Vasil Kisil & Partners advise LNZ Group on Ukraine's first-ever transfer of shares in LLC into depositary system

Shpola Agro Industry LLC (ShAI), a member of LNZ Group, has become the first company in Ukraine to start recording its shares in the depositary system of the National Depository of Ukraine (NDU) instead of the state register.

Starting in 2024, the Law on Joint Stock Companies allows LLCs to choose the depositary system to record shares. The shares will only be accessible through a specific depository institution instead of every state registrar or notary. This innovation effectively protects the title of the company's members and makes any third-party abuse concerning shares practically impossible. 

Vasil Kisil & Partners lawyers, Volodymyr Igonin, Partner, and Mariia Mykhailovin, Associate, advised ShAI on this project.

Volodymyr Igonin, Partner and Head of Corporate / M&A, comments: “We strive to protect our clients’ interests through legal means as well as possible. That is why, from the very beginning, we supported a new opportunity to record shares in LLCs in the depository system, similarly to shares in JSCs. Unlike a state registrar or a notary who usually deals for the first time with the documents submitted for registration, a specific depository institution (e.g., a bank) knows well its client and can easily verify that a share transfer is legitimate. Aside from protecting title to business, the NDU’s infrastructure gives additional opportunities, such as electronic general meetings, effective pledges of shares, and escrow. By the way, in 2017-2018, we advised LNZ Group on the acquisition of ShAI. The parties then engaged a foreign escrow agent for settlements. Now Ukrainian companies have access to a new effective escrow mechanism that significantly simplifies M&A transactions and reduces transaction costs.”

Dmytro Kravchenko, LNZ Group founder, says: "LNZ Group includes over 85 agricultural companies, as well as a specialized corn plant, a multifunctional seed plant, two elevators in the Cherkasy and Sumy regions, 10 logistics centres, and a customs warehouse. The group cultivates over 90,000 hectares of land and employs over 3,500 employees at a peak season. It is important for us to protect the title to our companies and assets. We appreciate the long-term cooperation with our legal adviser, Vasil Kisil & Partners, who suggest effective solutions and help us implement them. In addition to the protection of our companies, we see that the new NDU’s mechanisms allow us to expand crediting our partners."

Maryna Adamovska, a member of the Board of NDU, notes: “The mechanism for recording shares in the depositary system of the Central Depository is a revolutionary innovation. One will be able to combine their title to securities and shares in LLCs in one depository institution and take advantage of additional services of the Central Depository. For example, electronic general meetings, which are relevant in current circumstances. On top of this, escrow accounts will ensure the performance of obligations under share sale transactions, serve as a guarantee for creditors whose rights and claims are secured by the pledge of a share in a company, and provide opportunities to expand the use of pledge as a security.”

Maksym Libanov, a member of the National Securities and Stock Market Commission, sums up: “Allowing members of LLCs to transfer shares from the State Register to the Central Depository is our fundamental achievement as the regulator. This is aimed at recording the facts of the acquisition and sale of shares and restriction of rights to shares, and, of course, at protecting from unauthorized loss of title to a share. I am sure that this is a new stage for the market and another step towards digitalization."