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ESTABLISHMENT OF CONSTRUCTION FINANCING COMPANIES AND FUNDS. ISSUE OF TARGET BONDS FOR CONSTRUCTION.

The answer to the question you are interested in — WHY does my company need this? TO EARN MORE!

We believe you will not want to pass up this opportunity. Why OVERPAY A BANK up to 2% of the construction cost for servicing if you can establish your own finance company or issue target bonds, and for each building under construction open a construction financing fund and raise money from the public yourself without using a bank?

Preliminary calculations show that bank service costs for construction of a standard 8–10 thousand sq m residential tower would be at least €100,000. If you raise the funds independently, YOU WILL SPEND ten times LESS — up to €10,000, or 0.2% of the building's sale value.

UBC's services for registering and supporting your own construction financing fund would cost no more than this amount. Do you really have an extra €90,000? Think before signing an agreement with a bank. An alternative already exists!

CONSTRUCTION FINANCING FUNDS

The new Law “On Financial and Credit Mechanisms and Property Management in Housing Construction and Real Estate Transactions” came into force on 01.01.2026 and permitted the establishment of finance companies generally founded by large construction companies or investors.

The law fundamentally changed the system for raising funds for construction.

The novelty of the law is that funds may be raised and managed exclusively by the funds defined in the law, while only financial institutions may act as founders and managers of such funds.

In other words, an intermediary in the form of a fund appeared between the traditional participants — developers and investors.

The law provides for two types of fund. The first part deals with the procedure for establishing and operating a Construction Financing Fund, while the second concerns a Real Estate Transaction Fund. The operating model of a Construction Financing Fund is fairly simple (see Fig. 1):

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Construction Financing Funds, in turn, exist in two types:

- Type A Construction Financing Fund,

- Type B Construction Financing Fund.

The only difference is that in the first case the floor and comfort coefficients are determined by the developer, which also assumes the risk that the funds raised will be insufficient to construct the property. In the second case, the fund manager assumes the risk that the funds raised will be insufficient to construct the property.

According to leading experts and specialists, this regulatory act operates against small construction companies that cannot establish their own financial institution and therefore cannot open their own Construction Financing Fund. In our view, such companies have several possible development scenarios:

? First — join together and create one financial institution that opens several funds for each company (the law does not limit the number of funds).

? Second — raise funds through banks and pay the bank a percentage.

? Third — become ordinary subcontractors carrying out orders from the general contractor.

Although the fund-based model appears fairly reliable and transparent, first, Construction Financing Fund assets are accounted for separately from the assets of the financial institution and separately for each construction project; if the financial institution becomes insolvent, the fund's assets do not form part of the general liquidation estate. Second, the interaction and areas of responsibility of all participants — the manager, developer and trustees — are defined quite clearly. However, in our view, the question of the Construction Financing Fund manager's liability to trustees for failure to perform its obligations remains open.

CONTROL OVER THE ACTIVITIES OF A FINANCIAL INSTITUTION

At that time in Ukraine, state regulation of financial services markets and supervision of financial institutions was entrusted to a specially authorised body, namely the State Commission for Regulation of Financial Services Markets. The Commission was a central executive authority operating on a collegial basis.

The Commission's principal activities included monitoring compliance by financial institutions with the following criteria:

1. Liquidity of the financial institution.

2. Capital and solvency.

3. Profitability.

4. Asset quality and level of transaction risk.

5. Quality of the management system and management personnel.

6. Compliance with rules for providing financial services.

Under the legislation, the Commission had the right, within its competence, to inspect a financial institution.

THE ESTABLISHMENT OF A FINANCIAL INSTITUTION AND OPENING OF A CONSTRUCTION FINANCING FUND CAN CONVENTIONALLY BE DIVIDED INTO THREE CONSECUTIVE STAGES

I. Establishment of a legal entity

(legal form exclusively LLC, private JSC or public JSC).

1. Preparation and submission of documents to the District State Administration;

2. Registration with four mandatory nationwide funds;

3. Obtaining a certificate of inclusion in the EDRPOU statistics register;

4. Clearance by the tax police;

5. Registration with the district state tax inspectorate (obtaining Form 4-OPP certificate);

6. Obtaining permission to manufacture a seal and manufacture of the seal;

7. Opening a bank account.

It should be noted that when establishing the legal entity, already at the first stage, the constitutional documents need to be drafted so that they comply with the legal framework governing financial institutions. This primarily concerns the charter, which is developed for the specific financial institution. A financial institution's charter differs fundamentally from that of a company whose purpose is trading or manufacturing goods.

Because the District State Administration was not required to verify the charter for compliance with financial-institution legislation, in practice situations often arose where the constitutional documents passed the district administration but the Commission found them non-compliant with applicable legislation.

Another important issue at the first stage is checking the proposed name of the legal entity. In our view, this procedure is essential because, under the legislation, participants make contributions solely in monetary form before state registration to form the charter capital. Monetary contributions are paid into a temporary account opened for a legal entity with a specific name. If it turns out that a legal entity with that name already exists, the new entity cannot be registered under that name and the funds may remain “frozen” for an indefinite period.

It should also be noted that the minimum charter capital for the legal entity was relatively high and, at that time, amounted to UAH 1 million.

II. Establishment of a financial institution and obtaining a licence

Requirements for a legal entity intending to acquire financial-institution status

An entity acquires financial-institution status after an entry about it is made in the relevant State Register of Financial Institutions. A financial institution may begin providing financial services only if:

1. Its accounting and registration system meets the requirements established by regulatory acts;

2. The financial institution's internal rules comply with Ukrainian laws and regulatory acts of the state authorities regulating and supervising financial services markets;

3. The professional qualifications and business reputation of personnel meet statutory requirements. This included, in particular, higher education in economics or law for the director and accountant, among other requirements.

A financial institution is required to keep records of its operations and submit reports in accordance with regulatory requirements. The legislation also established requirements for external audit.

It should be noted that submitting incorrectly prepared documents or an incomplete package leads to refusal to register the financial institution.

In practice, after a formal refusal, the applicant company was said to enter a so-called “black list”, with resubmission by a company from that list possible only after six months.

III. Opening a Construction Financing Fund

1. Development and approval of rules for raising funds for construction.

The rules regulate interaction between the developer, financial institution and trustees. They establish the procedure, conditions, features and restrictions for management of the Construction Financing Fund and regulate other conditions of its operation.

The rules constitute a public offer for joining the Construction Financing Fund and participation by trustees on the basis of acceptance of those rules.

The rules are binding on all participants in the system of financial and credit mechanisms for housing and other real-estate construction financed through the Construction Financing Fund.

2. Approval of a standard agreement for participation in the Construction Financing Fund.

The agreement must contain the following mandatory provisions:

1. Subject matter of the agreement;
2. Rights and obligations of the parties;
3. Term of the agreement. Termination of property management and performance of the agreement;
4. Other terms.

It is the fundraising rules and standard agreement that define the basis of interaction among all participants. Therefore, at the final stage of registration, particular attention should be paid to this aspect. Once trustees have accepted the rules and signed the agreement, the financial institution is not entitled to amend or supplement the rules without obtaining the consent of all trustees.