Recently, the Law of Ukraine “On amendments to particular legislative acts of Ukraine concerning corporate agreement”, which amended a number of regulatory legal acts regulating the issue of corporate governance, entered into force. The amendments affected the Civil Code of Ukraine and the Laws of Ukraine “On business associations”, “On securities and the stock market”, “On joint-stock companies”.
In particular, this Law introduces such new concepts for the domestic legislation as an irrevocable power of attorney for the corporate rights, an agreement on exercising of the members’ (founders) rights of the limited liability company, and an agreement between the shareholders of the company. Similar innovations also occur in the Law of Ukraine “On Limited Liability and Supplementary Liability Companies”.
It should be noted that these amendments are carried out in the context of cooperation of Ukraine with the European Union in the field of corporate governance and are aimed at raising its level in joint-stock companies and limited liability companies, as well as convergence with the European standards and rules. Thus, the concept of the irrevocable power of attorney for the corporate rights is a novel in Ukrainian legislation.
Legislative provision analysis
As of today, the Law mostly refers to the use of such powers of attorney in relations arising from the shares (rights to shares) and rights (power and authority) in terms of the fulfillment or enforcement of members’ (shareholders’) obligations. However, the subparagraph 1 of Article No. 51 of the Law of Ukraine “On business associations” begins with the phrase “in the case of” and hints at the wider possibilities for using irrevocable powers of attorney in corporate relations. The same phrase is found in the Law of Ukraine “On joint-stock companies”.
The specific subject of the irrevocable power of attorney for the corporate rights is the fulfillment or enforcement of the obligations of the company’s members, the subject of which are the rights to shares or powers of the members. Such power of attorney gives to the creditors or their authorized persons the confidence in the performance of the obligations by the member (debtor).
The procedure for termination of the irrevocable power of attorney must be prescribed in such power of attorney. Thus, the termination of the irrevocable power of attorney is possible in the event of the termination of the obligations, for the fulfillment of which it was issued; its expiration date; granting the consent of the authorized representative to cancel the power of attorney, as well as in the event of the circumstances provided for in the Article No. 248 of the Civil Code of Ukraine, except for the revocation of the power of attorney by its issuer.
The irrevocable power of attorney is the subject to the notarial attestation, even if it is issued by the member, that being a legal entity, and such power of attorney is not the subject to reassignment the rights to the third parties.
Foreign experience
In the international practice, the use of the irrevocable powers of attorney is common during the transactions with stocks that circulate on the open market. The shareholders, who cannot attend the annual general meeting, may issue such irrevocable power of attorney so that another shareholder has the right to vote their shares (proxy voting, or voting based on the power of attorney). In this case, the irrevocable power of attorney gives the guarantees to other shareholders that the shareholder, who has such irrevocable power of attorney, is duly authorized at the time of voting.
Generally the validity of such power of attorney is limited to the current meeting and terminates upon the termination of meeting.
