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The Russian Federation's Anti-Raiders Law
Practical Law UK Articles 2-500-7335 (Approx. 5 pages)
The Russian Federation's Anti-Raiders Law
by Igor Ostapets , White & Case LLP
| Published on 12 Nov 2009 • Russian Federation |
This Special Update provides a brief overview of Federal Law No. 205-FZ "On Amending Certain Legislative Acts of the Russian Federation," dated 19 July 2009 (the Law).
The Special Update discusses amendments introduced by the so-called "anti-raiders package," which has been prepared over the last couple of years. The Law amends 17 Russian laws, including:
- Law on Joint Stock Companies (JSC Law).
- Law on Limited Liability Companies (LLC Law).
- Law on Securities Market.
- Commercial Procedure Code (Code).
- Administrative Offences Code.
The Law aims to combat hostile takeovers, reduce the number of corporate conflicts and protect the rights and legitimate interests of shareholders and investors.
Below is a brief overview of the most important provisions of the Law.
Amendments to the Commercial Procedure Code
The Law makes a significant number of amendments to the Code. In particular, it is aimed at ensuring the consistency of court acts adopted with respect to commercial disputes and providing information on the disputes to the company (and its shareholders), with respect to which the disputes arose.
Corporate disputes' jurisdiction
The Law introduces a category of corporate disputes, the resolution of which is subject to special jurisdiction of the commercial courts. The category includes disputes:
- With respect to foundation, reorganisation and liquidation of the company.
- On convocation of the general shareholders meeting.
- On challenging decisions of the companies' management bodies.
The Law also provides that the respective claim must be filed with a commercial court at the location of the legal entity. The request on application for interim measures to secure the property interests under a dispute must be also filed with a commercial court at the location of the respective legal entity.
Information on corporate disputes
According to the Law, the commercial court considering the corporate dispute must post on its website information on that dispute (including information on initiation of the proceedings, progress of the case and the respective judicial acts). The court must also notify not only the participants of the case, but also a legal entity with respect to which the dispute arose, in particular, of initiation of the proceedings, change of a ground or subject of action and also provide copies of judicial acts.
The court may also require the legal entity to notify its shareholders, members of the management bodies, as well as the registrar and/or depositary of initiation of the proceedings, a subject and ground of action and other circumstances of the dispute. In case of failure to provide the respective information, the company's sole executive body or chairman of the management board may be subject to a judicial fine in the amount of RUB5,000 (about US$160).
Joinder of parties
The Law outlines the circumstances when a joinder of parties is possible (that is, when the claim is filed by several claimants or to several respondents). These provisions also apply to corporate disputes. In addition, the Law sets out the procedure for consolidation of claims. The judicial proceeding may be suspended if the court discovers that another court is considering a case with respect to a similar (related) claim and there is a risk of adopting contradicting acts.
Interim remedies
The Law determines particulars of adopting interim remedies and lists such remedies with respect to corporate disputes (including arrest of shares and prohibiting the respondent and other persons from executing transactions with respect to shares). It also provides that the respondent and other persons, whose rights are violated by the interim remedies, may claim for either damages or payment of compensation. The maximum amount of compensation is RUB1 million (about US$32,000).
Requests to call the general shareholders' meeting
The Law sets out the particulars of the review of cases forcing the legal entity to call the general shareholders' meeting. In particular, the term for reviewing such cases must not exceed one month from the day when the claim was filed with the court. The court decision must be executed immediately (if the decision does not provide otherwise).
Protection of rights and legitimate interests of a group of persons
The Law introduces a new chapter of the Code which regulates the particulars of the review of cases on protection of rights and legitimate interests of a group of persons. The procedure for dispute resolution applies also to corporate disputes and disputes in connection with activities of professional participants on the securities market.
Amendments to the JSC Law
Challenging decisions of management bodies
General shareholders' meeting
The limitation period for the shareholder to challenge decisions of the general shareholders' meeting is reduced from six to three months from the day when the shareholder became aware or had to become aware of the adopted decisions and circumstances being the basis for its invalidation.
According to the Law, decisions of the general shareholders' meeting on issues not included in the agenda (save for the meetings at which all shareholders were present), as well as decisions which were adopted in violation of the jurisdiction of the general shareholders' meeting, in the absence of the required quorum or without the required majority of votes for adopting decisions, are considered void irrespective of whether they are challenged in court.
Board of directors
The Law sets out the procedure for challenging decisions of the board of directors by members of the board and shareholders. In particular, if the decision is challenged by the member of the board of directors the court may uphold the decision if the vote of that member of the board could not affect the voting results and the violations committed when adopting the decision are not substantial.
If the decision is challenged by the shareholder the court may uphold the decision if it did not cause damages to the company or the shareholder, or any other negative consequences for them, and the violations committed when adopting the decision are not substantial. The limitation period of such claim is three months.
The Law also provides that the decisions of the board of directors adopted in violation of the jurisdiction of the board of directors, in the absence of the required quorum or without the required majority of votes for adopting the decisions, are considered void irrespective of whether they are challenged in court.
Shareholders' register
The Law introduces joint and several liability (save for certain exceptions) of the company and the registrar with respect to losses caused to the shareholder as a result of share loss or impossibility to exercise rights provided by shares due to the improper maintenance of the shareholders' register.
Amendments to the LLC Law
Constituent Documents
The Law also provides that the foundation agreements of limited liability companies (LLCs) established before 1 July 2009 will no longer have to be amended, while the charters must still be amended to comply with the requirements of the LLC Law (as amended) by 1 January 2010 (for more information, see White & Case update, Amendments to the LLC Constituent Documents).
The amendments entered into force on 22 July 2009.
Transactions with participation interests
According to the Law, the sale and purchase of participation interests pursuant to a pre-emptive right are excluded from the notarisation requirement. It also provides that the participant's or LLC's signature on the request or refusal to exercise the pre-emptive right must be notarised.
The Law provides that if the participant (i) concluded a contract creating an obligation to further execute (subject to certain conditions) a participation interest sale and purchase agreement, and (ii) illegally refuses to notarise the sale and purchase agreement, the purchaser of participatory interests (that performs all the actions required by the contract) may claim in court that the respective participatory interests are transferred to it.
According to the Law, the record on the pledge of participatory interests is removed from the State Register of Legal Entities on the basis of either:
- Joint application of the pledgor and pledge holder.
- A court decision.
These amendments entered into force on 22 July 2009.
Management bodies
The Law provides that the competence of the general participants' meeting may be extended by the LLC charter. However, the Law also lists issues that may not be transferred by the charter to the jurisdiction of other management bodies (for example, amending the LLC charter and deciding on the LLC reorganisation or liquidation).
Decisions of the general participants' meeting on issues not included in the agenda (save for the meetings at which all participants were present) or without the required majority of votes for adopting decisions are considered void irrespective of whether they are challenged in court.
The Law also provides that the court may decide to uphold the decision of the sole executive body, board of directors, management board or manager, if the committed violations are not substantial and the respective decision did not cause damages to the LLC or the participant, or cause any other negative consequences for them.
Reorganisation
The Law amends the procedure for providing the creditors with information on LLC reorganisation. The reorganised LLC must publish a notification on the reorganisation once a month for two months in a State Registration Bulletin.
The creditors are entitled to claim early fulfilment of the LLC's obligations or, if this is impossible, claim for termination of the obligations and compensation for the losses within 30 days of the last publication in the Bulletin.
Major and interested party transactions
The Law amends the JSC Law and the LLC Law provisions on challenging major and interested party transactions of joint stock companies and LLCs.
According to the Law, invalidation of a decision of the general shareholders' meeting/general participants' meeting or the board of directors approving a transaction will not in itself entail invalidity of the respective transaction. The Law also sets out cases when the court rejects a claim to invalidate a major or interested party transaction concluded in breach of legal requirements (for example, subsequent approval of a transaction, absence of evidence of damages caused or to be caused to the company or shareholders/participants, or causing any other negative consequences for them).
The Law will enter into force on 21 October 2009 (save for certain provisions, as mentioned above).