On 13 May 2014 the Ukrainian Parliament adopted Draft Law On Introducing Amendments to Selected Legislative Acts of Ukraine Relating to the Protection of Investor Rights (the “Bill”).

The Bill offers increased protection to commercial companies in relation to their hired managers/officers.  It also increases the degree of the latters’ liability towards their employer.  The Bill applies to company managers/officers occupying the following positions: the head and members of the company’s management body, the head of the company’s internal audit committee and the head and members of the company’s supervisory board (i.e. the board of directors).

The Bill introduces several important changes to the Labour Code of Ukraine which includes the following:

  1. an employing company may now terminate the employment of any of its senior officers with no cause in the event that his/her corporate mandate has been terminated;
  2. the minimum mandatory severance payment to be paid to a terminated senior officer in the event of his/her termination on the above ground shall amount to his/her respective six month average salary;
  3. a senior officer having the status of an employee shall now be financially liable to his/her employer for causing both direct and consequential damages to it because of his/her wilful misconduct or negligence;
  4. a general principle of unlimited financial liability of a senior officer towards his/her employing company has been introduced.  The principle of limited financial liability shall now apply to senior company officers under very limited circumstances. 

The Bill also amends the Civil Code of Ukraine establishing that the mandate of a member of the management body of a company can be terminated or suspended at any time and for no cause.

The Bill is an important step forward in the regulation of relations between the hired management personnel of a company and its owners (investors). 

Previously owners of a company were quite restricted in their right to part ways with hired managers due to the excessive dismissal protection they were granted under Ukrainian labour law as employees of a company.  This resulted in a complicated and burdensome termination procedure which often required an officer’s consent and bargaining on the exit compensation package (especially, if no proper written employment contract was in place). 

The Ukrainian labour law rules in that respect were at odds with the respective corporate laws that entitled owners of a company to change members of its corporate bodies freely.  However, it seems Ukrainian legislation has now been aligned in that respect owing to the fact the Bill increases protection of the investors’ rights in the country including the right properly to manage/protect their investments.

The Bill awaits signature by the Acting President and subsequent official publication which is expected in the near future.  It shall become effective on the day following its official publication.

Draft Law: Draft Law on Introducing Amendments to Some of Legislative Acts of Ukraine relating to Protection of the Investors’ Rights registered under No. 4586 on 27.03.2014