Derivative action in Ukraine

On May 1 2016, the Law of Ukraine “On Amendments to some Legislative Acts of Ukraine concerning Protection of Investors’ Rights” (the “Law”) entered in force, has introduced a new class of action in cases between a company and its functionary. The action is a claim for damages caused by the functionary’s acts or failure to act to the company (“Claim for damages”).

The derivative action is not an original idea of Ukrainian legislator; this institute is imported from the legislation of foreign countries (USA, Great Britain, Germany, Japan, etc.), where it exists for many years.

Under the Law a claimant is a company, in which favor the action is brought, and the right to bring such action and the right to represent the claimant is granted to the company’s shareholder who owns 10 and more percent of the company’s statutory fund (Section 8 of Article 28 of the Commercial Procedure Code of Ukraine (the “CPC”)).

The Law does not explain who is supposed to be a functionary, but the list of the persons who are considered as functionaries can be found in the Company Law of Ukraine (Article 23).

Claims for damages shall be considered by the commercial courts at the place of the company’s registration.

The Law provides official publication of notifications of hearing of the cases on the website of the High Commercial Court of Ukraine.
Unfortunately, the Law has some drawbacks. For example, the Law contains some abstract notions, like, “failure to act in case a functionary was obliged to act according to the obligations imposed on him/her” and “other guilty acts of the functionary” (Para. 5, 6 of Section 2 of Article 89 of the Commercial Code of Ukraine), as many of the functionaries’ acts can be ascribed to that definitions.

There are some procedure inaccuracies on the side of the legislator: the CPC provides that third parties, i.e. parties who did not participate in the case, if a commercial court decided about their rights and obligations, have the right to file an appeal (Section 1 of Article 91 of the CPC) and a cassation appeal (Section 1 of Article 107 of the CPC); third parties have the right to file an application to review a commercial court decision after its review in cassation instance (Section 1 of Article 11115 of the CPC). It is unclear from the provisions of the Law, whether a shareholder as a third party, who is affected by a commercial court decision that has a negative impact on the company’s assets or financial situation, can file an appeal on behalf of himself/herself or it can do only a shareholder who owns 10 and more percent of the company’s statutory fund on behalf of the company. It is unclear whether several shareholders who own collectively 10 and more percent of the company’s statutory fund can altogether claim damages.

Though the High Court of Ukraine has already published an Information letter dated 25.04.2016 No 01-06/1474/16 reviewing principal provisions of the Law concerning claims for damages, it failed to cover the abovementioned issues. Apparently, court practice will give its answers to the abovementioned questions.