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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The biggest recent news was information about searches and pressure on large business by Office of Prosecutor General of Ukraine. Indeed, on March 16, Nova Pochta reported in the network that the Prosecutor General`s Office conducted simultaneous searches in the offices and warehouses of the company in such cities as Kyiv, Dnipro, Odessa, Lviv and Poltava. According to the press secretary of the PGO Larysa Sagan, the searches were carried out within the framework of criminal proceedings initiated on the fact of abuse of authority by officials of Nova Poshta LLC and other related enterprises on the grounds of criminal offenses under Part 2 of Art. 363 of the Criminal Code of Ukraine (abuse of power or official position) and part 3 of Art. 212 of the Criminal Code of Ukraine (tax evasion in a particularly large amount).

It is difficult to evaluate any conflict when you are outside and do not have documents that may point to the violations of law enforcement agencies. However, being based on our positive experience, our scheme works quite successfully: law enforcement agencies` officers easily create problems for any company without any reasonable ground and sometimes actually destroy business by opening criminal proceedings and carrying out investigative actions.

To date, the current legislation provides for a system an opportunity according to which everyone has the right to apply for a crime to the law enforcement agencies. At the same time, the current law obliges law enforcement agencies to include information contained in such a statement in the Unified Registry of Pre-Trial Investigations (ERPTI). In practice, quite often, instead of crimes allegations, reports from the SSU, employees of the State Fiscal Service (SFS), and other specific documents serve as the basis for information on the crime. Such reports may contain any information or facts witnessed by the above-mentioned persons. For example, in our practice there was even a “research on the fact of tax evasion”, compiled by the staff of the SFS.

In our practice we faced with such a wide range of such “reports of crimes” that, probably, we can already write a book. In our practice there were criminal proceedings started on the basis of a report, the author of which allegedly witnessed how a bribe was given, a report on tax evasion or on poor-quality products.

Very often according to such reports authorities open criminal proceedings against an exact legal entity and its management board, and information about the crime, introduced into the URPTI, is consciously qualified under part 2 or part 3 of the relevant article of the Criminal Code of Ukraine. This qualification increases the severity of the crime and automatically grants law enforcement authorities the power to carry out unsolicited investigative actions against the officials of the targeted company.

The current legislation provides a lot of variations of tacit investigative actions, on which many businessmen have never even heard and do not know how they are implemented. Officers of law enforcement agencies apply a wide range of investigative actions, from audio, video monitoring and surveillance of the person to the search of housing. But these types of covert surveillance are not used so often. The most common ones are listening, recording of telephone conversations of a person or persons suspected of committing a crime. This kind of unspoken actions begins at an early stage of the case, and the right to conduct them is provided by the court. At the same time, such decisions of courts you will never find, because, according to the current legislation, they are not entered in the Register of Court Decisions. Therefore, the person, against whom such investigative actions are conducted, is hundred per cent likely to be unaware of them.

Also, the frequently used investigative action is the removal of information from the servers of mobile operators, the receipt of a calls list for a sufficiently large period of time and texts of SMS messages. Such investigative actions are conducted on the basis of a court order. They enter the Register with a significant delay and they do not contain personal information of involved persons. They may be found only if the company is aware of an open criminal proceeding or carries out continuous monitoring of information and, according to certain criteria, comes to the conclusion that such an action is carried out with respect to its officials. It is very difficult to find and recognize such information at the initial stage of the investigation. In 95% of cases the company finds out that criminal proceedings have been started against its relative or its officials, already when the search is conducted. The business also does not have the opportunity to find out about the fact of the search in advance, because decisions that are granted permission to conduct a search are not made public in the Unified Register of Court Decisions.

Based on our experience, in addition to the above-mentioned investigative actions applied to business, temporary access to things and documents, disclosure of banking secrets (access to banking information), interrogation and inspection are also popular. At the same time, conducting a search, law enforcement officers very often conduct other actions, which are not provided for by the Code of Criminal Procedure, i.e. the seizure of samples of goods for research etc. It is important to note that searches and inspections may be conducted many times, both for the company itself, and for its clients and related companies within the framework of the same criminal case.

Unfortunately, today we can state the fact that it is quite difficult for business in Ukraine to defend itself from illegal reports of a crime, and the withdrawal of the conflict into the public sphere is not a guarantee of its successful resolution in the shortest possible time. Business is forced to show ingenuity in order to prove its rightness and defend the right to conduct business in our country. To do this, it is necessary to apply the full range of available tools and PR is only one of them. The process of proving a negative affect can take months or even years. Acting within the legal framework is the only correct way to resolve conflicts of this level of complexity, since this is the basis for changes in the entire imperfect legal and state system. This principle should be adhered to by all market players, without exception. And only in this case the business climate will change to better.

And those people who are used to do business under the old rules will have no place in the new ecological environment. It will be unprofitable to create problems if there are no more willing to solve them outside the existing norms and rules. The system will be changed when all market players stand for each other, instead of playing the role of outside observers, indifferently watching their market companions or competitors’ destruction, forgetting that because tomorrow they may be in their place. However, today the principle of “voice in the wilderness”, unfortunately, continues to work.

We do hope, that the case with the conflict of the Nova Poshta company will be an exception of the rules.

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Mykola Siutkin, CEO and founder of S&P Investment Risk Management Agency, tells why Ukraine, a country with huge potential, does not have a flow of foreign investments and what must be done to change the situation.

S&P Investment Risk Management Agency, a Ukrainian company, that specializes in integrated business solutions, shares experience and insists that there are no miracles. There is no such an effective method which can solve a problem in a company immediately. In protecting interests of business, only a set of tools — GR, PR, crisis communications, legal and managerial ones -can be effective. S&P Investment Risk Management Agency can provide such multilevel protection to investors in Ukraine and teach themavoid mistakes and minimize risks.

All this M. Siutkin told in his interview for LDaily magazine, basing on own experience and successful cases of his company. It was a friendly and honest conversation.

LD: In 2017 Ukraine had risen to 4 positions in the international Doing business rating and now takes 76th place out of 190 countries. Does it in your vision mean changing the balance of Ukrainian and foreign investments and the potential for FDI inflow to Ukrainian economy in 2018?

M. Siutkin: In my opinion changing of Ukraine`s position in any rating, including the most affluent one, means the fact Ukraine comes in sight of a probable investor like a potential investment object. The final decision is taken by investors not on the basis of ratings, forums, promises of the country Government, absolutely not, investors take their decision only after detailed consideration of business environment and potential risks. Very often the signal for investors to make a decision and enter to a new market is the successful story of other big players. Neither rating nor place in it makes an investor to collaborate with a country where business has been struggling from raiding, illegal actions of law enforcement agencies or oversight authorities. If mentioned risks are minimal large foreign players will come regardless of the country’s rating, subject to favorable financial performance. Therefore, in order to obtain a flow of foreign investments it is necessary to form the image of the country and show concrete examples of successful investment results. This is the first stage and later it is necessary to create comfortable and understandable conditions in doing business for foreign investors, starting with the protection of property rights, taxation, and simplifying bureaucratic procedures.

LD: What risks do foreign investors face when they start working in Ukraine and how they can avoid these risks?

M. Siutkin: Ukraine in the default mode is a high-risk country. But at the same time one can not omit the fact that size of presumable profit in our country exceeds the standard interest which foreign companies can receive in other European countries. I specially focus on European countries, because Ukraine is unique in its location for European investors as well as for many others.

Fixing investment attractiveness of our country one can not ignore the huge area of Ukraine (the largest in Europe): the population of today according to various data is 39-43 million people, people are educated, and the cost of labor is minimal compared to the countries of Europe. There are plenty of advantages in Ukraine, but they are really cancelled out by those risks, which really press not only foreign but also Ukrainian business.

• To the main risks we include loss of investments and / or assets in the territory of Ukraine.

• The second on the list, but equally important is a risk of conflicts with Ukrainian partners, which, as a result, can lead to loss of assets and / or business

• The third significant point is a risk of conflicts with the state authorities, especially with participation of law enforcement agencies.

The risk issues are serious, especially for them we have established a special training for CEOs of foreign companies , during the training we show types of risks, their levels, common mistakes. And, what is the most important, we teach foreign investors how to avoid risks and minimize already existing problems. In any case, regardless the currently present difficulties it is easy to see the fact that large and medium foreign companies have been successfully operating in Ukraine for a long time and in different fields of activity. But it should be noted that business, spending time for studying new business environment, risk analysis as well as minimizing it, will be a success. It is clear, that business can not resist load without help. That is why during the training we carry through a team game with the involvement of experts at all stages of the investment project, where real implementation is required, also we provide close cooperation with local and international business associations.

LD: Investors protection is now a very important issue for our country. Which, in your opinion, investors protection methods are really effective?

M. Siutkin: Unfortunately, there is no magic pill, or any tool that effectively with efficiency removes the problem in the company by one touch. In the process of building and implementing business protection methods, we apply a variety of tools, such as GR, PR, crisis communication, crisis management, coaching, mentoring, management and legal approaches, which are used according to the complexity of the task. Building of a full-fledged defense is a multilevel process that is individually developed for an individual case. And very often tools, perfect in one case, can become completely ineffective in another. It reminds me of the Iron Man competition, which never has two identical starts. A sportsman needs to change tactics, strategy, and creativity just during the race, depending on the basic data on a particular day and even at the start time.

In any case, we are for a systemic fundamental approach that allows businesses to feel safe in such a difficult business environment in Ukraine. I would also like to add that the current legislation in Ukraine gives to business enough methods to protect its rights, the question is only in the ability to use such methods properly. I fundamentally disagree with an opinion that current legislation in Ukraine is weak in terms of protecting a foreign investor. Legislation is rather progressive, but its implementation is very weak. However, you can work with it.

LD: Fighting corruption, including such in a real estate sector, is still one of the most important tasks for the state. What advice would you recommend to an investor starting his business in Ukraine?

M. Siutkin: The only advice is to act only in the legal field, do not accept incorrect “rules of the game”. You must not try to submit them as the only way to do business in Ukraine. It is not true, believe me, there are many successful examples of doing business in Ukraine, absolutely honest, transparent and legal. Having started to play according to the rules of others you are not able to change them. But even in this case you must act only within the framework of the law. And from a financial point of view such a strategy turns out to be much more profitable than a false position imposed from the outside.

LD: Business is not only work with assets and protecting investments, business means attention to people. What could you say about partnership and how you advise to build investors` partnerships?

M. Siutkin: Any business is looking for a partnership, especially when entering new markets. And this is normal. Partnership with local business simplifies acting of a foreign investor in new markets, helps to establish new relationships, realize projects, etc. Partnership in some projects is simply necessary, but, at the same time, it is necessary to include rationalism and pragmatism both in the process of choosing a partner and in the process of establishing a partnership. My advice is as follows: a successful partnership in Ukraine (but probably not only) is real if the correct system of checks and balances is created and does not allow to act with violation of rights toward the partner, otherwise it is just not profitable. A reasonable approach to designing partnerships is a crucial thing to minimize corporate and / or raider conflicts. According to our analyst, mistakes in the registration of partnerships in 95 % lead to loss of assets. Therefore — minimization of possible investment risks must be done at the “zero” stage, before starting the investment project. A correct beginning of an investment project is guarantee of its successful implementation.

«S&P Investment Risk Management Agency» owns the exclusive copyright of the information in this article. The author has the sole right to control the use of this material. It means the prohibition of using this information without our consent. The term “information” means texts, comments, photos, images, and other materials. Any use of the information or any part of this article without the written permission of the author is prohibited. The term “use” means copying, adaptation, re-writing, modifications, etc. In the case the irregularities are detected, the author has the right to copyright protection in accordance with the procedure established in Article 50-53 of the Law of Ukraine «On Copyright and Related Rights».

Co-founder and investment risk advisor at S&P Investment Risk Management Agency, Nataliia Osadcha, shared her opinion on the actions of the State Environmental Inspection using the case of the port of “Pivdennyi” and previous scandals involving cargo delays in Ukrainian ports in her column for Hubs:

Recently, representatives of the business community have increasingly discussed cases of illegal actions and abuse of authority by the State Environmental Inspection of Ukraine. Despite the fact that such cases are often supported by facts, official statements about these precedents rarely appear in the press.

Last year, our company encountered a case of unlawful actions by the State Environmental Inspection of the North-Western Black Sea region against one of our clients, who was the owner of a cargo shipment. In this case, the mentioned government agency was behind the creation of a “creative” scheme to detain a vessel with cargo. S&P Investment Risk Management Agency dedicated an article to this conflict, in which we detailed how these environmental officials manipulate concepts and “find” various reasons to delay vessels.

Recently, another case involving illegal actions by inspection officers surfaced in the media. To our surprise, after reviewing the case documentation, we discovered traces of the same “creativity” from the State Environmental Inspection of the North-Western Black Sea region. According to Mykola Shchurykov, Deputy Director of PJSC “Odesa Port Plant,” the essence of the recent conflict lies in the deliberate violation of current legislation by environmental officials.

After examining the facts and documents provided by Mykola Shchurykov, it becomes evident that the Environmental Inspection was once again involved in the downtime of vessels—this time in the port of “Pivdennyi.” This incident affected five vessels loaded with ammonia, whose owners suffered enormous losses totaling approximately $424,000.

The question arises: how do environmental officials manage to create conditions for vessel delays? The answer is simple: they use a fairly basic scheme, which, in their opinion, “covers up” all illegal actions. This scheme was used both in our case and in the subsequent one (albeit with some nuances, as the vessels carried different types of cargo). This government agency manipulates two completely different concepts and, under various pretexts, “discovers” violations of environmental legislation.

In our case, the alleged violation was the imaginary discharge of polluted ballast water. In the second case, it was the failure to coordinate the cargo loading plan with the environmental inspection. According to current legislation, when a violation of environmental laws is detected, inspectors are required to issue a protocol for an administrative offense, impose an administrative fine, and that should be the end of it. However, the Environmental Inspection freely “interprets” its powers.

Referring to an administrative violation (in our case), inspectors marked in the documents that the vessel had not passed environmental control. In the second case (with “Odesa Port Plant”), they outright refused to accept the documents. Do you think a vessel can pass customs control if it has a stamp stating “Radiological control of import/export prohibited” (as in our case) or has not passed environmental control (as in the case of the ammonia vessels in the port of “Pivdennyi”)? The answer is obvious—of course not.

In our case, inspectors stamped the documents, effectively detaining the vessel on Thursday evening (right before the weekend). It took us three days to release the vessel, but by then, the total delay exceeded five days. The shipowner suffered losses of $100,000 (not counting the losses of the cargo owners). In the case of the port of “Pivdennyi,” the financial losses were significantly higher.

The most striking part is that even as they release vessels with substantial financial losses, the inspection officials and their leadership continue to deny any wrongdoing, citing the “uncertainty” of current legislation. The inspectors, whose actions cost businesses hundreds of thousands of dollars, continue to work without consequences.

There are hundreds of similar cases involving the State Environmental Inspection of Ukraine, but only a few ever receive public attention. Until environmental officials prioritize lawful business practices over bureaucratic manipulation, such situations will persist.

The cases described above demonstrate that businesses in Ukraine are still not fully prepared to defend their rights within the legal framework. The market still lacks enough consultants who can help companies navigate crises using proper, legal, and ethical tools.

However, the latest case offers a glimmer of hope that a new wave of businesses is emerging—companies willing to openly assert their rights and act through legal means. This includes holding officials accountable for their “creative” abuses of power and defending their positions in accordance with the law. This shift benefits both society and the state as a whole. These companies are shaping the right “rules of the game.” Only by changing the existing business environment can Ukraine attract major foreign investors.

Investments of new large foreign players contribute to strengthening the country’s economy and help to reach a stable level of development. While in the eyes of potential investors, Ukraine does not belong to the category of investment-attractive countries. What is the problem and why such large foreign giants like Starbucks and IKEA have not yet entered the domestic market? Mykola Siutkin, managing partner of S&P Investment Risk Management Agency explains.

Now large foreign companies, which for a certain period were represented in our market, stop their business and leave Ukraine. According to open sources, over 27 foreign companies from various industries have left this field over the last three years: Honda, Peacocks, Mexx, River Island, Praktiker, Logitech, and others.

It may take years for potential investor to make a decision about entering Ukrainian market. For example, the European “giant” IKEA has considered this step since 2005, despite economically attractive indicators and clear advantages from doing business in the domestic market.

“Dark” rules for business

The main problem of Ukraine lies in the entangled rules of doing business, namely corruption at all levels. If a foreign investor leads a transparent business, it does not mean that sooner or later the company faces problems, sometimes even criminal ones. So it turns out that business “in white” in Ukraine can be compared with military actions, and not every investor is ready to keep such defense.

Fear Factor

The decision to gain a foothold in the Ukrainian market is not based solely on financial indicators or state guarantees. Investors carefully study the market, analyze the behavior of large players and look at real cases. If, for example, they encounter cases of initiation of criminal proceedings or raider seizure of another large company, it becomes a decisive factor. The company must feel safe, have guarantees of keeping property rights and immunity from unreasonable criminal prosecution.

High Level Risks

Acquisition of real estate in Ukraine and / or entering into partnership with the Ukrainian side – high level risks. Even experienced specialists are not always able to minimize them. If you put an attractive price on one bowl of scales and possible loss of an object in a couple of years on another one , which factor prevails? Often, large companies are not willing to risk their assets and a positive reputation because of an unsuccessful attempt to conduct business in Ukraine. Therefore, they opt for franchising. This type of risk refers to the category of risks with a business partner. Level of significance is lower than the previous one, but they can jeopardize the rights of the investor to transfer rights to use the objects of intellectual property, commercial experience and business reputation to the Ukrainian side.

In order for a foreign company would be able to conduct a successful business partnership in Ukraine, it is also necessary at the zero stage carefully consider the formation of correct rules of the game and to calculate all possible risks in advance.

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The problem of illegal seizure of an enterprise – raiding – has become relevant again. The heyday of raiding in Ukraine was in the early year two thousand and some years after, but the beginning of 2010s was relatively calm. During this period, the only raiders in the country were the “family” of the former Ukrainian president Viktor Yanukovich and his closest collaborators. They were not going to observe any formalities, so the prosecutor’s office, courts, the Security Service and the Ministry of Internal Affairs, which were completely under control of the Donetsk clan, nullified the possibility of owners to defend their business. After the Revolution of Virtue, the situation has somewhat improved, but the problem of forcible seizure of control and illegal transfer of property rights remains relevant. The good news is that now at least we have an opportunity try to defend business interests.

Nataliia Osadcha, co-founder of S&P Investment Risk Management Agency, told RAU how to hedge business and avoid attempts of raider capture and what to do if the attack has already begun

— How often and why do raider seizures take place in Ukraine? What is the reason for this?

— Today, raiding in Ukraine, alas, has become the norm and almost an integral part of doing business. Especially this problem affects the sphere of retail and real estate. Only in last few years dozens seizures of commercial real estate have been committed, you can remember the situation with the Lviv SEC Victoria Gardens and the Kyiv SEC SkyMall – ed. Some of them were so serious that they have become some markers of Ukraine as an investment-risky state. Analyzing the current situation in the country, I do not see the preconditions for reducing raider seizures in the near future.

The reasons that contributed to emergence and development of this phenomenon, we can distinguish

• Unstable political situation in Ukraine, the frequent change of high-ranking officials, leaders of law enforcement agencies and so on;
• Corruption at all levels, including law enforcement agencies and courts;
• Raider attacks execution involving state and law enforcement agencies;
• Absence of a real mechanism and practice of bringing raiders to criminal liability for raiding actions;
• Lack of a culture to lead honest business. An important factor in this aspect is the unwillingness of businessmen conducting business in Ukraine to play fair.

— What mistakes do Ukrainian companies make more often in such situations?

— Each raider capture is unique. Two equally organized and realized seizures are extremely rare. It’s like a battle, the scenario of which changes depending on the tactics of the enemy. Nevertheless, proceeding from our practice, it is possible to single out general trends and characteristics that can cause a raider capture.

The first thing that is important to remember is that not all enterprises become the object of raider seizure. It can be caused by the following circumstances:

The ownership of a large real estate object and / or objects of intellectual property, as well as business in any form that brings a stable income;

The company’s mistakes / circumstances, which may serve as the reason for the seizure. This is what are the prompts for raiders to attack, identifying the company with an easy prey.

Any raider capture is designed for speed. The attack is interesting to customers only under the condition of the fastest execution, first of all, from the financial point of view. The primary goal of the raiders is to gain complete physical control over the object, the secondary goal is to obtain financial control. In this situation, the raider does not care any more how long the conflict lasts, because he does not use his personal resources, but the means of captured object.

“Victim” of the attack will be “exsanguinated” and it will have to invest in this “war” both personal and borrowed funds. So, the confrontation can last for years, during which the raider will continue to receive income from the captured object. In general, protection from a serious raider attack is a long and financially expensive process. One of our defense case against the seizure of a large property in Kyiv lasted five years. The object was returned under our client control, but his financial losses proved to be enormous. Not every company can financially sustain such a battle. However, our case was an exception.

As practice shows, if a raider intrudes into an object and receives control over financial flows, it performs manipulations, because of which it is almost impossible to eliminate it from this object. Do not forget that large raider seizures are carried out with the active participation of law enforcement and / or government agencies, which significantly complicates attempts to return the illegally seized facility.

A vivid example is the sensational case of Arricano. Leading developer of shopping centers; for more than five years he has been trying to regain control of the shopping mall Sky Mall. Despite the fact that Arricano has at its disposal numerous decisions of the London Commercial Arbitration Court, it is practically impossible to execute them at the moment in Ukraine. Particularly difficult for the process is that officials are involved in the conflict at a sufficiently high level.

— How a retailer can protect his business?

— If the business project is executed in partnership, even at the “zero stage” it is worthwhile carefully consider the formation of the correct rules of the game. It is necessary to calculate immediately and c build correctly a system of checks and balances that makes it impossible or unprofitable to betray and / or capture business by one of the partners. According to statistics, one of the most common types of raiding is that one which begins with a corporate conflict.

Therefore, our main advice is this: even at the stage of discussing a business project, approach the issue of investing fundamentally. This will help the investor significantly minimize reputational and financial losses in the future.

— Prevention: what is better to be avoided?

— First: ignoring / not appealing the results of inspections of regulatory bodies that established the fact of illegal actions of the enterprise where the object was registered.

The second. Ignoring the institution of a criminal case against a counterparty who sold the real estate object and / or the official / body that made the decision to sell the property. Issuance of originals of legal documents to the investigation.

Third. Issuance of debt securities with a maturity date “upon presentation” by the enterprise where the property is registered.

Fourth. Primary privatization of the real estate object and / or redemption of the object from state authorities / local authorities without implementing a subsequent scheme to minimize legal risks.

Fifth. Non-renewal of title documents and / or statutory documents: the name of the enterprise has not been changed, a new certificate of ownership has not been received, technical characteristics of the object have not been changed after the reconstruction, etc.

Sixth. Transfer of a part of the corporate rights of the enterprise where the object is registered to third parties: directors, chairman of the board, etc.

Seventh. Distribution of shares between business partners on the basis of “60/40” or “51/49” in the event that the head of the enterprise has moved to the side of the participant owning the 51st% of the statutory fund.

Eighth. Purchase and sale of corporate rights of the enterprise where the real estate object (bought out from the state) was registered, without proper assessment of legal risks. Lack of procedures for minimizing risks.

Ninth. Exclusively legal mistakes / inaccuracies in the conduct of business, especially when concluding a transaction and / or after its conclusion.

«S&P Investment Risk Management Agency» owns the exclusive copyright of the information in this article. The author has the sole right to control the use of this material. It means the prohibition of using this information without our consent. The term “information” means texts, comments, photos, images, and other materials. Any use of the information or any part of this article without the written permission of the author is prohibited. The term “use” means copying, adaptation, re-writing, modifications, etc. In the case the irregularities are detected, the author has the right to copyright protection in accordance with the procedure established in Article 50-53 of the Law of Ukraine «On Copyright and Related Rights».