax aspects, requirements of antimonopoly legislation, peculiarities of

corporate history of the deal object, the necessity to obtain new permits/licenses for a new

legal entity etc.

If subject of sale is assets (including immovable property) – notarization and registration of

the deal are obligatory. If the subject of deal is corporate rights – notarization is

recommended (registrars’ practice)

If the Buyer is a non-resident:

(i) Requirements to foreign economic contracts

(ii) Currency regulation

IMPORTANT TO

TAKE INTO

ACCOUNT!

Attention! Assets are subject to

taxation – tax obligations incur (VAT)

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Closing the deal

For the Buyer For the Seller

Indicate all assets, that are the subject to

deal (we recommend making a separate

annex to contract)

If payment is carried out in several stages:

(i) Clearly identify the moment of transferring

of property rights to assets/corporate rights

(ii) Draw up guarantees and liabilities to

implement obligations under contract. Draw

up detailed distribution of risks between the

parties.

Check creditworthiness and

reputation of Buyer

Payment guarantee: deposit or bank

guarantee

If payment stipulates several stages

– clearly identify stages and terms

of payment

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WE WOULD BE GLAD TO ANSWER YOUR QUESTIONS

AND

GET THE FEEDBACK!

CONTACTS

t +38 044 596 46 36 f +38 044 596 46 35e maksym.sysoiev@danevychlaw.coma 10 B Vozdvyzhens’ka Street, office 8, Kyiv, 04071 Ukrainewww.danevychlaw.com

MAKSYM SYSOIEV, LL.M.,

Attorney-at-law, Counsel

DANEVYCH law firm