IMPROVEMENT OF CORPORATE GOVERNANCE IN JSC
DLA Piper Ukraine, Kyiv, Ukraine,
Tue, June 6, 2017
On June 1, 2017, the President signed new Law "On the introduction of changes to the laws and regulations of Ukraine for the purposes of improving the level of corporate governance in joint stock companies within Ukraine" No 2302a-д (the "Law") which comes into force the day following the day of its publication. This Law provides for some important innovations related to JSC corporate governance and transactions with shares.
Squeeze-out and sell-out
This Law introduces new concepts of forced sale (squeeze-out), which establishes the right of the majority shareholder in the private and public JSC to force minority shareholders to sell their shares. In parallel it introduces a concept of protection for minority shareholders – forced purchase (sell-out), which provides for the right of minority shareholders to compel the majority shareholder to purchase their shares.
According to the Law, a shareholder who owns 95% of JSC's ordinary shares (dominant controlling stake) will be entitled to provide JSC irrevocable public demand for acquisition of shares of the minority shareholders within 91 days from the date of acquisition of the dominant controlling stake. Upon receipt of the demand, the minority shareholders are required to sell their shares.
To implement sell-out, unless the squeeze-out right is enforced, the minority shareholders (if they wish to do so) must submit an application to the JSC. The majority shareholder will then be obliged to purchase their shares.
In both cases of squeeze-out and sell-out the controlling shareholder shall pay the minority shareholders: (i) either the highest price which was paid by the majority shareholder for acquisition of the controlling stake during last year, (ii) or the price determined by the appraiser; whichever is higher will be the final value agreed upon.
The Law also introduces a concept of an escrow agreement. As per an escrow agreement one party deposits the money with a bank (an escrow agent). The escrow agent, in turn, transfers the money to another party if the conditions stipulated in the escrow agreement are met. The escrow mechanism is widely used in corporate transactions which historically were governed by non-Ukrainian law. The escrow agreements may now be used in Ukraine in case of squeeze-out or sell-out to ensure that the minority shareholders are duly paid for their shares.
Disclosure of shareholders holding 5% or more in public JSC
The Law provides for disclosure of names of all shareholders holding more than 5% in a public JSC. Previously this threshold was at the level of 10%. This amendments should improve transparency of the ownership in public companies.