CORPORATE GOVERNANCE REFORM IN UKRAINE AND FIDUCIARY DUTIES: THE DUAL LEGAL NATURE OF THE DUTY OF CARE

Abstract

With the adoption of the Ukraine Facility 2024-2027 plan by the European Parliament and Council, a qualitatively new stage of reforms aimed at unifying the legislation of Ukraine and the European Union has been launched. One of the key reforms under the said plan is the reform of corporate governance of State assets. It resulted in amendments to a number of legislative acts, including the Civil Code of Ukraine, which for the first time introduced a legal definition of fiduciary duties of loyalty and care. The corporate governance reform goes beyond the public sector, as the legal definition of fiduciary duties of the executive body and supervisory board officials also applies to legal entities of the private law. The purpose of this reform was to bring Ukrainian legislation into compliance with the relevant OECD practices. For this reason, the analysis of the content of the fiduciary duty of care was undertaken with the assistance of such a soft law instrument as the G20/OECD Corporate Governance Principles 2023. The study reveals that the duty of care has a dual legal nature: on the one hand, it is a set of formal requirements for a quality management decision, and on the other hand, it is a rule that exempts officials from liability for damages caused to a legal entity if the management decision was made on a fully informed basis, in good faith and without a conflict of interest. Such rule is known in US legal doctrine as the business judgement rule, and it exists in various forms in all countries that implement best corporate governance practices. Even though the business judgement rule is an integral part of the duty of care, it has not been incorporated into the legal definition of fiduciary duties. In addition to remedying this gap, it appears that the next step in the implementation of best corporate governance practices in Ukraine would be the development of legislation aiming to establish a basic standard for assessing the actions of officers and to define the limits of court interference into the officers' discretion during the assessment of fulfilment of the fiduciary duties.