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"The State Duma May Partly Deprive Minoritaries of Their Rights ". "Grazhdanin i Zakon", 21 June, 2016

Bargains with interest in the process of ordinary economic activity may receive full protection from the claims of minoritaries including claims in court. It comes from amendments to the laws on Joint-Stock Companies (JSC) and Companies with Limited Responsibility (CLR) published on the site of the State Duma. The second reading of the bill is due to take place on the 21st June.

The Editorial Staff of the portal "Grazhdanin i Zakon"

asked Vladimir Mechtaev, the managing partner of the law firm "Attorney FREMM" to analyse changes proposed by the lawmakers:

"The are some new things in order to improve large bargains and bargains with interest: criteria of large bargains are more clear and it is indicated that large bargains transfer of social property for use.

The identification of a large bargain is changed depending on the value of property- it is proposed to compare the balance cost of assets with either the balance cost of alienation, or its price.

On the one hand, the bill contains a closed list of bargains which need to receive a consent (the following approval). On the other hand, it introduces a new norm which allows the necessity of getting a consent of a meeting (or of a board of directors) to strike some bargains mentioned in the statutes of bargains.

It is not necessary to mention the part (beneficiary) in a bargain and terms may be formulated not as a price but, for example, as an indication of the minimum or maximum size of its terms, the alternative variants of the terms of a bargain.

It is also stated that if the decision about an approval of a large bargain (bargain with interest) does not contain anything else, it is valid within one year.

Clarifying the definition of 'interest ' the lawmaker refuses to use the term 'an affiliated person' and introduces the term 'a person in control'.

Bargains within the limits of an ordinary economic activity which do not need coordination are given definitions."

The expert does not agree that new norms are aimed at discrediting minoritaries.

"It is true that in order to challenge a bargain because of irregularities the one needs to have at least one per cent of the shares and everyone notices this novelty. But what is more important, legislators try to formulate norms for large bargains and bargains with interest taking into consideration common practice of the use of existing laws to keep balance between the interests of large and small share-holders (participants) of companies."

Minoritaries are worried that innovations may deprive them of their rights.

Stanislav Danilov, advocate of Pen & Paper, who is in charge of such practices as Corporate Law and M&A and Dispute Resolution thinks that these worries are more likely to prove about small companies where corporate institutions are not well-developed, -

"The new law may appear both as a good and a premature act. It is important to pay attention to the continuing tendency of the legislature to leave aside the opportunity to challenge a bargain on formal grounds, but to recover losses caused by mismanagement instead. It seems that legislators think that bargains will become more stable and the party of the contract which shouldn't bear the risk of challenging a bargain owing to the circumstances beyond its control should be protected. At the same time, the responsibility of management - the board of directors and the Director General who should act exclusively in the interests of the society regardless of the kind of a bargain they strike(large, with interest or an ordinary one) - increases. I suppose that this law will be good for organizations with really working boards of directors where the Director-General doesn't blindly follow the will of shareholders."

According to Stanislav Danilov, as a rule, leaders of big business are experienced and well-trained, and they are aware of risks if they don't act in the interests of the society.

"This law corresponds with their mentality. Probably, lawmakers want to create that kind of management in the corporate culture of the middle business. At the same time, there will be ground for abuse in the small companies, in the middle-sized business where corporate institutions don't work properly."

Experts think that the key questions will be about what an ordinary economic practice is and what prevents bargains from getting preliminary approval.

This aspect of bargain-making didn't use to be under such a scrutiny of the courts because there was a more formal approach to the approval of bargains. From now on, the court will evaluate not only reasonability and effectiveness of the management's actions but also the economic component of business. Arguments of that kind may become more economic.

As it has been mentioned by media, the Parliamentary Committee on Property has already recommended to approve the bill in the second reading.

Kirill Balberov