On 17 January 2017, the Ukrainian Parliament approved the Draft Law on Corporate Agreements (the “Draft Law”) (draft law No. 4470) in its first reading. When adopted, the Draft Law will significantly contribute to the reform of corporate laws in Ukraine.

The Draft Law introduces numerous novelties in the regulation of relations between shareholders in Ukrainian companies and also improves corporate governance standards. In particular, the Draft Law allows shareholders in limited liability companies and joint stock companies in Ukraine to enter into corporate (shareholders’) agreements. Such agreements may contain obligations for shareholders to vote in a certain manner, to seek approval for a sale or purchase of shares at a pre-agreed price or at pre-agreed conditions, and to refrain from selling shares. At the same time, the shareholders cannot be obligated to vote according to instructions from the governing bodies of the company. Moreover, shareholders’ agreements may regulate various issues relating to company management.

A company should be notified of the existence of shareholders’ agreements. At the same time, the substance of the shareholders’ agreements shall be confidential.

The Draft Law suggests that a shareholders’ agreement is only mandatory for the parties to it. Neither those shareholders who have not entered into the shareholders’ agreement nor the company shall be bound by it. Breach of the shareholders’ agreement shall not serve as grounds for the invalidation of decisions by the company's governing bodies. On the other hand, a share purchase agreement or any other contract on disposal of shares may be invalidated if it is concluded by a shareholder (being a party to a shareholders’ agreement) and contradicts such shareholders’ agreement whilst the other party knew or should have known about limitations imposed on such shareholder under the shareholders' agreement.

Furthermore, the Draft Law explicitly allows a creditor or another third party to enter into a shareholders’ agreement along with shareholders in a Ukrainian company. In this case, shareholders in a company would be obligated to execute their shareholders’ rights in compliance with such agreements, including following voting instructions from the creditors. It is anticipated that the suggested novelty will strengthen the protection of creditors’ rights and make Ukrainian jurisdiction more suitable for structuring complex financing transactions.

The Draft Law also provides for the right of shareholders in a Ukrainian company to have an option agreement to buy or sell shares as well as to issue irrevocable powers-of-attorney for the execution of shareholders’ rights.

It is anticipated that The Draft Law will advance the protection of investors’ rights and interests and improve the investment climate in Ukraine. It also aims to harmonise corporate regulations in Ukraine with those in the EU.

The Draft Law is expected to be passed in its second reading in the Ukrainian Parliament and become law in first half of 2017.

Source: Text of the draft Law of Ukraine “On Amendments to Certain Laws of Ukraine in relation to Corporate Agreements” No. 4470 as submitted for the first reading in the Parliament.