Recent Developments

A law decreasing the quorum for holding a general shareholder(s) meeting of joint stock companies from 60% to 50%+1 share became effective on 31 January 2015 for state-owned joint stock companies, while for other joint stock companies it will become effective on 1 January 2016.

Implications for joint stock companies

In recent years there has been a push towards decreasing the quorum for joint stock companies mainly due to the inability of the State to participate in the management and distribution of profits of those companies where it holds 40% or less shares. The high quorum threshold has also led to conflicts in many privately-owned joint stock companies due to the inability to convene general shareholders meetings unless at least 60% of the shareholders participate in the meeting. Consequently, such joint stock companies were not able to change management, amend their charters, distribute profits and adopt other decisions which are within the exclusive authority of the general shareholders meeting.

The lower quorum requirements are mandatory for joint stock companies regardless of whether they adopt the relevant amendments to their charters.

What the law says

On 13 January 2015 the Parliament of Ukraine adopted Law of Ukraine No. 91-VIII "On Amending Article 41 of the Law of Ukraine "On Joint Stock Companies" Regarding Quorum of General Shareholders Meeting of Joint Stock Companies with Majority Corporate Rights Owned by the State" (the “Law”). The Law was signed by the President of Ukraine on 28 January 2015, published on 30 January 2015.

The Law provides that the quorum required for holding the general shareholder(s) meeting of joint stock companies will be decreased from "not less than 60%" to "more than 50%". Joint stock companies in which the State owns 50% and more of the ordinary shares must comply with the new quorum requirements starting from 31 January 2015. All other joint stock companies must comply with the reduced quorum requirement starting from 1 January 2016.

Because the Law does not currently apply to those joint stock companies where the State holds its stake indirectly, on 26 January 2015, the Cabinet of Ministers of Ukraine submitted Draft Law No. 1839 lowering the quorum to 50%+1 share for holding of general stockholders' meetings of all joint stock companies regardless of their ownership structure. Furthermore, on 5 February 2015 a group of People’s Deputies submitted Draft Law No. 2045 aimed at expanding provision regarding State ownership of joint stock companies both to direct and indirect holdings. As of the date hereof, none of these drat laws have been reviewed by the Parliament of Ukraine.

Conclusion

Charters of joint stock companies will have to be amended to reflect the reduced quorum. The Law does not establish any time frames for such amendments as well as liability for failure to do so. However, mandatory provisions of the Law prevail over charters of joint stock companies from the date it becomes effective, even if the charter of the company has not been brought into compliance with its provisions. The Law applies only to joint stock companies and it does not change the quorum requirement for other legal entities, including limited liability companies.