Violating of the procedure for registering business and real estate: why tightening responsibility is not a panacea

Tetiana Borysenko, lawyer of Skliarenko, Sydorenko and Partners, especially for the LIGA:ZAKON.

Simplification of the registration procedures, aimed at improving the position of Ukraine in the Doing Business rating, actually made life easier for all sorts of hunters for someone else's real estate and business.

In the past few years, regularly appear various initiatives to prevent raider attacks (or at least, that's how it is positioned by the authors). One of the latest was the project of the Law “On Amendments to the Code of Ukraine on Administrative Offenses regarding the strengthening of the responsibility of state registrars” (Bill No. 10293).

It should be noted that the term “raiding”, which is used by the authors in the explanatory note, is not fixed at the legislative level. Many by-laws Regulatory Legal Acts use this concept, but today the legislator, despite the urgency of the problem, has not established the signs of raiding as an offense and its subject composition.

In my opinion, the bill number 10293 is indirectly related to raiding and will not have a tangible impact on the number of cases of illegal registration, both in the field of registration of property rights, and in the field of registration of legal entities, individual entrepreneurs and public formations.

Article 166-11 of the Administrative Code, which proposes to amend, establishes liability for violation of the legal limits for the state registration of a legal entity, a individual entrepreneur or a social formation, the requirement for extra-legal documents for the state registration, as well as other violations of the procedure established by law for the state registration of a legal entity, an individual entrepreneur or a public entity.

In turn, the procedure for conducting state registration in the area of business registration is provided for in Article 25 of the Law “On State Registration of Legal Entities, Individual Entrepreneurs and Public Formations”. According to its norms, state registration is carried out solely on the basis of documents provided by the applicant, court decisions that have entered into force and received electronically from the court or the state executive service, as well as decisions taken as a result of an appeal in accordance with article 34 of the Law. At the same time, a strict sequence of actions of the state registrar in the process of registering certain changes was established.

Violation of the established procedure does not always mean that the state registrar participates in a raider scheme. Rather, violations of the state registration procedure will speak about the registrar’s insufficient competence or excessive workload.

Of course, if a state registrar conducts a registration action without the presence of any documents filed by the applicant, then it can be concluded that the actions of such a state registrar are deliberately wrongful, but in practice, there are practically no such cases.

When it comes to unlawful seizure of an enterprise, the “invader” applicants very carefully prepare documents that are submitted to the state registrar. Raiders collude with notaries to verify the signatures of individuals who do not actually sign. And it is in the best case. At the worst - notaries' signatures and stamps, court decisions are forged. The state registrar does not always know that he has submitted forged documents. Registrars also do not have the competence and functions of authenticating the signature of a person or the seal of an enterprise.

Previously, the documents were submitted for registration at the location of the enterprise (and in some districts of Kyiv there was a general requirement that the registrar, who previously conducted the registration actions for this enterprise, submit documents doubt (could be visually correlated signature, stamp, and other details). At present, applicants can submit documents to any registrar within the administrative-territorial unit through the centers providing administrative services, as well as notaries having accreditation and accredited entities in the field of state registration. These subjects of state registration do not have access to paper archives that are stored in state administrations, and electronic copies of documents are not always present in the Unified State Register. Moreover, the state registrar has no obligation to analyze and verify previously submitted documents for the enterprise before conducting the registration action. They has only the procedure established by law and the time limits which they must comply with - 24 hours in accordance with Section 26 of the Law. By the way, responsibility for violating these deadlines, in particular, is proposed to be strengthened by the draft law under consideration.

So, the question is: how can a state registrar, without having the obligation, opportunity and time to evaluate the authenticity of the documents to be on guard to counter raider seizure? The question is rhetorical, since our legislator changed the structure of state registration authorities year after year, the requirements for the documents submissions, eliminated the need to obtain permits for the manufacture and destruction of seals and stamps in order to create controlled, “roofed” structures for earning money by high officials, including raider schemes. Let's be honest with ourselves and admit that in such conditions the state registrar simply turns out to be the ultimate in deciding on whom to hang the violations and crimes.

Also, Article 35 of the Law provides that persons guilty of entering into constituent and other documents submitted to the state registrar of knowingly false information are responsible for such actions provided for by law. Thus, the legislator has directly designated the limits of state registrar's responsibility in cases when the applicant submits forged documents. The state registrar is responsible only for breaking the order. For the falsification of documents are responsible those who falsified those documents.

Here it is necessary to indicate the presence of criminal liability:

1)      for the falsification of documents submitted to the registrar for the state registration of a legal entity and individual entrepreneurs (article 205-1 of the Criminal Code of Ukraine);

2)      for unlawful seizure of property of an enterprise, institution, organization, including shares of their founders, participants, shareholders, members, by concluding transactions using forged or stolen documents, seals, stamps of an enterprise, institution, organization (Article 206-2 of the Criminal Code Ukraine).

In cases of raider capture schemes with the active participation of state registrars, the latter are brought to justice under Art. 364 of the Criminal Code, which provides for liability for abuse of power or official position, that is, intentional, in order to obtain any unlawful benefit for oneself or another individual or legal person by an official using power or official position contrary to the interests of the service if it has caused substantial harm protected by law the rights, freedoms and interests of individual citizens or the state or public interests, or the interests of legal entities.

Thus, we see that the increase in the number of raider attacks is not related to the low level of responsibility of state registrars. The legislator establishes both administrative and criminal liability. The only question is how effectively specific cases are investigated and how often state registrars are held accountable for their crimes.

A separate topic is the activity of “black registrars”, that is, individuals who perform several registration actions with respect to large objects, for which they are issued access keys to the Unified State Registry, and then simply disappear after their keys are deprived by the Ministry of Justice. Everyone understands that such activity is directly “approved” by high-ranking officials and that it is almost impossible to effectively investigate crimes of raiding with the participation of “black recorders”.

The explanatory note to the bill number 10293 indicated that over the past 5 years, the number of illegal seizures is constantly growing. In my opinion, this is primarily due to the greenhouse conditions artificially created by the authorities for the development of raiding in Ukraine. And by increasing the responsibility of state registrars this problem cannot be solved.

A similar situation exists in the sphere of state registration of property rights to real estate and their encumbrances.

The draft law proposes amendments to article 166-23 of the Code of Administrative Offenses, which establishes responsibility for violation of the procedure for state registration of property rights to real estate.

Similarly to the situation in the sphere of state registration of business. Violations of the procedure for registration of property rights are most often the result of insufficient competence of state registrars. Article 10 of the Law “On State Registration of Property Rights and Their Encumbrances” provides that a state registrar may be a person who has a higher education in the specialty “jurisprudence” and meets the qualification requirements of the Ministry of Justice. The Law does not have any requirement of the work experience, and in 2016 when the software was changed has ceased to exist a training base for the passage of the future of the state registrar of practice working with the registry of property rights. The training period for obtaining the qualifications required by the Ministry of Justice is only 3 days today. The question of the availability of sufficient knowledge and experience with the registrar registry in such conditions is extremely relevant, and their violation of the procedure for conducting registration actions is often a consequence of incompetence.

As for those registrars who knowingly go for violations in collusion with raiders, there are 2 obvious circumstances: the presence of random non-random individuals with low social responsibility among state registrars, and the low income level of state registrars. Increasing the amount of administrative responsibility of state registrars will not solve either problem.

In my opinion, the obvious solution to the problem of raiding with participation in the schemes of state registrars is a combination of such actions:

- raising qualification requirements for state registrars,

- the abolition of the “black market” of registration services and the “protection” of this market,

- salary increase of state registrars,

- reforming bodies in the state registration system.

In addition, it is also necessary to have the political will to effectively investigate crimes involving the unlawful seizure of enterprises.