CASE STUDY

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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

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DESCRIPTION OF THE SITUATION

• A Joint Stock Company in Luhansk oblast
• A shareholder, dissatisfied with the decisions of
  a shareholders meeting, brought an action to
  invalidate the meeting ....
• ... and won the case

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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

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DECISIONS OF THE MEETING

• Supervisory Board elected
• Changes to the charter adopted (the first since
  1996!!!)
• 11 by-laws adopted

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GROUNDS FOR THE SHAREHOLDERS 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

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FACTS, ESTABLISHED BY THE COURT

• There was no proof of personal notification and
  publication of 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.)

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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

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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?

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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

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THE COURT GAVE THE FOLLOWING REASONS FOR ITS
DESICION

• Considering that decisions of the meeting did
  not violate any of the shareholders rights
  (!!!),
• INDIVIDUAL VIOLATIONS OF TECHNICAL PROCEDURES
  cannot be a justification to invalidate such
  decisions

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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

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SOLUTION

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

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For additional information, please contact

• International Finance Corporation
• Ukraine Corporate Development Project
• 4 Bohomoltsya Street
• Tel. [phone]
• http//www.ifc.org/ukraine