Amendments to the law of Ukraine “On Joint-Stock Companies”

On 19 March 2015 the Verkhovna Rada of Ukraine adopted the Law of Ukraine “On Joint-Stock Companies” (concerning payment of dividends by a joint-stock company) (the “Law”), signed by the President of Ukraine on 25 March 2015. The Law enters into force the day after its publication (except for the rules on the procedure for submitting proposals on the agenda of the general meeting and determining a quorum in the event of early termination of powers of members of the supervisory board, which shall take effect two months after the day the Law is published).

The Law provides for a reduction to the quorum of the general meeting of all joint stock companies from 60% to 50% plus one share. Other amendments to the Law “On Joint-Stock Companies” are also envisaged, in particular regarding the procedure for paying the dividends, the procedure for submitting proposals on the agenda of the general meeting and for determining a quorum of the supervisory board. Specifically, the Law envisages (i) the mechanism for forced collection of dividends from a joint-stock company by a shareholder (by virtue of a notary writ) in case of the adoption of a decision to pay dividends and failure to pay the dividends within the period of time determined by law; (ii) a ban on any derogation in the charter of a joint stock company from a shareholder’s right to submit proposals on the agenda of the general meeting and changing the procedure for their submission. It is also stipulated that in the event of early termination of powers of members of the supervisory board (and until the election of all members of the supervisory board) the meeting of the supervisory board shall be competent to transact business provided that the number of competent members of the supervisory board shall be more than half of the full number of its members. 

Please be advised that Law No.91-VIII “On Amendments to Article 41 of the Law of Ukraine ‘On Joint-Stock Companies’ regarding the quorum of the general shareholders’ meetings of joint stock companies, in which the State owns the majority shareholding” took effect earlier.  The Law No.91-VIII provided that the reduction of the quorum of joint-stock companies in the authorized capital of which there were State corporate rights and in which the State owned 50% or more of ordinary shares of the company would be implemented from the moment the Law is publicized (as for all other joint-stock companies, the respective amendments would take effect from 1 January 2016). The Law provides for the cancellation of Law No. 91-VIII.

Thus, according to the Law, the reduction of the quorum of the general shareholders’ meeting shall take effect simultaneously as for all joint-stock companies (on the day after the Law is published.) Previously the law of Ukraine enabled the shareholders jointly owning more than 40% of ordinary shares to block general meetings of a joint-stock company, which resulted in hindrances to the activity of some joint-stock companies facing conflict of interests between majority and minority shareholder(s). Upon entry into force and publication of the Law, the presence of shareholders owning more than 50% of voting shares in the company will suffice to hold the general shareholders’ meetings of all joint-stock companies (and to pass the respective resolutions).

After the Law enters into force, the shareholders will have an additional mechanism to collect dividends from a joint-stock company if they are not paid, which is particularly important for minority shareholders. The current law provides for the right of each shareholder who owns shares in a company to make proposals with regard to the agenda of the general meeting, and the proposals submitted by the shareholders owning five percent or more of the shares shall be subject to mandatory inclusion in the agenda of the general meeting. However, there are many cases when the company charter provides for restrictions / deprivation of the shareholders’ right to submit proposals regarding the agenda of the general meeting. Upon entry into force of the relevant amendments envisaged by the Law, the above practice will be expressly prohibited by law.