The Law No. 289-VIII, dated 7 April 2015, regarding the improvement of the legal framework for protection of investors’ rights in Ukraine came into effect on 1st May 2016. The Law includes important changes into Commercial Procedural Code of Ukraine and corporate legislation of Ukraine.
This Law introduces the following changes:
- derivative action rules
- new corporate governance concept
- updates in related party transactions
- improvement of determination of joint stock securities
- dividends payment
New derivative action rules provide that disputes between a business company and its officers, in reference to damages caused by the officer misacting to the business company, based on a claim raised by the company and its shareholder(s) who hold no less than 10% of company’s shares, will fall within the competence of local commercial courts. These disputes shall be resolved by commercial courts at the respective companies’ location.
The list of officers of the company, against whom a derivative action has been initiated, includes a director of the company, members of the Board, the Supervisory Board, the Audit Committee and other officers prescribed by the charter of the company.
Corporate governance concept is the concept of an independent director of a joint-stock company, who by the law is an individual, who must comply with a number of requirements: no significant business relations with the company at the time of becoming independent director and during the previous year, absence of any substantial remuneration from the company (except for the payment for acting as its independent director), no family relations with the management of the company etc.
Moreover, the Law demands that the Supervisory Board of a public joint-stock company or any other joint-stock company, where the state holds, either directly or indirectly, more than 50% of the share capital, should have no less than two independent directors. For other private joint-stock companies the option of having independent directors is not compulsory.
Further to related party transactions novelties, they shall now be approved by the joint-stock companies’ relevant body, if the transaction is valued more than 100 minimal salaries, established by the State Budget of Ukraine as on 1 January of the respective year. The company charter may set a lower threshold, as well as may introduce additional cases, for recognizing a transaction as an interested one.
Another introduced novelty is the right of a General Meeting of Shareholders of the joint-stock company to authorize an interested transaction. Information about all approved interested-party transactions should be public. This rule though is optional for private joint-stock companies.
Also the shareholders were given the mandatory buyout right if they vote against the approval of the interested-party transaction at the General Meeting of Shareholders.
Corporate transformation of a joint-stock company is allowed only under the condition of receiving a written agreement from all of its shareholders for such action. Such written agreement shall be provided by way of execution by each shareholder of new founding documents of a company-successor. Also, if a joint-stock company is transformed into a limited liability company or other liability company, all its shareholders by default become participants of the successor with the same corporate interests as they had in the joint-stock company.
The new Law also introduces alternative methods of paying dividends by the joint-stock companies: by depository system or directly to the shareholders’ accounts. The particular payment method shall be decided by the general shareholders’ meeting according to the procedure established by the National Securities and Stock Market Commission.
The new legislation is directed to attract more investors to Ukraine and facilitate their work in the country which will definitely create beneficial outcomes for all of the parties.