Share­hold­ers Agree­ments in Ukraine

Mykola Stet­senko

Kyiv Post Legal Quarterly - - News -

Man­ag­ing Part­ner, Avel­lum Part­ners

Cor­po­rate law of ma­jor Western coun­tries has long been adapted to the needs of pri­vate in­vestors to en­sure max­i­mum flex­i­bil­ity in ar­rang­ing re­la­tions of share­hold­ers amongst them­selves. One of the main in­stru­ments, which pro­vide such flex­i­bil­ity, is share­hold­ers agree­ments. Such agree­ments usu­ally in­clude cor­po­rate gov­er­nance pro­vi­sions, vot­ing ar­range­ments, dead­lock res­o­lu­tion mech­a­nisms, div­i­dend dis­tri­bu­tion pro­ce­dures, and rules on the is­suance and trans­fer of shares. Quite of­ten they set out a more de­tailed reg­u­la­tion than the one pro­vided in the leg­is­la­tion us­ing a flex­i­ble cor­po­rate law regime of the lo­cal law. While this in­stru­ment was first in­vented in com­mon law coun­tries, over the past three decades it was adopted by lead­ing con­ti­nen­tal ju­ris­dic­tions such as Ger­many, France and The Nether­lands. Un­for­tu­nately, Ukrainian law is se­ri­ously lag­ging be­hind in this area. In fact, Ukrainian court prac­tice prin­ci­pally pro­hibits any share­hold­ers agree­ments, which con­tra­dict manda­tory norms of Ukrainian law. Given that Ukrainian cor­po­rate law is very in­flex­i­ble and court prac­tice on such mat­ters is vir­tu­ally nonex­is­tent, it is point­less to en­ter into a share­hold­ers agree­ment at the Ukrainian com­pany level. This forces in­vestors to struc­ture share­hold­ers agree­ments out­side of Ukraine at the for­eign hold­ing com­pany level. Hence, Ukrainian law and courts have lit­tle in­flu­ence on the re­la­tions of share­hold­ers in com­pa­nies, which of­ten have all of their as­sets in Ukraine. Such sit­u­a­tion pre­vents Ukrainian cor­po­rate law from de­vel­op­ing and con­trib­utes to the lack of in­vest­ment at­trac­tive­ness of Ukraine as a whole. In the last few months the Com­mit­tee on Cor­po­rate Law and Stock Mar­kets of the Ukrainian Bar As­so­ci­a­tion with sig­nif­i­cant in­put of the le­gal team of Avel­lum Part­ners launched an ini­tia­tive to bring Ukrainian cor­po­rate law in line with lead­ing Western prac­tices in this area. The pro­posed re­form aims to in­tro­duce changes to the Civil Code of Ukraine, the Law on Joint Stock Com­pa­nies and the Law on Busi­ness En­ti­ties. These changes will in­tro­duce the no­tion of the share­hold­ers agree­ments (cor­po­rate agree­ments) to Ukrainian law, pro­vid­ing that such agree­ments may be signed for an in­def­i­nite term. Spe­cial rules will be pro­vided for joint stock com­pa­nies and com­pa­nies, in which the state has a stake. Pro­posed changes also cre­ate the pos­si­bil­ity to is­sue an ir­rev­o­ca­ble power of at­tor­ney, clar­ify that per­for­mance of agree­ments may be sub­ject to will of one of the par­ties, and fi­nally in­tro­duce a no­tion of op­tion agree­ments into the Civil Code of Ukraine. These sug­gested changes are only the first step in the cor­po­rate law re­form that awaits Ukraine in the next few years. For­eign in­vestors and the Ukrainian le­gal com­mu­nity agree that Ukraine des­per­ately needs a brand-new Law on Lim­ited Li­a­bil­ity Com­pa­nies, which would give more flex­i­bil­ity to par­tic­i­pants of LLCS to struc­ture their cor­po­rate gov­er­nance. Fur­ther­more, a sub­stan­tial over­haul of the Civil and Com­mer­cial Codes of Ukraine is needed to in­tro­duce pro­gres­sive prac­tice in merg­ers and ac­qui­si­tions, such as war­ranties, in­dem­ni­ties and lim­i­ta­tion of li­a­bil­ity of par­ties in com­mer­cial con­tracts.

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