Corporate Law, M&A

Local Corporate Spirit (based on the court practice)

‘Let us have a shareholders’ agreement …’. Such wish of the foreign owners of Ukrainian companies needs roundabout to be implemented. The main hindrance is the combination of the imperative rules of the corporate law of Ukraine and the lack of possibility to determine the more progressive laws of other jurisdictions as a governing law for a shareholders’ agreement.

Relationships between shareholders of a Ukrainian company with respect to governing bodies formation, establishing these bodies’ competence, procedures of convening the general meeting and  making decisions on these meetings are governed by the provisions of the Civil Code of Ukraine and the Law of Ukraine “On Companies”. These provisions are imperative by its nature and any deviation from them may be interpreted as a breach of public policy.

‘He knew too much’. This universal justification of cruelty in gangsters’ world is not applicable in the corporate relationships because shareholders cannot know too much. The right for the information about the company is one of the essential rights of the shareholder. And under the Ukrainian law, a breach of this right may be cured by issuing a court order for the company to disclose the information to its shareholder. However, the scope of this information is quite limited. The shareholders may not demand the company to disclose all information about its activity. The accessible information contains in the official reporting documentation or resolutions of the governing bodies (balance sheets, P&L statements, supervision commission reports and minutes, resolutions and minutes of the board meetings and general meetings and so on)  and in the founding documents of the company. Other information is protected, if otherwise is not established in the company’s founding documents. Thus, the shareholders may not demand to look at, for example, the contracts executed by the company.

Shareholder: “The contract concluded by the company is bad. I am going to the court to get it rid of”. The law does not envisage a possibility for a shareholder to initiate court proceedings on behalf of the company beyond attorney-client or principal-representative relationships. Simply saying: no power of attorney from the company, no winning case for the shareholder. On this ground, the court should reject the shareholders’ claim seeking termination, change or invalidation of the contracts executed by the company.

Where are they from, those foreign shareholders who feel well in Ukraine? In the first quarter of 2013, Ukraine got totally 1.56 billion US dollars of direct foreign investments (shareholders’ capital), which means an increase by 1.3 percent comparing to the beginning of 2013. For the same period, the outflow of the foreign shareholders’ capital from Ukraine was – 562  million US dollars, other changes of the foreign shareholders’ capital value were – 261 million US dollars. The countries with the maximal positive balance of direct investments into Ukraine in the first quarter of 2013 were (1) British Virgin Islands (+ 266 million US dollars); (2) Sweden (+ 100 million US dollars); and (3) Great Britain (+ 95.7 million US dollars).