"The firm has an impressive deal list in its repertoire"
PLC Which Lawyer?

Publications

12 May 2010

Most Recent Clarifications by the State Securities and Stock Market Commission on Application of Joint Stock Companies Laws


Author: Vadym Samoilenko

In late February and early March 2010, the State Securities and Stock Market Commission the "Commission") approved a number of clarifications regarding the application of certain provisions of the Law of Ukraine "On Joint Stock Companies" (the "Law"). On 23 February 2010, the Commission adopted Clarification No.1 on the re-election of the Chairman of Supervisory Board (the "Board") of a Joint Stock Company (the "JSC"); Clarification No.3 on the division of powers of the JSC bodies at resolving on cancellation of redeemed shares; Clarification No.4 on the election of Board members by cumulative vote; and, on 16 March 2010, Clarification No.5 on the notification on holding the General Meeting (the "Meeting") of JSC (collectively, the "Clarifications").

The Commission adopted the Clarifications in persuit of removal on the regulatory level of a number of deficiencies and contradictions in the Law through interpretation of the methods of application of certain rules contained in the Law. Though the Clarifications are of advisory nature, they reflect quite a progressive official opinion of the Commission on the following JSC issues:

Re-election of the Board Chairman

  • The Board has the right to re-elect its Chairman at any time, save in the event where the JSC charter vests the authority to elect (re-elect) the Board Chairman exclusively in the Meeting. In other instances, the issue of election (re-election) of the Board Chairman is vested exclusively in the Board.

Resolving on cancellation of redeemed shares

  • The resolution to cancel any redeemed shares may be adopted by either the Meeting or the Board, however, neither the Board nor the Meeting resolution to cancel redeemed shares will have any legal effects without subsequent resolution by the Meeting to amend the JSC charter.
  • Being the JSC highest governing body, the Meeting has the right to resolve on cancellation of redeemed shares regardless of the lack of respective cancellation resolution by the Board, and no such resolution by the Meeting will require any subsequent cancellation resolution by the Board.

Notification of the Meeting

  • The manner of the notification on holding the Meeting, its agenda, and of any changes in the agenda must be provided in the JSC charter and may differ from that contemplated by Section 14 of Article 2 of the Law. Such notice may be sent to the shareholders by mail and addressed to them at their respective locations (residential addresses), without any list of enclosures and return receipt.

Election of Board members by cumulative vote

  • The number of the Board members is determined by the Meeting resolution and may be set forth in the JSC charter and/or internal regulations that are subject to approval by the Meeting.
  • The election of exclusively all the Board members in the number set by the respective resolution of the Meeting is a mandatory requirement for the election and formation of that body by cumulative vote.
  • If the Law and/or the JSC charter provides that the Board members shall be elected by cumulative vote, then in the event of early termination of any member(s) of the Board without any resolution by the Meeting the election of any new member(s) of the Board is possible solely by the election of all the Board members by cumulative vote.
  • Since the cumulative vote is distinctive by a possibility to cast one's all votes either in favor of any one nominee or distribute them among a number of the nominees, hich makes it impossible to compile a list of the nominees, which may be elected to the JSC body, and to prepare a draft resolution on the item of election of JSC's body members in advance, then in the event where the item of election of the Board members is put on the agenda (provided that the election of the Board members of such JSC is carried out through cumulative vote in accordance with the Law and/or the Charter), the shareholders make their proposals on this item by proposing new nominees for the election to the Board. The shareholders' proposals are taken into account by way of putting their nominees on the general list of the Board nominees.
  • If any Meeting resolves on setting up the Board and on election of the Board members, a shareholder may propose an unlimited number of nominees to the Board, because at the moment when the shareholders propose their nominees the number of the Board members is not yet determined. On the other hand, if any Meeting resolves on changing the number of the Board members and on election of the Board members, the shareholders may propose their nominees as new Board members subject to the limitations set forth in part one of Article 38 of the Law establishing that the number of nominees may not exceed the number of the Board members.
  • The requirement of Part 4 of Article 42 of the Law establishing that only those nominees who obtained the biggest number of favorable votes among the nominees who obtained over 50 percent of the votes shall be deemed as elected to the JSC body, is not applicable to the election of the Board members by cumulative vote. In the event of election of the Board members by cumulative vote, only those nominees who obtained the biggest number of favorable votes compared to the other nominees shall be deemed as elected to the Board.
  • At a public JSC, cumulative vote is taken using the voting bulletins. At a private JSC, cumulative vote may be taken either using the voting bulletins, or in another manner that reflects the voting results and provides evidence thereof after the Meeting.
  • The voting bulletin for the election of Board members by cumulative vote must contain a general list of the nominees to the Board, also specifying their full names and other data, which is mandatory for the common voting bulletin and contemplated by part 2 of Article 43 of the Law, save any draft resolution on the item of the agenda and voting options on such a draft resolution (in words "pro", "contra", and "abstained").
  • At cumulative vote, a shareholder shall fill out the bulletin by specifying the number of his/her/its votes casted for a nominee to the Board (the nominees among whom he/she/it distributes its votes). Considering the indivisibility of the votes held by a shareholder by virtue of his/her/its voting shares, at the election of the Board members by cumulative vote, the shareholder may either cast of all of the votes in favor of any one nominee, or distribute them among a number of the nominees by casting any number of the whole "pro" votes in favor of any of the nominees.
  • At making the minutes upon the results of the cumulative vote on election of the Board members, it is impossible to comply with the Law requirements with respect to indication of number of the "pro", "contra", and "abstained" votes, in connection whereof the minutes upon the results of the cumulative vote shall contain a general list of the nominees to the Board and the number of the "pro" votes cast by the shareholders in favor of each of them.
  • Should a shareholder (his/her/its proxy) cast in favor of any nominee(s) the number of the votes that exceeds the total number of the votes held by such a shareholder at the time of such a cumulative vote, then the votes counting commission shall not take that shareholder's votes into consideration at the votes count.
  • Should a shareholder (his/her/its proxy) cast in favor of any nominee(s) the number of the votes that is less than the total number of the votes held by such a shareholder at the time of such a cumulative vote, then the votes counting commission shall take that shareholder's votes in favor of any shareholder(s) into consideration at the votes count.
  • Should upon the results of any cumulative vote at the election of the Board members the votes counting commission find that the number of the nominees to the Board in favor of whom the shareholders' "pro" votes were cast, is less than the established number of the Board members, then the resolution on the results of such a cumulative vote shall not be deemed adopted, and the Board shall not be deemed formed.
  • Should upon the results of any cumulative vote the number of the nominees, who may be elected to the Board, exceed the established number of the Board members for the reason that two or more nominees obtained equal number of the votes, and the results of such vote do not allow to determine, who of such nominees is deemed elected, then the resolution on the results of such a cumulative vote shall not be deemed adopted, and the Board shall not be deemed formed.

Please note that the Clarifications were drafted by the Corporate Governance Advisory Board to the Commission (the "Advisory Board"), with Asters lawyers - partner Vadym Samoilenko and associate Oles Kvyat - constantly contributing to the Advisory Board work.

Further into 2010, the Advisory Board will continue its efforts to draft clarifications and regulations on the application of the Law rules as well as amendments to the Law. We will keep you informed on such developments by our information bulletins.



News Archive

Browse by

Practice Areas:
Industry Sectors:
Search

Publication Archive