MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) VICTOR KIPIANI, PARTNER Business Club Belgravia 29 March 2012, Kyiv, Ukraine Practical Tips for Investing Safely

MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) VICTOR KIPIANI, PARTNER

Business Club Belgravia 29 March 2012, Kyiv, Ukraine

Practical Tips for Investing Safely in Georgia

CONTENTS

Know the Country

Know Your Rights and Guarantees

Liberty Act

Know Which Corporate Forms to Choose: Entry to Georgian market

Know your Local Partner

Know How to Enter Georgian Financial Sector

Know More on Protecting Your Investments

Know Your Counsel

2


Addressing a risk of failure due to lack ofunderstanding a local cultureIt is NOT just about identifying Georgia’s location on

the map, BUT having a knowledge on:

Avoid clichés you got used when doing business in your home country or other countries Create a solid pre-condition for making your business successful in Georgia – the country with the old historical heritage and traditions

Cultural Perceptions

Networking Standards

Social Attitudes

“Operational Code”

3

1. KNOW THE COUNTRY 1. KNOW THE COUNTRY


Georgian investment law provides with the highest standards of investment protection

The major guarantees by Georgian investment law are:

UNLIMITED ONWRESHIP: foreign investments in Georgia may be made in any form of ownership;

NO REGISTRATION procedures for the foreign investments;

NATIONAL TREATMENT: a foreign investor’s rights and guarantees are no less than rights and guarantees enjoyed by Georgian individuals and entities;

FREE ACCESS TO ACCOUNTS: an investor is entitled to open ANY accounts in ANY currency (besides, to

borrow money from Georgian banking/financial institutions;

to acquire stocks, bonds and other securities and property;

4

2. KNOW YOUR RIGHTS AND GUARANTEES 2. KNOW YOUR RIGHTS AND GUARANTEES


FREE REPATRIATION: an investor is entitled, upon payment of all taxes and levies, to convert profit, income, and compensation at the market exchange rate, and has the right of unlimited repatriation abroad and there are no restrictions on outflow of the capital;

NO ARBITRARY EXPROPRIATION: expropriation is possible only via court decision, or in certain circumstances explicitly specified by law (e.g., public needs) but subject to compensation (compensation must correspond to the actual value of investment at the time of expropriation; it must be paid without delay, and include any damage suffered by investor from expropriation date until date of compensation payment);

K

NO

W Y

OU

R R

IGH

TS

AN

D G

UA

RA

NTEES

5


FREE EXPORT of property owned by investor;

NO minimum number of Georgian nationals to

elected/ appointed to run a company;

A DISPUTE between a foreign investor and a Georgian counterparty may be resolved in accordance with whatever dispute-resolution mechanism is specified in respective agreement;

Admission for seeking redress through international arbitration;

Bilateral Investment Treaties (BIT) with 32 countries (at June 1, 2011);

Bilateral Double Taxation Avoidance Treaties (DTT) with 36 countries and drafts DTT are currently negotiated with 22 countries (at March 20, 2012).

6


K

NO

W Y

OU

R R

IGH

TS

AN

D G

UA

RA

NTEES

Special law (effective from December 31, 2013) providing for extra investment stability leverages

Capping government discretionary spending:

Liberty Act: analogue to EU fiscal order salvage program?

7

3% cap on the budget deficit (subject to a 2 year grace period)

limiting government spending to ensure it does not exceed 30% of GDP

state debt not to exceed 60% of GDP

requirement to hold referendum to raise taxes/ introduce new taxes (exceptions are for “temporary” increase of taxes, i.e., not more than 3 years)


3. LIBERTY ACT3. LIBERTY ACT

Typical corporate options to enter a Georgian market are:

Setting up a Georgian company or branch office

Acquisition of shares in a Georgian company

Setting up contractual joint venture with a Georgian counterparty on a contractual basis

8


4. KNOW WHICH CORPORATE FORMS TO CHOOSE: ENTRY TO GEORGIAN MARKET4. KNOW WHICH CORPORATE FORMS TO CHOOSE: ENTRY TO GEORGIAN MARKET

Business Vehicle

Setting up a Georgian business vehicle (e.g., partnership, limited partnership, limited liability company, joint stock company)

The most widely used Georgian business vehicles are: limited liability company (a “Georgian SPV”) and joint stock company:

no minimum charter capital

speedy registration (on a same or next day)/availability of on-line registration

no need for legalization with all countries members to the 1961 Hague Convention on apostille (the only exception is Greece insofar)

E

NTR

Y I

NTO

GEO

RG

IAN

MA

RK

ET

9


publicity of access to corporate information on-line

strong emphasize on significance of charter (shareholders’ agreement is also an extra option)

Statutory Protection for Minority Shareholders’ Rights/ Mandatory Tender Offer/Mandatory Redemption

Disclosure requirements for “significant acquisition” (more than 10%) in public joint stock companies

NO special Georgian M&A related Georgian law (most of M&A deals are addressed through various pieces of legislation, e.g. the Law on Entrepreneurs, the Civil Code, the Privatization law (in case of privatization only) various sector-focused special laws) 10


E

NTR

Y I

NTO

GEO

RG

IAN

MA

RK

ET

NO special thresholds and/or statutory limits for foreign investors holding shares in Georgian companies

NO statutory concept of “strategic objects” (as similar

concept is familiar under various other jurisdictions)

NO antimonopoly restraints/filings except that the regulatory approval is required in course of: acquisition of shares in bank

acquisitions of shares in telecom company by

Georgian authorized entity or when two Georgian authorized entities transact with each other

significant shareholding in insurance company.

11


E

NTR

Y I

NTO

GEO

RG

IAN

MA

RK

ET

Application of MOU and/or letter of intent is widely recognized (the concept of promissory estoppel)

A Georgian limited liability company, i.e., a Georgian “special project vehicle” is commonly used; an alternate approach is using off-shore SPVs and/or SPVs from jurisdictions having BIT with Georgia

12


E

NTR

Y I

NTO

GEO

RG

IAN

MA

RK

ET

A need for due diligence exercise is commonly recognized by Georgian counterparties

Corporate checks and checks on real estate are greatly facilitated through on-line access to electronic data registries

13


5. KNOW YOUR LOCAL PARTNER5. KNOW YOUR LOCAL PARTNER

Principal On-line Electronic Databases:

1. Contacting the Public Registry for information on:

14

real assets owned by company

real assets possessed by company

real assets leased/rented or otherwise given under possession to third party by company

real assets encumbered by company (mortgage, etc.)

assets pledged by company

any credit agreement made by company with bank or any other third party (provided that such credit agreement is secured by mortgage and/or pledge)

KN

OW

Y

OU

R

LO

CA

L P

AR

TN

ER


2. Contacting the Entrepreneurial Registry for information on:

15

registration documents of company (charter, protocols, etc.)

partners / directors and/or any authorized representatives of company (information on partners, however, is not publicly available if company exists as joint stock company)

share purchase agreement(s) and respective registration details

liquidation proceedings on company, if any

insolvency proceedings on company, if any

rehabilitation proceedings on company, if any


KN

OW

Y

OU

R

LO

CA

L P

AR

TN

ER

execution (bailiff) proceedings versus company;

registration with the Debtors’ Registry and registration details, if any

3. Contacting the Debtors’ Registry for information on:

16


KN

OW

Y

OU

R

LO

CA

L P

AR

TN

ER

17

4. Contacting the Registry on Seizure and Public Law Restrictions and/or Tax Pledge/Mortgage for information on:

court seizure or any similar restrictions on immovables and/or movables of company;

tax obligations, if any, with respect to immovables and/or movables of company.


KN

OW

Y

OU

R

LO

CA

L P

AR

TN

ER

The concept of a “financial institution from a developed country”, whereby a financial institution (except of a commercial bank) from a developed country is authorized to carry out its activities in Georgia without any additional authorization under Georgian law

The term of “developed countries” actually covers the EU member states, US, Canada, various countries of the Persian Gulf, some others

Shares listed on a ”recognized foreign stock exchange” are admitted on the Georgian Stock Exchange without application of local regulations to such admission and for purposes to list such shares a mere notification to the National Bank of Georgia

suffices (various stock exchanges of more than 100 countries are admitted as ”recognized foreign stock exchanges”)

18

6. KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR6. KNOW HOW TO ENTER GEORGIAN FINANCIAL SECTOR


Admitting for OTC trade with respect to stocks listed as well on the Georgian Stock Exchange

Role of Global Depository Receipts: recent successful cases of applying GDR for fund-raising purposed

Admissibility of regulated and non-regulated investment funds: however, the law is understood to

be governing their activities with regard to trade with public securities only

The term of “financial institution” excludes banking institutions, however, a banking institution from a developed jurisdiction, rated as a “reputable bank”, enjoys various privileges (e.g., limited set of

documents) when applying for regulatory approval for setting up a branch office in Georgia

19

KN

OW

H

OW

TO

EN

TER

G

EO

RG

IAN

FIN

AN

CIA

L

SEC

TO

R


Regulatory approval for banking shares acquisition by a buyer (i.e, a “reputable bank”) is granted through rather straightforward procedures with the National Bank of Georgia (NBG) and NBG is obliged to grant the approval within one month from submitting the

required request

A non-Georgian insurer may engage into direct

insurance activities in Georgia through setting up a Georgian branch office only and further provided that a non-Georgian insurer shall be duly registered and licensed under any jurisdiction of any of the Member States of the Organization for Economic Co-operation

and Development (OECD)

20


KN

OW

H

OW

TO

EN

TER

G

EO

RG

IAN

FIN

AN

CIA

L

SEC

TO

R

21

Such branch, as set up by a non-Georgian insurer, registered

and licensed under any of OECD jurisdictions, is not

required to be licensed by the National Bank of Georgia

(subject to maintaining at all times of its activities with a

Georgian commercial bank a deposit of local or foreign

currency and/or securities which amount up to minimum

capital requirements of a Georgian law licensed insurer)

Minimum Charter Capital Requirements:

life insurance: Gel 1.500.000

insurance (other than life insurance): Gel 1.000.000

reinsurance: Gel 1.500.000


KN

OW

H

OW

TO

EN

TER

G

EO

RG

IAN

FIN

AN

CIA

L

SEC

TO

R

Governing law:

Use of non-Georgian law is admitted and widely recognized in the context of Georgian transactions.

A choice of law is covered by the Law of Georgia on Private International Law which provides that where the parties may choose the law of one of their countries. A reference to other country’s law (a third country is also meant) means application of this country's private international law as well if this

reference does not contravene the reference idea or this reference is not restricted with the operation of norms associated with a given case. The law provides for certain restrictions in applying foreign law by stating that choice of law would only be upheld if this does not contradict major legal principles of Georgia (Public Order) or derogates from imperative norms of legislation regulating the similar legal activities (irrespective the law of which country shall be applied in governing specific relations).

22

7. KNOW MORE ON PROTECTING YOUR INVESTMENTS7. KNOW MORE ON PROTECTING YOUR INVESTMENTS


Otherwise, the parties may freely choose the law of one of their countries or the law of a third state. In such case, definition of rights and obligations stemming from contractual relations, in particular, interpretation, implementation, suspension of agreements, as well as invalidation of legal consequences, violation of obligations, including violation of pre-contractual and post-contractual obligations, shall be governed under law of the country selected by the parties

Since 1994, Georgia is participant to the United Nations Convention on the Recognition and Enforcement of Foreign Arbitral Awards, New York, 10 June 1958

Foreign Arbitral Awards are recognized and enforced by the Supreme Court of Georgia.

23

KN

OW

MO

RE O

N P

RO

TEC

TIN

G Y

OU

R

INV

ES

TM

EN

TS


The Supreme Court of Georgia must be furnished with the Arbitral Award (original or certified copy) as well as with the arbitrational agreement – original or certified copy of Foreign Arbitral Award, for recognition and enforcement purposes

Recognition and enforcement of Foreign Arbitral Awards shall be admitted within 10 years following delivering the award

Absolute majority of foreign arbitral awards are recognized by the Supreme Court of Georgia.

24

KN

OW

MO

RE O

N P

RO

TEC

TIN

G Y

OU

R

INV

ES

TM

EN

TS


Select a proper counsel: this is something which is of MUST for successfully navigating in Georgian business environment

Is Mgaloblishvili Kipiani Dzidziguri (MKD) a proper counsel for your business needs? Please consult with various recognized legal directories and see our list of representative matters

Mgaloblishvili Kipiani Dzidziguri www.mkd.ge

Georgian (Tbilisi ) contacts: Victor Kipiani [email protected] t: + 995 32 2553880/81, 2973880/81 | f: + 995 32 2973884

UK (London) contacts: Zannis Mavrogordato [email protected] ; [email protected] t: + +44 20 7067 1964, | f: +44 20 7183 6443

German contacts : Rati Bregadze [email protected] t: + 995 32 2553880/81, 2973880/81 | f: + 995 32 2973884

25

8. KNOW YOUR COUNSEL8. KNOW YOUR COUNSEL


Documents

MGALOBLISHVILI KIPIANI DZIDZIGURI (MKD) VICTOR KIPIANI, PARTNER Business Club Belgravia 29 March 2012, Kyiv, Ukraine Practical Tips for Investing Safely