Strengthening the role of notaries in the affairs of limited liability companies
January 1, 2016 saw the entry into force of a set of sweeping changes1 that significantly alter the rules governing the execution of many corporate actions and transactions by expanding instances of the mandatory involvement of notaries in corporate issues. As of today, a notary's involvement is required in cases of:
The certification of resolutions of the general meeting of participants to increase authorized capital
- The certification of participant withdrawal statements
- The certification of participant offers of intent to sell their company equity to a third party and transactions involving the acquisition of company equity in the process of exercising preferential rights
- Filing statements with the tax authorities in cases of change of a company's participant via the execution of sale-purchase transactions or pledge
The law explicitly establishes the list of documents confirming rights to an equity stake being disposed of.
Please note that, as of January 15, 2016, equity in the authorized capital of a limited liability company passes to the buyer at the time the respective entry is made in the Unified State Register of Legal Entities (USRLE), which will require a new approach to sale-purchase agreements on the part of corporate lawyers.
Long live the option to conclude equity sale-purchase agreements!
As of January 15, 2016, changes have entered into force2 that regulate the procedure for ownership transfer in case of the option to conclude a sale-purchase agreement for equity in a limited liability company. According to the new rules, in cases where there is a notarized irrevocable offer to conclude such an agreement (whether independently or as part of a broader contract for the option to conclude the agreement), the sale-purchase transaction can be concluded via the notarization of the offer's acceptance – even in the absence of the concerned offerer. That said, the notary will be expected to verify that all of the acceptance conditions, in the event any were stipulated in the initial offer, have indeed materialized.
Accuracy of the information contained in the USRLE
As of January 1, 20163, in the event of reasonable doubt as to the accuracy of the information contained in the USRLE, the registration authority is entitled to conduct the respective verification and suspend state registration for a term of up to one month. Moreover, as of January 1, 20164, the procedure for altering the address of a legal entity in the event of a change in its place of business has become significantly more complicated, now unfolding in two stages.
Standard articles of association
December 29, 2015 saw the entry into force of certain provisions5 that simplify the affairs of limited liability companies by allowing them to use standard articles of association (as of today's date, however, the specific forms have not yet been drafted.) In this case, most of the information (company name, place of business, authorized capital level, etc.) will only be reflected in the USRLE, while changes thereto would not entail the registration of a new version of the articles of association/amendments to the old version.
The timeframe for the state registration of legal entities and individual entrepreneurs at the time of their creation has been shortened
As of December 29, 2015, the timeframe for the state registration of legal entities and individual entrepreneurs at the time of their creation stands at not more than three business days (down from the previous five business days) from the date of submission of the requisite documents to the registration authority6.
Changes to the law of obligations in the RF Civil Code
June 1, 2015 witnessed the entry into force of sweeping changes to Section III of the RF Civil Code (RF CC), which deals with matters covered by the law of obligations. The introductions include new contractual arrangements (options, subscription and framework agreements), new contractual mechanisms (representations and compensation of property losses, liability for bad-faith negotiating), new norms governing security (independent guarantees) and new rules for late fees, etc. We have kept you updated on these changes throughout the year. We would be happy to provide you with these overviews at your request.
Law on joint-stock companies – long-awaited changes
July 1, 2015 ushered in a new version of the law on joint-stock companies7 which, among other things, reflected changes to Chapter 4 of the RF CC on legal entities and supplemented some of its provisions. According to the new changes, articles of association can now envision the preferential right to purchase shares at the price established therein. The articles of association of a private joint-stock company can now allow for a number of types/classes of preferential shares conveying different rights, as is the case in many foreign jurisdictions. The law also clarifies the issues at private joint-stock companies assigned to the competence of the board of directors; certain changes have been introduced dealing with a company's compulsory buyback of shares, the procedure for convening and holding general shareholders' meetings (scheduled to enter into force as of July 1, 2016), and the regulation of shareholders' agreements.
Interpretation of the RF Civil Code in Resolution No. 25 of the Plenum of the RF Supreme Court dated June 23, 2015 (hereinafter, the "Resolution")
The Resolution provides some important clarifications and is intended to ensure the uniformity of case law – particularly in connection with the recent sweeping changes to Part One of the RF CC. We touch on some of the key points below.
Among other things, the RF Supreme Court emphasized the good-faith principle by which those participating in civil matters must be guided. Good faith is to be presumed unless and until proven otherwise. Thus, for example, parties are able to rely on the information contained in the USRLE without being expected to check the constituent documents of a legal entity with the aim of identifying possible constraints or restrictions on the powers of its sole executive body or set of sole executive bodies, whether acting independently or in concert (Clause 22 of the Resolution).
The general trend towards the inquisitional process is also reflected in the Resolution. In a series of points throughout the Resolution, the RF Supreme Court methodically encourages the courts to take a pro-active stance. Thus, the RF Supreme Court explores circumstances that clearly point to bad-faith conduct – even if not directly cited by the parties involved (Clause 1 of the Resolution), and comes to the conclusion that the claimant's chosen method of defending its rights cannot, in and of itself, guarantee their restoration (Clause 9 of the Resolution), though it does specify the amount of damages subject to compensation in such cases (Clause 12 of the Resolution).
The RF Supreme Court also clarifies some important provisions on corporate representation (Clause 126 of the Resolution). If a power of attorney has been issued to several representatives, and the terms thereof stipulate that the powers it confers must be exercised jointly, its repudiation by one of the representatives results in termination of the power of attorney as a whole. If, on the other hand, the authorities conferred by the power of attorney are to be exercised separately, its repudiation by one of the representatives does not result in its termination. That said, the RF Supreme Court explains that in cases where a power of attorney has been issued for the purposes of joint representation of the principal's interests and the principal wants to revoke it with respect to one of the representatives thereunder, this does not result in the power of attorney's termination with respect to the remaining representatives.
Consideration of corporate disputes by arbitration tribunals permitted
A law has recently been adopted8 that, among other things, makes certain changes to Article 225.1 of the RF Arbitration Procedural Code. In its reworded version, the article now allows for the referral of certain corporate disputes to an arbitration tribunal (something previously prohibited) and provides an exhaustive list of the corporate disputes that cannot be referred for consideration to an arbitration tribunal. Inter alia, these include disputes involving the convening of a legal entity's general meeting of participants, disputes stemming from the activities of notaries, and a number of others.
In order for a dispute to be referred to an arbitration tribunal, the legal entity, all of its participants, and any other parties acting as claimants or respondents thereunder must conclude a separate arbitration agreement. Such a dispute can only be referred for consideration to an arbitration tribunal within the scope of arbitration proceedings administered by a permanent arbitration institution affirming, submitting and posting on its official website the rules governing the consideration of corporate disputes, with the place of arbitration in the Russian Federation.
FAS Russia must approve joint venture agreements
Among other things, the fourth antimonopoly package9 envisions the necessity, upon the exceeding of certain thresholds, to have FAS Russia approve joint venture agreements concluded between competing business entities within the territory of the Russian Federation.10 It is important to understand that in such cases, inter alia, joint venture agreements are understood to mean contracts under which the parties use various mechanisms to pool their resources in the interests of achieving a common goal and jointly bear the risks associated with such joint activity.
Despite the broad interpretation, a positive development is the fact that the resulting agreements approved by FAS Russia will be exempted from prohibitions against contracts that limit competition.11
Disclose your beneficiaries!
The RF Government has introduced a bill in the RF State Duma12 on the mandatory disclosure of information on the beneficiaries of legal entities. The bill envisions the obligation of legal entities to receive, store and update information about their beneficial owners (with "beneficial owner" understood to mean the party that ultimately owns or controls, whether directly or indirectly (through third parties) more than 25 percent of a company's capital or has the capacity to control its actions) and provide such data at the request of federal executive agencies, as established according to the list drawn up by the RF Government. The bill contains sanctions for the non-performance of this disclosure obligation—an administrative fine in the amount of RUB 30,000-50,000 for officers and RUB 100,000-500,000 for legal entities.
Personal bankruptcy – consequences for business
October 1, 2015 saw the entry into force of certain legislative amendments that usher in the institution of personal bankruptcy.
The main criterion for establishing the insolvency of a private citizen (individual) is the accumulation of delinquent debt for a period of more than three months in an amount exceeding RUB 500,000. Personal bankruptcy claims can be filed by either the debtor or the creditor (on the basis of a legally effective judicial act or in other cases, such as a notary's executive endorsement or further to a demand stemming from a notarized transaction.)
Individuals with a source of income may be exposed to debt-restructuring procedures. In the event the debtor has no such income, or if he fails to abide by said debt-restructuring procedures, his property may be put up for sale. All bankruptcy procedures unfold with the participation of the financial manager, who is vested with broad powers to collect information about the debtor, control his transactions and property, and contest any emerging transactions—both those of the debtor himself and, in certain circumstances, those of his spouse.
The bankruptcy procedure concludes with either the satisfaction of all creditor demands according to the debt-restructuring plan, or with the sale of the debtor's property. That said, provided the observance of a number of conditions concerning the debtor's good-faith conduct, any outstanding creditor demands remaining after the sale of the debtor's property are deemed terminated (discharged). Any individual declared bankrupt is not entitled to participate in the management of a legal entity for a period of three years following the conclusion of bankruptcy proceedings.
The ruble's devaluation – the latest trends
On December 29, 2015, the Moscow Arbitration (State Commercial) Court entered a decision in favor of Vimpel-Communications PJSC (Beeline), pursuant to which Beeline, as landlord, was granted a set ruble-denominated lease rate that had previously been expressed in US dollars. Grounds for reconsideration of the lease agreement were provided by a material change in circumstances (Article 451 of the RF CC); namely, the change in the RF Central Bank's monetary policy and shift to a floating ruble exchange rate and, as a result, its sharp devaluation.
However, for the purposes of certifying the onset of Acts of God (force majeure), the Board of the RF Chamber of Commerce and Industry13 noted that such circumstances do not include, inter alia, the financial-economic crisis, changes in foreign-currency exchange rates or the devaluation of the national currency.
Footnotes
1. RF Federal Law No. 67-FZ on Amendments to Certain Legislative Acts of the Russian Federation Designed to Ensure the Accuracy of the Information Provided Under the State Registration of Legal Entities and Individual Entrepreneurs of March 30, 2015 ("RF Federal Law No. 67-FZ").
2. RF Federal Law No. 391-FZ on Amendments to Certain Legislative Acts of the Russian Federation of December 29, 2015.
3. RF Federal Law No. 67-FZ.
4. Ibid.
5. RF Federal Law No. 209-FZ on Amendments to Certain Legislative Acts of the Russian Federation Governing the Use by Legal Entities of Standard Articles of Association of June 29, 2015.
6. RF Federal Law No. 67-FZ.
7. RF Federal Law No. 210-FZ on Amendments to Certain Legislative Acts of the Russian Federation and Annulment of Certain Provisions of the Legislative Acts of the Russian Federation of June 29, 2015. Certain norms enter into force as of October 1, 2015, with others slated to enter into effect as of January 1 and July 1, 2016.
8. RF Federal Law No. 409-FZ on Amendments to Certain Legislative Acts of the Russian Federation and Annulment of Clause 3, Part 1, Article 6 of the RF Federal Law 'On Self-Regulating Organizations' in Connection with the Adoption of the RF Federal Law on Arbitration (Arbitral Proceedings) in the Russian Federation of December 29, 2015.
9. RF Federal Law No. 275-FZ on Amendments to the RF Federal Law 'On the Protection of Competition' and Certain Legislative Acts of the Russian Federation of October 5, 2015 (entering into effect on January 5, 2016 (with the exception of individual provisions)).
10. See the FAS Russia clarification on the procedure and method for analyzing joint venture agreements here.
11. Article 11 of RF Federal Law No. 135-FZ on the Protection of Competition of July 26, 2006.
12. Bill No. 965365-6 is available on the official RF State Duma website here.
13. Resolution No. 173-14 of the Board of the RF Chamber of Commerce and Industry "Statute on the Procedure for the Certification of Acts of God (Force Majeure) by the Chamber of Commerce and Industry of the Russian Federation" of December 23, 2015.
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