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“The team was recently visible advising on a number of pharmaceutical cases. Sources agree that the team is “moving in the right direction” and are particularly impressed by its work in the pharmaceutical sector”.

 

Reduction of Quorum in LLC Will Launch a Wave of Corporate Conflicts

06.08.2015

Evgen Solovyov, Attorney at Law at Ilyashev & Partners Law Firm
Source: Business

On July 14, 2015, the Verkhovna Rada adopted in the first reading a draft law No.2757 “On Amendments to Article 60 of the Law “On Business Associations” (regarding reduction of quorum of the general meeting of limited liability company). The draft envisages reduction of quorum of the general meeting of limited liability company from the current 60% of votes of members of LLC present at the meeting to 50%. Whether the new law is needed and what may be the consequences, BUSINESS cleared up with Evgen Solovyov, attorney at law, Ilyashev & Partners Law Firm.

– The draftsman states that a new law is necessary for regular activity of the Ukrainian LLCs. In your opinion, it is really so?

– The fact that this draft law is very controversial is proved by the results of voting in the first reading – 226 deputies, i.e. minimum required quantity, cast affirmative votes. It should be noted that for more than 20 years of validity of the Law of Ukraine “On Business Associations” when starting a business and building a corporate structure the founders proceeded from the quorum effective all the time 60% +1 vote and, accordingly, a blocking shareholding of 40%. Reduction of quorum has been discussed for a long time, but every time it remained just talking, so business has become accustomed to it and many people were not ready for such developments. Therefore, the initiators of the draft law dissemble much when they say that it is done to protect rights of members by depriving the owners of 40% shareholding of the opportunity to block management activities. When distributing participatory interest during creation of the company the members initially had it gone and agreed to it.

– What immediate consequences do you see?

– It is safe to say that if this draft law is passed as a whole in its current wording, the number of conflicts will increase. It is necessary to take into account that LLC is the most common form of business entity in Ukraine. Probably, most of these situations will remain invisible to the public, but they will not become less important for a large number of founders who will lose a blocking shareholding and the opportunity to influence the situation. Thus, it will cause another destabilization, because development of the Ukrainian business is not so much prevented by the law itself, its absence, direction or imperfection, as by the constantly changing rules of the game.

– In your opinion, what amendments should be introduced in the draft law when preparing for the second reading?

– It is necessary to set a transition period, which in this case will be calculated not by days or months, but by a few years, so that business would adapt and adjust its arrangements in a regular quiet mode. It is no secret that such laws were adopted for the sake of the enterprises in which the state has 50% + 1 vote. So there is every reason to believe that until the second reading the text of the draft law will be amended. For example, it will envisage that the law will become effective for LLC immediately after its publication. In this regard, I would recall similar recent amendments to the Law of Ukraine “On Joint Stock Companies”, from which approval on March 19 until entry into force on March 27 only a period of 8 days elapsed.

And conflict situations have already occurred, but we do not see them meanwhile, they are still at an early stage. Amendments were actually made for Ukrnafta, and it has already caused and will probably cause a headache to many people. We can only hope for termination of significant change of rules of the game of business in the whole country for the sake of one or more companies for redistribution of property between oligarchic structures.

 
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