National Bank of Ukraine Introduces Escrow Accounts

Effective from 21 December 2017, the National Bank of Ukraine (the "NBU") has allowed use of escrow accounts in Ukraine. This appears to be the efforts of the national regulator to implement amendments made to the Civil Code made earlier in 2017. This legislative novelty has been long awaited by the business community.

The new regulations of the NBU now enable Ukrainian banks to open escrow accounts in different currencies for both Ukrainian residents and foreign investors.

While escrow accounts have been introduced primarily to support recent corporate governance reform dealing with squeeze-out and sell-out mechanisms for Ukrainian joint-stock companies, these accounts may be used in many other areas as well.

One of the obvious uses of the escrow accounts is minimizing risks during a transaction with counterparty. Essentially, it helps to balance the rights and interests of the parties, while relying on the services of an escrow agent (for instance a trusted bank). In practice, the use of escrow accounts is employed at most types of M&A and secured lending transactions in Ukraine.