Київ
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Government and professionals believe a new corporate law will facilitate investment climate in Ukraine

Київ, November 25, 2016.

Current corporate relations are overregulated by the state, while a new corporate law can reduce it and allow foreign investments inflow.

There are 501,000 limited liability companies (LLC) in Ukraine. This is almost half of all legal entities. However, their legal regulation is very scattered. Bill No. 4666 on LLCs will improve the investment climate, promote the development of small and medium enterprises (SMEs) and prevent capital outflows from the country. This was stated by Yulia Kovaliv, director of the National Investment Council, at a discussion held at Ukraine Crisis Media Center. “Ukraine has an inflexible, backward corporate law, unattractive and embarrassing for foreign investors, there are risks to investor protection. It leads to structuring of Ukrainian businesses in foreign jurisdictions and capital outflow,” said Ms. Kovaliv.

According to Andriy Ivanychuk, MP (“Narodnyi Front” faction), head of Parliamentary Committee on Economic Policy, the bill establishes a dispositive regulation of relations between LLCs that will allow investors building effective structures for doing business in Ukraine. Corporate agreements between parties are introduced; possibilities of blocking the activities and hostile takeover of companies are eliminated, the process of dividend payments is improved. “Minority shareholders will notice quite pleasant novelties that oblige to pay dividends and set a maximum term for payments – this increases protection of minority members. Previously, only majority shareholders were protected,” he noted. In addition, significant transactions institute is introduced as well as transactions on interest by analogy with the Joint Stock Company Law. The document also improves the institute of excluding a member from a company, clearly defines the status and role of the supervisory board, and implements the principle of conversion of property claims in a share in the authorized capital.

Maria Orlyk, CMS Reich-Rohrwig Hainz partner, believes that Ukraine as jurisdiction is not competitive compared to others. “We hope that investors will come here, they will invest money, build and create jobs. But when they ask if they can make certain steps in the legislative field and get the answer ‘no’, they unfold and go to another country,” she said. According to her, our laws do not have enough opportunities to enter into corporate contracts and convert debts into corporate rights.

The critical issue for investors is withdrawal and exclusion of LLC members. Anna Zorya, partner, head of corporate law and М&A practice, “Arzinger” company, stressed that Ukrainian legislation should protect the interests of investors working in Ukraine. “Ukrainian legislation lived according to the mandatory rules; this situation has to change. The investors have the right to establish their relationships as they want. The bill introduces dispositivity and gives parties a right to choose “the Bible of their lives,” explained Ms. Zorya.

Valentyna Danyshevska, director of Commercial Law Center, noted that in the process of drafting the bill they tried to achieve a balance between regulation for large and small businesses. “It will allow the small businesses to establish the LLC even without special knowledge of the legislation, and to observe the law. As to the large businesses, the law offers them a number of dispositive rules that will allow the parties to establish relationships as they want it,” explained Ms. Danyshevska.

According to Natalia Sevostyanova, First Deputy Minister of Justice of Ukraine, the Economic Code of Ukraine just as it reads today is an excess. This regulatory framework can be simplified. However, it is impossible to do in one day because too many entities are involved. “The regulation of LLCs is fragmentary, nevertheless. The courts often interpret the legislation ambiguously. Bill No. 4666 can finally improve this situation,” she noted.

 

 

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