Archive for July 6th, 2017

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Ukrainian privatisation under English Law? So says the PM

July 6, 2017

The UK is particularly well versed in privatising State assets.

It has been doing it for decades.

Between 1971 and the time of writing, the UK has privatised – Lunn Polly, British Petroleum, International Computers, Rolls Royce Motors, State Management Scheme, Thomas Cook, Amersham International, Associated British Ports, British Areospace, British Airports Authority, British Airways, British Airways Helicopters, British Gas, British Leyland (and all 10 subsidiaries), British Rail Engineering, British Shipbuilders, British Steel, British Telecom, British Sugar, British Transport Hotels, Britoil, Cable and Wireless, almost all council housing, Enterprise Oil, Fairey, Ferrantti, Harland and Wolf, Immos, all municipal bus companies,  National Express, National Freight Company, Passenger Transport Executive buses, Rolls Royce, Royal Ordnance, Sealink, Travelers Fare, Trustee Savings Bank (TSB), 10 water authorities, AEA Technologies, Agricultural Development Service, 13 regional airports,  British Coal, British Energy, British Rail (and 59 subsidiaries), British Technology Group, Central Electricity Generating Board, Chessington Computer Centre, National Savings, Girobank, Kingston Communications, Laboratory of the Government Chemist, National Engineering Laboratory, National Transcommunications, National Resources Institute, Property Services Agency,  16 regional electricity companies, a further 12 Northern Irish and Scottish electricity and transport companies, The Stationary Office, Actis, BBC Books, BBC Costumes, BBC Broadcasts, BBC Outside Broadcasts, BBC Technologies,  BBC Audiobooks, BBC Magazines, British Nuclear Fuels (and 5 subsidiaries), National Air Traffic Services, Partnerships UK, Quinetiq, UKAEA, Behavioural Insights, Bio Products Laboratory, Construction Online, Defence Support Group, Foster Intelligence, Eurostar (partially), Fire Service College,  Food and Environment Research Agency, Government Pipelines and Storage Systems,  Llyods Bank, Royal Bank of Scotland, NEC Group, Royal Mail, Tote, Northern Rock and High Speed.

There maybe a few others – and there is also a far longer list of part-privatisations if “outsourcing”, PFI and PPP were to be counted as such too.

A reader will therefore agree that the UK has a track record of privatisation when it comes to State assets, all of which remain State regulated and subject to the rule of law.

On 4th July the Cabinet of Ministers approved draft legislation to address the privatisation of State assets/State Owned Enterprises.

That draft legislation that will make the process more transparent and far simpler.  It provides a two tier system whereby the smallest assets (most of them) will be sold via the transparent Prozorro system, whilst the largest (approximately 50 or so) are subject to investment bank guidance and appraisals etc. and take a different route to market altogether.

What has that to do with UK privatisation?

On 6th July while in London, Prime Minister Groisman stated something rather surprising “We have prepared new legislation of Ukraine on privatization. This means that after the adoption of the Parliamentary Act there will be a new system of transparent competitive privatization. However, we are laying within it a very important thing.  While judicial reform takes place, we have laid down in the provisions of the Law, that on the whole privatization the process will be under the jurisdiction of English law.”

In short it seems it is desired, and is stated within the draft Ukrainian privatisation law, that Ukrainian privatisation will occur under the jurisdiction of English Law.

Clearly the privatising of Ukrainian assets under the jurisdiction of English Law is meant to comfort potential investors by banishing that harlot called Lady Justice in Ukraine.

So what are the English laws on privatisation?  There must be some for to create a State company requires an Act of parliament.  Ergo to privatise a State company must also require an Act of parliament.

Well to be blunt almost all UK law relating to privatisation has been preparatory and specific to the event.

For example the Telecommunications Act 1984 created regulators and such for a newly privatised market.

The Postal Services Act 2011 paved the way to privatise the Post Office.

The preparatory legislation for the sale of the Central Electricity Generating Board (and many other monopolies) not only paved the way for privatisation and the creation of a regulator, but also insured there would be no monopoly from the outset (by creating 3 private entities from the single State entity in the case of the CEGB).

Much UK privatisation has occurred by way of floating entities on the Stock Market.

Far less has been carried out by “auction”/private sales/trade sales which appears to be the Ukrainian method of choice.

There are also management/employee buyouts, employee share buyouts etc, but these seem very unlikely to feature in the Ukrainian fire sale to get assets off of the State books and creation markets less State players.

Surely Prime Minister Groisman has tripped over his words somewhat.  Ukrainian assets simply cannot but sold under the UK laws under which UK assets were privatised for all the obvious reasons above.

What he perhaps means is that all contracts of sale, and clauses therein, will be subject to English law and jurisdiction.

Caveat Emptor issues will be dealt with by UK courts, as will Gov UA claims of contract breaches by any buyers.  The UK courts by their nature being entirely independent and far less sullied than the harlot that poses as Lady Justice in Ukraine.

Perhaps this move will make investors more robust in their belief when it comes to purchase and post-purchase contractual issues with the State seller – that is surely the intention.  But the UK courts and the UK laws do not preside over the domestic Ukrainian market place in which any newly acquired privatised assets will operate.

The harlot that is Lady Justice in Ukraine will have jurisdiction over that domestic market place and any business disputes therein.  The only way to partially achieve that same perception of security would be for any newly privatised entity to insure all its own business contracts designate London as the courts of arbitration should any disputes arise – but by way of mitigation that does remove the nefarious and unscrupulous competitors in a grubby market place with a solicitous Lady Justice still willing to turn a trick for an affluent punter.

Nevertheless, if correctly understanding what the Prime Minister was trying to say, or has been misreported/inaccurately reported as saying, it is at least a proactive move by the Cabinet of Ministers in the full recognition of the significant rule of law problems that have yet to be internally addressed.

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