In the previous material, we have reviewed in detail draft law No. 4572 on fundamental changes in the procedure for the work of the State Property Fund, as well as clarifications of other provisions of the legislation on privatization, management of state property objects, and corporate management. As of September 21, 2021, this draft law is being prepared for the second reading by the Verkhovna Rada.
This analysis deals with draft law No. 4573 “On Amendments to the Code of Administrative Offenses of Ukraine and the Criminal Procedural Code of Ukraine Regarding the Improvement of the State Policy for Managing Objects of State and Municipal Property.” Back on April 7, the committee on law enforcement considered this draft law and recommended its adoption as a basis, but it has not yet been considered in the first reading in the Verkhovna Rada.
Its goal is to prevent abuses in the processes of privatization and lease of state property, to strengthen control over updating information about state-owned objects for inclusion in the Unified Register of State-Owned Objects.
What do we have as of today?
In Ukraine, the practice of stopping the privatization of state and municipal property objects due to abuse of procedural rights is widespread, in particular, through applying to courts with petitions for the seizure of property in respect of which a decision on privatization has already been made. As a result, privatization authorities are involved in lengthy legal disputes, as there are no other remedies for such abuses. Under such circumstances, the pace of privatization and budget revenues decrease.
Another problem is the violation of the procedure for leasing state and municipal property by balance holders or lessees who conclude contracts contrary to the requirements of the law.
In addition, in the absence of liability, authorized property management bodies often ignore the obligation to provide information about objects of state or municipal property that are subject to privatization or can be leased.
In Ukraine, the practice of stopping privatization processes due to abuse of procedural rights is widespread, in particular, through applying to courts with petitions for the seizure of property.
What is proposed?
The draft law introduces amendments to Article 173 of the Criminal Procedural Code of Ukraine (hereinafter referred to as the CPCU) regarding the prevention of property seizure (including property rights or other assets), in respect of which a decision was made to privatize on a competitive basis in the form of electronic auctions in accordance with the procedure established by law.
However, the proposed mechanism will not ensure the full achievement of the goal. The article of the Criminal Procedural Code in this version covers only one aspect of abuse of procedural rights and will not be able to completely prevent interference in the privatization process.
In addition, the proposed changes may lead to non-compliance with the provisions of Articles 6 and 13 of the Convention for the Protection of Human Rights and Fundamental Freedoms, which provide for the rights to a fair trial and an effective remedy.
The draft law also proposes to supplement the Code of Ukraine on Administrative Offenses (hereinafter referred to as the CUAO) with article 164-20 “Violation of the Procedure for Using State Property” by assigning the obligation to consider cases of relevant administrative offenses to district, city district, city, or city district courts (amendments to Article 221 of the CUAO), and to draw up protocols on officials of the State Property Fund of Ukraine (amendments to Article 255 of the CUAO).
In particular, the amount of fines is determined for:
- failure to provide information on objects of state or municipal property that are subject to privatization or can be leased, including objects that are not used by state or municipal enterprises and are not offered as potential objects of lease or privatization;
- conclusion by the balance holder of the property of a lease agreement in relation to the rental object, the total area of which exceeds the amount determined by the Law of Ukraine “On Lease of State-Owned and Municipal Property”;
- conclusion by the lessee of a sublease agreement in violation of the requirements of the Law of Ukraine “On Lease of State-Owned and Municipal Property”;
- failure of management entities to submit information about state property objects to the Unified Register of State Property Objects;
- failure to ensure access of potential lessees to the rental object by a lessee who intends to extend the lease agreement for real estate subject to renewal based on the results of the auction;
- failure to disclose information about the rental object by a lessee who intends to extend the lease agreement of a single property complex subject to renewal based on the results of the auction and/or failure to provide access to such a rental object to potential lessees accompanied by a representative of the lessor;
- conclusion by the balance holder of property of agreements on the transfer of the operating, storage rights (except for contracts of public storage), if the place of storage of the property of a third party is individually defined immovable property of state or municipal ownership, provided for by the Law of Ukraine “On Lease of State-Owned and Municipal Property.”
The amount of fines for officials of the balance holder of state or municipal property will range from 250 (UAH 4,250) to 2,000 (UAH 34,000) non-taxable minimum incomes of citizens.
This step is aimed at establishing the liability of authorized management bodies, balance holders of state property for negligent management and inefficient use of state property.
When performing the functions of a lessor of state property, the State Property Fund of Ukraine conducts inspections of the leased property. In the course of inspections, the facts of illegal sublease of property, non-transfer of information to the Fund about property that is not used as potential rental objects are revealed.
Contesting such contracts in court takes considerable time and requires significant expenses of the SPFU. In general, this practice restricts the rights of the state to use its property.
In general, the establishment of administrative liability will partially contribute to the prevention of abuse and commission of illegal actions on the part of balance holders, lessors, and authorized property management bodies.
However, such a version of the amendments actually gives the SPFU an additional and still not inherent function — drawing up protocols on administrative offenses. At the same time, the lack of a mechanism for obtaining the necessary information by the State Property Fund of Ukraine to draw up protocols on administrative offenses will become a serious obstacle to bringing potential violators to justice.
It is worth paying attention to the fact that the amount of fines for offenses envisaged in the draft law is quite little. In addition, the liability changes relate only to lease issues and overlook privatization and accounting.
The amount of fines for officials of the balance holder of state or municipal property will range from 250 (UAH 4,250) to 2,000 (UAH 34,000) non-taxable minimum incomes of citizens.
CONCLUSIONS
Transparency International Ukraine supports the idea of introducing liability for inefficient management and use of state or municipal property by authorized management bodies, balance holders, and lessees.
However, there is a risk that the proposed mechanism for bringing the perpetrators to justice will be ineffective, and therefore the changes that are being made to the Code of Ukraine on Administrative Offenses will have a declarative nature rather than a real effect.
As for the proposed amendment to Article 173 of the Criminal Procedural Code of Ukraine, its adoption will not ensure the achievement of the goal pursued by the legislator. After all, the ban on seizing the property of state-owned enterprises in respect of which a decision on privatization has been made will not cover all possible abuses of procedural rights and will not prevent interference in the privatization process.
Thus, we believe that the third paragraph of Article 173, part 1 of the Criminal Procedure Code as amended by draft law No. 4573 should be omitted, and changes concerning the establishment of liability for inefficient management and use of state or municipal property need to be finalized considering these comments.
TI Ukraine supports the idea of introducing liability for inefficient management and use of public property. However, there is a risk that the proposed mechanism for bringing the perpetrators to justice will be ineffective.
