The European Business Association (EBA) analyzed bill No. 11195proposed by the head of the Servant of the People faction, David Arakhamia, on the mechanism of third-party property rights protection. Following the Union of Ukrainian Entrepreneurs (SUP), the EBA called on the leadership of the Verkhovna Rada and the heads of parliamentary factions not to support this bill.

"Any one minority shareholder in an enterprise that will be sanctioned by the National Security and Defense Council is enough, and this gives the Cabinet of Ministers of Ukraine the right to appropriate shares owned by non-sanctioned persons. The Draft Law does not provide for any transparent and quick mechanism for restoring the ownership rights of all other non-sanctioned shareholders," said the EBA in a press release published on Friday.

The draft law proposes to empower public authorities to make decisions on foreclosure of 100% of a block of shares or other securities directly owned by a legal entity in whose ownership structure a person subject to an asset freeze has been sanctioned, if the determined amount of participation in such a block of shares of the person subject to an asset freeze is less than 25%. If the sanctioned person owns 25% or more of the shares, the alienation will be carried out by filing a corresponding application with the court.

According to the Association's experts, although the Draft Law contains the name of the mechanism for protecting the property rights of third parties, in essence it is intended to establish a new legal mechanism for the collection of shares, not only of sanctioned persons, but also of non-sanctioned persons, into the state's revenue.

The EBA added that it seems rhetorical to ask how sanctions in the form of blocking assets can be applied to shareholders who have not created a significant threat to the national security, sovereignty or territorial integrity of Ukraine.

Furthermore, the EBA said that the Draft Law's attempt to establish a special procedure for restoring the rights of non-sanctioned persons by opening a special conditional account does not seem convincing either.

"It is also worth noting that all shareholders, including non-sanctioned persons, are deprived of the right to participate in and manage a legal entity, which will almost certainly lead to a business shutdown," the association said.

The EBA said that neither the Ukrainian nor the European doctrine of property rights allows arbitrary interference by the authorities with the protected property right. Moreover, it requires that the deprivation of property must have a specific basis in national law and any person could have foreseen its occurrence. However, it is quite obvious from the content of the Draft Law that non-sanctioned shareholders will not be able to foresee the deprivation of their property rights or shape their behavior in such a way as to avoid negative consequences for themselves.

"If the Draft Law is adopted, the fundamental constitutional rights of an indefinite number of people and our country's international obligations will be violated, and Ukraine will lose any investment prospects. Moreover, at such a very difficult time for the country. Therefore, we sincerely hope that lawmakers will make the right decision and not drive the country's economy into a dead end," the EBA concluded.

At the same time, Deputy Minister of Justice Inna Bohatykh, who oversees this topic in the ministry, supported the adoption of bill No. 11195 at the first reading, while acknowledging that the provision regarding the Cabinet of Ministers' powers is poorly written.

"The bill does not propose any extrajudicial mechanism for seizing assets for the state's benefit. Even the assets of sanctioned persons are transferred to Ukraine's ownership based solely on a court decision. This involves the High Anti-Corruption Court (HACC), two instances, and each case is considered by a panel," Bohatykh said.

She stated that appropriate amendments, specifying that "the Cabinet of Ministers does not decide on the seizure but decides on the Ministry of Justice filing a lawsuit with the HACC (when the sanctioned person's share is less than 25%)," will be made to the bill, and she promised to correct the wording before the second reading at the relevant parliamentary committee meeting.

"Representatives of various parliamentary factions were present at the meeting, and the bill was unanimously supported at the first reading with the expressed comments," said the deputy minister.

She said that Bill No. 11195 would be revised even before the first reading, and the provision regarding the Cabinet's powers would be clarified. The deputy minister added that there is a need to establish a more specific procedure and timeframe for restoring the rights of non-sanctioned co-owners and accountability for violating this procedure at the legislative level.

"I agree with the criticism – the legislative process is meant to foster discussion to develop the most balanced approach. However, I completely reject accusations of treason, expropriation, illegal seizure by the state, and all similar criticisms. Any document should be read in context. Therefore, I invite everyone who is thoughtful to work together to find a solution to the problem," Bohatykh concluded.

She also mentioned that the Ministry of Justice invited business associations and relevant public organizations to discuss this complex issue.

As reported, Bill No. 11195 was registered in the Verkhovna Rada on April 22. According to it, the state is to seize 100% of the shares or stakes of legal entities indirectly owned by sanctioned persons, while the shares and/or stakes of non-sanctioned persons are to be transferred to special escrow accounts. If, within five years from the day the rights to the securities and/or stakes are credited to the escrow accounts, non-sanctioned persons do not take action to formalize their ownership, it will be considered that they have renounced their ownership rights.

Moreover, if the sanctioned persons' direct or indirect share in the capital is up to 25%, the government, not the HACC, decides to seize all 100% in favor of the state.

Earlier, the SUP expressed concerns about this bill, insisting on conducting an anti-corruption examination of its provisions.