Protecting foreign businesses from illegal actions by state bodies and enterprises under martial law: challenges and legal instruments

The current investment climate in Ukraine is favourable for foreign businesses

Despite the ongoing hostilities, Ukraine remains an attractive investment destination for foreign businesses. Numerous multinational companies that had a manufacturing or trading presence in the country before the invasion began continue to operate there. At the same time, new players are emerging — those who have made a strategic decision to invest in the Ukrainian economy even under the conditions of martial law.

For example, according to information posted on the UkraineInvest website, 1109 new foreign companies were registered in Ukraine in 2024. The largest number of investors were American, Turkish, and Polish companies. 

Also, based on open sources, the British company Unilever is building a production plant in the Kyiv region, with investments of over €20 million, and the Swiss company Nestlé recently built a new factory in Volyn region, investing approximately $50 million. 

The involvement of American businesses, whose presence in Ukraine is steadily growing, deserves special attention. In particular, on 26 December 2023, National Nuclear Energy Generating Company Energoatom signed a $437,5 million contract with Westinghouse Electric Company LLC to purchase equipment for the implementation of the AP1000 nuclear facility for the Khmelnytskyi Nuclear Power Plant. The parties signed a cooperation agreement in this area back in 2021, but it was during the war that they advanced to a new level of cooperation.

Moreover, on 30 April 2025, Ukraine and the United States of America signed an agreement to establish the US-Ukraine Investment Fund for Reconstruction, designed to attract private capital from the United States for the reconstruction and modernisation of the Ukrainian economy, ensure financing for critical projects in the field of mineral resource development, promote innovation, technological development and recovery, and improve Ukraine’s investment climate. 

According to media reports, one of the first potential participants in this fund is the investment company TechMet, which has expressed interest in financing a project to extract lithium in the Kirovohrad region — a resource that is critical for the development of battery technologies and green energy.

In addition, investment activity by American companies in the field of innovation and start-ups has intensified. For example, during the full-scale invasion, the Pravo Venture technology platform was created, which connects accredited US investors with Ukrainian start-ups. Currently, the platform works with start-ups such as Mosqitter and Promin Aerospace.

Thus, despite the martial law, foreign companies continue to invest in Ukraine. Moreover, promising projects that help attract foreign investment continue to develop.

Key challenges under martial law

Despite the positive dynamics of investment activity, this does not fully guarantee protection of foreign businesses from illegal actions by state bodies and enterprises, especially under martial law conditions. 

The risk of unjustified use of enterprise capacities, together with the risk of expropriation of property for state needs, is currently a serious obstacle to doing business in Ukraine. According to the Law of Ukraine “On the Legal Regime of Martial Law,” the military command and military administrations under martial law have the right, among other things, to use the capacities and labour resources of enterprises, institutions, and organisations of all forms of ownership, as well as to forcibly expropriate privately owned property for defence needs. 

On the other hand, currency restrictions introduced by Resolution No. 18 of the National Bank of Ukraine of 24 February 2022 significantly complicate international currency transactions. In particular, restrictions on cross-border transfers of currency values from Ukraine, the establishment of a 180-day deadline for settlements under export-import operations, as well as increased financial monitoring requirements reduce the financial flexibility of foreign companies. This has a negative impact on liquidity planning and management, especially for businesses integrated into international supply chains.

At the same time, it should be noted that currency regulation in Ukraine is dynamic and constantly changing in line with the current economic situation and financial stability needs. In particular, the National Bank of Ukraine is gradually introducing certain relaxations, such as expanding the list of permitted currency transactions, simplifying restrictions on cross-border fund transfers, and softening requirements for import settlements. These changes open up opportunities for a partial resumption of international payment activities.

In addition, another pressing challenge for foreign businesses in Ukraine is the labour shortage caused primarily by mobilisation measures. Although the Law of Ukraine “On Mobilisation Preparation and Mobilisation” provides for the possibility of conscripting a substantial part of the male population, in practice, many companies have adapted to the new conditions, finding effective ways to preserve production capacity and retain qualified personnel. In particular, the procedure for reserving employees, approved by Resolution No. 76 of the Cabinet of Ministers of Ukraine of 27 January 2023, provides practical tools for reserving key specialists, which contributes to stable operation and business development in conditions of martial law. 

Another significant issue is the improper performance by state bodies and enterprises of their contractual or statutory obligations. Citing force majeure circumstances, including those caused by the war, some entities are in fact trying to avoid responsibility or postpone the fulfilment of their obligations for an indefinite period. In particular, certain difficulties are observed in the activities of the state enterprise Guaranteed Buyer, which faces objective challenges in timely settlements with renewable energy producers for electricity already supplied. However, national courts have increasingly ruled in favour of energy producers, obliging the state enterprise Guaranteed Buyer to make full payments to the producers. 

Consequently, despite all the challenges faced by both foreign and Ukrainian businesses under martial law, companies have still been able to adapt to the new realities and specifics of operating in unusual conditions.

Judicial and arbitral protection of rights and interests

Even under martial law, Ukraine’s judicial system continues to function steadily in most regions of the country. This allows foreign companies to apply to national courts or commercial arbitration institutions to protect their rights and legitimate interests in cases provided for by law. 

It is important for foreign companies that administrative courts in Ukraine continue to actively protect businesses from unlawful actions by state authorities. Such disputes include, in particular tax-related matters – such as appeals against tax notices-decisions, additional charges of monetary obligations or blocking of tax invoices. Foreign investors can be confident that they have effective legal mechanisms for defending their interests and protect themselves from excessive administrative pressure. 

In turn, commercial courts provide effective protection in cases arising within the framework of contractual and other property relations between business entities, in particular between foreign companies and state enterprises. The most common disputes concern non-performance or improper performance of obligations under contracts for supply,  construction, lease, service provision, and other agreements. It is also important that commercial courts handle bankruptcy cases, which allows foreign companies to enforce their claims within the liquidation procedure, file creditor claims, and initiate appropriate procedural actions to protect their property interests in the event of a counterparty’s financial insolvency.

At the same time, it should be noted that in regions close to active combat zones, the activities of courts may be partially restricted. In particular, some courts operate exclusively through electronic document exchange, specifically via the Electronic Court subsystem. In contrast, in the western and central regions, as well as in Kyiv itself, the courts continue to function in a stable manner. Accordingly, regardless of the timeframes for case consideration, judicial and arbitration protection mechanisms remain available to foreign businesses and are capable of ensuring the effective restoration of violated rights, which is an especially critical factor in the challenging conditions of wartime.

Alternative legal instruments for protecting rights and interests

In addition to court or arbitration proceedings, foreign businesses in Ukraine can use a number of alternative legal instruments to protect their rights and legitimate interests. Pre-trial dispute resolution becomes particularly important in a state of martial law, when a rapid response to violations of rights is crucial.

As of 15 December 2023, the Law of Ukraine “On Administrative Procedure” has been in force in Ukraine, which for the first time systematically regulates the procedure for external administrative activities of executive bodies, local self-government bodies, and other entities that adopt administrative acts. It guarantees interested parties, including foreign companies, the right to be involved in the consideration of the relevant administrative case: to present their arguments, submit documents, review the case materials, and, in case of disagreement, appeal against the decision of a particular body in a pre-trial procedure.

In practice, this means that before applying to the court, a foreign business may request a review of a decision or action of a public authority directly with that authority or with a higher authority. For example, a decision of a territorial body of the State Tax Service may be appealed to the central authority, namely, directly to the State Tax Service of Ukraine. 

At the same time, in the event of disputes related to business operations, foreign companies can also use pre-trial settlement as an effective tool to respond to violations by counterparties, in particular, state enterprises. This approach allows an acceptable result to be achieved without resorting to a commercial court or arbitration. 

In some cases, even the mere fact of filing a claim with a commercial court encourages the other party to engage in dialogue, which makes it possible to settle the dispute amicably even before a court decision is made.

Current Ukrainian legislation also provides for the possibility of mediation — voluntary settlement of a dispute with the participation of a neutral intermediary. The Law of Ukraine “On Mediation” of 15 December 2021 allows conflicts to be resolved without resorting to court, which can be useful in cases where a foreign company seeks to avoid publicity.

Practical recommendations

As a result, operating a foreign business in Ukraine during martial law requires not only strategic foresight but also flexibility in risk management. Below are key practical tips for foreign companies that can help reduce legal risks and ensure effective protection of rights and interests in Ukraine.

• Before implementing an investment project, it is advisable to conduct a comprehensive legal review that considers not only the usual corporate and tax risks, etc., but also the specific risks of martial law — in particular, the possibility of expropriation of enterprise property for defence purposes or the use of enterprise resources by military command or administrations.
• Investment or foreign economic agreements should include clearly defined provisions on force majeure circumstances, changes in legislation, mechanisms for protecting business and investments, the possibility of arbitration, etc. Such foresight minimises the risk of unilateral revision of obligations or loss of control over assets.
• Careful documentation of each stage of communication with representatives of state bodies and enterprises is a prerequisite for successful legal protection. In the event of litigation, these documents will constitute key evidence.
• In the event of a dispute with state authorities or state enterprises, it is not always recommended to go to court immediately. In some cases, it may be more appropriate to first attempt pre-trial dispute resolution tools, which can significantly save time and financial resources. 
• If the pre-trial procedure has not yielded results, it is necessary to apply to the court as soon as possible. It is particularly important not to delay filing claims, as the general statute of limitations is three years, but depending on the circumstances of the particular case, it may be shorter — in particular, six months or even less.
• In the difficult conditions of martial law, it is extremely important for foreign businesses to use the services of experienced legal advisors. Cooperation with specialists who are deeply versed in the Ukrainian legal field, judicial practice, and procedural aspects significantly reduces legal risks, ensures proper protection of rights and interests, and contributes to the successful conduct of business, regardless of the format or scale of presence in the Ukrainian market.