The rocky road of Ukraine’s franchise agreement laws and regulations has come to an abrupt end. The Parliament of Ukraine recently cancelled the state registration of franchise agreements, leaving newly adopted (and long awaited) registration regulations dead on arrival.
In a series of blogs, we covered the recent adoption and effectiveness of the “Procedure for the State Registration of Commercial Concession (and Sub-Concession) Agreements” (the “Franchise Registration Procedure”). The Franchise Registration Procedure was intended to (and in many ways did) solve a problem that plagued Ukraine’s franchise industry since 2004. Then, new amendments to the Civil and Commercial Code of Ukraine required the registration of franchise agreements. Unregistered franchise agreements were deemed invalid in relation to third parties, including tax authorities. However, neither statute nor regulation provided a process to actually register franchise agreements.
In the meantime, franchisors and franchisees incurred additional transaction costs to mitigate the uncertainty as to whether their agreements would be enforced.
Finally, on April 1, 2015, new franchise regulations took effect that provided procedures to register franchise agreements.
But four days later on April 5, another law took effect: the Law of Ukraine “On Amendments to Several Legislative Acts of Ukraine regarding the Facilitation of Conditions for Doing Business (Deregulation)” (the “Law on Business Deregulation”). The Law on Business Deregulation cancelled the mandatory state registration of franchise agreements altogether, as part of a wider business deregulation plan.
The results of the deregulation remain to be seen; however, the Parliament of Ukraine appears to have taken a decisive step toward protecting its franchise industry’s freedom to contract, increasing certainty and decreasing the cost of offering and selling franchises in the Ukraine.