The law of Ukraine on “Introducing Changes to Certain Legislative Acts of Ukraine Concerning Protection of the Rights of Investors” (the “Law”) will become effective on 1 May 2016. The Law introduces amendments to a number of Ukrainian laws by which the new concept of shareholder derivative suit will be implemented into the Ukrainian legal system.
Such legislative developments are of remarkable importance as they greatly enhance the degree of control and influence that shareholders (including foreign shareholders) will have over the management of Ukrainian companies.
Under the Law, any shareholder of the company possessing at least 10% of shares will have a right to file a derivative suit with the court on behalf of the company against individual members of the company’s management, for damage caused by such individuals to the company. The suit can be filed against any individual holding a position within the company’s management (“Officer”), and includes the directors and members of the company’s board, audit committee and supervisory board.
The suit can be filed if damage was caused to the company by the actions of an Officer and if such actions:
- were taken in excess of, or were an abuse of the powers granted to the Officer by the company’s constitutional documents; or
- were not taken in accordance with the procedure of prior approval of such actions as required under the company’s constitutional documents; or
- were taken in accordance with the procedure of prior approval of such actions as required under the company’s constitutional documents but the Officer submitted false information in order to obtain such approval.
A suit can also be filed if damage to the company was caused by failure of an Officer to take certain actions which should have been taken in accordance with the management duties of such Officer.
The suit must be filed with the commercial court in the place of registration of the company on behalf of which the suit is filed. The general rules governing commercial court procedure in Ukraine would be applicable to court proceedings under such suit. An important requirement introduced by the Law is that rulings on commencement of proceedings and certain other court documents related to the proceedings commenced under the shareholder’s suit must be published on the official web-page of the Supreme Commercial Court of Ukraine. This should make information relating to the ongoing proceedings easily accessible to other shareholders of the company concerned.
The Law signifies an important development of Ukrainian corporate legislation. Previously, a shareholder could only file a suit on its own behalf against the company for protection of its own corporate rights. It was almost impossible to hold an Officer liable for damages caused by him or her to the company unless the damages were sought within the sphere of criminal proceedings.