NBU Significantly Restricted Payment Settlements on Transactions with Non-Residents

Vitalii Savchuk, Senior associate with Legal Alliance Company

The National Bank of Ukraine (hereinafter referred to as “NBU”) with its decision dated September 22, 2014 has actually conducted another revolution in the exchange market legal regulation.

On September 23, 2014 Resolution No. 591 “On Amendments to Some Regulations of the National Bank of Ukraine" of the Board of the National Bank of Ukraine (hereinafter referred to as “NBU Resolution No. 591) became operative.

Thus NBU prohibited payments settlement in foreign currency during:

• purchase of imported products if they are not delivered to Ukraine;
• transfer of amounts in foreign currency outside of Ukraine by the residents in order to purchase equity rights from non-residents;
• conducting transactions based on individual licenses of the National Bank of Ukraine;
• making payments under import contracts according to which the products were imported to Ukraine and customs clearance was carried out based on the bill of entry executed not later than 180 days ago;
• return of funds to another country received by foreign investors under sale transactions outside stock exchanges of securities of Ukrainian emitents except Ukrainian government stocks;
• return of dividends to another country to a foreign investor (apart from cases of dividends return on securities marketable at stock exchanges).

Prohibition of payments settlement on import transactions under which goods were customs cleared later than 180 days ago is the issue of greatest interest for trade business. As far as many contracts provide payment deferral for a longer period, a lot of Ukrainian importers do not have a possibility to perform their obligations to foreign suppliers any more.

Legal Alliance Company offers you to review analysis and some possibilities of companies business simplifying in respect of such prohibition.

Banking institutions interpret the said restrictions as a strong prohibition and block funds transfer. At the same time according to banking institutions prohibition concerns not only transactions which will be performed after the rules approved by the said Resolution come into effect but also regulate relations appeared before that moment.

One of the ways to avoid negative effect foreseen by NBU Resolution No. 591 can be change of a party in obligation.

According to the current civil law provisions change of a debtor in the obligation is possible upon conclusion of a debt transfer agreement. Thus if the resident’s debt is transferred to a non-resident legal entity, new non-resident debtor shall repay debt to the supplier instead of a Ukrainian buyer.

It should be noted that change of a debtor under the contract must be preliminary agreed with the creditor on primary obligation (goods supplier). Herewith such consent may be stated both in a trilateral agreement with new and old debtors and fixed in a separate document which is signed by the creditor and provided to other parties.

In its turn a new debtor receives the right to claim reimbursement of the obligation fulfilled by him from the Ukrainian buyer. In such case in order to transfer currency in payment for fulfilled obligation the buyer shall receive individual NBU license. Herewith payment settlement will be possible after cancellation of a temporary prohibition for payments under such licenses.

Another option is to change creditor in the obligation. It is possible when a foreign supplier owns (or establishes) a subsidiary in Ukraine, which in its turn receives payment from the debtor without NBU restrictions. In such case contract for transfer of receivable from one resident creditor to another shall be conducted.

At the same time it should be noted that under the said conditions payments between debtor and resident creditor can be settled only in Ukrainian hryvnias which will require some amendments to the contract regarding its currency. Also we recommend to choose the resident connected with the creditor as a new creditor to resident’s obligation.

Depending on future plans regarding paid funds tax effect of the transaction shall be analyzed according to the Ukrainian law.

Therefore Ukrainian entity can observe temporary NBU restrictions without any harm to its reputation at foreign counterparts.

In cases when due date is not a critical issue for a non-resident but the fact of due date default on the buyers’ side is unacceptable it is reasonable to use debt novation. Novation agreement as such is understood as a debt transformation under the contract into another obligation – loan agreement. As a result debtor shall repay the debt in a due date specified by the new contract and goods supply obligations are ceased.

In order to repay debt under loan agreement NBU license is also required; accordingly fulfillment of final obligation can be possible after temporary prohibition under such licenses is cancelled.

Application of agreements provisions about force majeure events can also exempt the debtor from liability for non-fulfillment of obligations in time. In order to define whether corresponding provisions can be applied particular agreements shall be analyzed.

Legal Alliance Company hopes sincerely that ideas provided above will be useful in your business activity and will help you to find possibility to minimize losses caused by adoption of NBU Resolution No.591.

In turn it should be noted that lawyers of our company have all required practical and theoretical knowledge to provide legal services and consultations aimed to adjust business to new requirements of the Ukrainian law.