The use of irrevocable PoAs in Ukraine: practical considerations
Mykola Stetsenko
Avellum, Kyiv
Oleksandr Kozhukhar
Avellum, Kyiv
Mark Zaklivenets
Avellum, Kyiv
General framework
Ukrainian law permits the use of irrevocable powers of attorney (PoAs). These are governed by the Civil Code of Ukraine as well as the Law of Ukraine On Joint Stock Companies and the Law of Ukraine On Limited Liability Companies and Additional Liability Companies, as applicable. While irrevocable PoAs are allowed in the context of both limited liability companies (LLCs) and joint stock companies, this article focuses on their use in LLC structures, as these represent the most common corporate vehicle for such arrangements in practice.
Use of irrevocable PoAs is strictly limited to specific purposes set out in Ukrainian law. Outside these narrowly defined cases, such PoAs are deemed null and void. While relevant court practice is currently limited, the Supreme Court of Ukraine has consistently reaffirmed this position, emphasising that irrevocable PoAs may only be granted for purposes expressly permitted by law.
In particular, and in relation to LLCs, an irrevocable PoA may be issued solely for the following purposes:
- to fulfil or secure obligations of participants (shareholders) of LLCs as parties to a corporate agreement (essentially a shareholders’ agreement) – specifically obligations relating to either (a) ownership rights in the company’s charter (share) capital or (b) participant’s (shareholder’s) management powers; or
- in connection with a participatory interest (share) pledge under a pledge agreement, intended to secure the obligations of the pledgor in favour of the pledgee.
Typical use cases for irrevocable powers of attorney include deadlock resolution mechanisms, enforcement of share purchase arrangements (including under drag-along provisions), and other transactional scenarios where reliable execution of corporate actions is essential. That said, the statutory list of permitted purposes does not expressly include share purchase or option agreements, which typically might benefit from an irrevocable PoA mechanism. Therefore, such arrangements must, in practice, be incorporated into a corporate (shareholders’) agreement in order to be validly secured by an irrevocable power of attorney. Failure to do so may render the PoA null and void, as it would fall outside the scope of purposes permitted under Ukrainian law.
Once issued for a permitted purpose, Ukrainian law provides that an irrevocable PoA may not be unilaterally revoked by the principal prior to its expiry, nor may it be delegated to another person (unless explicitly stated otherwise in the document). The PoA may include specific trigger events upon which revocation becomes possible. The PoA remains valid only for the duration of the underlying obligation and automatically terminates once such obligation is fulfilled. Ukrainian law expressly provides for termination of an irrevocable PoA in the event of violation of the principal's rights, though detailed examination of these grounds lies outside the scope of this article.
Unlike in some other jurisdictions – where the inclusion of a specific clause in an agreement (eg, a shareholders’ agreement) may be sufficient to create a valid and enforceable PoA – Ukrainian law requires strict adherence to certain formalities when granting an irrevocable PoA. In particular, notarisation is mandatory in all cases, regardless of whether the PoA is executed in Ukraine or abroad.
Key practical considerations
For an irrevocable PoA to be enforceable under Ukrainian law, the following considerations should be taken into account:
- Careful drafting: the irrevocable PoA must comply with all general legal requirements applicable to PoAs in Ukraine, including a clearly stated date of issuance. As the document is subject to notarisation and enforcement within Ukraine, it is generally expected to follow standardised language and formatting acceptable to, among others, local notary offices.
- Permitted purpose: the PoA must be issued strictly for one of the purposes expressly allowed under Ukrainian law – namely, to fulfil or secure obligations under a corporate (shareholders’) agreement, or in connection with a participatory interest (share) pledge. In practice, the arrangement being secured and the irrevocable PoA are typically drafted in parallel to ensure consistency and compliance with statutory limitations and practical considerations.
- Notarisation and legalisation: as mentioned above, notarisation is mandatory. Where foreign entities are involved in issuing the irrevocable PoA (either directly or via a Ukrainian representative authorised under a separate PoA issued by that foreign entity), additional formalities apply, such as legalisation or apostille, depending on the jurisdiction. A notarised Ukrainian translation of the PoA is also required in similar cases.
- Defined authority: the scope of authority granted under the PoA must be precisely defined. This includes clearly identifying each authorised representative (with full details, including passport information), specifying their powers, and linking those powers to the underlying obligation secured by the irrevocable PoA. In terms of drafting, these elements should reflect local best practices.
- PoA triggering events: the PoA should expressly state the conditions under which it may be exercised (for example, default, breach or non-performance), as well as any specific events that would permit its revocation (unless the parties intend for the PoA to remain irrevocable until its expiry).
- Delegation restrictions: unless the PoA explicitly permits delegation, the appointed representative may not transfer their powers to a third party. If delegation is anticipated or required, it must be clearly authorised in the PoA itself.
- Neutral representative: while the counterparty (such as a purchaser) is often designated as the representative to enforce obligations (such as a seller’s obligation to transfer participatory interests (shares) upon payment), the parties may instead choose a neutral individual – for example, another shareholder, a trusted corporate officer, or an independent law firm – to act under the PoA. To prevent premature use of the PoA (particularly where a significant delay is expected before it may be exercised), the parties may also consider having the document held in escrow by a third party.
This list of considerations is not exhaustive, but highlights the importance of addressing various local formalities and practical nuances. When properly structured, an irrevocable PoA offers an efficient mechanism to manage various risks in transactional scenarios; particularly at closing, where the share transfer sequence of actions is critical.