In brief
On 4 February 2021, Verkhovna Rada of Ukraine adopted the Law of Ukraine "On Financial Leasing" (the "Financial Leasing Law"). The Financial Leasing Law replaces the earlier set of rules for financial leasing and purports to resolve a number of issues that hindered the development of the leasing business. The Financial Leasing Law is not revolutionary but rather (i) aims to clarify some basic issues and (ii) seeks to implement some of the latest best international practices of financial leasing.
In more detail
Among other things, the Financial Leasing Law:
- sets out a specific regulatory regime for financial leasing, different from that applicable to "lease" and "sale and purchase" transactions;
- the Financial Leasing Law sets out precise requirements as to the form and key terms of a financial leasing agreement;
- provides for the possibility to restructure financial lease arrangements, stipulates joint and several liability of lessee and sub lessee, among other things;
- determines grounds for the early termination of a financial lease agreement;
- sets out the legal consequences of invalidation of a financial lease agreement;
- sets out clear rules and procedure for the transfer of a leased property to the ownership of the lessee;
- expressly prohibits the inclusion of leased property in the liquidation estate of the lessee (until such time when the transfer of ownership to such property to the lessee has completed);
- clarifies that financial leasing agreement is not subject to notarization;
- stipulates the activity of an agent as an intermediary in leasing relationships; and
- expands the list of permitted objects of lease, in particular permits to lease entire industrial complexes (or parts thereof).
Key takeaways
Due to the lack of bank lending, financial leasing remains the main alternative to the long-term financing of acquisitions of equipment and machinery for many industries (agriculture and transport including). And still financial leasing operators struggled to grow their portfolios, to a large extent due to the legal uncertainty on various aspects of financial leasing under the applicable legislation.
The Financial Leasing Law aims to improve the overall regulatory framework for the leasing industry with a particular focus on strengthening the protection of the rights of both the suppliers (i.e., lessors) and consumers (i.e., lessees) of the financial leasing services. This should encourage financial leasing services suppliers (both already present and those who consider entering this market) to have a fresh look at their strategy regarding Ukraine.
