August-September 2013

Shareholder Derivative Action as a Possible Protection Mechanism
in the Ukrainian Corporate Legislation

On 17 September 2013, the Verkhovna Rada of Ukraine passed in the first reading the draft of the Law of Ukraine "On Amending Certain Laws of Ukraine Regarding Protection of Investors' Rights" dated 15 May 2013, registration no. 2013a (the "Draft Law").

The Draft Law foresees the introduction of a new corporate protection mechanism – a derivative action. A derivative action empowers a participant (shareholder) of a business entity to bring on behalf of that entity an action against its officials, in case such officials caused damages to the entity by their illegal actions (failure to act).

To this end, the Draft Law proposes to implement the said participants' (shareholders') right by introducing respective amendments into a number of Ukrainian laws, namely the Civil Code of Ukraine, the Commercial Code of Ukraine, the Commercial Procedure Code of Ukraine, the Law of Ukraine "On Business Associations", the Law of Ukraine "On Joint Stock Companies", and the Law of Ukraine "On Securities and Stock Market".

According to the Draft Law, the right to bring a derivative action could be employed by shareholder(s) and participant(s) holding five or more percent of equity interest (shares) in the authorized capital of the company.

The Draft Law envisages that cases in relation to reimbursement to a company of damages caused by its official shall be considered at the company's location. Also, the Draft Law is going to establish a full material responsibility of joint stock company's officials for damages caused by them in course of performing official duties.

As of today, the Draft Law is being preparing for the second reading.

For further information please contact partner Vadym Samoilenko
and senior associate Oles Kvyat

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