Russian Federation: New Legislation Bolsters Shareholders’ Rights To Information And Extends The Terms For Shareholders’ Meetings

Last Updated: 21 October 2011
Article by Evgenia Korotkova and Conor Durkin

Russian Legal Update - Third Quarter 2011

Recent draft amendments to the Law on Joint-Stock Companies (the "JSC Law") propose to increase the information that a joint stock company ("JSC") must provide to its shareholders when requested and extends the terms for holding extraordinary shareholders' meetings. The most significant proposed change is the obligation of the JSC to provide its shareholders with documents on companies controlled by the JSC directly or indirectly subject to the commercial secrecy regime.

The proposed amendments to the JSC Law were adopted by the RF State Duma on June 6, 2011, in its first reading (the "Draft Law"). The Draft Law may be further amended by the upper house before it is signed into law.

Additional Information to be Provided to Shareholders under the Commercial Secret Regime

The Draft Law grants shareholders access to documents concerning companies that are either directly or indirectly controlled by the JSC. However, access to accounting documents and the minutes of the executive body of the JSC can only be provided to those shareholders who hold not less than 25% of the shares in the JSC. The proposed modification is intended to prevent situations in which a JSC transfers its business activity to company(ies) under its control in order to conceal the status of its activities from its shareholders.

An extended list of information to be kept by the JSC and to be provided to its shareholders also includes the following:

  • contracts concluded with the registrar of the JSC, its auditor, managing company or manager;
  • contracts that are subject to approval by the JSC, such as major and interested party transactions;
  • contracts under which an entity is able to influence decisions made by the JSC or under which the JSC is able to influence a decision of another entity; and
  • contracts that contain mandatory instructions to the JSC from its parent company, and contracts concluded by a JSC for the purpose of fulfilling such instructions.

The Draft Law also proposes a commercial secrecy regime for shareholders obtaining information. Categorizing information as a commercial secret in order to avoid providing such information to shareholders has been a popular means of denying shareholders important information. The Draft Law addresses this issue by allowing shareholders access to information deemed to contain commercial secrets, provided that the shareholders sign an acknowledgement letter to comply with the commercial secrecy regime.

In order to impose liability on a shareholder who breaches the secrecy acknowledgment, the JSC must establish an internal commercial secrecy regime in accordance with Section 10 of the Federal Law "On Commercial Secrets," No. 98-FZ, dated July 29, 2004 (as amended).

Extension of Terms for Holding Extraordinary Shareholders' Meetings and Other Important Modifications

The Draft Law also provides new time requirements extending the notice period for holding shareholders' meetings, as follows:

  • from 40 to 70 days (after a request for the meeting has been made) for holding a shareholders' meeting convened at the request of an internal audit commission (auditor), external auditor of the JSC, or a shareholder(s) holding not less than 10% of the voting shares of the JSC;
  • from 70 to 105 days (after a request for the meeting has been made) for holding a meeting if the proposed agenda of an extraordinary shareholders' meeting includes a question on electing members of the board of directors of the JSC;
  • from 40 to 65 days (after a decision to convene has been adopted) for holding a shareholders' meeting where the board of directors is obligated to adopt a decision to convene an extraordinary shareholders' meeting (where a shorter term is not provided by the charter of the JSC);
  • from 90 to 100 days (after a decision to convene has been adopted) for holding a shareholders' meeting where the board of directors has convened an extraordinary shareholders' meeting to elect members of the board of directors of the JSC (where a shorter term is not provided by the charter of the JSC).

The Draft Law also sets a five day deadline before the meeting for providing information relating to holding shareholders' meetings to the shareholders that are entitled to participate in such meetings. There is no such deadline in the current JSC Law.

Special Auditor

Another new provision proposed in the Draft Law allows a shareholder(s) of a JSC, holding not less than 10% of the share capital, to appoint a special auditor to conduct an extraordinary audit on the financial standing of the JSC and its accounts.

This provision appears to have been introduced to clarify a discrepancy between the JSC Law and Section 103(5) of the RF Civil Code, which permits a 10% shareholder to call an extraordinary meeting.

The Draft Law provides that a JSC must reimburse the shareholder for the services of the special auditor.

The content of this article is intended to provide a general guide to the subject matter. Specialist advice should be sought about your specific circumstances.

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