UKRAINE: Legislative developments – Franchising agreements' state registration procedure may be revised.

Anzhela MAKHINOVA | UKRAINE | 2010-09-15

Anzhela MAKHINOVA

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The Draft Law amends Article 1118 (2) of the Civil Code of Ukraine and Article 367 (2) of the Commercial Code of Ukraine with the provisions on state registration of franchising agreements. Under the Draft Law the registration of franchising agreement shall be performed by the central body of executive power in the sphere of intellectual property protection, i.e. the State Department of Intellectual Property of the Ministry of Education and Science of Ukraine. Presently, the state registration of the franchising agreement shall be carried out by the body that held state registration of the franchisor. If the franchisor is registered abroad, the franchising agreement shall be registered by the body that has performed state registration of the franchisee. However, the state registration procedure is not regulated, which in fact results in rejection the said bodies to register franchising agreements.

It is worth noting that the Civil Code and the Commercial Code provide that (a) the franchising agreement, (b) amendments thereto as well as (c) termination thereof shall be subject to the state registration. The parties to the franchising agreement shall be entitled to refer to the said agreement as well as amendments thereto in their relations with the third persons only after its state registration. Moreover, absence of the state registration of the franchising agreement shall divest the parties of the right to refer to this agreement in case of a dispute arise.

Generally, the said amendments are seen as desirable and shall facilitate the franchising agreements’ state registration in Ukraine. However, this will be the case if a draft law setting forth in details the procedure of registration of the franchising agreements is to elaborated and adopted in the nearest future. If the said draft laws are adopted, registration of the franchising agreements will cease to be a factor hindering franchising development in Ukraine.

Nonetheless, it should be noted, that the said Draft Law is inconsistent in amending the Civil and Commercial Codes of Ukraine as it leaves in the Civil Code an obligation providing for state registration of franchising agreement by the body that effected state registration of the franchisee, when the franchisor is registered in a foreign country, while excluding the same obligation under the Commercial Code. The said inconsistencies, as well as other shortfalls of the Draft Law have been criticized by the Supreme Court of Ukraine and scholars. Hopefully, the abovementioned inconsistencies as well as other drawbacks of the Draft Law as well as a need for legislatively regulated registration procedure will be taken into account while drafting it for the second reading in the Ukrainian Parliament.

 

 

Nataliya Mykolska, IDI franchising Country Expert for Ukraine

 

 

 

 

Notes:

(1) Whereas the Ukrainian legislation names the franchise agreement as the commercial concession agreement, the parties to it being named as the title holder (for franchisor) and the user (for franchisee), in order to avoid any misunderstanding we will use international terminology.

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