#11 November 2014

In focus – Corporate Governance

The issue of corporate governance is on the priority list of pending corporate law reform due to impediments for business, a huge need for it to be flexible, and commitments undertaken in terms of the EU Ukraine Association Agreement. Due to the low level of the stock markets development, majority shareholders enjoy a more favorable position in the corporate governance process. In fact, recent problems surrounding minority shareholders are a legacy of mass privatization during the 1990s. Ukraine inherited so-called dead souls formal shareholders, who never take part in the life of a company. And our experts argue that approximation with EU standards is unlikely to solve this problem. Again, a copy-paste approach must be avoided, as even the most advanced initiative could bring poor results to an initially weak legislative background.

With the support of Tax Regulation

Foreign companies often operate in Ukraine through a separate unit in the form of a representative office. In that case, taxpayers work with non-residents through their representative offices in Ukraine. Pursuant to the provisions of the Tax Code of Ukraine that govern taxation of non-residents, the income of non-residents that conduct their activities through a permanent representative office are taxed under the general procedure. And for tax purposes, such permanent representative offices are deemed identical to taxpayers who conduct their business independently of such a non-resident...

Expert Opinion

Shareholders in Name Only Echoes of Soviet-style Mass Privatization

Illya O. Tkachuk

Minority shareholders have always had a unique status in Ukraine. Besides those individuals who invested their money in companies and bought their shares, there are many minority shareholders who obtained shares during the privatization and have never really thought of themselves as investors and, therefore, neglected their right to participate in the companys life. It is needless to say that this situation was caused by mass privatization which was so popular in the 1990s. At that time, most of the people did not realize what to do with shares of companies as private ownership was to a large extent an alien idea in post-Soviet society...

In Re

Competition Law Compliance on Corporate Governance Agenda

Sergiy O. Glushchenko

Competition law and corporate governance are two relatively separate bodies of law. The former concerns companies external conduct in the market and prohibits certain anti-competitive actions. In contrast, the latter primarily concerns internal relationship between officers, directors and shareholders. What links them both is corporate compliance, a tool to equally address risks associated with costly managerial mistakes and welfare-reducing behaviour. Ever-increasing fines imposed by competition agencies across the globe have lifted competition law to the top of corporate compliance agenda. Along with other legal areas (e.g., anti-bribery and corruption, data privacy, security and financial fraud, health security and safety, etc.), competition law and competition compliance programmes (CCPs) are among the main elements of business risk management

Squeeze-Out of Minorities: More General Action Needed

Leonid V. Antonenko

There was a short period of time in the history of Ukraines corporations when corporate ownership was dispersed and control over the recently privatized companies was held by company management. The percentage of shares controlled by the managers was modest, the companies were open to takeovers and the country desperately needed proper takeover rules to protect minorities and to curb the powers of the directors. These rules, stripped of much of their meaning and potential, were introduced in 2009, when the Joint Stock Company Act came into effect. Had this Act come about 15 years ago, the takeover rules, as imperfect as they were, could have played a positive role

Haste Makes Waste: Guide on Speedy Passing of Corporate Resolutions

Oleksandr V. Polonyk, Danylo S. Volkovetskyi

Business reality often requires quick decisions from companies. This imperative, however, may conflict with corporate governance procedures. For example, material transactions normally require approval by the general meeting of a company (GM), while legislation mandates that long notice procedures must be observed to convoke a GM. If the company failed to arrange for the corporate approvals in advance, it may eventually be too late and a business opportunity may be missed. In this article we will review a few possible solutions which may be explored by a limited liability company (LLC) when the need for quick approval is pressing

Global Legal Update

Governance of Luxembourg Company

Ekateryna A. Soboleva

This article is dedicated to the issues of governance and transparency in Luxembourg companies, which are listed on the stock exchange.

Experienced vanguard of directors

One of the most interesting issues is communication by directors of Luxembourg company. The best number of directors for the company listed at stock exchange, open and transparent is five. The Board of Directors shall appoint from among its members a chairman at majority for a term an average of 6 years and may choose among its members one or more vice-chairmen. The Board of Directors may also choose a secretary (the Secretary) who need not be a Director and who may be instructed to keep the minutes of the Meetings of the Board of Directors as well as to carry out such administrative and other duties as directed from time to time by the Board of Directors

Cover Story

Management Mechanisms

The issue of a CEOs dismissal and termination of office is not as obvious as it might seem at first glance, since it is governed both by labor and corporate legislation. A CEOs appointment and termination of office belongs to the competence of the general meeting of shareholders in a joint stock company or the general meeting of participants in a limited liability company (hereinafter the general meeting). However, pursuant to the Labor Code of Ukraine a CEO is also an employee. According to business legislation, the post of CEO is an elected office, which is an integral part of the companys management mechanism. In line with labor legislation, a CEO has an employment relationship with the company. Thus, in order to dismiss the top manager, there should be a decision by the companys owners, and also the order of dismissal along with a relevant record in the CEOs employment record book. The UJBL addressed Irina Grishchenko, an adviser of the LCF Law Group, in this regard. The latters key practice deals with labor disputes and corporate law. We asked her to discuss the dismissal of a companys CEO, voluntary resignation and discharge by mutual agreement, or upon the owners initiative

Venue

In-House Challenges in Action

On 23 October Yuridicheskaya Practika Publishing held its II In-House Counsel Forum. The Forum drew the attention of the heads of legal departments of leading Ukrainian companies, practicing lawyers and partners of Ukrainian and international firms, representatives of public authorities and courts. Even in very difficult times for the country, the participants admitted that such kinds of events provide an opportunity not only to share professional experience but also to test both professionalism and patriotism

Crux

Anti-corruption Package: Promising Declarations?

The last working days in October of the Ukrainian Parliament will stick in memories for adoption of bulk of long expected documents. Such a huge demand in the Ukrainian society to reestablish credence to public institutions has been sa- tisfied with lustration measures. As the government declared its intention to pursue a drastic policy of eradication of corruption in the country to citizens and European society, the recently passed anti-corruption package is the subject of our monthly discussion. And experts argue that the effectiveness of the new regulations is at stake. Perhaps Ukraine should learn from, and successfully implement, Georgias experience of fighting corrupt practices?

Deals

-Clifford Chance advised EBRD on senior secured loan to Obolon-

-Arzinger acted as Ukrainian law counsel on providing loan to agrarian company-

-Asters advised in acquisition by Triton Fund of Heat Exchangers Segment-

-Lavrynovych & Partners supported MoneyGram registration-

Cases

-FCLEX defended AutoKrAZ-

-CMS advised Tatneft-

-Lavrynovych & Partners advised MUK Group of Companies-

Draft

Administrative proceedings

The Draft Act On Changes to the Code of Administrative Procedure of Ukraine (on improving the administrative procedure) of 7 October 2014, No.5140 was submitted by MP Oleg Bondarchuk.

The aim of the Draft is to eliminate deficiencies and gaps in the legal regulation of administrative cases in appealing acts, actions or omissions of the Verkhovna Rada of Ukraine, the President of Ukraine, the High Council of Justice, the High Qualification Commission of Judges of Ukraine.

In this regard, the Draft proposes to amend:

Law Digest

-Purging government-

-Determining the ultimate beneficiaries of legal entities-

-Public Prosecutors Office Act approved-

-Anti-corruption Bureau-

Chamber News

-Roundtable Discussion: Concept of Credit Unions Development in Ukraine-

-Roundtable Discussion: Free Economic Zone of Crimea: Guide to Customs and Tax Aspects of Doing Business-

-Banking & Financial Services Committee Meeting-

UBA News

-III UBA Judicial Forum-

-VIII UBA Annual Forum on Corporate Law-

Biznews

LAND:

-The first stage of land reform implemented-

INTERNATIONAL POLICY:

-Five more European countries joined sanctions against Russia-

TRANSPORT:

-KTZ Express Hong Kong planning launch of new rail freight services-

AMCU:

-PE Tekhcenter G.M. fined for unlawful use of Opel sign-

-AMCU fined ZL-

TELECOMMUNICATIONS:

-Resolution on preparing the tender for 3G-communication has been published-<

RUSSIA:

-Restricted ownership by foreign shareholders of Russian media outlets-

TRADE:

-Ukraine temporarily bans imports and transit of food products from Crimea-

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