Сorporate governance reform of state-owned enterprises

The adoption of the Law is a component of the European integration process and the program of the International Monetary Fund, aligning Ukraine with the OECD Guidelines on Corporate Governance of State-Owned Enterprises, while considering the conditions of martial law.

Introduced changes

The Law incorporates a number of amendments to various legislative acts (in particular to the Civil and Commercial Codes of Ukraine, the Law of Ukraine "On Management of State Property Objects"), addressing:

• the allocation of responsibilities among the subjects for administration of state-owned assets.

For example, the Cabinet of Ministers of Ukraine is authorized to approve:

• the State Property Policy
  • a strategic document that, among other things, contains justification and goals for keeping State-owned Enterprises in state ownership. The State Property Policy should also include the Policy on Remuneration for managers, members of the supervisory board of State-owned Enterprises and the State Dividend Policy. The State Property Policy is subject to disclosure.
• the procedure for reporting by the supervisory board to the authorized management body of the State-owned Enterprise;
• the procedure for evaluating the performance of the supervisory board;

• the model charter of a state unitary enterprise. The authorized management bodies of State-owned Enterprises (including ministries, other executive authorities) take on the functions of approving the strategic development plan, annual financial plan, annual investment plan, and medium-term investment plan (3 – 5 years), only if the establishment of a supervisory board is not mandatory.

• defining requirements to supervisory board members, expanding their powers, and enhancing their responsibility. A supervisory board is mandatory if the State-owned Enterprise meets the criteria established in the State Property Policy or by the Law (for example, if the government retains a share in the State-owned Enterprise after privatization). The supervisory board consists of 5 – 9 members, and their term of office is 3 years.

The exclusive competence of the supervisory board now includes approval of the strategic development plan, as well as other financial and investment plans, and approval of the declaration of risk inclination for the state unitary enterprise.

Furthermore, the Law contains mechanisms for overseeing supervisory boards: it introduces their regular evaluation, at least once every 3 years, along with reporting by the supervisory boards.

Establishment of an internal control system, which will include compliance functions, risk management, and internal audit, considering the nature, scope, and risks associated with such activities.

The supervisory board is responsible for overseeing the functioning of the internal control system. The principle of fiduciary duties (the duty of independent, diligent, and effective management) is introduced for the officials of enterprises.

Transitional period

The final and transitional provisions of the Law envisage a reasonable timeframe to align the constituent documents with the Law to adopt necessary legal acts. For instance:

• State-owned enterprises established prior to the entry into force of the Law are given 1 year to bring their charters and internal regulations into compliance with the Law;
• Property policies approved prior to the entry into force of the Law shall remain in effect until the approval of the State Property Policy.
• During the martial law and for 12 months from the date of its termination or cancelation, but not more than 3 years from the date of entry into force of the Law, in State-owned Enterprises where the formation of a supervisory board is mandatory under the Law or the charter, the management body/general meeting of the State-owned Enterprise has the right to make decisions on matters that fall within the exclusive competence of the supervisory board until the election of a new composition of the supervisory board.

After the election of the supervisory board, it may review decisions made during its ineligibility.

• The Cabinet of Ministers of Ukraine has a period of 6 months to bring the regulatory framework into compliance with the Law, including the adoption of the State Property Policy.

For additional information, please contact Maryan Martynyuk, Senior Partner, m.martynyuk@moris.law.