On 8 March 2024, Law of Ukraine No. 3587-IX (“Law”) came into force, intending to bring Ukrainian laws on the governance of state-owned enterprises (state unitary enterprises and business entities where the state holds more than 50% of shares) (“SOEs”) in line with the OECD Guidelines on Corporate Governance of State-Owned Enterprises.
This Law will increase the transparency of their operations and create a more favourable environment for attracting private investment.
Key provisions
- Supervisory boards
Every SOE must introduce a two-tier management structure with a supervisory board if that SOE meets the criteria yet to be approved by the Government of Ukraine. The Law sets out the rules for the supervisory board operations and supervisory board member responsibilities, including (a) the composition of the supervisory board (with a majority of independent members), (b) fiduciary duties of the members to act for the benefit of SOE and all its owners (shareholders), and (c) an exhaustive list of grounds for early termination of powers of a supervisory board member. The Law also sets out broad powers of supervisory boards, including the authority to appoint and dismiss CEOs and to approve SOE’s strategic development plans, investment, and financial plans, as well as monitor their implementation. - State Ownership Policy and the owner’s letters of expectations
Under the Law, the Government of Ukraine must approve the State Ownership Policy, which will (a) define the objectives and purpose for SOEs, (b) classify strategic enterprises and set criteria for privatisation or retention in state ownership, and (c) set out the remuneration policy for SOEs’ executives and the state dividend policy. Based on the State Ownership Policy, the general meeting or the competent governing body of SOEs annually approves the owner’s letter of expectations, with due regard to which SOEs develop financial, investment, and strategic plans. - Internal control of SOE and performance evaluation of SOE’s supervisory board
SOE must establish an internal control system encompassing compliance, risk management, and internal audit. The system must be tailored to its activities and overseen by the supervisory board. Every three years, the Government of Ukraine determines the assessment procedure for the supervisory board’s performance, including criteria for involving an independent consultant and his selection procedures, evaluation criteria, and decision-making processes.
Further steps
Within six months after the Law comes into force, the Government of Ukraine must adopt regulations necessary to implement the Law, including the State Ownership Policy and criteria for SOEs to introduce a two-tier management structure. In turn, SOEs are required to bring their operations into compliance with the Law (in particular, by updating their charters and by-laws accordingly) within one year of the Law’s entry into force.
By Mykola Stetsenko, Managing Partner, and Yuriy Nechayev, Partner, Avellum
