On 19 March 2015, the Ukrainian Parliament passed a law introducing further amendments to the Joint Stock Companies Law of Ukraine (the Law), which address mandatory quorum for the general shareholders' meeting. As of the date of this publication, the Law has not been signed by the President and its final text is not publicly available. Based on the most recent draft of the Law, the following changes in the regulation of joint stock companies' activity should enter into force shortly:
– Quorum rules for the general shareholders' meeting. The Law establishes uniform quorum rules for all joint stock companies irrespective of whether any shares are held by the Ukrainian state. The new quorum provision set out by Article 41 of the Joint Stock Companies Law provides that “the general shareholders' meeting has a quorum if shareholders owning more than 50% of voting shares have registered to participate in the meeting”.
The new quorum rules will take effect the next day after the official publication of the Law (expected within two weeks) and will effectively replace the recent amendment to the Joint Stock Companies Law introduced by the Law No. 91-VIII dated 13 January 2015, which established separate quorum rules for joint stock companies in which the State of Ukraine is the majority shareholder.
– Payment of dividends by joint stock companies. The Law establishes new timeframes for payment of dividends by joint stock companies and introduces a new mechanism aimed at simplifying enforcement of shareholder rights related to the distribution of dividends.
Under the currently effective provisions set forth in Article 30 of the Joint Stock Companies Law, dividends are payable within a period of six month from the date of the decision of the general shareholders’ meeting to pay such dividends. The Law amends the said provision to include the following rules: (1) the general shareholders' meeting is allowed to decide on a shorter period for the payment of dividends, and (2) if dividends are not paid within such period, the shareholder will have the right to request a notary writ to enforce payment of dividends in an extrajudicial procedure.
It is reasonable to assume that the main targets of such new dividend distribution rules are joint stock companies where the State of Ukraine is the majority shareholder, directly or indirectly. The new dividend payment rules will also take effect on the day following the day of an official publication of the Law.
– Quorum for meetings of the supervisory board. According to the general rule set out by Article 55 of the Joint Stock Companies Law, “the meeting of the supervisory board shall be competent if more than fifty percent of its members participate in it”. The Law removed a provision allowing shareholders to derogate from this rule and establish a higher quorum for the supervisory board meetings – the mechanism that previously granted minority shareholders an opportunity to exercise negative control (veto powers) over material aspects of the company's activities. It is not a secret that lawyers often used such mechanism when implementing provisions of shareholders agreements.
A new wave of disputes among shareholders may be expected in joint stock companies where the abovementioned legal innovations shift the balance of powers within the established corporate structure. Some shareholders may have to initiate corporate restructurings and even amend shareholders agreements or develop alternative corporate governance mechanisms in order to protect their interests.
The respective provisions of the Law will take effect in only two months after its official publication.
– Proposals to the agenda of the general shareholders' meeting. The Law imposes a ban on any potential derogation in the charter of a joint stock company from the shareholders’ rights related to submission of proposals to the agenda of a general shareholders' meeting, as prescribed in the Joint Stock Companies Law.
Though, at first sight, such amendment seems to be purely technical, it should make it easier for the State to collect dividends in those companies where other shareholders control the management. This provision (together with the new rules for quorum at the meetings of the supervisory board described above) will take effect two months after the date of the official publication of the Law.
If the President signs the Law, the State will be able to both convene the general shareholders' meeting with a required agenda and actually ensure the approval of necessary decisions in joint stock companies where it holds, directly or indirectly, more than 50% of shares. One may assume that major issues will be distribution of dividends and election of new members of governing bodies.
Though the Law is focused on the joint stock companies where the State of Ukraine is the majority shareholder, the abovementioned legal innovations may also disturb the well-established co-existence of shareholders in all other joint stock companies. We expect such shareholders to consider entering into a shareholders agreement or to renegotiate the existing agreements, as well as to develop alternative mechanisms of corporate governance in order to ensure protection of their interests.