Welcome to Manifest-I

Welcome to Manifest-I the blog of Manifest Information Services Ltd. Here we take a wide ranging view of topical governance and stewardship issues. Please feel free to add your comments and join the debate. Sign up to receive free weekly updates.

Manifest is a signatory of the Best Practice Principles for Shareholder Voting Research

Delivering Diverse Viewpoints

In the pursuit of secure investment returns, diverse viewpoints based on high-quality data and varied information are critical for portfolio construction. We believe that share ownership is no different. Manifest intelligently navigates the complexities of global governance and voting delivering actionable and defensible stewardship insights.

Manifest: showing, not telling

Get in touch to find out more about Manifest's governance research, data and advisory services

Ukraine adopts law to improve the governance of joint stock companies

Ukraine has adopted a long-awaited law which will improve the corporate governance of its joint stock companies (JSC) as well as the shareholder rights. Legal experts said that the changes will boost the prospects of foreign investment in Ukrainian companies as it will bring its corporate law more in line with the rest of Europe.

The law became effective on 4th June and one of its measures included the improvement in the transparency of public companies by providing for disclosure of names of all shareholders holding more than 5% in a public JSC. Previously the threshold was at the level of 10%.

Ukraine governance joint stock companies

Ukraine passes law improving governance and shareholder protections

The law also introduced a new concept of forced sale (squeeze-out), which establishes the right of the majority shareholder in the private and public JSC to force minority shareholders to sell their shares, according to an update from the law firm DLA Piper. At the same time, the law introduced a concept of protection for minority shareholders – forced purchase (sell-out), which provides for the right of minority shareholders to compel the majority shareholder to purchase their shares.

DLA Piper said that according to the law, a shareholder who owns 95% of JSC’s ordinary shares or a dominant controlling stake will be entitled to provide the JSC with an irrevocable public demand for acquisition of shares of the minority shareholders within 91 days from the date of acquisition of the dominant controlling stake. Upon receipt of the demand, the minority shareholders will be required to sell their shares. To implement sell-out, unless the squeeze-out right is enforced, the minority shareholders, if they wish to do so, must submit an application to the JSC. The majority shareholder will then be obliged to purchase their shares.

In both cases of squeeze-out and sell-out, the controlling shareholder shall pay the minority shareholders:  either the highest price which was paid by the majority shareholder for acquisition of the controlling stake during last year, or the price determined by the appraiser; whichever is higher will be the final value agreed upon.

The law also introduced a concept of an escrow agreement. As part of an escrow agreement, one party deposits the money with a bank (an escrow agent). The escrow agent, in turn, transfers the money to another party if the conditions stipulated in the escrow agreement are met. DLA Piper said that the escrow mechanism is widely used in corporate transactions which historically were governed by non-Ukrainian law. The escrow agreements may now be used in Ukraine in case of squeeze-out or sell-out to ensure that the minority shareholders are duly paid for their shares, DLA Piper said.

Experts from law firm CMS wrote that the adoption of the law should bring increased flexibility for acquiring dominating shareholders, and should help to improve the management and efficiency of those companies which are acquired by dominating shareholders.  They wrote that the adoption of the law was well regarded by the Ukrainian market as it will bring Ukrainian corporate legislation closer into line with EU law, increasing the investment attractiveness of Ukraine.

What do you think?