01.04.2015

Reduced Quorum for General Shareholders` Meetings of all JSCs

On 27 March 2015 the Law on Amendments to the Law on Joint Stock Companies dated 19.03.2015 No. 272-VIII (hereinafter, the Law) came into effect. Under the Law, a general shareholders meeting is eligible subject to the participation registration of shareholders jointly owning more than 50 percent of the voting shares.  

The Law has rendered the Law of Ukraine on Amendments to Article 41 of the Law of Ukraine on Joint Stock Companies invalid. It should be noted that the Law has delayed the reduction of the quorum for JSCs without a state share.

Also, the Law empowers a JSC’s general shareholders’ meeting to decide on shortened dividend payment terms. If dividends are not paid in due time, shareholders are entitled to apply to notaries for writs of execution, under which debts are recovered without recourse. The list of such documents shall be set by the Cabinet of Ministers of Ukraine.

Apart from that, it is established that the rights of shareholders to submit proposals on matters put on the agenda of the relevant JSC’s general shareholders’ meeting as well as regarding new candidates for members of the company’s bodies and the procedure for their submission may not be changed by the joint stock company’s articles of association. In case of early termination of powers of one or several supervisory board members and until its whole composition is elected, a supervisory board meeting shall be deemed eligible, provided that the number of active supervisory board members constitutes more than half of its members.

It is also stipulated that JSCs’ articles of association shall be applied to the extent that they do not contradict with the Law, until they are brought into line with it.

The Law applies only to JSCs and does not change the quorum requirements for meetings of other legal entities, including limited liability companies.

It should be noted that one of the key companies to be influenced by the new Law is "Ukrnafta", in which the minority shareholders have repeatedly blocked the conduct of general shareholders’ meetings, the change of management as well as the payment of dividends.

In our view, the establishment of a quorum at the legislative level was not necessary. Thus, in some European countries the law does not set any quorum for general shareholders’ meetings. In the Anglo-Saxon law system, there are no quorum requirements for general shareholders’ meetings at all, while in the US and the UK the eligible number of shareholders is that of the shareholders attending the meeting. We believe that the most reasonable solution is to entitle shareholders to determine the quorum, while the relevant provision should be integrated in articles of association rather than at the legislative level.

Recommendations:

JSCs should amend their articles of association to bring them into line with the Law. The Law does not prescribe the term for such amendments or liability for failure to make them. However, the provisions of the Law prevail over JSCs’ articles of association regardless of whether the latter have been brought into line with such provisions.

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Kind regards and best wishes,

Anna Zorya

Partner, Head of  Corporate and M&A Practice

Maksym Cherkasenko

Partner, Head of  Corporate and M&A Practice