Published 27 June 2016. Some rules have changed since; ask us for the current position.
The law reforms corporate governance at state-owned companies.
Law No. 1405-VIII of 2 June 2016 "On Amendments to Certain Legislative Acts of Ukraine on the Management of State and Municipal Property" (Про внесення змін до деяких законодавчих актів України щодо управління об'єктами державної та комунальної власності) came into force on 25 June.
It brings corporate governance at state-owned companies into line with OECD standards. It sets requirements for establishing and running supervisory boards at state and municipal unitary enterprises, and for independent audit and disclosure by state-owned enterprises.
Officials of government bodies (heads of ministries) are to be removed from the management of state-owned companies.
The law was passed with the President's proposed amendments. These provide a special procedure for setting up and running supervisory boards at defence-industry enterprises and remove the requirement for state-owned enterprises to publish contracts to which they are a party (with all annexes and specifications) that involve related-party interests or significant business obligations.
The law is expected to make all state and municipal enterprises transparent and to bring a professional approach to their management.
Supervisory boards may now be set up at state and municipal unitary enterprises without corporatisation (previously, supervisory boards existed only in business companies).
The list of enterprises where a supervisory board is mandatory, and the procedure for setting one up, will be determined by the Cabinet of Ministers and the relevant local councils.
Supervisory boards of state-owned enterprises will include state representatives and independent members. Independent members will make up the majority on the boards of all state-owned enterprises, whatever their legal form. The law sets independence criteria for supervisory board members of state unitary enterprises (in particular, civil servants cannot be independent members).
Voting instructions for supervisory board members of all state-owned enterprises, whatever their legal form, have also been abolished. All board members, both independent members and state representatives, will now vote at board meetings at their own discretion.
To improve the quality of management and protect state-owned enterprises from political interference, key management functions pass from government bodies to independent supervisory boards. In particular, the boards will:
- approve the strategy and annual financial plan of the enterprise;
- appoint and dismiss the enterprise's managers;
- set the amount and terms of managers' remuneration;
- set up internal audit units and select the independent external auditor;
- decide on major transactions (except decisions reserved for the general meeting or the governing body) and on transactions in which the enterprise's officers have an interest.
To increase transparency, the annual (including consolidated) financial statements of state-owned companies are subject to independent audit. The Cabinet of Ministers will define which state unitary and joint-stock enterprises this applies to and the criteria for engaging an independent auditor; the relevant local council will do the same for municipal unitary and joint-stock enterprises.
The law also requires state and municipal companies to disclose information about their activities and management. State-owned enterprises must publish their financial statements and auditor's reports, information on their managers and supervisory board members, the amount of their remuneration and how it is set, and information on transactions with the state and local budgets, among other things.
Charters and internal regulations of state and municipal unitary enterprises, and of business companies in which the state or a territorial community holds more than 50% of the shares (interests), created before the law came into force, must be brought into line with it within one year of that date.
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