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Protection Against “Rogue” Notaries: Practical Advice to Business Owners and Property Holders

Date of publication: 29 May 2021

Yevgen Solovyov, Attorney at Law, Partner, Insolvency Receiver
Dmytro Hrybov, Attorney at Law, Counsel

Source: ZN.ua

Efforts of a person having an access key to the official register and wishing to commit illegal actions with its assistance may be prevented either by blocking the access of such a person to the register or by blocking the operation process of the register itself. However, as our experience shows, measures aimed at making the commission of illegal registration actions more difficult, detection of such actions, encouraging timely response and prevention of violations of the rights of the owner can also prove to be effective.

There are two types of registration actions that can be performed by the state registrars or notaries, – actions in the State Register of Real Estate Property Rights (SRREPR) as to the real estate objects, and actions in the Unified State Register of Legal Entities, Individual Entrepreneurs and Public Associations (USR) as to the legal entities.

As soon as the SRREPR and the USR are different types of registers, which operate differently and are governed by different acts of legislation, the protection mechanisms may also differ.

Charter as the first outpost of defence

According to our practical experience, a legal entity may provide for a number of restrictions in its charter. For example, when it comes to the most common organizational-legal form in Ukraine – a limited liability company, it can be established that all minutes of the general meeting of participants ought to be signed not by the chairman of the meeting, but by all the meeting’s participants, that the new version of the charter ought not to be signed by the chairman only, as well as other restrictions depending on the ownership structure of the legal entity, the structure of its assets, as well as the nature of its activities and management.

“Controlled” encumbrance

One of the most well-known and widespread preventive measures of protection is the controlled encumbrance of one’s own property. Of course, this method may effectively stand in the way of commission of unlawful registration actions in the SRREPR with encumbered real estate objects, but, from a practical point of view, it will not make them impossible, as soon as the encumbrance can also be lifted in an unlawful method prior to the performance of the desired unlawful registration action.

In the case of USR, this method will not directly affect the registration process, as long as the state registrars are currently not required to verify the absence of encumbrances of corporate rights in the State Register of Movable Property Encumbrances, but may help in the further procedure of returning corporate rights to the lawful owner.

On 15 April 2021 the Verkhovna Rada of Ukraine adopted a draft Law No. 3774 in the first reading. According to the provisions of said draft law the state registrar (during the state registration of amendments to the information about the legal entity contained in the USR in connection with the change of the size of the participant’s share in the authorized capital of the legal entity as a result of its alienation on the basis of a non-notarized transaction, or on the basis of the notarized transaction the legal effect of which is associated with the occurrence of a certain event) must also establish the presence or absence of the registered encumbrances applied to the corresponding participation share of the participant in the authorized capital by obtaining the information from the State Register of encumbrances and/or registration of such a participant in the Unified Register of Debtors. Therefore, in case of the adoption of the said law, it will also become more difficult to perform unlawful registration actions using the USR.

Procedural safeguards

A court-introduced injunction to perform certain registration actions represents an effective and efficient way of protection. For example, as an injunctive measure, the court may issue a ruling on the prohibition to the perform certain registration actions in relation to a particular person and/or such person’s property until the case is considered essentially. Such a ruling shall be immediately enforceable, and an appeal lodged against it shall not suspend its enforcement. Even if such a ruling is subsequently reversed by the judge who issued it, an appeal against the ruling on the cancellation of the injunction shall suspend the enforcement of this ruling and effectively leave the previously imposed prohibition in force. In this case, after receiving a ruling prohibiting the registration actions, the information about it must be entered into the corresponding registers.

In addition to the court ruling on the prohibition of the performance of registration actions, which in practice cannot always be obtained quickly due to the substantial workload the courts have to cope with, the current legislation stipulates for the right of the owner of real estate object to impose a ban onto the performance of any registration actions as to his real estate on the basis of his personal decision.

In such way, to stop or prevent certain registration actions, the owner may apply to a registrar or a notary with a statement asking to impose a prohibition on the performance of certain registration actions. Such a statement is subject to immediate registration in the database of SRREPR subject to the verification of the owner’s identity and the state registration of ownership of the corresponding real estate property object in the SRREPR, in particular in its integral archival section; and as to the land, the information about the title to which is absent in the DRRP, – subject to the registration of the title in the State Land Cadaster.

However, such a prohibition represents only a temporary way of prevention and suspends registration for only up to 15 calendar days. And if the owner fails to provide the registrar or notary with a court decision prohibiting the performance of the registration actions, the registrar shall be obliged to issue a decision on their renewal. In this case, a re-application regarding the certain particular property object can be submitted only after the expiration of five calendar days.

Notarial instruments

In July 2020, amendments to the legislation came into force, which provided for the possibility of entering the information into the USR about the establishment of the requirement to notarially certify the authenticity of the signature of a company’s participant when such participant issues the decisions about the activities of the legal entity and/or the requirement to notarize the transaction subject matter of which is represented by a participation share in the authorized (contributed) capital (unit fund) of the relevant legal entity: information about the participant who established such requirements, the requirements on notarial certification of the authenticity of the signature and/or notarization of the transaction.

However, such a possibility has been practically implemented into the USR only recently – in early May 2021. But even with the long-awaited introduction of the said possibility, the state registrars are wondering how this can be done.

The fact is that in last September, the Ministry of Justice, wishing to implement such a possibility, approved a special application form as to the establishment of the requirement towards notarization/certification, which was to come into force on 1 December 2020 (form 10). However, in practice such a possibility in the USR’s software was implemented not in the form of a separate registration action, but in the form of two “check boxes” that can be activated by the state registrar in the information about a company’s participant in the section on the presence of such requirements during the performance of a registration action in the course of which the information about the participant (for example, the initial registration of a legal entity or registration of amendments to the information about its participants) is getting introduced or changed. Such registration actions as to legal entities (except for public formations and state public authorities) are carried out on the basis of an Application form 2, which, in turn, does not contain a section intended for the indication of information about the person’s wish to establish such a requirement.

A similar way to prevent the performance of unlawful registration actions in the SRREPR is for the owners to apply encumbrances towards their real estate objects in the form of a compulsory notarization of legal transactions. The implementation of such a mechanism is represented by formalization of a corresponding requirement as a unilateral transaction, which will be subject to notarization, with its subsequent registration as an encumbrance of the relevant real estate object in the SRREPR. The current legislation stipulates that such a requirement may be established by the owner as to the notarization of an agreement:
– the subject of which is represented by real estate or its part (Article 209 of the Civil Code of Ukraine);
– on the establishment of a land easement;
– on land lease;
– on granting the right to use the land for agricultural purposes (emphyteusis);
– on granting the right to use the land plot for construction purposes (superficies).

“Technical” obstacles

So-called register suspensions are often used to protect against registration actions in the USR. At present, the law stipulates for the grounds both for suspending the consideration of the documents submitted for state registration and for dismissing the performance of a certain registration action. The USR’s software does not allow you to perform a registration action in relation to a legal entity until the previously initiated actions have not been completed.

This method may be realized by submitting to the state registrar or notary knowingly “defective” documents containing the legislatively stipulated grounds for suspending their consideration. The consideration of the documents is suspended for 15 days being the period provided to the applicant to eliminate the defects. If the deficiencies in the submitted documents are not eliminated by the applicant during the said period, the USR shall dismiss the performance of the registration actions.

However, it should be noted that such “suspensions” are used not only to protect against undue registration actions, but also resorted to by so-called “rogue” notaries and registrars after the performance of unlawful registration actions on changing the owners and head officials of a legal entity to prevent the performance of re-registration actions by such entity’s lawful owners.

The aforementioned draft Law No. 3774 stipulates for removal from the legislation the possibility of suspending the consideration of the documents submitted for state registration. If approved, it will be possible to keep the USR in a “suspended” mode only for 24 hours – this is the time provided to the state registrar or notary to perform a registration action or decline it.

The draft Law also stipulates that if the USR contains the information on having communication with participants and the director of a legal entity, the electronic services portal shall ensure the provision to them of real-time information through the means of telecommunication about the fact of submission (receipt) of documents for registration as to such entity and about the fact of the performance of registration actions subject to the notification of relevant update information from the USR.

Register’s “alarm”

Since last year, it has become possible for individual persons and legal entities to take advantage of the “SMS-alarm”, – an information service provided by the State Enterprise National Information Systems for monitoring the performance pf the registration actions related to their real estate objects.

This service option allows owners, subject to the use of an electronic digital signature, including the use of Mobile ID, not only to receive real-time information about the applications lodged in the sphere of the state registration of titles to real estate property objects and their encumbrances as to such owner and as to such owner’s real estate property object, in particular about the registration number, date and time of registration of such applications, but also additionally to submit applications in electronic form for prohibiting the registration actions in the SRREPR, which actually makes it possible to respond to any actions performed in relation to the property prior to the actual performance of the registration actions and the introduction of certain particular entries into the SRREPR.

One of the possible ways to find out about any amendments introduced into the information about your property the quickest is to use OpenDataBot, Youcontrol and other similar services, the number of which is growing constantly.

In any case, periodical verification of the information about your property in the USR and/or SRREPR wouldn’t go amiss. The information about the participants and the director of a legal entity in the USR can be verified free of charge in the course of one minute on the website of the Ministry of Justice of Ukraine, and the information about the real estate objects in the SRREPR – within five minutes, by obtaining an information certificate, the cost of which is only UAH 20.00.