Ukraine

Ilyashev & Partners Law Firm successfully represented Research and Production Company HomeNet LLC, a Ukrainian telecommunications company, in a case concerning the violation of procurement procedures by the customer during a tender for telecommunications services initiated by the Main Information and Computing Centre branch of JSC Ukrzaliznytsia (Ukrainian Railways). In 2025, the state company’s branch conducted an open tender on the Prozorro platform for the procurement of Internet access services. Two companies participated in the process, one of which — Research and Production Company HomeNet LLC – submitted the most favourable price proposal and provided a complete set of documents in accordance with the tender documentation requirements. However, the procuring entity rejected HomeNet’s proposal without proper justification, alleging that certain deficiencies had not been remedied. At the same time, the procuring entity failed to specify a clear list of violations that would constitute a breach of public procurement law in the notice requesting the elimination of deficiencies. To protect its rights, the company turned to Ilyashev & Partners Law Firm. The Antitrust and Competition team prepared a complaint to the Antimonopoly Committee of Ukraine (AMCU), substantiating the unlawful nature of the procuring entity’s actions. In particular, the attorneys demonstrated that: the notice requesting elimination of deficiencies did not contain a clear list of identified violations; the procuring entity’s comments referred to minor technical issues (such as the format of the price proposal or omission of employees’ patronymics) that did not affect the content or completeness of the tender proposal; the tenderer submitted all required documents confirming its technical capacity to fulfil the procurement. The AMCU Commission accepted the legal arguments of Ilyashev & Partners’ attorneys and ordered the procuring entity to cancel its decision rejecting HomeNet’s proposal. The case was handled by Oleksandr Fefelov, Partner and Head of Antitrust & Competition, and Andriy Lytvyn, Attorney at Law and Head of Kharkiv Office at Ilyashev & Partners Law Firm.

Kostiantyn Kryvenko, Counsel, Head of Criminal Law Practice at Ilyashev & Partners Law Firm As Ukraine intensifies its anti-corruption efforts and strengthens the rule of law in the context of EU accession and post-war recovery, legal mechanisms for asset tracing, recovery, and corporate investigations are becoming increasingly sophisticated and effective. International companies, creditors, investors and compliance professionals involved in Ukraine-related disputes or enforcement actions must understand the multifaceted tools available for protecting their interests. These include civil litigation, criminal proceedings, interim measures, cross-border cooperation, and forensic investigations. This guide outlines core strategies and instruments available to pursue asset recovery and conduct corporate investigations in Ukraine, highlighting practical issues, procedural mechanisms, and emerging risks. Challenges Faced by International Businesses in Ukraine Foreign companies operating in Ukraine or participating in local tenders may encounter a range of legal and operational risks – especially when it comes to asset recovery, fraud detection, or internal investigations. Key challenges include: Concealed asset withdrawal: Sophisticated schemes involving offshore jurisdictions, shell entities, and fictitious transactions can obscure the trail of misappropriated assets, making detection and recovery difficult. Internal fraud and embezzlement: Dishonest employees or executives may exploit weak internal controls, causing significant losses that remain undiscovered for extended periods. Corruption risks: Although Ukraine has advanced its anti-corruption reforms, risks of bribery or undue influence persist. Investigations must therefore be discreet, well-documented, and legally sound. Complex legal environment: Navigating Ukrainian law enforcement, asset recovery, and evidentiary procedures often requires expert local counsel with knowledge of judicial and regulatory nuances. Cross-border asset tracing: Many schemes involve international components, requiring coordination with foreign authorities, compliance with mutual legal assistance treaties, and recognition of judgments across jurisdictions. Reputational exposure: Investigations involving allegations of fraud or corruption carry reputational risks that must be managed carefully, especially for listed or regulated companies. Legal Mechanisms for Asset Recovery and Loss Prevention At Ilyashev & Partners, we have developed a multifaceted approach that allows us to effectively protect the interests of our clients and achieve their goals. Strategic Corporate Investigations. We conduct confidential and in-depth internal investigations of any instances of misconduct, including: Forensic audit: detecting financial abuse, transaction analysis, tracing hidden cash flows. Fraud and embezzlement investigations: establishing facts, collecting evidence, and identifying responsible parties. Corruption and compliance investigations: detecting bribery, conflicts of interest, and other illegal actions. Electronic data analysis (e-discovery) and cyber investigations: recovering and analyzing digital evidence. Asset tracing & freezing. International asset tracing. Use of a wide network of contacts and international mechanisms to trace assets transferred abroad. Use of national interim measures. Initiation of litigation to seize assets (property, corporate rights, funds) in Ukraine and abroad to prevent their further withdrawal. Effective ligation and legal representation: Representation of the client’s interests in courts of all instances to recover illegally withdrawn assets or seek to compensate for losses. Strategic cooperation with Ukrainian law enforcement agencies in criminal proceedings related to the loss of assets to secure seizure and confiscation of criminal proceeds. Representing clients in international arbitrations and foreign courts in asset recovery cases, as well as ensuring the enforcement of foreign judgments in Ukraine. Preventive measures and risk management: Development of internal policies. Creation and implementation of reliable corporate governance systems, anti-corruption, and anti-fraud policies. Due diligence. An in-depth examination of potential partners, investment objects, and transactions to identify hidden risks. Staff training. Training employees to identify and report suspicious activities. Cooperation with international partners. We act as a trusted partner for foreign law firms and consultants needing detailed expertise in Ukrainian law and enforcement for cross-border investigations and asset recovery projects. Information Sources and Mechanisms for Effective Investigations The success of asset recovery and corporate investigations largely depends on the ability of lawyers to systematically collect, analyze, and use relevant information. Despite certain challenges, Ukraine offers a broad array of information tools and sources for building a convincing evidence base. The approach of Ilyashev & Partners’ team is based on a combination of open sources, specialized databases, and classical methods of evidence collection. Open state registers and databases. Ukraine has made major strides towards transparency by opening access to key registers. This provides invaluable opportunities for the initial stage of investigations: The Unified State Register of Legal Entities, Private Entrepreneurs, and Public Organizations (USR). It allows the identification of the ultimate beneficial owners (UBOs), the ownership structure of companies, their directors, and the history of registration changes. State Register of Real Property Rights. Provides information on real estate ownership, encumbrances, and arrests. State Registerof Movable Property Encumbrance. Allows you to check for pledges and other encumbrances on vehicles, equipment, etc. Unified State Register of Court Decisions. Contains millions of court decisions from all instances, allowing you to study precedents, see the history of litigation of companies or individuals, analyze their relationships, and identify potential risks. The Unified State Register of Persons Who Have Committed Corruption or Corruption-Related Offenses (the Register of Offenders). State Register of Sanctions. Specialized and commercial databases. Beyond government registers, we utilize specialized commercial databases and analytical platforms. They often aggregate information from various sources, analyze it, and provide intelligence on financial ties, political influence (PEP), sanctions lists, news mentions, and other critical information that may not be available through state registers alone. Classical methods of evidence collection. Despite digitalization, traditional methods remain the foundation of any investigation: Obtaining witness statements. Conducting interviews with persons who may have relevant information, documenting their testimony. Working with documents. Systematization and analysis of financial documents, contracts, internal correspondence, bank statements, and other material evidence. Obtaining information at the lawyer’s request. Ukrainian legislation gives lawyers the right to receive information from government agencies, enterprises, institutions, and organizations, which is a powerful tool for collecting the necessary data. Conducting expert research. Involvement of forensic experts (economic, handwriting, technical) to analyze documents, data, and other materials. Interaction with law enforcement agencies. In cases where signs of a criminal offense are detected, we initiate the relevant criminal proceedings, within which we file a request for the necessary procedural actions to collect and record evidence (searches, seizures, interrogations). It is important to note that evidence collected in Ukraine can play a decisive role in winning a case in another jurisdiction, provided that it is properly documented and legalized. Ukraine is a party to several international conventions governing legal assistance and the recognition of documents. Our lawyers are experienced in handling international requests for legal assistance, drafting documents for use abroad, and coordinating evidence collection processes with foreign partners. This ensures that all the information collected is not only relevant and convincing but also legally valid and admissible in international litigation and arbitration proceedings, as well as in international investigations. Thus, a well-collected evidence base in Ukraine becomes a solid foundation for protecting the client’s interests in any global jurisdiction. Criminal Instruments in Corporate Disputes Criminal proceedings in Ukraine often serve as a key instrument for protecting the rights and interests of businesses in complex corporate disputes. In cases where there are signs of misconduct – from falsification of documents and abuse of power to corporate raids, asset fraud, or misappropriation of corporate rights the use of criminal proceedings can be crucial. Initiation and support of criminal proceedings. We thoroughly analyze the situation and, if there are legal grounds, draft substantiated statements of crime based on facts that have signs of criminal offenses (for example, under Article 190 “Fraud”, Article 191 “Misappropriation, embezzlement or seizure of property through abuse of office”, Article 205-1 “Forgery of documents submitted for state registration of a legal entity and individual entrepreneur”, Article 206 “Counteraction to legitimate economic activity”, Article 364-1 “Abuse of authority by an official of a legal entity of private law regardless of organizational and legal form”, Article 366 “Official forgery” of the Criminal Code of Ukraine), describing the proper qualification of actions and effective procedural support at all stages of investigation and trial. Application of interim measures. One of the main advantages of criminal proceedings is the ability to promptly apply interim measures, including the arrest of property, corporate rights, shares, or other assets involved in a corporate dispute or used in a criminal scheme. This allows us to effectively block the further alienation or concealment of disputed assets by order of an investigating judge or court, creating a powerful lever to protect the client’s interests. Use of investigative tools to collect evidence. In criminal proceedings, law enforcement agencies have broader powers to collect information that may not be available in civil or commercial cases. This includes interrogations of interested parties, operational arrests of documents, and temporary access to bank transactions, constituent documents of companies, registry data, as well as forensic economic, accounting, computer, and other examinations to identify facts of abuse and confirm criminal conduct. Creating legal pressure and strategic leverage. The existence of criminal proceedings against opponents in a corporate dispute creates significant legal pressure, prompting them to negotiate and find compromise solutions. It can also become a powerful lever for strengthening the client’s position in parallel civil or commercial proceedings. Protection against unlawful criminal pressure. We also defend our clients in cases where criminal proceedings are unlawfully initiated against them or their officials to exert pressure in a corporate conflict. Our strategy includes actively challenging illegal actions of law enforcement agencies and fully protecting the client’s rights. It is important to emphasize that all our interactions with law enforcement are conducted exclusively within the bounds of the law. When signs of a criminal offense are identified, we initiate appropriate procedural actions and effectively interact with law enforcement agencies, ensuring that they use their legal tools to collect and record evidence. This comprehensive approach demands deep knowledge of the Criminal Procedure Code of Ukraine, experience in interacting with law enforcement agencies, and the ability to effectively coordinate actions at all stages, which is one of our key strengths. Civil Asset Tracing and Freezing Orders In addition to criminal law tools, effective “asset recovery” of assets lost as a result of misconduct or contractual breaches relies heavily on civil and commercial litigation tools. Our firm actively uses these mechanisms to trace, protect, and recover assets that have been illegally diverted or concealed, acting both in Ukraine and coordinating actions internationally. The civil asset tracing process begins with an in-depth analysis of financial flows, property registers, and corporate structures. We use all available legitimate sources of information, including public registers (as discussed earlier), specialized analytical databases, and data obtained in the course of our investigation. The purpose of this stage is not only to identify the current location of the assets, but also to disclose the schemes for their withdrawal and identify the persons involved in their concealment. Following successful tracing, a critical step is to immediately ensure the safety of the identified assets. This is where interim measures (similar to freezing orders) imposed by a court in a civil or commercial proceeding come in handy. These measures may include: Seizure of funds in bank accounts; Seizure of property (land plots, buildings, vehicles, equipment) Prohibition on alienation of corporate rights (shares in the authorized capital, shares); Prohibition of certain actions that may lead to further withdrawal of assets or change of their legal status. An important advantage of civil interim measures is their speed and the possibility of applying them at the stage when the main court proceedings have not yet begun or are ongoing. This helps to prevent further withdrawal of assets and ensure the actual enforcement of a future court decision on their return to the rightful owner. Our lawyers have extensive experience in preparing and successfully supporting motions for interim relief, justifying the need for immediate action to protect the client's interests. Further recovery of assets is carried out through filing and supporting claims for damages, invalidation of transactions, reclamation of property from someone else’s illegal possession, or other relevant civil claims. In case of a positive court decision, we provide full support in the process of its enforcement. On the international level, we work closely with a network of trusted partners to trace assets located outside Ukraine and initiate appropriate interim measures in foreign jurisdictions. Our firm’s expertise in understanding Ukrainian law and international norms makes us a reliable partner in complex cross-border asset recovery cases. Case Snapshot Ilyashev & Partners’ team has successfully implemented a project on the arrest of twelve An-124-100 Ruslan transport aircraft of the Russian airline Volga-Dnepr in several jurisdictions, including Germany and Canada, within the framework of criminal proceedings initiated at the request of the State Enterprise Antonov. The seizure was imposed to ensure the preservation of material evidence and further compensation for damage. The total value of the aircraft is over UAH 24 billion. Investigating Corporate Ownership and Shell Structure Effective identification of actual owners and controllers of companies is a cornerstone of any investigation, especially in the context of asset recovery or corporate dispute resolution. In Ukraine, this process relies on a combination of legal tools and in-depth analysis. Key sources and methods include: The Unified State Register of Legal Entities, Private Entrepreneurs, and Public Organizations (USR). This is the primary public source of information on the ultimate beneficial owners (UBOs) of Ukrainian companies, which is the starting point for assessing the transparency of the ownership structure. Tax information. Available through legal requests or court/criminal proceedings, revealing indirect control or financial ties. Out-of-court investigations (Forensic, Whistleblower Data). In-depth out-of-court investigations, including forensic audits, play a key role. This is a detailed analysis of financial transactions, documentation, and email correspondence to identify hidden schemes. Whistleblower data can also provide valuable insights. International legal assistance. In cases where the beneficiaries or their assets are hidden outside Ukraine, we actively use international legal assistance mechanisms, cooperating with foreign jurisdictions through official requests for information. In Ukrainian court practice, the technique of "piercing the corporate veil" is increasingly used, which allows courts to ignore the formal independence of a company and hold its actual controllers liable for the company's obligations. This is possible when a company is used for fraud, abuse of law, or concealment of beneficiaries. Although there is no direct legal provision, courts are guided by the principles of good faith and fairness. The key in these proceedings is the definition of “control” without formal ownership of shares in the authorized capital. The courts may recognize a person as exercising actual control based on a combination of evidence that demonstrates the influence on key decisions of the company. Such evidence includes family ties, regular participation in management decisions without an official position, financing of activities, third-party evidence of actual influence, and the identification of hidden schemes. Thus, in complex corporate disputes and asset recovery efforts, our strategy is not only to identify the formal owners but also to identify the persons who exercise real influence and control, to bring them to justice. Cross-Border Recovery and Recognition Issues In today’s world, where assets can be quickly moved across national borders, effective recovery of lost funds and property often requires going beyond the borders of one jurisdiction. Ilyashev & Partners Law Firm has extensive experience developing and implementing cross-border asset recovery strategies, understanding the complexity of interaction between different legal systems. The key tool in such cases is the recognition and enforcement of foreign judgments and arbitral awards in Ukraine. Ukraine is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards and has a number of bilateral international treaties on legal assistance, which greatly simplify this process. Once recognized, a foreign judgment acquires the status of a Ukrainian judgment and can be enforced in Ukraine, which is a powerful additional tool for recovering assets located here. Equally important in cross-border investigations is coordination with foreign investigative authorities to freeze assets abroad. In cases involving white-collar crime, fraud, or money laundering, where assets have been transferred abroad, we actively use international legal assistance tools in criminal matters. This allows us to initiate official enquiries to foreign law enforcement agencies to conduct investigative actions, obtain information about accounts and property, and most importantly, to seize assets in the relevant jurisdiction. Such parallel work, covering several countries at the same time, is extremely effective in preventing further movement or alienation of illegally obtained property. Success in the most complex asset recovery cases often depends on the application of multimodal strategies that combine different legal instruments. A civil case, criminal proceeding, or administrative mechanism alone can rarely lead to full restitution. An effective strategy involves the synchronized use of several components, including civil, criminal, and administrative legal mechanisms. Our experts can not only apply these tools separately but also skillfully integrate them into a single, powerful strategy. This allows us to create synergies, where information obtained in one type of proceeding strengthens positions in another, maximizing the chances of successful asset recovery and protecting the client’s interests. Red Flags and Common Obstacles Even the most thorough investigations and asset recovery strategies in Ukraine can encounter significant challenges and obstacles. Understanding these “red flags” and common barriers is critical for foreign investors and businesses, as it enables them to proactively develop effective legal defenses in advance. Criminals often use shell companies (“fronts”) and loan agreements to conceal the true owners of assets or to illegally withdraw them. Suspiciously complex corporate structures with numerous intermediate links, the use of offshore jurisdictions, and atypical loan agreements (e.g., with unreasonably high interest rates, between related parties without an economic purpose) may indicate an attempt to create the illusion of legitimate transactions. Our countermeasures include in-depth due diligence, invalidation of such agreements in court, and initiation of criminal proceedings, which allows us to “pierce the corporate veil” and identify the real beneficiaries. Another common obstacle is fictitious bankruptcies or liquidations of companies. A sudden declaration of insolvency, hasty withdrawal of assets before bankruptcy proceedings, or initiation of bankruptcy by “friendly” creditors are all warning signs. The purpose of such actions is to avoid liability, write off debts, and transfer assets to new, controlled entities. To protect the interests of our clients, we ensure active participation in bankruptcy proceedings, challenge questionable transactions, and, if signs of a crime are detected, initiate criminal investigations into fraudulent bankruptcy. Despite the progress in reforms, bureaucracy in state registries and delays in case processing remain real challenges. Unreasonable delays in making changes to the registers, lengthy court proceedings, or delays in issuing documents may allow unscrupulous parties to hide assets or change their legal status. Our response is to continuously monitor, use all procedural opportunities to expedite the proceedings, file formal complaints against the inaction of officials, and, if necessary, initiate legal actions to challenge such delays or inaction. A particularly acute problem may be potential corruption in the executive service, which may impede the enforcement of court decisions. Unjustified delays, selective enforcement, pressure on state enforcement officers, or questionable valuation of seized property are red flags. To protect our clients from such actions, we use a multi-level approach: thorough legal control over the bailiff’s actions; filing formal complaints with the senior management of the Enforcement Service and the Ministry of Justice; challenging unlawful actions or inaction of bailiffs in court; and, if there are sufficient grounds, applying to anti-corruption authorities such as the National Anti-Corruption Bureau of Ukraine (NABU) and the Specialized Anti-Corruption Prosecutor’s Office (SAP). This comprehensive approach, based exclusively on legal mechanisms, allows us to counteract attempts to sabotage the asset recovery process and ensure that the client’s rights are restored. Recommendations for International Firms and Investors Effective protection of interests and successful asset recovery in Ukraine requires not only a deep understanding of the local legal landscape but also the development of proactive and multi-vector strategies. Based on our experience, we offer the following key recommendations for international firms and investors operating or planning to operate in Ukraine. Work with local lawyers at the Pre-Litigation Asset Mapping stage. Don’t wait until a dispute arises or assets are lost. Engaging experienced Ukrainian legal advisors to conduct pre-litigation asset mapping is a critical preventive measure. It allows identifying potential assets, their owners, possible risks of withdrawal or encumbrance, and developing a rapid response strategy even before possible litigation. Understanding the ownership structure, affiliates, and potential weaknesses of your opponents before the conflict begins is a significant advantage and increases the chances of successful asset recovery. Do not rely solely on civil proceedings – use multi-channel approaches. Although civil and commercial proceedings are the basis for resolving many disputes, they are often insufficient in complex asset recovery cases or corporate conflicts. As we have already mentioned, an effective strategy requires a multi-channel (multi-modal) approach that combines different legal instruments. Negotiate jurisdictional and arbitration clauses in contracts indicating the application of Ukrainian law to assets. It is crucial to clearly define dispute resolution mechanisms at the stage of concluding contracts and structuring investments. The inclusion of arbitration clauses (e.g., applying the rules of reputable international arbitration institutions) can provide a more neutral and efficient environment for dispute resolution. However, it is equally important to specify the application of Ukrainian substantive law to assets located in Ukraine. This will help to avoid difficulties with conflicts of law and ensure that Ukrainian courts and law enforcement agencies apply the rules they are familiar with when dealing with issues directly related to the assets. In addition, the correct formulation of jurisdictional provisions can greatly simplify the subsequent enforcement of foreign judgments in Ukraine. Adherence to these recommendations and working closely with experienced local counsel significantly increases the chances of successful asset recovery and minimizes the risks for international businesses in the Ukrainian legal environment. Our team’s experience shows that even in a difficult environment, Ukraine has an effective system for recovering assets lost as a result of misconduct. However, its successful use requires not only legal literacy but also exceptionally correct and qualified legal support. This system, although multifaceted and sometimes bureaucratized, still provides powerful tools to protect the interests of international business. The key to success lies in a systematic and integrated approach based on deep local expertise and a strategic combination of different tools. This includes not only careful asset tracing and the use of both commercial and criminal proceedings, but also an understanding of the actual practices of applying the law. A reliable partner in Ukraine that is able to navigate all the nuances of the legal field and effectively interact with all parties involved – from state registries to law enforcement agencies – is not just desirable, but essential for the successful restoration of violated rights and protection of investments. Ilyashev & Partners is one of the most reputable and experienced law firms in Ukraine, with recognized expertise in complex litigation, white-collar crime, and international asset recovery. Our team advises international clients, corporations, financial institutions, and state bodies on high-profile investigations, fraud claims, cross-border enforcement, and crisis legal strategies. To learn more, please visit the Ilyashev & Partners Law Firm website or contact Kostiantyn Kryvenko directly.

Oleksandr Fefelov, Partner, Head of Antitrust and Competition Practice at Ilyashev & Partners Law Firm Alina Borovets, Attorney at Law at Ilyashev & Partners Law Firm As Ukraine rebuilds in the face of war and drives forward its EU accession agenda, public procurement stands at the intersection of transparency, accountability, and opportunity. With billions of euros in reconstruction funding at stake, Ukraine’s open and digitalized procurement system is designed to ensure competitive access for international suppliers – while demanding strict adherence to local rules and wartime adaptations. The combination of the Prozorro system, IFI-backed procedures, and evolving legal reforms offers significant prospects for foreign companies seeking to do business with Ukrainian state and municipal buyers. At the same time, complex requirements, language barriers, and risks of procedural misconduct require a strategic and legally informed approach. This guide provides international bidders with a clear roadmap for entering Ukraine’s public procurement market: from understanding key procedures and documentation rules to identifying red flags and mitigating legal exposure. Ukrainian Procurement System: Legal Framework and Wartime Adjustments Ukraine’s public procurement system is shaped by a dynamic legal framework that blends international standards with urgent wartime realities. For international suppliers, understanding this structure is essential to successfully navigating opportunities in one of Europe’s largest reconstruction efforts. The foundational act is the Law of Ukraine “On Public Procurement” (the “Law”), which governs the procurement of goods, works, and services financed by state and local budgets, as well as by public enterprises subject to procurement regulation. It ensures procurement is based on principles of fairness, competition, transparency, and efficiency – principles that remain central even under martial law. A turning point came in 2016, when Ukraine replaced outdated paper-based procedures with the Prozorro electronic system, marking the start of a fully digital and transparent procurement environment. Further improvements followed in 2020, when a new version of the Law introduced significant enhancements: the right to correct errors in bids within 24 hours, mechanisms to prevent dumping (e.g., abnormally low price rule), and more flexible procedures. These reforms reflected Ukraine’s commitment to EU-aligned, fair, and competitive procurement processes. However, following the full-scale Russian invasion in February 2022, the procurement system had to rapidly adapt to ensure uninterrupted support for defense and recovery efforts. On 12 October 2022, the Cabinet of Ministers adopted Resolution No. 1178, approving the Peculiarities of Public Procurement – a set of temporary rules designed for the duration of martial law and the 90 days following its termination. These Peculiarities empower contracting authorities – such as the Armed Forces of Ukraine, hospitals, municipalities, and critical infrastructure operators – to use expedited and flexible procedures, ensuring swift access to vital goods and services. In practice, this means reduced timelines, broader use of direct contracting or negotiated procedures, and streamlined documentation. Although these temporary rules ease bureaucratic burdens, they demand greater discipline, vigilance, and legal awareness from both buyers and suppliers. The risks of non-compliance or procedural flaws are real – especially under heightened public and regulatory scrutiny. Importantly, even under martial law, Ukraine maintains its commitment to transparency and accountability, supported by digital infrastructure and legal safeguards. The current system is a unique legal hybrid: combining core EU standards, the structural integrity of Prozorro, and flexible wartime rules. For foreign suppliers, this creates both opportunity and responsibility – access to billions in public spending, but also the need for careful legal and strategic planning. Key Takeaway: Ukraine’s procurement law continues to evolve. For international suppliers, success requires understanding how permanent legal norms interact with temporary wartime exceptions  – and using that knowledge to build compliant, competitive bids. The Prozorro System Explained At the heart of Ukraine’s public procurement framework lies Prozorro – an award-winning digital system built on the principles of transparency, accountability, and fairness. Its name, derived from the Ukrainian word for “transparent,” reflects its founding philosophy: “everyone sees everything.” For foreign suppliers, understanding Prozorro is essential for navigating the procurement process confidently and effectively. Prozorro ensures that all procurement-related information – announcements, submitted bids, decisions of procuring entities, concluded contracts, appeals, and clarifications – is available in the public domain. It minimizes corruption risks, ensures oversight by civil society, and provides a level playing field for both domestic and international bidders. Participation in Prozorro auctions is entirely online, conducted via authorized electronic platforms connected to the central Prozorro database. This system allows foreign companies to participate remotely without physical presence or local registration, removing one of the key barriers to entry into the Ukrainian market. Key Features of Prozorro: Full transparency and public access to all procurement data Equal access to tender documents and bid submission Online registration and auction participation from anywhere in the world Integration with the e-appeal system for complaints and monitoring Available Procurement Procedures: Ukraine’s procurement law provides for a range of procedures adapted to the contract value, market conditions, and complexity of the procurement. These include: Open bidding The most common procedure for procurements over UAH 200,000 (goods/services) or UAH 1,500,000 (works). Requires at least two valid bids and includes a bid submission period of at least 15 calendar days. Open bidding with English publication Applies where the expected value exceeds EUR 133,000 (goods/services) or EUR 5,150,000 (works). Tender documents and announcements are published in both Ukrainian and English. The submission period is at least 30 days. The key difference from standard open bidding: tender compliance is assessed before the electronic auction begins. Negotiation procedure Used only in exceptional cases listed in Article 40 of the Law. These include: Two failed open biddings Urgent/emergency needs (e.g., wartime, humanitarian aid) Procurement from a single supplier for technical or IP reasons Additional procurement from the original supplier (up to 50% of the initial contract value within three years) Procurement under debt restructuring or legal proceedings The procuring entity negotiates directly with one or more suppliers and signs a contract without an auction. Competitive dialogue / Restricted bidding Suitable for innovative or complex procurements where technical solutions cannot be clearly defined upfront. Conducted in two stages: pre-qualification and submission of proposals. Particularly useful for infrastructure, IT, or energy-related projects. Simplified procurement Intended for lower-value contracts (between UAH 50,000 and the thresholds for open bidding). Offers shorter timelines and a streamlined process. Temporarily suspended during martial law, except where authorized by specific regulations. Direct contracts with reporting For procurements under UAH 50,000, procuring entities can enter into direct contracts without competitive procedures, but must publish a report on the concluded contract in Prozorro. Wartime Adaptations: In response to the full-scale war, the Ukrainian Government adopted Resolution No. 1178, which temporarily modifies procurement procedures: Enables broader use of negotiation procedures Reduces documentation requirements Allows faster conclusion of contracts without compromising transparency These changes do not limit the participation of foreign companies—in fact, they often facilitate it. Language and Translation Requirements: All tender documents must be prepared in Ukrainian. Procuring entities may choose to provide translations, especially in high-value or IFI-funded tenders, but the Ukrainian version is legally binding. Bids may be submitted in another language only if permitted in the tender documentation. The law does not prescribe a specific form of translation authentication, but the procuring entity may require notarization, apostille, or other forms of validation. Foreign suppliers should check these requirements carefully in each case. Takeaway: Prozorro provides a robust, fully digital environment for conducting public procurement. Foreign suppliers benefit from transparency, remote access, and legal protections—provided they understand the specific procedures and adhere to the applicable formalities. Using Prozorro Market: Electronic Catalog Procurement In the context of martial law and the urgency of meeting public needs, Ukraine has significantly expanded the use of Prozorro Market – a centralized electronic catalog designed to simplify procurement for government institutions. For international suppliers, this system offers a fast-track entry point into Ukraine’s public procurement ecosystem, bypassing many bureaucratic complexities of traditional open bidding. Prozorro Market enables direct purchases from pre-qualified suppliers based on standardized product listings and specifications. Unlike open tenders, procurement through the e-catalog avoids a formal appeals stage, reducing risks of delays and enabling rapid delivery of goods — especially crucial in emergency or low-value procurement contexts. This mechanism is governed by the Law on Public Procurement and Resolution No. 822 of the Cabinet of Ministers of Ukraine (14 September 2020). While originally intended for low-value purchases (under UAH 200,000), martial law amendments allow unrestricted use of Prozorro Market, regardless of the contract value. Key features include: Pre-qualification of suppliers through designated centralized procurement organizations (CPOs) Category-based product listings structured under CPV codes (DK 021:2015) Standardized specifications and delivery terms Real-time pricing and availability updates from suppliers There are three procurement options depending on the value: Up to UAH 50,000 – direct purchase from catalog without prior request UAH 50,000 – 500,000 – request for quotations within a product category Above UAH 500,000 – full tender procedure or centralized procurement by a CPO To be listed, suppliers must undergo a qualification process administered by a designated CPO. Once approved, suppliers submit product information, technical specifications, pricing, and delivery terms. All entries are subject to moderation for compliance with Prozorro Market standards. Procuring entities must be registered in the Prozorro system, use qualified electronic signatures, and follow non-discrimination and equal treatment principles when selecting suppliers from the catalog. Centralized procurement organizations currently operating include: SI "Professional Procurement" – procurement for state institutions and enterprises; State Enterprise "Medical Procurement of Ukraine" – pharmaceuticals and medical equipment; State Enterprise "Ukrainian Special Systems" – specialized equipment and cybersecurity. Strategic Insight: For international suppliers seeking a low-barrier entry to the Ukrainian procurement market, Prozorro Market offers an excellent starting point. It avoids many procedural risks, does not require appeals navigation, and enables quick access to repeat contracts with state buyers. However, suppliers must ensure timely qualification through the relevant CPO and maintain accurate, up-to-date catalog entries. Foreign Supplier Participation: Key Considerations Ukraine’s public procurement system is open to foreign companies and provides legal guarantees of non-discriminatory treatment and equal access to tenders – with the exception of entities registered in the Russian Federation, Belarus, and Iran. This access is underpinned by principles enshrined in the Public Procurement Law: fair competition, efficiency, transparency, and impartiality in evaluating bids. International suppliers – regardless of their country of registration or ownership structure – are entitled to: participate in public tenders on equal terms with Ukrainian companies, receive full access to procurement documentation, submit bids electronically via the Prozorro system. Procuring entities are prohibited from imposing discriminatory conditions or restricting foreign participation without clear justification. International Treaties Take Priority The Law explicitly states that international treaties ratified by Ukraine prevail over national legislation if they establish different procurement procedures. This applies in particular to IFI-funded tenders (e.g., those financed by the World Bank, EBRD, EIB, IDA, etc.), which may be conducted in accordance with the rules of the funding institution. If such rules do not exist, Ukrainian law applies, subject to localization. Key Documentation Requirements for Non-Residents Foreign bidders must submit documentation in line with Ukrainian tender requirements, but with flexibility to accommodate legal systems outside Ukraine. In particular: Procuring entities may require apostilled or legalized documents, unless an applicable treaty provides otherwise. Documents prepared under foreign law are valid, provided they confirm compliance with the tender requirements. Rejecting a bid solely due to the format or origin of documents – if those documents prove compliance – is a violation of the non-discrimination principle. Examples of acceptable documentation for foreign bidders: Certificates of good standing, tax clearance, or no criminal record issued by authorities in the bidder’s home jurisdiction; Official letters confirming the absence of required documents under foreign law; International financial statements demonstrating solvency and capacity; Technical certificates or licenses issued in the country of registration. Qualification Criteria and Equal Recognition Under Article 16 of the Law, procuring entities may request proof of: relevant experience with similar contracts, technical capacity or material base, qualified personnel, financial soundness. Foreign bidders may demonstrate compliance using documents issued in their home jurisdiction, including audited financials and international certificates. Due to harmonization of accounting and reporting standards, these documents are generally accepted unless Ukrainian law specifically requires otherwise. Language and Format All documents must be uploaded via Prozorro, typically as scanned PDF files, and often accompanied by Ukrainian translations. For tenders above EUR 133,000 (goods/services) or EUR 5,150,000 (works), English-language publication is mandatory, further facilitating access for foreign bidders. Limitations on Exclusion Grounds Exclusion from procurement is allowed only under clearly defined grounds. Foreign suppliers must be treated equally – if a certain document (e.g., a certificate of no corruption offense) is not issued in the bidder’s country, an official explanation must be accepted. Strategic Recommendation While the Ukrainian procurement system offers broad access and legal protections, participation still requires meticulous preparation. Engagement with local legal and technical experts – from lawyers and compliance professionals to engineers and logisticians – can dramatically improve bid quality and alignment with legal norms. Focus on IFI-Funded Tenders As Ukraine accelerates its recovery and modernization, tenders financed by international financial institutions (IFIs) – such as the World Bank, the European Bank for Reconstruction and Development (EBRD), and the European Investment Bank (EIB) – have emerged as the gold standard for transparency and fair competition in public procurement. Participation in IFI-funded projects offers substantial advantages for international suppliers. These tenders operate under separate procurement frameworks established by the donor institutions themselves, which prioritize open access, equal treatment, and rigorous oversight. As a result, bidders benefit from predictable procedures, English-language documentation, and reduced risk of arbitrary disqualification. Key features of IFI tenders include: Use of international open bidding or competitive dialogue procedures. Transparent qualification criteria and scoring methodologies. Publication of tenders on IFI websites and global procurement platforms. Independent appeal mechanisms for dispute resolution. Application of donor rules with primacy over national legislation in case of conflict. The extensive funding provided by IFIs plays a critical role in rebuilding Ukraine’s infrastructure, housing, healthcare, transport, and energy sectors. Foreign suppliers that meet international compliance and technical standards can secure large-scale contracts in areas of strategic importance. However, participation in IFI-funded tenders also requires strict adherence to high operational standards, including: Financial transparency and anti-corruption compliance; Environmental and social safeguards; Technical and logistical capacity for implementation in complex environments; No history of sanctions, misconduct, or fraud. It is important to note that while IFI tenders are more accessible to foreign participants, they still require compliance with certain aspects of Ukrainian law, such as registration, taxation, and local certification (where applicable). As such, cooperation with experienced Ukrainian legal and technical advisors is recommended to bridge the gap between international frameworks and domestic procedures. For bona fide suppliers, IFI-funded procurement provides a level playing field, mitigates the risks of local favoritism or cartel conduct, and offers an effective channel for accessing high-value, development-driven projects in Ukraine. Requirements that Artificially Restrict Competition Despite the legal principles of fair competition and equal access, practice reveals widespread use of discriminatory tender requirements that restrict the pool of eligible participants. These conditions often serve to pre-select a winner – not based on merit, but on technicalities that only one or a few suppliers can satisfy. “Discriminatory conditions” typically involve unjustified restrictions that lack a clear link to the subject matter of procurement. Examples include: Requiring confirmation of prior contracts only in a specific geographic region; Demanding physical offices or branches in every oblast of Ukraine; Setting unusually narrow definitions of “similar contracts” that match only one bidder’s portfolio; Imposing technical standards that far exceed the project’s real needs without proper justification. Such conditions not only violate the principle of openness – they distort the entire purpose of public procurement. Instead of selecting the most competitive offer, procuring entities end up awarding contracts based on artificially constructed filters. This can lead to inflated pricing, subpar quality, and inefficient use of public funds. The underlying cause is often collusion between the procuring entity and a predetermined supplier, a hidden form of anticompetitive behavior known as shadow tendering. In such cases, the tender documentation is drafted to exclude all but the intended winner. These tactics are particularly dangerous in tenders involving strategic infrastructure, humanitarian supplies, or large-scale funding. Foreign suppliers should scrutinize tender terms for signs of bias and prepare to challenge them before the deadline for complaints. Under Ukrainian law, a participant may file an appeal with the Antimonopoly Committee of Ukraine (AMCU), which applies a presumption of illegality to any condition that cannot be objectively justified. If successful, the AMCU may order the procuring entity to amend or cancel the discriminatory requirement. Recent reforms have also empowered the AMCU, through court-authorized inspections under Law No. 3295-IX (2023), to seize documents, inspect premises, and access electronic records in cases of suspected collusion or abuse of discretion by procuring entities. Takeaway: If a tender condition seems unreasonably narrow, location-specific, or disproportionate – it likely is. Legal review and early objection are critical steps to prevent unfair exclusion and uphold competitive integrity. Collusion Between Bidders: How the AMCU Detects and Proves Violations Distortion of tender results through coordinated actions between participants is explicitly prohibited under Ukrainian competition law. The Antimonopoly Committee of Ukraine (AMCU) qualifies such collusion as anticompetitive concerted actions – a serious offense that may result in financial penalties and exclusion from future procurement. Uncovering these violations is complex. Most conspiracies are covert and lack direct evidence. Therefore, the AMCU applies a “mosaic” approach – building a case from a combination of indirect indicators, which together point to coordinated behavior. Common indicators of bidder collusion include: Shared founders, beneficiaries, or family/corporate ties between bidders Use of the same office space, equipment, or employees Submission of documents from the same IP address or device Identical formatting errors or templates in tender proposals Economic dependence of one bidder on another (e.g., subcontracting, shared funding) Lack of competition between these entities in other markets The AMCU also reviews broader patterns – such as repetitive joint participation without competitive behavior – and may rely on external evidence, including registry data, email metadata, and even corporate changes preceding a tender. Importantly, courts uphold that actual damage or harm does not need to be proven. It is sufficient to establish that bidders acted in a concerted manner and that such conduct could distort competition. Recent case law supports the AMCU’s methodology, confirming that a consistent set of indirect facts – such as shared infrastructure, overlapping personnel, or synchronized conduct – is enough to qualify behavior as unlawful collusion. In light of these risks, international suppliers must be cautious when working with local partners. Even unintentional links to questionable entities can lead to investigation and reputational harm. Legal vetting of potential consortium members or subcontractors is a necessary step before participation. Discriminatory Practices and Anticompetitive Collusion Procurement rules in Ukraine prohibit practices that limit competition or create artificial barriers to participation. However, some procuring entities may still introduce discriminatory conditions aimed at favoring a specific supplier. The Antimonopoly Committee of Ukraine (AMCU) evaluates such conditions using a presumption of illegality unless a legitimate need is proven. A typical example includes requiring bidders to maintain regional offices throughout Ukraine, which may be unjustified for service contracts where mobile teams or subcontractors could suffice. Similarly, demands for "similar agreements" with overly narrow parameters can effectively eliminate competition. These tactics may signal hidden collusion between the procuring entity and a preferred bidder. Unlike open cartel agreements, such collusion is covert and difficult to prove, involving informal arrangements, past affiliations, or selective enforcement of requirements. Indicators of collusion include: Excessively specific or irrelevant qualification criteria Personal or corporate ties between procuring entity staff and the bidder Participation by shell companies designed to simulate competition Patterns of repeated contract awards to the same supplier In cases involving public funds or strategically important goods and services, these practices can escalate into criminal liability. Violations may be prosecuted under Article 191 of the Criminal Code of Ukraine for embezzlement or abuse of office. The AMCU, empowered under Law No. 3295-IX (adopted on 9 August 2023), can now conduct in-depth inspections. With a court order, it may enter premises, access electronic systems, seize documents, and request explanations, often involving law enforcement support. This enhances the state's capacity to detect and deter collusion. Foreign bidders should treat discriminatory conditions not just as procedural errors but as potential signs of deeper systemic issues. Legal advice and proactive complaint filing with the AMCU remain essential safeguards. Red Flags to Watch Unrealistically short deadlines that limit fair competition. Highly specific technical criteria that only one local bidder could meet. Frequent last-minute amendments to tender documentation. Inconsistencies between Ukrainian and English versions of tender materials. Repetition of the same winner in similar tenders from the same procuring entity. Absence of clear evaluation criteria or scoring methodology. Failure to publish English-language notices for IFI-funded tenders. Lack of transparency in supplier qualification decisions. AMCU Enforcement and Legal Liability Violations such as discriminatory tender conditions or anticompetitive collusion carry serious legal consequences for both bidders and procuring entities. Companies found guilty by the Antimonopoly Committee of Ukraine (AMCU) may face fines and a ban from public procurement for up to three years – a penalty that effectively excludes many businesses from the market. Fines are calculated under AMCU Order No. 22-rp (14 Dec 2023) and may be adjusted depending on mitigating factors such as voluntary cessation of violations, cooperation during investigation, or circumstances linked to martial law. For tenders below UAH 10 million, AMCU’s regional offices may issue fines of up to ~EUR 1,500, but reputational damage can be much greater. Since 2024, AMCU decisions imposing fines are enforceable without a court order. New rules also enable recovery from controlling persons if the sanctioned entity is liquidated or insolvent. At the same time, violators may challenge AMCU decisions in court, seek reconsideration, or engage in cooperation mechanisms. Ukraine’s antitrust system also offers leniency and settlement procedures. A company can reduce or avoid liability by reporting collusion first and assisting the investigation. Since 2024, settlement is also available, allowing violators to close proceedings early and obtain a 15% fine reduction. Understanding and leveraging these tools – with legal support – is essential for international suppliers navigating enforcement risks in Ukraine’s public procurement system. Legal and financial consequences of anticompetitive behavior. Overview of AMCU’s powers, fine calculation, enforcement changes post-2024, leniency and settlement procedures. Remedies and Appeals: Protecting Your Rights Foreign suppliers have access to multiple mechanisms to challenge unlawful actions by procuring entities. These include administrative appeals to the AMCU, judicial review, and oversight by government bodies such as the State Audit Service (SASU). The primary and most effective remedy is an appeal to the AMCU’s Complaints Commission, which issues binding decisions. Complaints are submitted electronically via Prozorro. Once filed, the procedure is suspended until resolution. The complaint may relate to tender terms, bid rejection, or winner selection. AMCU hearings are open, and foreign suppliers may participate via Ukrainian legal representatives. If the complaint is upheld, the Committee may require the procuring entity to correct discriminatory terms, reverse decisions, or cancel the procedure. Common grounds for appeal include discriminatory tender documentation, unjustified rejection of bids, selection of unqualified winners, or cancellation of the tender to avoid contracting with a foreign supplier. Prozorro statistics confirm that many such complaints are successful, making this a viable tool for protecting supplier rights. Case Snapshot The Antitrust and Competition Practice team at Ilyashev & Partners successfully defended a Ukrainian telecommunications provider in a tender dispute with a state-owned entity. The procuring entity rejected the client’s bid, citing unsubstantiated discrepancies. Ilyashev & Partners filed a complaint with the AMCU, arguing that: the notice of deficiencies lacked specific violations; the identified issues were minor and did not affect the bid’s substance; the bidder had submitted all required technical documentation. The AMCU upheld the complaint and ordered the procuring entity to reverse its decision, confirming the legality and competitiveness of the client’s offer. Final Stage: Signing the Contract and Performance Risks Winning the tender marks the beginning of the final, yet legally sensitive phase — contract conclusion and execution. Despite success in the auction, bidders must remain vigilant and ensure strict compliance with formalities to avoid setbacks. Under Article 32(2) of the Public Procurement Law, a 10-day standstill period follows publication of the notice of intent to sign the contract in Prozorro. During this time, competitors may file a complaint with the AMCU, automatically suspending the procedure. Contract signing before this period expires is prohibited and results in the contract being voided. If no complaint is filed, the procuring entity must sign the agreement within 20 calendar days of publishing the intent notice (Article 33(5)). The final contract must match the submitted bid and draft agreement in the tender documents. Essential terms cannot be altered, except as expressly permitted under Article 41. Key compliance points: Sign the contract no earlier than the 11th day after the intent notice. Include all annexes, specifications, and schedules consistent with the submitted proposal. Publish the contract report in Prozorro after signing. At the performance stage, the supplier must deliver goods or services according to agreed terms, with full documentation and interaction with the procuring entity. Public contracts are subject to oversight by SASU and potentially law enforcement. Triggers for scrutiny may include pricing discrepancies, non-compliant deliveries, or misuse of funds. Importantly, once the contract is signed, AMCU appeals are no longer possible. All objections must be resolved before finalizing the agreement. Key Recommendations for International Bidders As Ukraine modernizes its procurement framework and channels unprecedented reconstruction funding, foreign companies have a real opportunity to enter a market that values transparency, digital access, and fair competition. Yet success in this space depends not only on price or experience – but on the ability to anticipate legal nuances, manage wartime risks, and align with local procedures. While Prozorro and IFI-funded tenders offer a level playing field, challenges remain: discriminatory criteria, inconsistent documentation, and limited appeal windows can undermine even the strongest bids. Based on our practical experience supporting international suppliers, the Antitrust and Competition Practice at Ilyashev & Partners recommends a proactive and structured approach. Key Takeaways for International Suppliers: Conduct due diligence. Investigate the procuring entity’s history and tender behavior. Look for prior complaints, repeat winners, or vague requirements that may indicate manipulation. Review documentation requirements. Pay close attention to formatting, notarization, translation into Ukrainian, and form templates. Even minor inconsistencies can lead to automatic rejection. Avoid high-risk local partners. Do not engage with companies with prior AMCU sanctions, opaque ownership, or insider affiliations. Their conduct may compromise your reputation and eligibility. Engage local legal support. Work with counsel experienced in procurement law, Prozorro navigation, and AMCU appeals – especially important during martial law and post-war regulatory shifts. Prioritize IFI-funded tenders. Focus on EBRD, World Bank, or EU-funded projects for better transparency, clearer procedures, and frequent use of English documentation. Prepare for monitoring and post-award control. Plan for interaction with SASU and other regulators post-award. Maintain compliance records and delivery logs to manage audit risk. Despite the complexity, Ukraine’s public procurement system is open for international participation – and the government continues to implement reforms to make it more accessible and secure. With careful preparation, strong legal alignment, and strategic decision-making, foreign bidders can turn participation into long-term contracts, especially in sectors central to post-war reconstruction. Ilyashev & Partners is one of Ukraine’s leading full-service law firms with a strong track record in public procurement, competition law, and regulatory compliance. With deep expertise in representing international clients across a broad spectrum of industries, the firm advises on all aspects of tender participation, including bid structuring, legal risk assessment, appeals before the Antimonopoly Committee of Ukraine, and disputes involving procuring entities. The team has extensive experience supporting cross-border suppliers and contractors in navigating Ukraine’s evolving procurement landscape, including IFI-funded projects and wartime procurement procedures. To learn more, please visit the Ilyashev & Partners Law Firm website or contact Oleksandr Fefelov directly.

Funding early-stage companies with the goal of earning profits after their intensive growth phase has always been a popular financial tool – backing both the wealthiest and, paradoxically, the poorest individuals on the planet. What investment mechanisms are used in practice? There are three primary investment mechanisms. Equity Investment The investor acquires corporate rights in the company. This mechanism provides the investor with the highest level of control over the company's operations, as they become a shareholder in the startup and can directly influence decision-making. This form of investment gives the investor significant powers, the strongest level of protection and control, and allows them to strengthen their position through a shareholders' agreement or by incorporating specific rights and guarantees into the startup’s charter. Convertible Loans This tool allows funds to be raised without immediately valuing the company, which is especially useful in conditions of uncertainty. The investor provides a loan that can later be converted into a share in the startup—usually during the next funding round or once a certain valuation is reached. A typical structure includes an interest rate, a discount for share purchase, and a conversion trigger (the amount of investment or company valuation that activates the conversion). For example, an investor provides a convertible loan of $100,000 for one year at 10% annual interest. The agreement provides for a 20% discount on conversion. After one year, a new funding round takes place, valuing the company at $1,000,000. With interest, the debt to be converted is $110,000. With a 20% discount, the effective valuation for this investor is $800,000. Thus, upon conversion: $110,000 ÷ $800,000 = 13.75% ownership in the company. This method avoids difficult early-stage valuation negotiations by deferring them until more certainty and external valuation exists. However, a drawback is the lack of direct investor involvement in the startup, making it harder to influence internal decision-making. SAFE (Simple Agreement for Future Equity) A contract where the investor receives rights to a share in the startup after a future funding round valuation. SAFE is not a debt instrument – it has no repayment terms or interest. Instead, it may include a valuation cap (the investor pays no more than a set value regardless of the startup’s eventual valuation), a discount on share purchase, an MFN clause (Most Favored Nation), which guarantees the investor the best deal terms offered to future investors. SAFE is gaining popularity in Ukraine and is widely used in the U.S. (notably by Y Combinator) as a simpler alternative to convertible loans, especially at the pre-seed and seed stages. Beyond these mechanisms, there are quasi-investment tools and venture debt, but they remain extremely rare in Ukraine and are essentially modified forms of convertible loans. Stock option plans (e.g., for employees) also exist, granting the right to buy shares at a fixed price. However, options are not true investment tools—they are designed to attract human capital and reduce the startup’s burn rate in early stages. Key Risks For Investors Investors face various risks when funding startups, which should be evaluated and mitigated wherever possible. All risks can be grouped into basic and additional. Basic Risks – these are inherent to startup investments and cannot be eliminated due to the nature of early-stage ventures. They include failure to develop the core product or technology, lack of market interest, illiquidity or loss of product liquidity. In short, basic risks are the risk of startup failure. They are unavoidable and explain why early-stage investments offer high potential returns. Once a company has a product and a market share, it's no longer considered a startup. Additional risks are factors that can be eliminated or minimised by the investor through a series of actions or the use of special legal instruments. Additional Risks & How to Avoid Them Equity Dilution Investor shares may be diluted in subsequent funding rounds, either voluntarily, by agreement with the founders to raise more capital, or involuntarily, when founders disregard the investor’s interests. This problem is very common. A similar incident happened to Eduardo Saverin, one of the co-founders of Facebook, whose stake was diluted from 34.4% to 0.03%. In order to avoid such issues anti-dilution clauses (provisions that protect investors from dilution in the event of new rounds of financing) must be included in the investment or corporate agreement. Such provisions may also be included in the charter, depending on the chosen investment structure. Ineffective Management & Misuse of Funds By ineffective management, we refer to either the conscious or unconscious withdrawal of investor funds from the company in ways that do not help the startup become a profitable business capable of generating returns for the investor. Unconscious withdrawal of funds typically happens when investment is misused, often due to a lack of experience, insufficient knowledge, inadequate qualifications of the founders, and the absence of strategic planning. Conscious withdrawal of funds, however, presents a more concerning scenario. Essentially, these are types of startups created with the intention of "burning out" after securing funding. The goal of such ventures is not to execute an idea but to secure financing for its development and then drain the funds by increasing the company's burn rate. This can involve inflating salaries, hiring friends and family for key positions, or engaging contractors for services (such as marketing and consulting) with no standardized pricing. To prevent ineffective management, it is recommended to conduct a thorough legal and financial audit of the startup to assess current expenses and growth plans. The corporate agreement, charter, or investment contract should also include mechanisms that establish clear rules for the use of invested funds and grant investors the ability to block unjustified decisions. Deadlocks Due to Founder Conflicts A frequent issue is the blocking of company activities by one or more founders due to a conflict with an investor or another founder. This can arise from a desire to repurpose the work for another project or from an internal disagreement about the company's strategic direction. To minimize such risks, it is essential to develop a joint business strategy during the investment stage. This plan will help determine if the co-founders and investor share the same goals. Despite the most detailed development strategy, disputes can still arise. To mitigate this risk, corporate documents should include procedures for mediation and arbitration in case of conflicts between founders and/or the investor, exit strategies for the investment, and out-of-court dispute resolution mechanisms. These processes must be swift and effective, as even a brief blockage of decision-making in a startup can lead to its downfall. Loss of Intellectual Property, Technology, Brand, Patents Startups often prioritize developing the founders' idea while bypassing legal procedures and protections due to limited funds and a focus on product development rather than safeguarding it. While this approach is understandable, it introduces additional risks for both the startup and the investor. Failure to protect the company’s key assets, whether it be its brand, technology, patents, or other intellectual property, puts those assets at risk of being lost. The loss of such assets will inevitably result in a significant decrease in the company's value, if not the potential closure of the startup. To prevent such risks, a comprehensive due diligence process should be conducted. This will involve (1) identifying the company’s key assets (such as software code, art objects, technology, etc.); (2) verifying the origin of these assets and reviewing the original documentation regarding their development (contracts, intellectual property transfer agreements, etc.); (3) developing a framework to document work results and implement mechanisms for protecting key assets, followed by registering the relevant rights. Overvaluation or Undefined Valuation at Time of Investment Startup valuations during the pre-seed stage are often based on subjective factors or, in some cases, there is no valuation at all. This creates a risk of investors overpaying for a stake in the company during the early stages of funding. To protect the investor’s interests, a SAFE (Simple Agreement for Future Equity) agreement can be used, which sets a cap on the company's valuation for early investors. This means that regardless of the company's actual valuation, the amount used for calculating the investment offer cannot exceed a predetermined threshold. It’s important to note that while this tool offers protection, it introduces other risks. Since the investor does not acquire equity in the company, they have no direct influence on the company’s decisions. This is why equity investment remains the most popular form of investment around the globe. Insufficient Funding to Reach Profitability or Attract Further Investment A common issue arises when founders create overly optimistic forecasts regarding the resources needed to develop a product or achieve profitability after its launch. Unquestioningly accepting the founders’ projections, as outlined in their pitch deck, can lead to a situation where the investor becomes a hostage of the startup – where the product hasn’t been created yet, but the investment has already been spent. In such situations, trying to reclaim the investment is futile, as the startup no longer has the funds. The investor faces a difficult choice: provide additional funding from their own pocket, or attempt to bring in another investor and hope to recover their initial investment later. While it’s impossible to entirely eliminate this risk, conducting an independent evaluation of the company’s product, calculating the company's burn rate, assessing the product's profitability, and analyzing market conditions, alongside a comprehensive financial and legal audit of the startup, can help minimize this risk. Conclusions A proper approach to conducting due diligence, evaluating a startup’s profitability, and structuring the investment transaction does not guarantee the return of the invested funds, but it significantly reduces the risk of losing the investment. By applying the provided advices and taking a comprehensive approach to investing, most additional risks can be eliminated, and the basic risks can be reduced, thereby protecting the investor from losing their funds. In conclusion, it’s important to remember that fortune favors the bold, but luck favors the prepared. Authors: 1. Oleksandr Melnyk, Partner, Head of Corporate Law and M&A Practice at GOLAW, Attorney at Law 2. Nazarii Zeliak, Corporate Law and M&A Practice Associate at GOLAW