Draft

Protecting investors’ rights

The Draft Act On Changes to Certain Legislative Acts of Ukraine Concerning Investor Protection of 27 February 2015, No.2259 has been submitted by the Cabinet of Ministers of Ukraine. It was approved in the first hearing on 3 February 2015 and the second hearing is pending. The Draft’s purpose is deregulation of the business operations of joint stock companies, and introduction of higher requirements for public companies whose shares are registered at exchanges. This deregulation will enable Ukraine to improve its Doing Business ranking and to make joint stock companies attractive for investment. Strict requirements for public companies would improve the protection of minority investors in Ukraine and bring Ukraine substantially closer to meeting the requirements of the Association Agreement between Ukraine and the EU.

In particular, it intends to improve investor protection through:

— introduction of a derivative suit (the right of minority shareholders to file lawsuits in interests of the company requesting damages);

— introduction of responsibility of the company’s officials if their unlawful actions are harmful to the company;

— setting a procedure to recognize an official’s transaction void and recovery of the profits earned by such transaction;

— giving a claimant the right to seek compensation from the company for his court expenses in connection with the lawsuit against officials of the company on recovery of incurred losses — within the actual scope of the money received by the company;

— setting conditions to convert quasi-public companies in private companies;

— introduction of independent directors who will represent the interests of minority shareholders in public companies;

— setting a detailed regulation for interest-bearing transactions in order to incorporate the interests of all shareholders.

Foreign currency settlements

The Draft Act On Changes to the Act of Ukraine On the Order of Foreign Settlements in Respect of Currency Regulation and Currency Control of 1 March 2015, No.2265 has been submitted by the Cabinet of Ministers of Ukraine and approved in its reading on 4 March 2015. The main objective of the Draft is to expedite the processing of the residents’ foreign currency proceeds on their foreign currency accounts in the authorized banks and to reduce delayed delivery deadlines during import transactions from 180 down to 90 days. The Draft proposes to establish a requirement to obtain an individual license from the NBU when the mentioned period is exceeded, and to eliminating the need for obtaining an opinion from the national agency in charge of the state policy in the area of economic development.

Taxation of non-profits

The Draft On Changes to the Tax Code of Ukraine (as to taxation of non-profit organizations) of 5 February 2015, No.2049 has been submitted by a group MPs and was approved in its reading on 18 March 2015.

It proposes to expand the list of non-profit organizations exempt from income tax. The proposed list of organizations exempt from income tax corresponds to the list of Clause 157.1, Article 157 of the previous edition of the Tax Code of Ukraine.

It proposes:

— to lift the discriminatory provision to increase financial results of an income taxpayer by the amount of 30% of the cost of works, goods and services purchased from non-profit organizations;

— to reduce the tax burden on charitable assistance down to the level of 2014;

— to allow village, town and city councils to establish benefits related to the property tax for associations, charitable and religious organizations;

— to allow entities that are established by non-profit organizations, including businesses of disabled people’s organizations, to switch to the simplified system of taxation.

In addition to this, the Draft proposes to correct inaccuracies in non-profit legal regulation, including the cases when the organizations that do not pay income tax file their reports for calculation of income tax liabilities, income tax reliefs, and personal income tax if individual make donations to non-profit organizations, and also in respect of the Register of Non-Profit Organizations and Institutions in order to bring the latter in conformity with the new edition of the Tax Code of Ukraine.

COMMENTS

Vadym Belyanevych, senior counsellor, Vasil Kisil & Partners

I have read the Draft Act On Changes to the Code of Commercial Procedure. It deals with introduction of so-called “indirect” (http://en.wikipedia.org/wiki/Derivative_suit) lawsuits that are quite widely used in many legal systems. In the Ukrainian language it should be called «непрямий позов», though by mistake they call it «похідний позов» in attachments to the Draft Act. The idea is that a shareholder files a lawsuit in the interests of the company if he believes that an official of the company committed some acts that are harmful to the company’s interests. It’s a double-edged tool, as it can be used to the benefit of minority shareholders, protecting the company against its officials’ abuse, and vice versa, it creates a new possibility to abuse the right to address court aiming to harm the company (its majority shareholders), requesting redemption of shares (a share) of a minority shareholder at a non-market price. Thus, minority shareholders obtain a powerful tool if they want to play a dirty trick against the company. I can reasonably assume that there will be plenty of such lawsuits. I can add that many lawsuits were filed before by shareholders requesting to invalidate contracts made by companies with third parties. Therefore, there should be liability for abuse of such claims along with the right to file an “indirect lawsuit”.