Pledge of Shares in LLCs substantially improved, inter alia, by allowing irrevocable powers of attorney in favour of lenders
On 27 July 2022, Ukrainian Parliament passed a new Law “On Joint Stock Companies” introducing, inter alia, certain changes facilitating pledges of participatory interests in limited liability companies.
By way of background, Ukrainian law generally does not allow the issuance of an irrevocable power of attorney except in very limited instances, such as securing participants’ obligations under shareholders’ agreements, whereas it is common practice in international finance to issue such irrevocable power of attorneys to ensure effective share pledge enforcement.
In addition, the Ukrainian Law “On Limited Liability Companies” prescribes that enforcement of a pledge over a participatory interest must be carried out through the courts or by way of obtaining a notarial writ, both of which procedures are quite cumbersome, time-consuming and often ineffective.
The above will change as from 1 January 2023. Ukrainian pledgors will be able to issue notarised, irrevocable power of attorneys in connection with pledges of participatory interests in Ukrainian LLCs, and the law will expressly permit out-of-court enforcement of pledges over participatory interests, meaning that lenders will be able to use such typical out-of-court instruments as appropriation, private or public sale as alternatives to court or notarial writ enforcement.
In addition, from 1 January 2024, the new Law will introduce a possibility of depository accounting of participatory interests in limited liability companies. The depository accounting of participatory interests is not mandatory and can be opted for by a resolution of the general meeting of the participants and entering into an agreement with a custodian. A pledge of such dematerialised participatory interests will work similar to that of a pledge of shares in joint-stock companies, meaning that it will be possible to block the pledged participatory interests held on a securities account with the custodian and transfer those in case of enforcement.
Managing Partner Redcliffe Partners
Banking and Finance, Capital Markets and Debt Restructuring
Partner Redcliffe Partners
Banking & Finance, Capital Markets and TMT