Law of Ukraine

“On Collective Investment Institutions”

Date of entry into force:
January 1, 2014

The Law is directed at ensuring attraction and effective allocation of the investors’ financial resources; determines the legal and organizational principles for creation, work and termination of collective investment entities, specifics of management of assets of such entities; and establishes requirements to the makeup, structure and storage of such assets, the specifics of issue, trade, accounting and buyout of securities of collective investment institutions, and the procedure for disclosing information about their work.

Article 1 of the Law provides definitions of terms used in it. For example:
  • assets of a collective investment institutions are the sum of property, participatory interests, property rights and claims, and other assets provided for by laws and legal acts of the Securities and Stock Market National Commission (hereinafter referred to as “Commission”), formed at the expense of the collective investment resources;
  • Single State Register of Collective Investment Institutes (hereinafter referred to as “Register”) is the sum of records about collective investment institutions that contain information determined by the normative legal acts of the Commission;
  • collective investment institution is a corporate or share fund;
  • collective investment resources are monetary funds contributed by the corporate fund founders; monetary funds, and, in cases provided by the Law, other assets, attracted from participants of the collective investment institution; income from operations with assets of the collective investment institution; income accrued on assets of the collective investment institution; and other operational income of the collective investment institution (loan interests, rent (lease) payments, royalties, etc.). Monetary funds contributed by the corporate fund founders are considered to be collective investment resources after the fund is entered into the Register.

The Law applies to social relations that arise in the sphere of collective investment in connection with the creation and work of collective investment entities, in order to ensure guaranteeing the property right for securities of collective investment institutions and protecting the rights of participants of collective investment institutions (Article 2 of the Law).

According to Article 4 of the Law, a participant of a collective investment institution is a person who owns securities of the collective investment institution. The keeper of assets of a collective investment institution, the depositary, auditor (audit firm), assessor of property of a collective investment institution, or their affiliated persons, cannot be participants of the collective investment institution with which they have concluded service agreements. The state, a territorial community, or legal entities with a state- or municipal-owned share of 25 percent or above, cannot be participants of a collective investment institution.

The officials of a corporate fund are the head and the members of the corporate fund supervisory board. The officials of an asset management company of a collective investment institution are the head and the members of the supervisory board, the executive body and the review board, the inspector, the corporate secretary, and the head and members of other company bodies, if the company’s charter provides for forming such bodies. People’s deputies of Ukraine, members of the Cabinet of Ministers of Ukraine, heads of central and local bodies of executive power or local self-government, military servicemen, officials of the prosecution bodies, courts, the Security Service of Ukraine, the militia bodies, or state officials, cannot be officials of the corporate fund or the asset management company of a collective investment institution. Persons with outstanding or unexpunged convictions for property crimes, crimes in the sphere in the sphere of official or economic activity, or persons who committed over three administrative offences on the stock market, cannot be officials of the corporate fund or the asset management company of a collective investment institution (Article 5 of the Law).

Article 6 of the Law determines the procedure for registering a collective investment institution.

Classification of a collective investment institution is envisaged by Article 7 of the Law.

The legal status of a corporate fund is established by Chapter II of the Law.

A corporate fund is a legal entity that is created in the form of a joint stock company and carries out only collective investment activity. A corporate fund does not bear the liabilities of its participants. In case of any offences committed by corporate fund participants, no restrictive sanctions may be applied against the corporate fund and its bodies. Participants of a corporate fund do not bear the liabilities of the corporate fund, and bear the risk of losses related to the activity of the corporate fund only within the limits of the corporate fund shares owned by them. No restrictive sanctions may be applied against the participants of a corporate fund in case of any offences committed by the corporate fund or its other participants.
A corporate fund can be created only by being founded. Merger, division, separation, joining or transformation of a corporate fund is forbidden. Separation of another legal entity from a corporate fund is forbidden. Joining of another legal entity to a corporate fund is forbidden. A corporate fund is considered created and assumes legal entity status on the day of its registration according to the procedure established by the legislation. A corporate fund assumes collective investment institution status on the day when information about it is entered into the Register (Article 8 of the Law).

Article 9 of the Law determines the procedure for founding a corporate fund.

The procedure for holding the founding meeting of a corporate fund is envisaged by Article 10 of the Law.

According to Article 11 of the Law, the constituent document of a corporate fund is its charter. The charter of a corporate fund must contain information about:
  • full name of the corporate fund in Ukrainian;
  • corporate fund type (open, interval, closed);
  • corporate fund kind (diversified, non-diversified, specialized, qualifying);
  • investment fund class, if the corporate fund is specialized or qualifying;
  • membership of the corporate fund in a venture or exchange-traded fund;
  • mention of collective investment as the only type of the corporate fund’s activity;
  • limitations of activity according to the Law;
  • term of the corporate fund, if the corporate fund is fixed-term;
  • statutory capital amount;
  • nominal value and total number of the corporate fund shares;
  • procedure for payment of dividends to the corporate fund participants (for a closed corporate fund), except for cases when the charter states that no dividends are paid out;
  • procedure for calling and holding general meetings;
  • means of informing the corporate fund participants of changes in the general meeting agenda;
  • number and competence of the supervisory board, and its decision-making procedure;
  • procedure for amending the charter;
  • procedure for terminating the corporate fund.

The minimum amount of the corporate fund statutory capital is 1,250 monthly minimal wages, as established by law as of the day of the corporate fund registration as a legal entity (Article 13 of the Law).

Article 15 of the Law envisages that the corporate fund bodies are the general meeting and the supervisory board. The working procedure of the corporate fund bodies is determined by Articles 16-38 of the Law.

According to Article 39 of the Law, a corporate fund can only be terminated by liquidation. Voluntary liquidation of a corporate fund is carried out by decision of the general meeting of the corporate fund participants, according to the procedure envisaged by the Law, with adherence of the requirements of the Civil Code of Ukraine. Liquidation of a corporate fund is mandatory in the following cases:
  • due to the buyout of the corporate fund shares, the value of its assets became less than the minimal amount of a corporate fund statutory capital established by the Law;
  • the term of the corporate fund has expired (for fixed-term corporate funds);
  • the offering memorandum for the corporate fund shares issued for the purposes of collective investment has not been registered within one year after information about the corporate fund was entered into the Register;
  • within one month after expiration of the agreement with the asset management company and/or asset holder of the corporate fund, the agreement was not extended, and no new agreement was concluded with another asset management company and/or holder of the corporate fund;
  • the license issued to the asset management company authorizing it to manage assets of institutional investors has expired, and no new agreement was concluded with another asset management company within 30 working days;
  • the license issued to the asset holder of the corporate fund authorizing it to act as a depositary of securities has expired, and no new agreement was concluded with another collective investment institution asset holder within 30 working days;
  • other cases provided for by law.
Liquidation for the above reasons is done by decision of the general meeting of the corporate fund participants. In case no such decision is made by them, liquidation is done by court ruling, in particular, by application of the Commission or another authorized state body. If no decision to liquidate the corporate fund is made by the general meeting of the corporate fund participants within one month after the term provided for by the charter and regulations of a fixed-term corporate fund, the fund is liquidated by decision of the supervisory board. A fixed-term corporate fund can be liquidated before the time established by its regulations, by consent of all its participants. After a decision to liquidate a corporate fund is made, placement and trade of the fund’s shares is forbidden.

After the assets of a corporate fund are sold, the liquidation commission distributes the proceeds from sale according to the procedure envisaged by Article 40 of the Law.

The legal status of a share fund is established by Chapter III of the Law.

A share fund is the sum of assets that are owned by the participants of such fund on joint partial ownership rights, managed by an asset management company, and booked by it separately from its business results. The minimum amount of share fund assets is 1,250 monthly minimal wages, as established by law as of the day of the corporate fund registration as a collective investment institution. A share fund is not a legal entity and cannot have officials (Article 41 of the Law).

A share fund is created by an asset management company according to the procedure and order envisaged by Article 42 of the Law.

A share fund participant is a legal entity or natural person holding an investment certificate of such fund. Share fund participants have no right to influence the work of the asset management company. No supervisory council is created in the share fund (Article 45 of the Law).

According to Article 46 of the Law, a share fund can only be terminated by liquidation. The share fund asset management company makes a decision to liquidate it in the following cases:
  • the value of the share fund assets became less than the minimal required amount of a share fund assets, and did not reach the minimal required level within six months;
  • the term of the share fund has expired (for fixed-term share funds);
  • the offering memorandum for the share fund investment certificates issued for the purposes of collective investment has not been registered within one year after information about the share fund was entered into the Register;
  • within one month after expiration of the agreement with the asset holder of the share fund, the agreement was not extended, and no new agreement was concluded with another asset holder of the share fund;
  • the license issued to the asset management company authorizing it to manage assets of institutional investors has expired;
  • the license issued to the asset holder of the share fund authorizing it to act as a depositary of securities has expired, and no new agreement was concluded between the asset management company with another share fund asset holder within 30 working days;
  • other cases provided for by the Law.

Funds received from sale of share fund assets in the process of its liquidation are distributed according to the procedure and priority envisaged by Article 47 of the Law.

Chapter IV of the Law is dedicated to assets of collective investment institutions.

Assets of collective investment institutions may consists of securities, monetary funds (including in foreign currency), bank metals and other assets provided for by the legislation. The value of real estate and non-exchange-traded securities may not exceed 50 percent of the total value of assets of a non-diversified collective investment institution. This limitation does not apply to venture funds. Debt liabilities may be part of venture fund assets. Such liabilities may be in the form of bills of exchange, mortgage deeds, claim assignment agreements, loans, and other forms not prohibited by the legislation. A venture fund has the right to grant loans. Loans at the expense of a venture fund’s resources can only be granted to legal entities, provided at least 10 percent of the statutory capital of such legal entity is owned by the venture fund. Venture fund assets may consist entirely of monetary funds, real estate, participatory interest, receivables and non-exchange-traded securities (Article 48 of the Law).

The procedure for determining the value of net assets of a collective investment institute is envisaged in Article 49 of the Law.

Chapter V of the Law is dedicated to securities of a collective investment institution.

Securities of a collective investment institution can only be registered securities. Shares of a corporate fund are exclusively common shares, existing in the non-documentary form. Investment certificates exist exclusively in the non-documentary form. Securities of a collective investment institution are issued by public or private placement. Payment for securities of a collective investment institution is done exclusively with monetary funds, except for cases when payment for securities of an exchange-traded collective investment institution sold or bought back by the issuer is done with an appropriate portion of assets determined by the investment declaration of such institution. Payment for securities of a collective investment institution by installment is not allowed. Each security of a collective investment institution grants its owner the same amount of rights as to the owners of other securities of the same institution. No dividends are accrued or paid on securities of open and interval type collective investment institutes (Article 51 of the Law).

Article 52 of the Law envisages that the offering memorandum for securities of a collective investment institution is a document containing information about the placement of securities of a collective investment institution. The draft of the offering memorandum for securities of a collective investment institution and amendments to the offering memorandum for securities of a collective investment institution are subject to mandatory registration with the Commission, according to the procedure established by the Commission. In case of private placement of securities of a collective investment institution, the draft of the memorandum and the amendments to it are not made public.

The procedure for placement of securities of a collective investment institution is established by Article 55 of the Law.

The estimated value of a security of a collective investment institution is determined by dividing the total value of net assets of the collective investment institution by the number of securities of the collective investment institution traded as of the day of estimate. The offering memorandum for securities of a collective investment institution may set a premium (during sale of securities of a collective investment institution) or discount (during buyout of securities of a collective investment institution) on the estimated value of a security of a collective investment institution that are included into assets of such institution (during sale of securities of a collective investment institution) or retained in assets of such institution (during buyout of securities of a collective investment institution). The above discounts cannot be applied during settlement of accounts with participants in case of liquidation of the collective investment institution. The maximum amount of premiums (discounts) is established by the Commission (Article 56 of the Law).

According to Article 58 of the Law, placement and buyout of placed securities of a collective investment institution is carried out by the asset management company, directly and/or through traders of securities with which the asset management company has concluded appropriate agreements. During placement of securities of a collective investment institution, the trader of securities acts in the name, at the expense and in the interests of the corporate fund or the asset management company of the share fund. During sale of previously bought out securities of a collective investment institute, or during their buyout, the trader of securities acts in its own name, and at the expense and in the interests of the corporate fund or the asset management company of a share fund.

Securities of a closed-type collective investment institution are subject to free trade on the securities market. Securities of an interval-type collective investment institution are subject to free trade during the interval, and exclusively at stock exchanges. Securities of an open-type collective investment institution are subject to free trade exclusively at stock exchanges. Securities of a corporate fund are not subject to obligatory listing. The property rights for securities of a collective investment institution are recorded according to the legislation on the depositary system (Article 61 of the Law).

Chapter VI of the Law determines the entities that provide services to collective investment institutes.

An asset management company is an economic association created according to the legislation in the form of a joint stock company or a limited liability company, which carries out professional activity in managing assets of institutional investors, acting on the basis of a license issued by the Commission. The minimal statutory capital of an asset management company is UAH 7 million. The state-owned share in the statutory capital of an asset management company must not exceed 10 percent (Article 63 of the Law).

According to Article 65 of the Law, the asset management company fee (except for the asset management company of a venture fund) is calculated as a percentage of value of net assets. The fee of the asset management company of a venture fund is calculated as a percentage of value of net assets and/or the increase in value of net assets. The maximum amount of the asset management fee (including the bonus), the procedure for its accrual and payment are established by the Commission. The asset management fee is paid with monetary funds.

An asset management company manages the assets of a collective investment institution on the basis of a license issued by the Commission according to the procedure established by the legislation, by application of the appropriate self-governing organization of professional stock market participants – association of stock market participants carrying out professional stock market activity in managing assets of institutional investors (Article 66 of the Law). A self-governing organization of professional stock market participants – association of stock market participants carrying out professional stock market activity in managing assets of institutional investors, has the right to receive reports prepared according to the procedure established by the Commission, in order to monitor, summarize and analyze them. The Commission has the right to decide to withdraw the license of an asset management company, on grounds established by the legislation as well as in the following cases:
  • the asset management company engages in activity other than managing assets of institutional investors, except for cases provided for by the legislation.
  • multiple violation of the requirements of the Law or normative legal acts of the Commission, resulting in damage to the participants of the collective investment institution, if the fact of violation was established by court;
  • the asset management company does not manage assets of collective investment institutions during two years.
Withdrawing the license of the asset management company constitutes grounds to liquidate the share fund.

Assets of a collective investment institution in form of securities, which are serviced by the depositary system, are booked on the keeper’s securities account. Services in keeping securities of a collective investment institution and accounting for their property rights, as well as servicing the operations of a collective investment institution are provided and carried out according to the legislation. The keeper of a collective investment institute with public placement is a bank that holds a license for security depositary activity, issued by the Commission according to the established procedure. It is not mandatory to conclude an agreement with a keeper to service assets of a collective investment institution with private placement. If a corporate fund or the asset management company of a share fund with private placement concludes such agreement, the keeper of assets for such collective investment institution can be a legal entity holding a license for security depositary activity, issued by the Commission according to the established procedure. Affiliated persons of the asset management company, auditor (audit firm), assessor of property of the collective investment institute, or the depositary, cannot be keeper of assets of a collective investment institution. Each collective investment institution can only have one keeper of assets of a collective investment institution (Article 68 of the Law).

Article 72 of the Law envisages that the assessor of property of a collective investment institution is a business entity that assesses the immovable property during its purchase or alienation, according to the procedure established by the legislation on assessment of property, property rights and professional assessor activity. The assessor of property of a collective investment institution may assess other assets of the collective investment institution in addition to the immovable property. The fee of the assessor of property of a collective investment institution is paid at the expense of the assets of the collective investment institution according to the procedure established by normative legal acts of the Commission and according to the agreement on assessment of property of a collective investment institution. The assessor of property of a collective investment institution assesses its property according to the agreement concluded between the assessor and the asset management company. Requirements to the service agreement on assessment of immovable property of a collective investment institution are approved by the Commission. The following cannot be assessors of property of a collective investment institution:
  • the asset management company and its affiliated persons;
  • the keeper of assets of the collective investment institution, the auditor (audit firm) that service such collective investment institution, and their affiliated persons;
  • the corporate fund and its affiliated persons.

In order to check and verify the accuracy of the annual financial reporting, the asset management company must employ the services of an auditor (audit firm) on an annual basis, to confirm that the above reporting corresponds to the results of its activity. The auditor (audit firm) cannot be an affiliated person of the asset management company (Article 73 of the Law).

The essential terms of agreements with persons providing services to a collective investment institution are determined by Article 74 of the Law.

Chapter VII of the Law, which determines the mechanism for disclosure of information about the work of a collective investment institution, establishes:
  • procedure and means for disclosing information about a collective investment institution (Article 75 of the Law);
  • mandatory requirement for publishing information about an asset management company and a collective investment institution on the company’s own web-site (Article 76 of the Law);
  • specifics for regulating advertising of a collective investment institution and its securities (Article 77 of the Law).

Collective investment activity is regulated by the state and by the self-governing organization of professional stock market participants – association of stock market participants carrying out professional stock market activity in managing assets of institutional investors. State regulation in the sphere of collective investment is carried out by the Commission (Article 78 of the Law).

The final and transitional provisions of the Law establish the specifics of the Law and its particular provisions taking effect.

The Law envisages introducing appropriate amendments to the Economic Code of Ukraine, the Civil Code of Ukraine, the Laws of Ukraine “On Investment Activity”, “On Banks and Banking”, “On Securities and the Stock Market”, and “On Joint Stock Companies”; and declares ineffective the Law of Ukraine “On Collective Investment Institutions (Share and Corporate Investment Funds)”.

The final and transitional provisions of the Law also establish the work specifics for investment funds created before the Law takes effect.
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