Ukraine: Parliament passes New Bill on Shareholders’ Agreements (Update)

On 23 March 2017, the Ukrainian Parliament voted the Draft Law on Corporate Agreements (the “Law”) into law. The Law significantly contributes to the reform of corporate laws in Ukraine. The Law introduces numerous novelties to the regulation of relations among shareholders of Ukrainian companies and improves corporate governance standards.

In particular, the Law allows shareholders of limited liability companies and joint stock companies in Ukraine to enter into corporate (shareholders’) agreements. Such agreements may provide for obligations that shareholders vote in a certain manner, seek approval for a sale or purchase of shares at the pre-agreed price or conditions and refrain from sale of shares. At the same time, the shareholders cannot be obliged to vote according to instructions from the governing bodies of the company (except for the cases where a shareholder of the company is a member of its governing body). Moreover, shareholders’ agreements may regulate various issues of company management (such as appointment of directors, business strategies and investment policies etc.).

Another important novelty introduced by the Law is the possibility of resolving deadlock situations. In particular, the shareholders’ agreement may provide for conditions under which a shareholder is entitled to buy from or sell its shares in the company to another shareholder, a party to the shareholders’ agreement and is bound by a mirror obligation.

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

The shareholder’s agreement shall be mandatory only for its parties. Neither shareholders who have not entered into the shareholder’s agreement nor the company is obliged to comply with it. Breach of the shareholder’s agreement cannot serve as grounds for invalidating decisions by the governing bodies of the company. On the other hand, if any share purchase or other agreements relating to shares do not comply with the shareholder’s agreement, then such agreements may be invalidated if the other party has known or could have known about the limitations under the shareholders agreement.

Furthermore, the Law explicitly allows a creditor to enter into a shareholders’ agreement with shareholders of a Ukrainian company. In this case, shareholders of 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 would make Ukrainian jurisdiction more suitable for structuring complex financing transactions.

The Law also provides for a right of shareholders in a Ukrainian company to issue irrevocable powers-of-attorney for the execution of shareholders’ rights.

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

The Law will come into force once promulgated.

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 second reading in the Parliament.