10 April 2017
Newsletter

Corporate agreement as a novelty of Ukrainian corporate legislation

A corporate agreement is an efficient remedy of investor rights protection in many countries and a popular instrument allowing to effectively regulate corporate governance peculiarities of a particular company.

To implement the best international practices and improve corporate governance mechanisms of Ukrainian joint stock companies (the "JSC") and limited liability companies (the "LLC"), on 23 March 2017 the Parliament of Ukraine adopted the Law "On Amendments to Certain Legislative Acts of Ukraine regarding Corporate Agreements" No. 4470 (the "Law"), which will become effective in case of and after its signing by the President and official publication.

The Law regulates the matters of corporate agreement execution and is aimed to formalize, by introducing respective amendments to the Laws of Ukraine "On Business Associations" and "On Joint Stock Companies", the subject matter of such an agreement and the ability of the business entity's participants/shareholders (the "Participants") to exercise their rights associated with the management of a company in a mutually agreed manner.

The Law highlights four groups of rights which may be subject to a corporate agreement:

 

1)

 

participation in the company management (inter alia, the obligation of the parties to the corporate agreement to vote in a manner prescribed by the agreement);

 

2)

 

approval of acquisition or alienation of equity interests/shares at a predefined price and/or in case of occurrence of circumstances stipulated by the agreement;

 

3)

 

refraining from alienation of equity interests/shares before the occurrence of certain circumstances stipulated by the agreement;

 

4)

 

other actions related to the management of the company, its termination or spin-off of a new legal entity therefrom.

Therefore, a corporate agreement is aimed to help the Participants to agree on specific rules applicable to the exercise of their rights without, however, changing their overall scope.

Below we describe certain major peculiarities of a corporate agreement:

 

i)

 

the agreement may be entered into between the Participants, or between the Participants and the creditors of a target company;

 

ii)

 

the agreement may not oblige its party to vote per instructions of the target company governance bodies, unless there is a member of a company's governance body among the parties;

 

iii)

 

the agreement may be open-ended or concluded for a fixed term;

 

iv)

 

a breach of the agreement may not serve as a ground to invalidate decisions of the company's governance bodies;

 

v)

 

contents of the agreement is confidential and may not be disclosed, unless the law or the agreement establishes otherwise;

 

vi)

 

a party to the corporate agreement must notify the company about its execution within three business days thereafter;

 

vii)

 

a public JSC must disclose information on the corporate agreement existence in accordance with the Law of Ukraine "On Securities and Stock Exchange Market".

It is also worth noting that, for efficient use and performance of corporate agreements, the Law introduces irrevocable powers of attorney with regard to corporate rights and establishes special requirements applicable to such rights.

It is expected that legal formalization of a corporate agreement will substantially change the existing Ukrainian court practice on this matter, and will allow to utilize this instrument in the Ukrainian legal environment directly, without building complex corporate structures involving foreign holding companies.


For further information please contact Asters' partner Vadym Samoilenko
and counsel Oles Kvyat.

© Asters 2017
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