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The Law of Ukraine “On Amending Some Legislative Acts of Ukraine concerning improvement of legal regulation oflegal entities’ and natural persons – entrepreneurs’ activities” on 10.10.2013 № 642-VII (hereinafter referred to as the “Legal act”) came into force on March 28, 2014. Issues connected with criminal liability for committing corporate raid actions have already covered in the Newsletter on December 25, 2013. Now, due to the entry into force, it is necessary to pay attention to other important changes to legislation on business activity imposed by the Legal act.

The list of actions which entail administrative liability under the Code of Ukraine on Administrative Offences was extended

Henceforth, failure to file the commercial court with a claim for initiation of bankruptcy proceedings of legal entity in due time, in cases stipulated by the law, is considered as the intentional concealment of a stable financial insolvency and entails the administrative liability pursuant to article 164¹⁵ of the Code of Ukraine on Administrative Offences.

The responsibility of arbitration managers for illegal actions in case of bankruptcy was increased. Thus, according to the implemented changes the fact of commitment offense under article 166¹⁶ of the Code of Ukraine on Administrative Offences by property manager, rehabilitation manager or liquidator now is the qualified offense structure and entails imposition of penalty of larger size (from 750 to 1000 tax-free minimum incomes). Moreover, rehabilitation plans and settlement agreements directly included in the list of documents, falsification, concealment or destruction of which are determined as illegal actions during a bankruptcy and provide the liability under the above article.

As for the liability in the sphere of state registration, it is necessary to pay attention to the fact that prior to amendments the Code of Ukraine on Administrative Offences included the exact list of actions which were considered as the violation of the law on state registration of legal entities and natural persons – entrepreneurs under article 166¹¹, while the altered article contains the wording: “and other violations of the law of the state registration“. Such legislative structure significantly expands the grounds for bringing the authorized persons to administrative liability which, in theory, should help to reduce the number of violations committed by state registrars.

Commercial Procedural Code of Ukraine was supplemented by new provisions governing commercial disputes resolution

According to changes, courts are obliged to involve public authorities for participation in court consideration of certain economic cases.

Part 1 of the Article 27 of the Commercial Procedural Code of Ukraine stipulates that in cases concerning property of business entities the share capitals of which include state corporate rights the courts are obliged to involve particular public authority that manages the corporate rights of such business entities, as a third party that does not claim independent claims.

The list of measures to secure the claim, established by the article 67 of the Commercial Procedural Code of Ukraine was changed.

In case of court dispute concerning recognition of ownership of the property and removal it from arrest the prohibition of arrested property sale cannot be imposed by the court due to removal of this measure from the abovementioned list.

The measures which cannot be imposed by the court during the commercial litigation were supplemented by the impossibility to prohibit the implementation by state and/ or local authorities of their powers, assigned under the legislation. Additionally, the amended article establishes that commercial court which hears a case regarding the ownership for company’s shares can issue the decision on securing the claim and prohibit changing the amount of its share capital.

Besides the abovementioned changes the article 67 of the Commercial Procedural Code of Ukraine was supplemented by the provision, under which types of claim securing should correlate with the alleged claims, and shall be used by the economic court only within the subject of the claim and shall not infringe the rights of shareholders (participants) of a company. In particular, the prohibition to perform any acts shall apply only to shares, directly related to the subject of a dispute.

New type of economic sanction in the formliquidation by a court decision was introduced

Before alterations the article 59 of the Commercial Code of Ukraine contained, among others, such legal ground of company’s liquidation of the entity as the cancellation of the state registration. However, the redrafted norm provides the economic sanction in the form of liquidation by a court decision. In this connection, the article 247 of the Commercial Code of Ukraine does not provide the exhaustible list of offences which can lead to imposition of sanction in the form of compulsory liquidation. It is necessary to draw attention on the fact that not amended article determines only one action which could lead to cancelation of the company’s registration: conducting activities that are contrary to law or statutory documents.

Provisions of the Civil Code of Ukraine have also been changed;in particular, the part 1 of the article 110 establishes the range of persons who may apply to the court for liquidation of the legal entity. Thus, in this case, the proper plaintiffs are only participants of such company or appropriate public authorities. Moreover, company’s participants can argue the necessity to liquidate the company only in the even when some violations during its foundation were committed and now it is impossible to eliminate such breaches. Additionally, lawmakers provided an opportunity to public authorities to be appointed by the court as liquidators in case when they have the plaintiff status.

The amended Law of Ukraine “On State Registration of Legal Entities and Natural Persons – Entrepreneurs” includes the new ground for cancellation of legal entity registration

The Law of Ukraine “On State Registration of Legal Entities and Natural Persons – Entrepreneurs” (hereinafter referred to as the “Law on state registration”) stipulates that in case of cancellation of the state registration by a court decision all subsequent registration actions also shall be cancelled.

Thus, according to the part 1 of the Article 31 of the Law on state registration, in case when a state registrar enters in the register the order on cancellation of state registration of changes to the constituent documents of legal entity and reveals that the Unified State Register contains information regarding further registration actions that were done after the cancelled action, state registrar is obliged to notify the court which issued the decision on cancellation. Based on such notification the court takes an additional decision on cancellation of further registration actions.

In this regard, it is necessary to stress the obvious imperfection of the above provision which is as extremely dangerous and can create the grounds for large-scale raider actions. Cancellation of acts of company’s governing body by a court decision is used by raiders as the main “tool” of seizure control over the legal entity. It is obvious that cancellation of certain decisions of a governing body required clear legal grounds. However, with the entry into force of abovementioned amendments actions of raiders were considerably facilitated. Now there is no necessity to search arguments for cancellation of certain, fundamentally important decision, since it is possible to choose any previous act which will be easy to cancel, while registration actions, took place on the basis of all subsequent decisions will be canceled automatically by the court.

Consequently, there is the necessity to mention that the question whether the aforementioned novelties can be considered as the effective step towards implementing the efficient mechanism for preventing the commission of unlawful acts, unfortunately, remains without the unambiguous answer. Thus, first attempts of practical application of amended acts will show whether lawmakers coped with the stated task, or set up new possibilities for abuses and pressure on corporate relations participants.

The above commentary presents the general statement for information purposes only and as such may not be practically used in specific cases without professional advice.

Kind regards,

© TOV "KM Partners", 2014

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