Ukrainian corporate law gets an upgrade

A number of significant changes to the Ukrainian corporate law were approved by Parliament on 23 March 2017. The key changes include a squeeze-out and a sell-out mechanism for joint stock companies. In addition, shareholders' agreements, irrevocable powers of attorney and escrow accounts will be introduced.

The reasoning behind the adoption of these changes was to (i) remove some of the most significant roadblocks which investors typically encounter on transactions relating to Ukraine, and (ii) encourage direct investment into Ukrainian companies (as opposed to investing via foreign holding companies) and the use of Ukrainian law as the governing law for the investment documentation.

Specifically, the following changes have been introduced:

  • Squeeze-out. A shareholder holding 95% or more of the shares in a joint stock company will have the right to require the minority shareholders to sell all of their shares to it at a fair price.
  • Sell-out. The squeeze-out right is matched with a sell-out right for those minority shareholders wishing to exit from the company.
  • Shareholders' Agreements. The shareholders will be able to contractually agree voting arrangements and a regime for share transfers. However, the practical value of any such contractual provisions seems to be limited due to the prohibition on invalidating decisions of a company that are passed in breach of the shareholders' agreement.
  • Irrevocable Powers of Attorney. Ukrainian companies and individuals will be able to issue irrevocable powers of attorney. This is a standard instrument in structuring international transactions which was not previously available in Ukraine.
  • Escrow Accounts. Ukrainian law will now have clear provisions on escrow accounts. Importantly, funds deposited in an escrow account cannot be foreclosed in the event that the account bank becomes insolvent.

The above changes will become effective on the day following their official publication.

If you would like to receive further information in connection with the above, please contact Dmytro Fedoruk or Zoryana Sozanska-Matviychuk.