Legal Developments in Corporate, Labor Law, and Intellectual Property
(April - May 2010)
In the corporate law area the last two months witnessed continued work of the State Securities and Stock Market Commission on the implementation of provisions of the new Law of Ukraine "On Joint-Stock Companies". Significant legislative changes occurred in connection with the procedure for payment of dividends by joint-stock companies, taxation of dividends and the regulation of foreign investment in Ukraine in general. Developments in labor law and intellectual property have been limited mainly to the explanations of interpretation and application of existing legislation by various state agencies. Two conventions of the International Labor Organization were also ratified in this period. Detailed overview of these and other legal developments is presented in this newsletter.
Issue of Shares During Foundation of Joint-stock Companies
Regulation on Procedure for Registration of Shares Issue (Issues) During Foundation of Joint-Stock Companies, approved by the Decision of the State Securities and Stock Market Commission of 30 December 2009 No. 1639, registered at the Ministry of Justice on 2 April 2010 came into effect.
The State Securities and Stock Market Commission (the "SEC") adopted this Regulation in accordance with the Law of Ukraine "On Joint-Stock Companies" of 17 September 2008. It generally covers only newly created public and private joint-stock companies, except for the institutions of joint investment (mutual funds), and does not cover companies created by merger, consolidation, split-up, spin-off and transformation, as well as those created through privatization and corporatization.
The Regulation establishes the terms and procedure for registration by the SEC of the share issues during creation of public and private joint-stock companies, the list of documents needed for the registration of the share issues, reports on the results of private distribution of shares, procedure for refusal of registration. It prescribes the required contents of the minutes of the meeting approving the distribution of shares, and requirements for the execution of documents to be filed for registration.
This new Regulation replaces the Regulation on the Procedure for Registration of Shares Issues During Creation of Joint-Stock Companies, approved by the Decision of the SEC of 15 March 2007 No. 487 which is no longer operative.
Supervision on Registration of Shareholders at General Meetings
Procedure for Supervision on Registration of Shareholders, Holding the General Meeting, Voting and Summing Up Its Results on the General Meeting of the Joint-Stock Companies, approved by Decision of the State Securities and Stock Exchange Commission of 22 December 2009 No. 1607, registered at the Ministry of Justice on 28 April 2010 came into effect.
Registration of shareholders at general meetings is a perennial problem at many Ukrainian joint-stock companies. This Procedure was prepared in accordance with the Law of Ukraine "On Joint-Stock Companies" of 17 September 2008. It determines the procedure for the appointment of the SEC representatives to supervision registration at public and private joint-stock companies.
The SEC representatives can be appointed at the request of shareholders, corporate officers. The registrar or depository of shares can also request supervision if they have been given authority to register participants or to count votes at the company's general meetings. Supervision can also be done at the SEC's or its local agencies' own initiative. There must be at least two SEC representatives in each supervision group. The notice of appointment of the SEC representatives shall be sent to the joint-stock company prior to the opening of the shareholders' registration.
Mandatory Payment of Dividends to Shareholders
Amendments to the Law of Ukraine "On Joint-Stock Companies" of 17 September 2008, introduced by the Law of Ukraine "On the State Budget of Ukraine for 2010" of 27 April 2010 came into effect.
The Law provides that joint-stock companies must pay dividends from their net profit reported for the preceding financial year and/or retained earnings. The dividends must be paid in the amount of at least 30 percent of the profit no later than six months after the end of the previous financial year. The amount of dividends to be paid may be increased by the decision of the general meeting of a joint-stock company but cannot be reduced below the level provided by this law.
If the dividends on ordinary shares are paid at the rate of 30 percent, there is no need for a separate resolution of the general meeting of shareholders approving the amount of dividends.
New Rules on Taxation of Dividends
Law of Ukraine "On Making Amendments to the Law of Ukraine "On Corporate Profit Tax" Concerning the Taxation of Dividends of 27 April 2010 came into effect.
The Law now permits resident legal entities (except for permanent establishments of non-residents) not to recognize dividends received by them as their gross income (which forms the basis for determining taxable profit), only if the dividends are received from resident and non-resident legal entities which are under the recipient's control. This tax break does not apply to the dividends received from non-residents registered in jurisdiction designated as an "offshore zone" (tax haven jurisdiction) by the Cabinet of Ministers. The taxpayers do not have to make advance payments of the profit tax for dividends received from legal entities controlled by the taxpayer company.
Prior to the enactment of this Law any dividends received from residents were not included in the gross income.
State Registration of Foreign Investment
Law of Ukraine "On Making Amendments to Some Legislative Acts of Ukraine on Stimulation of Foreign Investment and Lending" of 27 April 2010 came into effect.
This law abolishes several restrictions instituted in June 2009 as part of Ukrainian government's efforts to mitigate the consequence of the global financial crisis. In particular, the law removes the following restrictions which were previously established by the Law of Ukraine "On Making Amendments to Some Laws of Ukraine Aimed at Overcoming of Adverse Consequences of the Financial Crisis" and the Law of Ukraine "On Regime of Foreign Investment":
- on making foreign investment in monetary form solely through investment accounts. This provision required that all foreign investors making investments in Ukraine in foreign currency, including all purchasers of shares in Ukrainian companies, open a special account at a Ukrainian bank and convert investment funds into Ukrainian currency before making their investments;
- on the mandatory state registration of all foreign investment.
Complying with this new law, the National Bank of Ukraine in its Letter of 17 May 2010 No. 13-214/2594-8235 notified that it had terminated the state registration of foreign investment. The documents of the applicants filed with the NBU territorial administrations for the registration of foreign investment and on which no decision had been made before 15 May 2010, should be returned without registration.
Changes In Procedure For Share Registration During Reorganisation
Parts of the Regulation on Procedure for Registration of Share Issues and Information on Their Issue During Reorganization of Companies, approved by Decision of the State Securities and Stock Exchange Commission of 30 December 1998 No. 221, registered at the Ministry of Justice on 4 March 1999 have been abolished
The Ministry of Justice on 22 March 2010 rescinded its previous decision to register the Regulation in question. This has the effect of abolishing the norms of the Regulation which required issuers to provide SEC with the following documents: an audit certificate, copy of the statement on appraisal of property (proprietary rights) and/or report on appraisal of property (proprietary rights), copy of constituent agreement by a joint-stock company for the registration of the shares issue. Accordingly, the Regulation was stricken from the state register of regulatory acts of the Ministries and other government authorities on 23 April 2010.
Material Liability of Employees for Damage to their Employers
Letter of the Ministry of Labor and Social Policy of Ukraine "Concerning Material Liability" of 2 April 2010 No.65/06/186-10.
The Ministry of Labor in its Letter reiterates that employers can hold their employees liable only in case of direct actual damage, within the framework and pursuant to the procedure established by law, and only if such damage was caused by culpable acts of an employee.
If the direct actual damage caused by the employee to the company exceeds his or her average monthly earnings, only the amount equal to the average monthly earnings can be withheld by the employer to compensate for the damage caused.
Chief accountants are liable for the full amount of damage caused by excessive payments to third parties only as long as the overall liability does not exceed the accountant's average monthly earnings.
If a person does work under a contract governed by civil law as opposed to an employment agreement governed by labor law, his or her liability for damage caused to the "employer" can be compensated according to the provisions of civil law.
Clarification Regarding Annual Additional Leave
Letter of the Ministry of Labor and Social Policy of Ukraine "Concerning Granting Annual Additional Leave for Work with Harmful and Heavy Working Conditions" of 22 March 2010 No. 49/0/010/80-10
The Ministry of Labor in its Letter clarified that specific duration of such leave shall be established by collective bargaining agreement or employment agreement depending on the results of evaluation of workplaces with regard to work conditions and time of employment in such conditions.
The calculation is made on the basis of normal or shortened duration of a working day, established by law for a certain kind of production, profession and position.
Employees working part-time (i.e. 3 hours per day) are not be entitled for annual additional leaves.
Additional Leave for Parents
Law of Ukraine "On Making Amendments to Article 25 of the Law of Ukraine "On Leaves" of 11 May 2010 enacted
The Law provides that one of the parents may go on paid leave in order to care for a child under 14 for the period of quarantine at the relevant territory.
Ratification of Labor Law Conventions
International Labor Organization Convention No. 139 of 1974 Concerning Prevention and Control of Occupational Hazards Caused by Carcinogenic Substances and Agents was ratified by Law of 10 March 2010.
Pursuant to the Convention, each Member State shall determine the carcinogenic substances and agents to which occupational exposure shall be prohibited or made subject to authorization or control and established an appropriate system of records. The State shall ensure the notification of the employees about respective risks and their regular medical examination.
International Labor Organization Convention No. 161 of 1985 Concerning Occupational Health Services was ratified by Law of 10 March 2010.
Pursuant to the Convention, each Member State shall develop progressively occupational health services for all workers, including those in the public sector and the members of production co-operatives, in all branches of economic activity and all undertakings.
LAW OF INTELLECTUAL PROPERTY
Letter of the Ministry of Justice "Concerning the Effectiveness of Instruction on the Procedure for Payment of Compensation for Discoveries, Inventions and Innovation Proposals of 15 January 1974" of 24 March 2010 No. 2609-0-33-10-34.
The Ministry of Justice in its Letter explained that Instruction on the Procedure of Payment of Compensation for Discoveries, Inventions and Innovation Proposals of 1974 is still effective in Ukraine before a new piece of legislation is adopted regarding the same issue.
For further information please contact
Oleksandr Padalka or Oleksandr Vygovskyy.