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CASE STUDY

CASE STUDY. THE RIGHT OF A SHAREHOLDER TO BE INFORMED AND THE RIGHT TO BE REPRESENTED ( an example of two court cases ) By Ms. Vladyslava Ryabota International Finance Corporation. DESCRIPTION OF THE SITUATION. A Joint Stock Company in Luhans’k oblast

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CASE STUDY

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  1. CASE STUDY THE RIGHT OF A SHAREHOLDER TO BE INFORMED AND THE RIGHT TO BE REPRESENTED (an example of two court cases) By Ms. Vladyslava Ryabota International Finance Corporation

  2. DESCRIPTION OF THE SITUATION • A Joint Stock Company in Luhans’k oblast • A shareholder, dissatisfied with the decisions of a shareholders’ meeting, brought an action to invalidate the meeting .... • ... and won the case

  3. BRIEFLY ABOUT THE MEETING • The shareholders’ meeting was conducted in March, 2000 • Quorum was – 74,5% • Representatives of the Securities Commission were present at the registration • There were no violations reported by the Securities Commission representatives

  4. DECISIONS OF THE MEETING • Supervisory Board elected • Changes to the charter adopted (the first since 1996!!!) • 11 by-laws adopted

  5. GROUNDS FOR THE SHAREHOLDER’S ACTION • The shareholder was not personally informed about the meeting • A general notification was not published in the national press • Improperly issued proxies were registered at the meeting

  6. FACTS, ESTABLISHED BY THE COURT • There was no proof of personal notification and publicationof a notice • Proxies were issued by the management board improperly. Some of the violations were technical (a date was written in numbers) and some – substantial (documents were signed in the absence of the shareholders or not by the shareholders at all, etc.)

  7. COURT DECISION • All proxies (that in total constituted 37% of the votes) were recognized as invalid • The shareholders’ meeting was recognized as invalid due to the absence of a quorum (74,5 – 37 = 37,5) • All decisions of that meeting were nullified

  8. THE CASE ANALYSIS • The court decision was correct in principle, but… • There were no regulations for the issuance of proxies by the management board, hence, the management board might not have realized that it violated the rights of shareholders • The court remained silent on the issue regarding the lack of notification of the shareholder.... A chance decision or a precedent?

  9. AT THE SAME TIME SOMEWHERE IN ZHYTOMYR • A shareholder, holding a 25% stake, brought an action to invalidate decisions of a shareholders’ meeting • The only grounds for the suit was the lack of personal notification and publication in the press • The shareholder lost the case

  10. THE COURT GAVE THE FOLLOWING REASONS FOR ITS DESICION: Considering that decisions of the meeting did not violate any of the shareholder’s rights (!!!), INDIVIDUAL VIOLATIONS OF TECHNICAL PROCEDUREScannot be a justification to invalidate such decisions

  11. WHY IT HAPPENED? In Ukraine, there is no special legislation for the regulation of both issues – issuance of proxies by the management board and the consequences of not providing notice of a meeting, and, hence: in both situations the court decided these cases by analogy, but did not consider the specifics of corporate relations

  12. SOLUTION • Development of special legislation (in particular, adoption of a new Law “On Joint Stock Companies”) • Implementation of National Corporate Governance Principles • Education

  13. For additional information, please contact: International Finance Corporation Ukraine Corporate Development Project 4 Bohomoltsya Street Tel. (380-44) 253-0539 http://www.ifc.org/ukraine

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