Amendments to Ukrainian legislation regarding protection of investors' rights to become effective on 1 May 2016
Asters, Kyiv, Ukraine,
Thu, May, 5, 2016
The Law of Ukraine "On Introduction of Amendments to Certain Legislative Acts of Ukraine Regarding Protection of Investors' Rights" No. 289-VIII dated 7 April 2015 (hereinafter – the "Law") has become effective on 1 May 2016.
The Law introduces a number of novelties to the Ukrainian corporate legislation, with a view to increasing the level of protection of Ukrainian and foreign investors, and, therefore, improving Ukraine's position in the World Bank's Doing Business ranking.
The most important provisions of the Law include, inter alia, the following:
Introduction of a derivative suit as a new mechanism for protection of investors' right
The Law introduces a new mechanism for holding business entity's officials liable for the losses incurred by the company as a result of their actions or inaction. Henceforth, the company's shareholder (participant) holding cumulatively 10 and more per cent of the company's authorized capital will have the right to, on behalf of the company, file a claim on reimbursement of the losses caused to the company by its official. Such lawsuits will be adjudicated by commercial courts.
Introduction of the "independent directors" concept
For the first time in Ukraine, the Law introduces the concept of an independent director of a joint-stock company (hereinafter – the "JSC"). Herewith, under the Law, to be considered as an independent director, an individual must comply with a number of requirements. Among them, inter alia, are the absence of significant business relations with the JSC at the present time and during the last year, the non-receipt of a substantial additional remuneration from the JSC (except for the remuneration for acting as its independent director), the absence of family relations with the executive or managing director of the JSC, etc.
In addition, the Law changes requirements to the composition of the supervisory board of the JSC. Particularly, the Law provides that members of the JSC supervisory board may only be elected from among the individuals being the JSC shareholders, their representatives and/or independent directors. As to the public JSCs and the JSCs where the state holds, directly or indirectly, 50 per cent of the share capital, as well as to the JSCs where 50 or more per cent of the share capital are held by business entities solely owned by the state, the participation of independent directors in their supervisory boards is obligatory and their number shall be not less than two. Furthermore, the aforementioned JSCs are obliged to establish the committee on audit matters, the committee on remuneration of officers and the committee on appointment matters. Such committees shall exclusively or predominantly be constituted of and chaired by the independent directors sitting on the supervisory board.
Improvement of the procedure for determining market price of securities
The market price of the JSC's securities, which are not listed on a stock exchange, as well as securities, which are listed on a stock exchange but which exchange rate has not being determined during the last three months, shall be determined in accordance with the legislation on evaluation of property, property rights and professional evaluation activity. For emission securities being listed on a stock exchange, the exchange rate shall be determined as the average exchange rate for such securities on respective stock exchange, calculated by such stock exchange for the last three months of the securities turnover prior to the date for which such price is determined. If the securities are listed on two and more stock exchanges and their average exchange rate for the last three month of their turnover on various stock exchanges is different, the market price of such securities shall be determined by the supervisory board (or the JSC executive body if the establishment of the supervisory board is not required by the JSC charter), per the procedure established by the National Securities and Stock Market Commission.
Abolition of the obligation to pay dividends via the depositary system
The Law establishes alternative methods of paying dividends by the JSC – via the depositary system or directly to the shareholders. 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.
Improvement of the procedure for approving interested transactions
The approval of interested transaction shall be given by the JSCs' relevant body, if the market value of the property, services or the amount being subject matter of the transaction exceeds one hundred minimal salaries, as established for 1 January of the current year. The JSC's charter may set a lower threshold, as well as may introduce additional cases for recognizing a transaction as an interested one.
Another novelty being introduced by the Law is the supervisory board's right to authorize an interested transaction solely by its non-interested member, even in case if all other members of the supervisory board are present at the meeting but has an interest in the transaction. In addition, the Law requires the supervisory board to engage an independent auditor, appraiser or another qualified person to evaluate an interested transaction as being under the ordinary market conditions. Such a requirement does not apply to private JSCs, unless otherwise established by their charters.
The Law also introduces the following notable amendments.
· The requirement on a maximum number of shareholders for private JSC is abolished (previously, the threshold was 100 persons).
· The JSC is prohibited from buying its own shares during their placement.
· The public JSC must list its shares and must remain in a stock register of at least one Ukrainian stock exchange. Shares of the public JSC may not be listed in a stock register of more than one Ukrainian stock exchange.
· The Law establishes the obligation for the public JSC to have its personal website in lieu of a webpage and to post there the information required by the Law of Ukraine "On Joint-Stock Companies". The private JSC may continue placing such information on its webpage.
· The procedure for certification of a power of attorney for participation in and voting at the JSC general shareholders' meeting is aligned with the applicable legislation.
For further information please contact Asters' partner Vadym Samoilenko and counsel Oles Kvyat.