Olexander Martinenko, Partner at CMS in Kyiv, starts his summary of The Buzz in Ukraine by addressing the ongoing judicial reform in the country, noting that the system has been returned to its traditional 3-tiered structure (courts of first instance, appellate courts, and Supreme Court) from the 4-tiered system that was installed by previous President Yanukovych shortly after his rise to power in 2010.
Martinenko explains that “the country is experiencing its first-ever public competition to fill vacant Supreme Court slots.” The Ukrainian Supreme Court is required by law to review all Cassation complaints, Martinenko reports, and itself consists of a two-tiered structure, with separate chambers for separate matters (i.e., a Civil Cassation Court, Commercial Cassation Court, Criminal Cassation Court, Administrative Cassation Court, etc.) and a Grand Chamber for “ground-breaking decisions” to interpret legislation and create precedent (“although nobody refers to it as precedent”). Any and all who satisfy the necessary requirements have been invited to apply to the Judicial Commission, which is examining and evaluating candidates. This procedure is expected to result in 160 of the approximately 220 Supreme Court slots being filled, with the rest to come from “a second wave” in two years or so, after the effectiveness of this first stage has been reviewed and evaluated
A number of positions have already been filled, Martinenko says, and “we believe [the first process] will be completed by summer, and fully functional.” Even in the interim, he says, the Court is “not inactive,” and almost all the Cassation divisions are "working at full speed to the extent possible.”
Otherwise, Martinenko’s provision of the Buzz focuses on significant legislative initiatives, referring to "several new laws that either have already been adopted or are being debated by the Ukrainian Parliament that will provide a more liberal regime for corporate activity in Ukraine."
He starts with a new law affecting companies with majority ownership in the hands of one shareholder. "Normally, in more developed jurisdictions," Martinenko says, "there are so-called 'squeeze-out' provisions. In Ukraine such provisions have been absent from the legislation. But a ‘squeeze-out’ law has been adopted by the Ukrainian Parliament in its initial reading.” According to Martinenko, “they're still debating what the relevant threshold should be – whether it should be 95%, or 92% or 90% – but once they settle on that, they'll allow a majority shareholder who meets that threshold to squeeze out the minority shareholders, providing they pay fair market value for their shares."
The second significant piece of legislation, he says, is the establishment of shareholders’ agreements, which he describes as "a very controversial issue in Ukraine." Martinenko notes that the Supreme Court had, in the past, ruled that Shareholders Agreements should be completely banned, as “in their minds all of the issues related to corporate activity should be regulated by Corporate legislation only." As a result, he explains, “people were using off-shore facilities for those purposes, like entering into shareholders’ agreements at the level of their holding companies somewhere in Cyprus, in the UK, in the Netherlands, or elsewhere, in order to regulate their relations." Martinenko describes this as "a completely wrong approach," and he reports that "Parliament is now debating a new law on shareholders' agreements that will be specifically permitted and will become as regular a corporate instrument as in the United States or elsewhere."
In what Martinenko describes as “yet another ground-breaking move," the Ukrainian parliament has “gotten around to regulating debt-to-equity swaps." The previous rules, he explains, were a "very significant stumbling point, because they prevented to some extent normal business mechanisms being applied in the financing part of corporate activity. In the West, for example, if I am a creditor and either because the debtor is unable to repay my loan and it is willing to proceed with a restructuring, or if I am interested in receiving the debt in that company for a whole variety of other reasons, I can convert my debt into equity of the company.” These exchanges have not been possible in Ukraine for “a whole variety of reasons, including tax reasons and regulatory reasons,” Martinenko reports, but “this snag is being removed right now, so this essentially will become a normal marketing instrument going forward."
"One more interesting thing on the Corporate side," Martinenko says: "The government has decided to do something about state controlled companies, in which the assets are owned by the companies, but the shares are owned by the state. The government has now moved in the direction of opening them up, and in an initial step towards their privatization, they introduced the system of so-called ‘supervisory boards,’ which as a matter of law will be composed of state appointed and independently appointed directors so that they can control the activity of those state-owned or state-controlled companies to the fullest extent possible."
Finally, Martinenko turns to a significant development in the labor/employment area. “The Parliament of Ukraine has significantly increased the national minimum wage,” he reports, ‘bringing it into line with the minimum essential standard of living. And employers will be fined if they bypass that requirement without labor contracts or by paying people in brown envelopes.” Martinenko describes this as “a positive move, because it means our labor market will become more transparent and more civilized. It may have some repercussions because some people may be laid off because their employers will not be able to pay them their official salaries. However, for the ones that will be employed, they'll be employed on the basis of a normal, regular, civilized contracts and terms."