Ukraine changes regulatory framework for joint-stock companies to improve investment climate
Kinstellar, Kyiv, Ukraine,
Wed, Jan 10, 2018
January 2018 – On 3 January 2018 the President of Ukraine signed the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Simplification of Doing Business and Investment Attraction by Securities Issuers" dated 16 November 2017 (the "Law"). The purpose of the Law is to bring the activity of the stock market in line with international standards - in particular to clarify the status of public and private joint-stock companies and to further improve the corporate governance of joint-stock companies, which should promote the development of the local stock market and attract new investments.
The Law amends a number of codes and laws, namely: the Commercial Code of Ukraine, the Civil Code of Ukraine, the Law of Ukraine "On State Regulation of Securities Market in Ukraine", the Law of Ukraine "On Securities and Stock Market" and the Law of Ukraine "On Joint Stock Companies".
Public or private?
According to the Law, only a joint-stock company that has made a public offering of its own shares can be considered a public joint-stock company.
As a general rule, a joint-stock company that made a public placement of shares prior to the entry into force of the Law will not be considered a public joint-stock company, regardless of the type of company ("public") indicated in its name. Such companies will be subject to the requirements of the Law of Ukraine "On Joint Stock Companies" applicable to private joint-stock companies.
The rules regulating the activity of public companies will apply only to those joint-stock companies that publish a notice in accordance with the procedure established by the National Securities and Stock Market Commission that they are deemed to have made a public offering of securities, as well as to the issuers of securities that are listed on a stock exchange when the Law comes into force.
Therefore, the name of a joint-stock company that includes the type of company ("private" or "public") may not currently reflect the legislation applicable to such a company. The type of company must be specified in the charter and is no longer a mandatory component of the name.
Under the Law, joint-stock companies are not required to make changes to their names. However, if they wish to do so, they may rely on the Law of Ukraine "On Amendments to Certain Legislative Acts of Ukraine on Improvement of Corporate Governance in Joint-Stock Companies" dated 23 March 2017, according to which the change of a name of a joint-stock company triggered by the change of its type is not grounds for the re-issuing of permits, title documents to property or other documents that contain the name of the legal entity.
The Law has introduced the following amendments to promote the independence of professional Supervisory Boards:
§ The power of the General Meeting to resolve any matters of the company's activity does not extend to those matters that are reserved for the Supervisory Board by virtue of law or charter.
At the same time, the Supervisory Board has the right to include to the General Meeting's agenda any question reserved for the Supervisory Board for its resolution by the General Meeting.
This rule may be disapplied to private joint-stock companies, except for those where the state holds 50% and more of the company’s charter capital and those, 50% and more of the shares of which are held by the companies with 100% state share.
§ The Supervisory Board of a public joint-stock company, of a bank, and also of a private joint-stock company when at least one-third of the company's Supervisory Board is composed of the independent directors (at least two persons) and provided that this is envisaged by the charter, have the right to adopt decisions on entering into significant transactions if the market value of the property, works or services in the transaction exceeds 25 per cent of the company's assets according to the latest annual financial statements of the company.
§ The Law describes in detail the competencies of the Supervisory Board’s committees.
In particular, the Law introduces new concepts, such as "succession plan" and provides for the obligation of the head of the executive body to obtain endorsement by the Supervisory Board's nomination committee of candidates who perform management functions during the process of their assignment to the positions.
The Supervisory Board's nomination committee, if provided by internal company regulations, may be entitled to develop a succession plan for the Supervisory Board's head and member(s) and to offer candidates for a Supervisory Board's member position to shareholders.
§ The General Shareholders' Meeting is obliged to approve the internal regulations and a report on remuneration of the Supervisory Board's members (for the public joint-stock companies an annual approval of the report is obligatory). The requirements to the internal regulations and the report on remuneration of the Supervisory Board`s members are to be set out by the National Commission on Securities and Stock Market.
In addition, the Law allows for election of the Supervisory Board's members of both private and public joint-stock companies for a term up to three years.
The Law deals in detail with the questions of share issue and circulation, including preparation of a prospectus, as well as information disclosure by companies depending on their type, introduces an authorisation procedure for legal entities that have the intention to carry out activities relating to the provision of informational services on the stock market.
The Law clarifies the requirements for independent directors and authorises the General Meeting to adopt a decision on waiving the shareholders' pre-emptive rights to acquire the shares of an additional issue during such a share issue, in case the Supervisory Board (or Executive Board, if the Supervisory Board is not established) submits a report with grounds for adopting such a decision.
In addition, the Law cancels the requirement to provide notifications on the General Meeting in written form. From now on, such a notification may be made in a manner other than writing and should be distributed as set forth by the Supervisory Board.
Bringing charters into conformity with the Law
Public joint-stock companies and banks are obliged to adjust their charters and other internal regulations to the Law by 1 January 2019. For other joint-stock companies the deadline is one-year longer, i.e., 1 January 2020.
However, a joint-stock company will be obliged to bring their charters and other internal regulations into line earlier in the following cases:
§ when a decision on change of the authorised capital, denomination of shares, or issue of securities other that shares, is adopted; or
§ when a new licence, other permitting document or a document certifying rights over property is obtained.
Entry into force
The Law enters into force on 1 January 2018, except certain provisions that will become effective gradually over the year, at the very latest on 1 January 2019.
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