Guarantees in Ukraine: Key Issues

For those who wish to have the benefit of a guarantee from a Ukrainian company there are a few points which need to be kept in mind:

  • first, while Ukrainian companies have the capacity to enter into a guarantee under a foreign law, unless they are a registered bank or a financial institution, they do not have the capacity to agree to remain liable for the debt of a third party in the event that the underlying debt obligation guaranteed is later held to be invalid or unenforceable. As a result, a template English law guarantee and indemnity, for example, needs to be modified to amend the indemnity language (together with some other clauses) to ensure that the Ukrainian guarantor has capacity to perform its obligations under the agreement;
  • second, while under English law use of the terms "guarantee" and "suretyship" are generally interchangeable, under Ukrainian law the two terms have quite different meanings, a guarantee under Ukrainian law being more akin to a bank guarantee or an indemnity (which under Ukrainian law can only be entered into by a bank or financial institution) and a suretyship under Ukrainian law being more akin to a guarantee or suretyship. Therefore, in order to avoid issues at a later stage should the guarantee come before a Ukrainian court, it is common to change the title and wording of guarantees so that they are referred to as "suretyships";
  • third, the National Bank of Ukraine (the "NBU") will not allow a Ukrainian company which is not a bank to make cross-border payments under guarantees granted in favour of a foreign company securing a payment obligation of a non-Ukrainian borrower unless it has first obtained a licence from the NBU ("NBU Licence"). The NBU license is not required where the guarantee secures a loan granted to a Ukrainian borrower;
  • fourth, Ukrainian companies are not permitted to convert Hryvnia into foreign currency to make payment under a guarantee given to a foreign lender, they can only make payment using their own foreign currency proceeds; and
  • fifth, Ukrainian companies are not permitted to borrow money in foreign currency to make cross-border payments under guarantees issued in favour of foreign creditors.

    Of the issues raised above, the most concerning for foreign investors and lenders are the requirement for a guarantor to obtain an NBU Licence to make payment under a guarantee to a foreign company and the restriction on purchasing foreign currency to make payments.

    Key issues

  • NBU Licence Regime
  • When can it be obtained?
  • Guarantor control over application
  • Enforcement

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