There are only 288 enterprises left for privatization at the State Property Fund of Ukraine
Out of 2,364 enterprises transferred to the management of the State Property Fund, only 288 can be put up for sale. Another 134 are not subject to privatization yet because they have social or strategic significance, such as prosthetics and orthopedic enterprises or those related to the military-industrial complex. 82% of the Fund’s portfolio consists of non-productive assets: 664 are located in temporarily occupied territories, and 1,278 are to be liquidated according to the decision of the State Property Fund or due to bankruptcy.
The process of transferring state property from other executive authorities is ongoing. In total, by the end of 2023, the Fund plans to take control of approximately 1,200 more enterprises. The Fund will be able to determine the structure of the portfolio of newly transferred assets after a thorough triage process, which involves analyzing and sorting all transferred objects based on their ability to conduct economic activities and the presence of liquid assets.
“There is a colossal amount of ‘dead’ assets in state ownership today. These enterprises exist only on paper; they have accumulated enormous debts and are unattractive to private businesses. Therefore, there is no point in putting them up for privatization; they will be liquidated,” says Vitalii Zharikov, Director of the Department for Restoring Solvency and Termination of Enterprises’ Activities at the State Property Fund of Ukraine.
Half of the enterprises already classified as ‘for liquidation’ have no assets at all, 10% are not operational but possess assets that can be sold at open auction through Prozorro.Sale, another 10% have lost their assets, but there is still a possibility to recover them through the court and subsequently sell them, the remaining 30% are potential bankruptcies.
The duration of the liquidation process varies depending on the category to which the enterprise belongs. The simplest procedure is for enterprises with no assets and debts, taking 4 to 6 months. Enterprises that possess some assets without debts may take up to 8 months for liquidation. For enterprises requiring a legal procedure to reclaim unlawfully held property, the process can take up to 1.5 years. The most extended procedure is bankruptcy, which can exceed 18 months. Taking this into account, by the end of 2023, the Fund plans to initiate the liquidation process for 888 enterprises, out of which 347 will be liquidated. In 2024, there are plans to complete the liquidation of another 400 enterprises, followed by 141 in 2025. Additionally, based on preliminary assessment, approximately 390 enterprises show signs of insolvency and may undergo liquidation through bankruptcy proceedings.
The same triage procedure will be applied to the assets that will be transferred to the Fund from other government agencies in the future. The SPFU has a clear and well-established algorithm that answers the question of what to do with state-owned enterprises. If an enterprise can be of interest to investors - it is put up for privatization; if it needs to be retained in state ownership - it remains in the Fund’s management; if it does not conduct business, has insignificant assets whose value is insignificantly higher than debts - it is liquidated; if it is impossible to pay off debts with assets - it goes bankrupt.
“The liquidation of non-functioning assets is aimed at revitalizing our economy by reducing the debt burden on the budget and creating opportunities to establish new businesses in the locations of the liquidated enterprises. These new businesses will contribute to budget revenues and generate new job opportunities. Furthermore, the special liquidation procedure allows for the settlement of long-standing wage arrears and ultimately facilitates the transfer of production and labor archives to archival institutions for pension purposes for former employees,” adds Vitalii Zharikov.
With the adoption of the Law “On Peculiarities of Termination of State-Owned Enterprises by Decision of the State Property Fund of Ukraine”, the liquidation procedure of state-owned enterprises will become self-sustaining, and moreover, it will provide an opportunity to repay the debts of these enterprises to the state. The work will involve qualified specialists who will search for and return illegally alienated property to state ownership for a fee of 3-5% of the value of their sales at Prozorro auctions. The Fund, with the involvement of international experts, has already developed a draft Temporary Procedure for the Selection of Receivers and will soon begin the procedure for their appointment.