Nataliia Osadcha: The key to successful investment in Ukraine is to define all the terms of the partnership at the initial stage

Legal Advices


Raiding is one of the most serious problems for business owners in the field of real estate. Despite the experience of other people, discussions and official statements, cases of raider seizures happen to be. Nataliia Osadcha, co-founder of the S&P Investment Risk Management Agency, PhD, MBA, told Property Times about the external and internal threats of raidingfor real estate and land lots, about mistakes, made by owners and possible ways to minimize risks and prevent seizure.

— In your opinion where is the possibility of raider capture hidden - inside or outside of the company?

— In fact, almost always raiding appears inside the company, as it often happens with the participation of either partners or top managers.A possibility of raider attacks basically arisesbecause of the objects owners` mistakes , moreover the mistakes are possible both in companies where there are several partners and where there is only the owner - in this case we are talking about an attack from competitors or state bodies.

— What internal mistakes make raider seizures possible?

— The main mistake is in the fact that in the very beginning of cooperation future partners do not anticipate the risks and do not ask themselves "what happens next?". They srike hands thinking that the situation is asfine as it seems today and it will last ever. In theory, everything is ok,the business runs in a proper manner, the documentation is studied, lawyers are hired. However, these actions and evaluation, unfortunately, still do not reveal all the risks and do not protect the business from raider seizure.

To predict and estimate these risks and blanc spots we need to think like a raider, have his vision. Business owners and their advisors do not have such experience. Therefore, they can not understand how their arrangements will be violated by the raider.

In other words, the possibility of raiding is designed by the owners themselves, by means of the incorrect defining ofthe parties`responsibilities. When it comes to conflict, only legal documents will be valid. If there are no written agreements, you will prove nothing.

Some owners make mistakes drawing up and creating a business structures and charters. Also errors occure in giving too wide latitudeto top management , who often start cooperating with raiders.

Businessmen spend a lot of money on security systems, the object`s video control butat the same time they pay too little attention to settlingan agreement and protecting their investment , nevertheless sometimes these are quite large sums of money. People have an oral agreement and suppose it is enough.

— It can be explained as they have no experience, but , of course the owners must be aware about many examples ...

— In fact, the owner of business, like any other person, does not want to understand and accept the fact that it is his/her fault. I can agree, it's really hard to accept. And then, again, everyone starts from the start fact that the tenure, authorities, duties, terms, and conditions must be negotiated, and all parties must keep the agreement in future.

It also happens that we are ready completelyinform the owner about the risks , but he/she does not listen to us. The usual reasons for ignoring the consultant's advice are "we thought you were wrong."

The refusal to hire advisors, who can design the right system of protection forbusiness, owners explaines as theyhad beensure theywould not havefaced any problem.

Weneed to be reasisticand recognize the fact we are not working in a sterile environment.

— You mean the principles and conditions of working in Ukraine?

— Any investor must understand: if he/she wants to get a high profit - the risks will be also high. Getting here, in Ukraine, high profit (and there is a fairly high profit comparing to the European market), it is necessary to accept the fact that the risks are real and crusial. In any case, there are no ideal conditions for everyone anywhere, and when the object starts bringing profit worth million, you must be sure you meet those who want to get this object.There are a lot of ways to undertakeaggressive actions against property being both an insider or an official .

Ukraine is a casino country to some extent , but only if you do not estimate your risks in advance. Yes, it's true, that without a qualified legal defense chances for business to be a success are fifty-fifty. Of course, I think this is not a reasonable approach when large and even very large investments areput at risk.

In general, in the classical scheme, the raider's task is to go to the object ,controlthe profit and use this profit. Raidersas well remember about war expenses, which areconsiderable . The party, that has seized control over the facility, perfectly understands that sooner or later the owners will come to return the object. The task of the raider is to prolongate this process of return as long as possible, preferably for ever and a day, and ideally to make such a process just impossible. The longer the raider will use the object, the more money he will earn. Perhaps the raiders even admit that someday they will have to return the object, but while they are occupying it, they will receive income and strengthen the defense. For example, it is legal to "move" the object further away from the partner out of business or former owner.

And even if the owner is lucky enough to return the object, weunderstand that it isa situation of receiving much less profits than his due for all the years of property had been invaded.

— What legal and practicalmechanisms can be used to minimize this risk?

— It is necessary to think about risks at the stage of entering into a partnership, that is at the initial stage. If you do not have enough experience and knowledgeyou need to hireexperts. It is the analogy with the ski slope: if you do not know the route, it is logical and rational to take a local instructor for protecting yourlife and health, it is preferable when the instructorhas had many years of experience on these routes. The same is in business, especially ifyou ut at risk there are seriousinvestments.

If you estimate posiible problems in the beginning and, as a consequence, you understand a certain threat coming from the partner, you will not enter into cooperation with such a partner at all or you will find another one. In such a case your benefit is in the fact younot onlysave yourmoney, you will save time. If you want the partnership to be advancedand reliable, define the rules of the game: make betrayal unprofitable for the partner or, even better, make it impossible.

Let me give another analogy. You give the partner a key to the warehouse with jam (for example, this keymeans the partner has more shares than you, but it gives him/her a controlling share). Do you really think that sooner or later he/she will not think: why do I need him if the path to the jam is already in my hands? Commercial real estate is a lot of money and, accordingly, to get them is a great temptation. Just do not create such temptations, do not let people do bad things .

— One of your practices is preparing forecasts for the onset of the asset's loss date and what will happen. Doed it mean that the date of raider capture can be estimated?

— Every situation can be estimated in the form of a diagram. Our companyhas been working in this field for more than 10 years , we know one case may last to for 3 and 7 years, as for instanceit isin the situation with the Sky Mall Shopping Mall, so we we are round-the-clock involved into active resistance to raiders` attacks , now we know fastwhat combinations the raiders will use against the owner and how to manage the current state of actions. It's not magic, it's experience and years of practical work.

Experience gives you a vision, and to resist a raider, you must think like him. Therefore, again, we always say that a pledge of successful investment in Ukraine is in registering and fixingall the conditions at the initial stage. At the very first stage of protecting businesswe closeall possible ways to act for raiders.

And this may be applied not only to real estate but also to land lots, that are either located on the state territory or owned by the state. Risks with land are no less butsometimes even higher. Business can invest to the land, then build a large object, and the land lot can simply be taken away. For example, on recognizing the land lease or sale as invalid.

— Here we return to the issue of external factors, where risks can come not from a partner, but from the state.

— Over the years of market formation nothing has changed systematically by the side of authorities. Even if you do not have a partner and in the project you are the sole owner, then the competitors can try to take the assets, and very often in the collaboration with the state bodies. The system does not change , regardless of the country's development vector. The attempts will belikely at least for 10-15 years, it is experience.

Sometimes the seller of an asset has positiverelations with the state long enough, but it can stop every moment. And in the case of ordinary due diligence, lawyers just do not look so deeply, so they do not predictthe risks.However, then it occurs that the previous owner signed an agreement with the state “in a wrong way”, and , as a result, the entire chain of transactions is recognized as invalid. At this moment you are without a valuable asset and youspend a lot of money forattempts to return ypur proprety. It means expenses forthe legal protection and support , PR, mass media, here we add the lost profit. Although, again, everything could be fixed at the initial stage.

Unfortunately, as a rule, business in Ukraine starts looking for a solution only when the company was attacked. It must be something special in a human nature.

— How do raiders operate from somewhere around?

— Usually a request appears , it is a small, seemingly unrelated to all business activity, document. For example, a note in the media, a request for verification, etc. Owners tend not to pay special attention to such signals, considering them as something separate from the whole business or an isolated case. But in fact, as soon as the first such an insignificant request comes in, we already understand to what it can lead. Behind every such an invasive point there is its own ultimate goal.

Sometimes we immediately put on guard at the site, we start round-the-clock monitoring of registries, media. When you did not pay attention beforehand for prevention of raiding , you have a situation of being involved tothe war, it meandshuge expensesand the risk that you may lose the object.

Raiding by state bodies can be executed through criminal cases, checks, identification of violations of norms of construction works and much more. They will still have access to important documents (through the so-called seizure of documents).

If you get such a signal from the very beginning, you can avoid problems and even criminal cases. It's like an illness that can be treated at an early stage , then it's fast enough and costs minimum, or you can have an illness for a long time and have hard consequences , in case of property seizure these areexpensive actions.

But if the company still finds itself in aconflict, it just needs to be managed correctly. Then the company receives the image of an implacable fighter as a bonus. Everyone knowsthat it is better not to attack that company. What does it give? It gives a loweringof problems in the future. Raiders simply will not want to contact with such business, as exactlythe companywill fight to the win. It is easier to find another, a weaker one.

— They say that it is best to use all media, report an attack ...

  • —We have quite a lot of tools for work and we should not think that protection from raiders is reduced only to PR campaign and usual legal support. Legal instruments in raiding are like a spear. It is impossible to win a battle with a spear. There must be a vary variable arsenal. And in order to understand how to use different tools, that it is not fighting to win a battle, but to win a war, that's what life should be spent for.

We involve PR, GR, corporate trainings, reputational practices, coaching. At the same time, different instruments and their combinations are used at different stages of the conflict.

As for PR, then you need to use this tool very carefully. PR can be used when you have all the right evidence on your hands and your opponent does not. Because PR is a very subtle tool, and its incorrect use or use at the wrong stage can be turned against you. We can not also rely on the legal part of the issue, reporting on win in courts: as practice shows, this can not give any steady results.

— We will be read by today's partners, perhaps, they will reflect on their agreements and their consequences. What should they do?

— Of course, as I said, it's best to register everything in the begitting. But if they really have a partnership, what difference does it make if they sit down at the negotiating table - in the future or now? If one of the partners refuses, this indicates that the conflict issue is only a matter of time. Perhaps, after such negotiations, the partners will even have to disperse, but taking into account the interests of both sides. Either one of them is in danger of losing everything. But you can always sit down and agree honestly. Just need to pick the right time and right arguments. Show both partners the disadvantage of war. And very often such negotiations help to avoid both sides unnecessary costs and conflicts. And it is important to remember that in a serious conflict it is very difficult to really estimate what sum of money will be spent on the conflict itself and who will be the winner of this confrontation. Therefore, the peaceful resolution of a possible conflict for partners is an initial step .

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