Business collaborations and partnership agreements in the wartime

• Corporate & Taxes

Just from the very outbreak of a full-scale war in Ukraine, everyone faced difficult and extraordinary conditions: they cannot be compared with all the previous situations. Despite all obstacles, we are still living and working, while business community is still doing its commercial activities and diversifying its assets.

Even those entities who used to be rivals or counterparties now have agreed on joint business and have launched new collaboration projects based on 1+1=3.

Let us highlight some case studies showing how the Ukrainian business adapts to the current situation in unusual way and how such relations could and should be fixed in the legal framework.

1. Trade & Shipping.

What is the sense of such collaboration?

One of further Partners dealt with agrarian trade business. For the first month as soon as Ukrainian sea ports got closed, it decided to develop business in favor of its own fleet. With regards to its professional features, it intended to purchase a vessel provided that a competent Ship Manager would be engaged. Ship manager should facilitate vessel operation in such mode that could facilitate prompt transportation of the Trader’s cargo, without any demurrage in case of cargo absence. However, the Trader deemed as necessary to involve manager as vessel co-owner, in order to facilitate maximum engagement in business project.

Therefore, the Trader shall invest in new business followed by receiving transport (available as a priority given the high competition) in order to transport its own goods, while the Ship Manager shall purchase a new vessel on installments in order to expand the well-known business industry. Due to vast work experience in agrarian export market, it was so simple to find the Partner with appropriate competence and high trust level.

With regards to specifications of relations between the Partners, Interlegal lawyers provided a legal support in drafting and entering into the Shareholding Agreement (SHA) to be governed by English law.

This agreement prescribed, inter alia:

      - Roles of partners and scope of their responsibility;
      - Income accounting procedure, since Charter Parties mainly should have been drafted by the Shipping Partner itself;
      - Conflict settlement mechanism followed by further disposal of vessels as the Joint Venture’s principal assets;
      - Procedure and rates for vessel operation, terms for granting priority.

Shareholding Agreement has been drafted by means of a carousel interview, which made it possible to fully take into account expectations and interests of both Partners as soon as possible, jointly with simulating scenarios for development of their relations in future.

The most potentially difficult issues concerned:

(а) obvious conflict between interests of the Trade Partner (as the Charterer) eager to receive freight as less as possible and interests of the Shipowner eager to receive maximum income from the vessel operation;

(b) need to distinguish roles of Business Owner and Manager, jointly with facilitating more transparency upon the vessel management, as compared to standard professional activity.

Finally, both Partners supported the Shareholding Agreement that set out instructions aimed to settle possible misunderstanding as well as stipulated general principles for settlement of other conflicts including deadlocks.

For over a year, the Partners are doing joint business with full understanding: they are not only maneuvering together in the wartime but also are creating plans for the future.

2. Agrarian traders in Switzerland.

The next collaboration took place as soon as the Swiss Trade Company’s owner received a proposal on joint partnership from a rapidly growing business entity. Previously, both entities had several successful deals. Case specification was that, in case of uniting into a single company de jure, it purported a separate accounting procedure for business partners, jointly with reimbursement of certain services.

Mutual benefit was based on the following circumstances: the Swiss Company was a market brand owner and had an account opened in a reputable bank with a good credit status, while the new Partner was able to increase significantly the Swiss Company’s turnover and to raise its attractiveness among counteragents, financial institutions etc., resulting in a win-win situation.

Some doubts and open questions served as grounds for legal advice. In view of different scopes of the Partners’ investments and their incomplete merge, the first issue concerned restriction of the Partners’ impact on each other’s business management.

Interlegal task was the following:

      - To provide legal advice upon Swiss law regarding all the possible forms of relations between the Partners with different scopes of their investments (i.e. more than one business);
      - To provide assistance in choosing the most relevant form of relations;
      - To implement the chosen option with the Swiss associate office involved.

It should be noted that our Clients quite often use Swiss companies, in particular, in trade activity, while Swiss law is quite flexible and variable.

Among all the proposed options, the most acceptable one was special form of participation in the Swiss company, based on Participation Certificate (it differs from Share Certificate). A holder of such Certificate shall have no voting right in the Company and is not able to participate in the Company management (e.g. at the Meeting of Shareholders) but shall have a certain status – in such case, that is enough for both Parties.

With regards to the aforesaid, Interlegal lawyers proposed for the Client a structure of documents aimed to enter into agreement with further Partner, as well as provided recommendations upon settlement of certain issues, such as detachment of financial turnovers and Client’s flows; potential profit distribution between the Partners; positioning relations between the partners in cooperation with the Company’s banks etc.

Now the parties are in the process of arranging terms and conditions.

3. Investments in Danube Shipping.

In view of war in Ukraine and restricted operation of sea ports, now the Danube is a remedy for most carriers.

What is the sense of such collaboration?

One Company, as an owner of river fleet (namely barges), dealt with cargo transportation, while the other Company financed purchase of a new fleet and intended to refund financing costs at the expense of preferential transportation of its own goods by the aforesaid fleet. Since both Companies were Interlegal Clients, first of all we obtain both Parties’ consent on cooperation in the framework of potential conflict of interests.

In such case, structure of relations between the Partners was fixed by a series of Financing Agreements, Carriage Contracts and many others, therefore, it was not set out in the form of Shareholding Agreement.

Even under such circumstances, the Parties fixed principal agreements in writing, namely:

      - Financing procedure (goal, terms of refunds and mechanism for securing fulfillment of the Debtor’s obligations);
      - Procedure for rendering transportation services and tariff schedule;
      - Responsibility of the Parties and methods of loss recovery in case of violating obligations.

Also, in view of significant scope of investments and specific features (mobility) of assets, the Parties secured both their agreements and their assets from third parties’ claims by means of fleet pledge system.

In such case, legal advisors rendered a full range of services, in particular: development of contractual base for business activities, fleet sale & purchase, registration and pledge within the Flag Register. Furthermore, with several European associated offices involved, we have chosen the most suitable jurisdiction for crew relocation and have restructured business by means of fleet consolidation in a single structure.

It was a successful trial for the project: today it is constantly being scaled up.

Last but not the least, as lawyers we always recommend out Clients to fix officially agreements between the Partnership. All the aforesaid examples clearly confirm the thesis that the most solid marriage shall be in the form of a marriage contract, based first of all not on papers and signatures, but on frank discussion of future relations and potential conflicts before the wedding.

Artem Skorobogatov

skorobogatov@interlegal.com.ua

Marta Sverdlykivska

sverdlikovskaya@interlegal.com.ua