On 4 June 2017, the legislation 3 introducing squeeze-out and sellout procedures in joint stock companies and escrow bank accounts concept came into force.
Squeeze-out Procedure A shareholder that acquired dominant control (over at least 95% of company shares) after the law became effective may demand that all other shareholders sell their shares to such demanding shareholder, regardless whether or not such shares are encumbered. The shareholder may send such demand within 90 days upon sending notice of acquisition of dominant control.
The law provides for a two-year transition period for shareholders, with dominant control as of 4 June 2017, to go through the squeezeout procedure.
Sell-out Procedure Minority shareholders may demand that the shareholder with dominant control acquire the unencumbered shares held by such minority shareholders.
Mandatory Buy-out of Minority Shares The legislation also introduces two-tier mandatory buy-out of minority shares in public joint stock companies:
- When a shareholder gains control of 50% or more of the company shares
- When a shareholder gains control of 75% or more of the company shares
Previously, mandatory buy-out requirement existed only if the shareholder acquired 50% or more of the company shares and was not to be repeated if such shareholder increased its shareholding in the company.
Sanctions In addition to the above procedures, the newly adopted legislation establishes sanctions for shareholders' failure to follow the squeeze-out, sell-out and mandatory buy-out of minority shares by restricting the number of shares of such shareholders to vote and be accounted for quorum definition.
Rights of Private Joint Stock Companies Private joint stock companies will have the right not to apply the mandatory buy-out, squeeze-out and sell-out procedures if:
- For mandatory buy-out, more than three quarters of votes of shareholders present in a general meeting vote for a respective amendment to the charter
- For squeeze-out and sell-out procedures, more than 95% of votes of the entire number of shareholders vote for a respective amendment to the charter
Threshold for Interested Party Transactions The new law changes the threshold for approval of interested party transactions from 100 minimal salaries to 1% of the assets value as of the last annual accounts date. Private joint stock companies may overrule the restriction for the interested shareholders to vote in relation to approval of an interested party transaction.
Escrow Bank Accounts The new legislation also introduces an escrow bank account concept into Ukrainian law, which will allow placing funds in special escrow bank accounts and releasing them to a defined person when certain requirements defined by the parties in the agreement are satisfied.