Research of Justice needs of small and medium-sized business in Ukraine

23 October 2020 | Report

Methodology

In the course of the research, a series of telephone interviews with small and medium-sized businesses was conducted (SMB).

Persons at companies who perform the functions of managers (owner, CEO, deputy CEO), as well as persons who solve legal problems when they occur (chief accountant and, if there is one, full-time lawyer) were invited to the survey. Only enterprises-legal entities were invited to the survey, natural persons-entrepreneurs (NPEs) did not participate in the survey.

Persons at companies who perform the functions of managers (owner, CEO, deputy CEO), as well as persons who solve legal problems when they occur (chief accountant and, if there is one, full-time lawyer) were invited to the survey. Only enterprises-legal entities were invited to the survey, natural persons-entrepreneurs (NPEs) did not participate in the survey.

The questionnaire was prepared with the participation of experts from the Centre for Democracy and Rule of Law (CEDEM), The Hague Institute for Innovation of Law (HiiL) and EU Project "PRAVO-Justice". The questionnaire was programmed by HIIL specialists.

A total of 815 interviews were conducted in all regions of Ukraine. Contacts for the interview were randomly selected from the Unified Register of Enterprises, Organizations and Institutions of Ukraine.

The survey was conducted under anonymity conditions.

The survey was conducted in the period from June 1 to July 10, 2020.

Executive summary

Legal problems at companies are most often solved by a manager or an accountant, as most of the surveyed companies do not have their own full-time lawyer. The larger the company, the more likely it is that there will be a full-time lawyer on staff. A full-time lawyer is present in 6% of companies with up to 10 employees, 22% of companies with up to 20 employees, 29% of companies up to 50 people; among medium-sized businesses (over 50 employees), every second company has its own lawyer.

Approximately one in six respondents (16%) admitted that the company had "really serious problems, namely those that had a strong impact on the company and were difficult to solve." There is a significant gap in the presence of problems among companies at the stage of decline and growth, as well as in the analysis by the financial position. Thus, among companies that have major financial problems, almost one in four faces significant legal problems. On the contrary, only one in ten companies among those with a strong and stable financial position has serious legal problems.

Respondents were asked to name all the serious problems, and then choose one of them, the most painful. The first place among the problem groups was taken by the group "Disputes with business partners and customers" - almost 30% of those who reported the presence of problems faced this problem. The second place was shared by the groups "Raiding / Fraud, theft" and "Office / industrial premises and land" - 22% and 21% respectively, faced them. The third place was shared by the groups "Taxes, fees, excises, social security" and "Regulatory requirements / compliance" - 18% -16% of respondents, respectively, faced them. The rest of the problems were mentioned by 10% of respondents or less.

Among the main problem groups that were mentioned most often, the same problems are leading, except for the group "Regulatory requirements / compliance" - despite the fact that the respondents faced the problems of this group quite often, only 9% named such problems as major.

Among the mentioned TOP5 groups of problems, special attention should be paid to the groups “Office / industrial premises and land” and “Taxes, fees, excises, social security” and “Raiding / Fraud, theft”: these are the most serious problems (more than 7 points) on a 10-point scale).

Among separate problems, the first place was taken by Tax Disputes (group "Taxes, fees, excises, social security") - 15% of those who faced serious legal problems chose this option. The problem of insolvency of the supplier or customer (group "Disputes with business partners and customers") is in the second place - this problem was chosen by 12% of respondents. The problem of theft of company’s property by a third party (group of problems "Raiding / Fraud, theft") is in the third place - every tenth of those who had legal problems faced this problem.

In general, the steps companies take to solve problems do not differ much by type of problem: negotiations and consultations with a lawyer take precedence. This order characterizes all problem groups except “Raiding / Fraud, theft”. In this case, the majority first lodges a complaint to a state agency. It is worth mentioning that this problem group is in the worst situation in terms of the solution process and consequences - only 10% say that the problem is solved, and more than half (54%) left it unresolved (mostly no issue related to the problem is resolved).

It should be noted that the share of respondents who believe that the problem has affected financial stability is 39%, and the share of respondents who believe that the impact is insignificant or non-existent - 46%. However, this assessment varies significantly by problem group. The negative impact of the Taxes group problems is mentioned by 63% of respondents.

The majority of respondents (72%) involved intermediaries to solve the problem. For the most part (a third of the cases), it was a private lawyer or a law firm. In fact, it is private lawyers that respondents call the most useful intermediaries in solving the problem. Private lawyers and full-time employees are evaluated equally in terms of the usefulness of their involvement (77% and 74%, respectively, consider their involvement useful). The anti-leader of the rating is the authorities. 63% of respondents consider their involvement useless, and most of them - completely useless. Also, 47% of respondents consider that the involvement of law enforsment and judicial system was useless.

The solution to the problem often lies in the field of negotiations (42%) or litigation (31%). Such type of problem solving as the expert process (a process led by an expert - a consultant, a lawyer, an accountant, etc.) is not widespread in Ukraine yet.

The assessment of the solution implementation also remains low. 49% of the respondents notes that the solution was not implemented at all, and another 12% believe that the solution was implemented to a small extent. However, one in four (26%) believes that the solution was implemented at least to a large extent.

But even if the companies get the solution of the problem, respondents do not believe that the solution allows the company to recover losses (72% believe that the losses were compensated very little or insignificantly).

Regarding information sources on legal issues, the Internet is a clear leader. In the second and third place - lawyers and periodicals. There are some differences in the use of sources of legal information by companies that have a full-time lawyer, as well as by companies that have faced serious legal problems. Thus, companies that have a lawyer on their staff, to a lesser extent, turn to an accountant and, to a bigger extent, study primary sources directly, namely, government decisions.

Regarding the assessments of legal risks due to the coronavirus pandemic, most respondents predict the risk of insolvency of customers / suppliers (39% believe that this risk will increase slightly or strongly). The second and third places are shared by the risks of compliance with the requirements of health and safety standards and insolvency of their company (their increase is predicted by 28% and 26% of respondents, respectively). For the remaining risks, most respondents tend to believe that they are not affected by the pandemic.

Portrait of the respondent

Characteristics of the company

Almost half of small and medium-sized businesses have from 2 to 9 people; 13% of companies employ one person. In general, the share of small business among SMB is over 90%.

Figure 1. Size of companies

More than 70% of SMB are engaged in one of four activities: trade, industry, agriculture and real estate, administrative services and professional services.

Figure 2. Distribution of companies by sector

A significant part of SMB is located in rural areas (27%) and small towns (21%). About one in three small or medium-sized companies is based in large cities.

Figure 3. Distribution of companies by the type of settlement


The most popular legal form of an SMB is a limited liability company (LLC) - this form was chosen by almost half of the respondents. A private enterprise is in second place (every fourth respondent). These data correspond with the statistical indicators of the Unified State Register of Enterprises and Organizations of Ukraine (USREOU). As of August 1, 2020, the most widespread legal form for business entities is a limited liability company (50% of all legal entities). In the second place - a private enterprise (14.5% of all legal entities), in third the place - a farm (3.5% of all legal entities). The percentage change is explained by the fact that the respondents were the representatives of the legal entities which actually carry out economic activities; additionally, from the research it was excluded individual legal entities that can not be classified as small and medium business (NGOs, associations of co-owners of apartment buildings, cooperatives, public authorities, etc).

Figure 4. Distribution of companies by legal form

Only a small part of respondents have changed their legal form during the last 2 years (5%). An even smaller share (1%) was forced to relocate due to the armed conflict in eastern Ukraine and re-register on government-controlled areas.

Figure 5. Change of the legal form of company

Figure 6. Change of company location due to the armed conflict

Most of the surveyed companies do not have their own full-time lawyer on staff (85%). This share correlates with the size of the company: for example, 6% of companies with up to 10 employees have a full-time lawyer, 22% of companies with up to 20 employees, 29% of companies up to 50 people, and among medium-sized businesses (over 50 employees), every second company has its own lawyer. Such results correspond with the results of the qualitative stage. The majority of the companies did not have layers among their staff.

Figure 7. Presence of full-time lawyers at the company

More than half of the respondents (61%) report financial problems, although only 10% have major financial problems. 2% of respondents consider their financial position to be strong. Companies of different sectors and different sizes describe their financial situation in approximately the same way.

Figure 8. Financial position of company

More than half of the surveyed companies (53%) said that the company is currently experiencing a downturn. The pessimistic mood of small and medium-sized businesses was reinforced by long-term quarantine and restrictions. Only 5% of companies believe that they are growing.

Only agriculture feels relatively well: only 37% of companies in this sector are experiencing a decline, and the majority (56%) consider their situation stable.

Figure 9. Stage of company development

Personal characteristics of a respondent

More than half of the respondents perform the main managerial function at the companies: 40% are owners and 24% are directors. As for smaller companies, the share of owners is larger (50% in companies with up to 10 employees). In larger companies, the questions were more often answered by directors or chief accountants (it is the chief accountant who most often solves legal issues in the absence of a lawyer). At medium-sized companies (where more than 50 people work) a representative of the legal department took part in the survey more often (13%).

Figure 10. Role of the respondent in the company

Overall 45% of men and 55% of women took part in the survey. There are relatively more women in small businesses. The medium-sized business was more often represented by men (52%).

Figure 11. Gender of the respondent

The biggest legal problems

Presence of problems

The main question of the questionnaire, according to which the respondents were divided into 2 parts, was as follows:

“Have you had any disputes, disagreements, misunderstandings or other similar issues from the list below in the last 2 years, but before the crisis caused by the pandemic? Please scroll to the end of the list. This refers to really serious problems, namely those that had a strong impact on the company and were difficult to solve. It's not about what you did in this situation, whether you did anything at all and who was the other party - we ask if you had to go through a similar situation."

Approximately one in six respondents (16%) admitted that there were such problems at the company.

The relatively low percentage can be explained both by the wording of the question (it was asked about problems that "had a strong impact on the company and were difficult to solve") and the general background in which Ukrainian business has to operate. According to a study of Ukraine's business climate1, more pressing obstacles to SMBs business growth are low purchasing power and low demand, liquidity problems, high taxes, and limited access to finance (high loan rates). At the same time, such an obstacle to growth as changes in economic legislation have recently lost relevance. Thus, legal problems are not the main obstacle to the work of SMBs in Ukraine.

Figure 12. Presence of significant legal problems

We note that serious legal problems occur one and a half times more often than serious financial problems (see Figure 8).

The analysis of the presence of problems at the companies of different regions did not reveal significant differences. Relatively more enterprises in Kyiv report problems (21%), and a relatively less - in the Southern and Western regions (12% and 13%, respectively). The difference in numbers is not statistically significant.

Figure 13. Presence of significant legal problems by regions
 

The analysis of the presence of serious legal problems by size and sector of companies also did not show significant differences. However, there is a significant gap among companies in the recession and growth stages, as well as in the analysis by the financial position. Thus, among enterprises that have major financial problems (we recall, 10% of such companies), almost one in four faces significant legal problems. On the contrary, among companies with a strong and stable financial position (39% of the total number of respondents), only every tenth company has serious legal problems.

Figure 14. Presence of significant legal problems in terms of financial position

A similar picture can be seen when analyzing the presence of problems among companies at different stages of development: companies in the recession stage report the presence of legal problems twice as often as stable and growing companies.

Figure 15. Presence of significant legal problems in terms of development stage of the company

Causal analysis direction needs further analysis: less successful companies are more vulnerable to legal problems or, conversely, legal problems have caused financial destabilization and downturn.

Description of problems

Respondents were asked to name all the serious problems, and then choose one of them, the most painful.

The first place among the problem groups was taken by the group "Disputes with business partners and customers" - almost 30% of those who reported the presence of problems faced this problem. The second place was shared by the groups "Raiding / Fraud, theft" and "Office / industrial premises and land" - 22% and 21% respectively, faced them. The third place was shared by the groups "Taxes, fees, excises, social security" and "Regulatory requirements / compliance" - 18% and 16% of respondents, respectively, faced them. The rest of the problems were mentioned by 10% of respondents or less.

Among the main problem groups that were mentioned most often, the same problems are leading, except for the group "Regulatory requirements / compliance" - despite the fact that the respondents faced the problems of this group quite often, only 9% named such problems as major.

Among the mentioned TOP5 groups of problems, special attention should be paid to the groups “Office / industrial premises and land” and “Taxes, fees, excises, social security” and “Raiding / Fraud, theft”: more than four out of five who have encountered these problems name them as main ones.

Such problem distribution almost corresponds with the results obtained during the qualitative stage of the study. Problems in the relations between counteragents and clients were the most frequently mentioned. In the second and third place were the issues with taxes and raiding. Apart from that, among the serious issues were mentioned the problems connected with the protection of land and industrial premises. Thus, except for the problem from the group “Regulatory requirements / compliance” results concerned with the frequency of mentioning the problems and determination of their severity coincide.

Figure 16. Frequency of mentioning of problems (grouped)

There is no significant difference in the list of problems that entrepreneurs from different regions faced most often. Real estate problems (office / industrial premises, land) are most often mentioned in Kyiv and the Southern region. Disputes with partners and customers are most often mentioned in the West, North and East. Tax problems are more often mentioned in the Central region.

Figure 17. Frequency of mentioning of problems (grouped) by regions
 

Among separate problems, the first place was taken by Tax Disputes (group "Taxes, fees, excises, social security") - 15% of those who faced serious legal problems chose this option.

The problem of insolvency of the supplier or customer (group "Disputes with business partners and customers") is in second place - this problem was chosen by 12% of respondents.

The problem of theft of company’s property by a third party (group of problems "Raiding / Fraud, theft") is in the third place - every tenth of those who had legal problems faced this problem.

Table 1. Frequency of mentioning the problems

Disputes with business partners and clients

Supplier or client is insolvent

12%

Disputes over contractual conditions with other company/ies

9%

Disputes with clients over goods and services that your company provided

8%

Disputes with suppliers of goods or services purchased by your company

7%

Unfair competition practices

5%

Fraud/Raidership, theft

Theft of company's property conducted by an outsider

10%

Theft of company’s movable property by a manager or employee

4%

Theft of company ownership or control in fraudulent manner

3%

Appropriation of company's land in fraudulent manner

3%

Appropriation of company's real estate in fraudulent manner

3%

Business premises and land

Acquisition of real estate or land plots and registration of rights to them

5%

Disputes over rent of business premises

5%

Threat with eviction from business premises

5%

Transfer, lease or tenure of agricultural land

4%

Disputes over other conditions of rent

2%

Privatization of commercial property

1%

Tax, fees, excises, social security

Dispute over tax

15%

Mistakes in records 

2%

Dispute over duty or accise

1%

Regulatory/compliance

Disputes over inspections by the state authorities

8%

Disputes over mandatory licenses/permits/accreditationand related inspections

5%

Other (central or local) government regulation

4%

Import/export regulation

2%

Auditing

1%

Registration and business structure

Change of legal status/Update of company’s charter

5%

Disputes between partners/stakeholders

3%

Break-up of partnership

2%

Company registration

1%

Take-over of another business

1%

Sale of business (in part/whole)

1%

Employment

Dismissal of staff or making staff redundant

3%

Staff misconduct

2%

Other employment contract issues

2%

Payment of wages/social security

1%

Compliance with legal requirements

Problems with enforcement of court decision or money order

3%

Problems with enforcement of decision of (central or local) public authority

1%

Criminal investigation against the company or its managers

1%

Disputes over the terms of contracts

1%

Intellectual property

Disputes over trademarks or patents

2%

Disputes over copyright

2%

Other problems

Other problems

6%

Financial monitoring

3%

Dishonest tendering

3%

Privacy and data protection problems

2%

Some problems from the list was not selected by anyone: there were no serious problems with investor disputes; product safety / life or health safety requirements; privacy and data protection; submission / content of annual reports of the company; social security disputes; disputes over health insurance; errors during registration / mandatory notification of changes; registration of employment contract; working conditions; injuries of the employee at the workplace; Due Diligence procedures; currency control; claims of the company’s bankruptcy.

Assessment of problems

The assessment of problems is given in the five most mentioned areas, all other groups of problems are grouped in "Other".

In general, half of the respondents rated the severity of the problem at 8-9-10 on a 10-point scale. The group of problems "Disputes with business partners and clients" seems to be the least serious - only 31% of respondents rated the problems of this group with 8 or more points, and only 13% rated 10 points. In contrast, almost half of the respondents gave the highest score to the problems with the tax on industrial premises (groups “Taxes, fees, excises, social security” and “Office / industrial premises and land”), and the sum of points 8-9-10 is about 60%.

The lowest score (1 point out of 10) was given only by individual respondents and only to the problems of the groups Disputes with partners and Regulatory requirements.

Figure 18. Assessment of the severity of problems
Size of the company
Industry

In general, the average assessment of the severity of problems on a 10-point scale is 7.06 points, in particular:

  • Office, industrial premises and land (hereinafter - "Premises and land"): 8.00 points
  • Taxes, fees, excises, social security (hereinafter - "Taxes"): 7.75 points
  • Raiding / fraud, theft (hereinafter - "Raiding"): 7.07 points
  • Regulatory requirements, compliance (hereinafter - "Regulatory requirements"): 6.76 points
  • Disputes with business partners and clients (hereinafter - "Disputes with partners"): 6.11 points
  • Other 7.35 points

In general, the steps companies take to solve problems do not differ much by type of problem: negotiations and consultations with a lawyer take precedence. This order characterizes all problem groups except “Raiding”. In this case, the majority lodges a complaint to a state agency first.

The problems of the “Regulatory Requirements / Compliance” group (disputes with public authorities) are those where respondents often feel helpless: despite the fact that the severity rating is only slightly below average (6.76 points), every fifth respondent who faced the problem did nothing to solve it.

Such result of the assessment of the severity of the problems is very similar to the results of the qualitative stage of the research. Among the most severe issues raiding, disputes with the tax service, and the complexity of registration and protection of rights to agricultural land were mentioned by the respondents during the interviews.

Figure 19. Steps to solve the problems

Only 27% of respondents said that the problem was solved. Another 42% say the problem is being solved. Almost every third respondent notes that the problem remains unresolved (mostly after trying to solve it). The most threatening situation is with the problems of the Raiding group: only 10% say that the problem has been solved, and more than half (54%) have left it unresolved. It is worth mentioning that the problems of this group are characterized by the fact that most of them turn to government agencies to solve them.

Figure 20. Current situation with the solution of the problem

As for the consequences of the problems, the situation is similar: 30% say that all issues have been resolved, and about one in four say that no issues have been resolved. The problems of the Raiding group often remain unresolved, or half solved. The problems of the group Disputes with partners are solved most successfully, Taxes and Regulatory requirements – as for the problems of these groups, only about 15% of respondents say that no issue has been resolved.

Figure 21. Consequences of the problem

Assessing the fairness of problem solution varies greatly for problem groups. Respondents cite the problems of the Raiding and Premises and Land groups as the most unfairly addressed. Disputes with partners are resolved most fairly.

Figure 22. Assessment of the fairness of the problem solution

Regarding the reasons why companies did not try to take any steps to solve the problem, they name the following factors (in descending order by answer popularity):

  • Did not expect a positive result
  • Lack of finances
  • The other side was much stronger
  • We did not want to spoil the relationship with the other party
  • Nobody knew what to do

According to the respondents, the other party in legal disputes is mostly represented by the state for most of the main problems. The only exception is the problems of the Disputes with partners / clients group, where the other party is mostly represented by a client or another business.

Figure 23. Representative of the other party

As for the assessments of the negative consequences of legal problems, only 20% of respondents answered that there were no consequences. Most often, the problems of the Taxes group remain without negative consequences. As for other problems, for most of them the first and second place in the ranking of losses and damages are market share losses and customer losses. The loss of investment ranks third overall and comes second when assessing losses from the problems of the Raideing and Premises and Land groups.

Figure 24. Losses and damages due to the problem

The share of respondents who believe that the problem has affected financial stability is 39%, and the share of respondents who believe that the impact is insignificant or non-existent - 46%. However, this assessment varies significantly by problem group. The negative impact of the problems of the Taxes group is mentioned by 63% of respondents, while 74% believe that the problems of the group Disputes with partners do not have a negative impact.

Figure 25. Impact on the company’s financial capacity

Assessment of communication quality

Almost a third part of respondents said they had not contacted the other party in the dispute. This share is lower for the problems of groups Registration, Business Structure and Disputes with partners. But even for these problems, the share of non-contacts remains quite high - 16% and 19%, respectively.

Figure 26. Contacts with the other party

Respondents who contacted the other party were asked to rate the quality of such contacts. In general, about half of the respondents stated that the other party cooperated in solving the problem. A significant difference in the share of "no" answers is observed only with regard to the problems of the Raiding group (77% say that the other party did not cooperate).

Figure 27. Cooperation with the other party

Regarding the types of communication, the majority of respondents are inclined to personal meetings and correspondence, as well as mobile communication. Personal meetings lose their lead to correspondence only when solving the problems of the Taxes group.

Figure 28. Types of communication with the other party

The majority of respondents (55%) said that they were able to express their point of view during the negotiations.

Figure 29. Ability to express the point of view

However, the ability to express the point of view does not mean that the other party will listen or agree to a compromise. Both of these factors are assessed rather negatively: about 70% of respondents say that the other party rather did not listen to the arguments during the negotiations and was not ready to compromise. These assessments are approximately the same for all the problem groups, only in negotiations with clients the willingness to listen is assessed slightly higher (which does not affect the willingness to compromise, which is also assessed as low).

Figure 30. Assessment of the quality of communication with the other party

Figure 31. Other side's willingness to compromise

Accordingly, the result of such a dialogue is assessed by respondents rather negatively. The only problem group where a significant proportion of respondents (33%) said that the parties managed to agree are the problems of the Taxes group.

Assessments of the other party's efforts to resolve the problem are low: 73% believe that the other party did not help to solve the problem, or contributed very little.

Figure 32. Assessment of the results of the dialogue

Figure 33. Assessment of the other party's efforts to solve the problem

Assessment of third parties

The majority of respondents (72%) involved third parties to solve the problem. For the most part (a third of the cases) these were a private lawyer or a law firm. In fact, it is private lawyers that respondents call the most useful third parties in solving the problem.

Figure 34. Third parties involved in solving the problem

To analyze the effectiveness of other third parties compared to private lawyers, they were grouped as follows:

  • Full-time employees: full-time lawyer, accountant
  • State authorities: central state authority, local authorities
  • Law enforcement and judicial system: prosecutor / investigator, bailiff, police officer, court or similar body of justice;
  • Friends, colleagues, mediators: mediator, online tool, colleagues, friends;
  • Others.

Private lawyers and full-time employees are evaluated equally in terms of the usefulness of their involvement (77% and 74%, respectively, consider their involvement useful).

The anti-leader of the rating is the authorities. 63% of respondents consider their involvement useless, and most of them - completely useless.

Figure 35. Effectiveness of third parties in solving the problem

Respondents generally did not have significant problems with access to third parties. Of course, the easiest access a company has to full-time employees (57% said "very easy" and there is no answer "difficult"). There are small difficulties with the authorities - although the majority (52%) had an easy access, 27% said it was difficult to access.

Figure 36. Ease of access to third parties

The actions of third parties were assessed separately for each type of third parties. It is worth mentionig that the "did nothing" option was most often chosen by respondents regarding the actions of the authorities.

Figure 37. Actions of third parties

First place in the rating of third parties’ actions belongs to the option "Provided advice or information". We studied this option more closely.

For the most part, the advice was about the actions needed to solve the problem (69% of the advice received). In second place - advice on opposing the other side.

Figure 38. Advice or information from third parties

Advice from third parties is generally not paid (because it is provided by acquaintances and colleagues), but 38% of respondents received advice on a paid basis.

Figure 39. Payment for third parties’ advice

The advice of third parties is assessed as quite useful - 84% find them very and rather useful. Only 2% of respondents assessed them as "Absolutely useless".

Figure 40. Assessment of the usefulness of third parties’ advice

Assessment of the solution of the problem

The solution to the problem often lies in the field of negotiations (42%) or litigation (31%). Such type of problem solving as the expert process (a process led by an expert - a consultant, a lawyer, an accountant, etc.) is not widespread in Ukraine yet. Such results correlate with the answers to previous questions, in particular, in the vast majority of cases advises are not paid for, as respondents often seek advice from friends, colleagues, mediators, etc.

During the qualitative stage, respondents also chose options to make concessions and meet the requirements of the counterparty or to reach a compromise through negotiations the most often. Assessing the data obtained from the two stages of the study, we can conclude that SMEs prefer an informal way to solve problems.

Figure 41. Process of solving the problem

The relative majority of respondents (38%) do not think that they managed to convey their position during the process. A slightly smaller share (34%) believes that the position has been conveyed.

Figure 42. Assessment the ability to convey the position

43% of respondents believe that the third party involved was biased and non-objective, while a significant part of respondents (34%) assesses the objectivity of the third party quite highly.

Figure 43. Assessment of third party’s impartiality

Almost half of the respondents (48%) believe that the procedure was explained to them thoroughly enough, while every third (34%) was dissatisfied with it.

Figure 44. Assessment of the quality of the procedure explanation

The solution did not allow the company to recover losses in 72% of cases. Only 18% of respondents said they were able to recover losses to a large or even very large extent.

Figure 45. Assessment of the financial efficiency of the solution

The assessment of the solution implementation also remains low: half of the respondents notes that the solution was not implemented at all, and another 12% believe that the solution was implemented to a small extent. However, one in four (26%) believes that the solution was implemented at least to a large extent.

Figure 46. Assessment of the solution implementation

More than half of the respondents (56%) remain dissatisfied with the explanation (justification) of the decision. The share of satisfied is 23%, but among them few (5%) are satisfied to a very large extent.

Figure 47. Satisfaction with the explanation (justification) of the decision

Sources of information

For business managers, the Internet is a confident leader among information sources on legal issues. In 2-3 place - lawyers and periodicals. There are some differences in the use of legal information sources by companies that have a full-time lawyer, as well as by companies that have faced serious legal problems. For example, companies that have a lawyer on their staff turn to an accountant to a lesser extent and study primary sources directly, namely, government decisions.

Figure 48. Sources of information on legal issues: by the presence of a full-time lawyer

Companies that face serious legal problems are more likely to consult with a lawyer (even in case of his or her absence on the staff), while companies that do not have problems are more likely to rely on the Internet and periodicals.

Figure 49. Sources of information on legal issues: by the presence of legal problems

Assessment of the impact of the COVID-19 pandemic

Respondents were asked to assess how the legal risks because of the pandemic will change and were offered a list of risks.

As for most of the risks on the list, most respondents believe that the pandemic has no impact and the risk will remain the same. The risk of insolvency of customers / suppliers is the only one where the share of responses "will remain the same" is less than 50%, namely 43%. The compared share of respondents (39%) believe that this risk will increase slightly or significantly, and this is the highest result assessing the risk increase among the entire list.

28% and 26% of respondents, respectively, predict risk increase for compliance with health and safety requirements and insolvency of their company.

17% predict an increase in risk of labor disputes - dismissal, sick leave, unpaid leave, payroll, etc. However, at the same time, 18% of respondents predict a decrease in such risks (and this is the highest result in assessing the risks decrease).

The risk of a change of business owner is assessed as independent of the pandemic’s impact. Also, the probability of increasing of the risk of insurance disputes is low.



Figure 50. Assessment of legal risks due to a pandemic

Risk assessment remains unchanged by the sector or the size of a company, but varies according to the presence or absence of legal problems, financial condition and stage of copmany development.

Thus, companies that have faced significant legal problems predict an increase in a number of risks, including second-tier risks: these companies expect increase in risks of labor disputes, disputes over payment of state fees, disputes over payment to suppliers and rent of offices, equipment, as well as disputes over non-fulfilment of obligations.

Figure 51. Assessment of legal risks due to the pandemic: by the presence of legal problems
(the share of answers " will slightly increase" and " will greatly increase").

Companies that do not have financial problems assess almost all risks lower than others (except for the risk of disputes over compliance to health and safety requirements), and assess significantly lower the risks of insolvency of customers / suppliers and disputes over payment to suppliers and rent.

Figure 52. Assessment of legal risks due to the pandemic: by the financial position of the company
(the share of answers " will slightly increase" and " will greatly increase").

On the other hand, companies in downturn (more than half of the respondents) assess the risks of insolvency of customers / suppliers higher than others (almost half expect this risk to increase), as well as the risks of disputes over the rent of offices and equipment.

Almost every third company experiencing a downturn expects an increase in the risk of its own insolvency.

Figure 53. Assessment of legal risks due to the pandemic: by stage of company development
(the share of answers will "slightly increase" and "greatly increase").

Appendix.
Portrait of respondents in terms of the biggest problems

Office, industrial premises and land

The problem group, which includes disputes over office, industrial premises and land, is assessed as the most serious: on average, respondents who face the problems of this group rate them at 8.00 out of 10. Almost half of respondents rate the severity at 10 out of 10.

We remind you that this group includes such problems:

  • Acquisition of real estate or land plots and registration of rights to them (22%1)
  • Disputes over rent of business premises (22%)
  • Threat with eviction from rent premises (22%)
  • Transfer, lease or tenure of agricultural land (19%)
  • Disputes over other conditions of rent (11%)
  • Privatization of commercial property (4%)

Agricultural companies most often face problems of this group (the share of agricultural companies is almost twice as large as in the sample as a whole among those who have encountered the problem). On the other hand, companies that provide professional services (sector of Real Estate and other) face the problems of this group relatively less often.

Micro-companies (up to 9 employees) predominate among companies facing real estate disputes - their share is almost ¾, while micro-companies constitute 62% in the sample overall. The share of medium-sized companies (from 50 employees), on the contrary, is smaller: there are only 7% of them among those who faced the problem, which is three times less than in the sample overall.

Nearly four of five businesses facing real estate disputes are in downturn (53% in the sample overall). As for the regional distribution, such problems are more often reported by the business of Kyiv, the West and the East.

Figure 54. Office, industrial premises and land




Location (top 3 regions)

 

Taxes, fees, excises, social security

Disputes over taxes, fees, excises and social security are in the 45tsecond place in terms of the severity of the problem: 7.75 points out of 10. More than half of the respondents rate the severity of the problems in this group at 9 and 10 points out of 10.

Among the TOP3 most severe problem groups, tax disputes are one of the most common - one in five entrepreneurs who face serious legal problems, encounter such problems.

Tax disputes are leading by a wide margin among the problem groups - they were mentioned by 15% of respondents from those who had legal problems at all (while 18% of respondents from those who had problems faced the problems of this group overall). In addition to tax disputes, respondents also reported individual errors in records (2%) and disputes over duties or excises (1%).

Tax disputes, as well as real estate disputes, affect agriculture and industry and construction more than any other industry.

As for the regional location, most of these companies are concentrated in the North, East and Central regions.

The share of medium-sized companies (from 50 employees) among those who face tax disputes is 13%, which is less than in the sample overall, but more than among those who face real estate or raiding disputes.

Figure 55. Taxes, fees, excises, social security




Location (top 3 regions)

 

Raiding / fraud, theft

Disputes concerning raiding / fraud, theft include the following disputes (in descending order of frequency of mention):

  • Theft of company's property conducted by an outsider (43%1)
  • Theft of company’s movable property by a manager or employee (17%)
  • Theft of company ownership or control in fraudulent manner (13%)
  • Appropriation of company's land in fraudulent manner (13%)
  • Appropriation of company's real estate in fraudulent manner (13%)

In general, the severity of the problem is rated at 7.07 points out of 10 by respondents.

Raiding disputes are the most common among the TOP3 most serious problems groups - they share the first place with tax disputes (22% of those who face serious legal problems encounter fraud or raiding).

The problems of raiding and fraud are relatively more common in companies that have left the category of microbusiness and have 10-19 employees: this business category constitutes 29% among those who face the problems of this group, while only 18% in the sample overall.

As with other major problems, agriculture suffers more than other industries. Trade is in second place as an industry that is less protected from theft by staff.

Nearly four of five companies facing raiding and fraud are in downturn (53% in the sample overall), although there are isolated cases of companies in the growth stage of development.

As for the regional distribution, such problems are more often reported by the business of Kyiv, the Center and the East.

Figure 56. Raiding / fraud, theft




Location (top 3 regions)