As of today, the State Property Fund of Ukraine (SPFU) is responsible for managing approximately 750 state-owned enterprises that are currently undergoing liquidation or termination procedures. Moreover, around 300 more enterprises are expected to be transferred to the SPFU for the same purpose in the near future. In addition, the SPFU is currently involved in 157 bankruptcy court proceedings concerning state-owned enterprises.

Inactive and non-operational State Owned Entreprises (SOEs) place a significant financial and administrative burden on the state budget. Historical SPFU data on enterprises identified for liquidation indicated aggregate liabilities of approximately UAH 1.5 billion, including UAH 1.1 billion in tax arrears, UAH 357.4 million in pension-related liabilities and UAH 39.6 million in wage arrears. The real amount of indebtedness is much more considerable given that SOEs are the biggest systemic debtors in Ukraine.

An average duration of bankruptcy proceeding is approximately 2.9 years. But proceedings involving SOEs may be significantly longer due to their specific legal and institutional framework, the involvement of state property management bodies, complex creditor claims and litigation, and asset-related issues. Available case records demonstrate that bankruptcy and restructuring proceedings involving SOEs may remain unresolved for 5-10 years.

The root cause of the problem is related to the accumulation of big number of inactive state-owned enterprises. A significant number of SOEs have remained legally registered despite having ceased economic activity many years ago. As a result, the SPFU has inherited a substantial portfolio of enterprises requiring termination, creating a backlog that exceeds available institutional capacity.

Given the above, the Ministry of Economy and Ecology of Ukraine requested to provide expert support on the liquidation and termination of SOEs which will include 1) Analysis of existing gaps in the regulations and procedures related to liquidation, restructuring and termination of SOEs, 2) Development of regulatory proposals, 3) expert advice on specific cases of liquidation.

In parallel, the project will support the implementation of corporate governance reform in SOEs falling within the SPFU’s management sphere. Building on previous extensive engagement with the SPFU, the substantial expertise in strengthening corporate governance frameworks and practices in SOEs was provided in the frame of previous cooperation. The assignment will therefore include support in the development and implementation of corporate governance systems, including governance policies, roles and responsibilities of supervisory boards and management, internal controls, risk management and other relevant governance instruments, in line with OECD standards and international best practices.

The assignment will require the services of two national expert with background in insovency and corporate governance. This assistance will be provided in the frame of EU4SAR program. This program is financed by the European Union and the French Ministry of Europe and Foreign Affairs, and supports the transformative agenda on the Governance of State-Owned Enterprises and its alignment with EU acquis, international standards and best practices.

III. Objectives and desired results

1. General objective

The objective of the assignment is 1) to create time and cost efficient procedures for the liquidation of insolvant and inactive SOEs, which include the amendments to the insolvency regulatory framework in place and establishment of effective procedures. The mission is also aimed at resolving the legal or other issues that complicate and extend the liquidation or temination of specific SOEs; 2) contribute to the implementation of proper corporate governance system at SOEs managed by the SPFU in order to streamline the management of public companies and ensure alignment with international recommendations & standards, as well as with EU acquis.

2. Specific objectives

●      Conduct analysis of existing regulatory framework for liquidation, restructuring and termination of SOEs and the practice of their implementation;

●      Support the development of simplified procedure for liquidation of SOEs and relevant regulatory amendments;

●      Prepare the recommendations regarding the procedures of restructuring of SOEs;

●      Provide overview of the actual procedure of termination of SOEs and recommendations for its improvement;

●      Provide advice regarding the harmonization of Ukrainian regulatory framework and EU acquis in the field of insolvency;

●      Provide expert advice regarding the cases of specific SOEs.

●      Assist in conducting assessment of the actual state of internal control systems at SOEs;

●      Strengthening the application of anticorruption framework at SOEs;

●    Provide support to SPFU in developing procedures and instruments for interaction with SOEs and improvement of corporate governance.

●       Develop adapted templates, regulations & procedures to close the gap between the primary and secondary legislation & SOE procedures and practices.

3. Anticipated results

●      Strong analytical evidence regarding the actual implementation of insolvency procedures regarding SOEs and identification of gaps;

●      Improved legislation allowing more efficient treatment of insolvent and inactive SOEs;

●      The reduced number of loss generating SOEs.

·        Fastened liquidation and termination duration for SOEs

●      Procedures and guidelines developed for SPFU and SOEs;

●      Analytical reports for identifying the existing gaps in the application of existing regulations and procedures;

·        Improved corporate governance framework for SPFU and the SOEs it manages;

●      Improved regulatory framework for bankruptcy and liquidation of SOEs.