A bill has been introduced to the State Duma that changes relations in connection with the acquisition of large blocks of shares in PJSC

The government has submitted to the State Duma a bill changing relations in connection with the acquisition of large blocks of shares in public joint-stock companies (PJSC). Lawyers note that the document not only protects the rights of minority shareholders, including in terms of mandatory repurchase of shares, but also facilitates individual actions of majority shareholders.

On December 25, a government bill was submitted to the State Duma, which is aimed at improving relations related to the acquisition of large blocks of shares in PJSC.

• The bill expands the circle of large shareholders by introducing the concept of “related persons” instead of “affiliated persons.” This is important when determining ownership thresholds (30%, 50% and 75%), after which large shareholders are required to make an offer to minority shareholders.
• Moreover, after the consolidation of 95% of the shares, the majority shareholder receives the right to forcibly repurchase the shares.
• At the same time, a new mechanism is being introduced to protect the rights of shareholders in the event of failure by a person who has received a “high level of corporate control” to fulfill the obligation to make a mandatory offer to repurchase shares.
• It is assumed that the owners of shares may require such a person to repurchase them in whole or in part at a price determined in accordance with the Law “On Joint Stock Companies”.

The current legislative regulation of the institution of transactions with large blocks of shares contains a number of gaps that are abused by persons obliged to send mandatory offers to minority shareholders, experts note. According to Delcredere Bar partner Denis Yurov, individual transactions should result in the right of a minority shareholder to repurchase his shares, but due to the limited list of “affiliates,” such transactions do not create such a legal result. In addition, in practice, a mandatory offer may not be sent within the deadline established by law, notes Valerian Mamageishvili, senior lawyer at Better Chance’s corporate law practice. Bypassing this rule leads to the fact that the cost of the repurchased shares will be lower than the cost of the shares if the deadlines had been met, he points out.

The proposed bill brings clarity to the protections of minority shareholders, making the procedure for acquiring large blocks of shares more balanced.

Thus, according to Mr. Mamageishvili, minority shareholders are given the right to demand that the obligated person send a mandatory offer, the right to compensation for losses or the acquisition of all or part of the securities at the weighted average or market price (depending on which price is higher).

However, the bill makes it easier for large shareholders to act. In particular, according to Valerian Mamageishvili, the requirements for a bank guarantee have been relaxed and other ways of providing an offer (with an independent guarantee) have been added. The duration of the independent guarantee is proposed to be reduced from six months to 22 days. As an alternative to a guarantee, the buyer may provide as collateral government securities that have been traded in organized trading for at least six months.

However, some aspects still require additional specific discussion.

According to the lawyer of AB KIAP Alexander Varchuk, for uniform law enforcement practice it is important to reflect what criteria should be used to determine “controlled” and “controlling” persons.

Also, according to the lawyer, expanding the circle of potential recipients of the mandatory offer is not the most obvious. He believes that the change of the majority shareholder will not fundamentally affect the rights of owners of preferred shares. In any case, they also have other tools to protect their rights, the expert added.

Among the risks of the bill, it should be noted possible manipulations associated with the categorization of the concept of “related parties,” says independent financial analyst Andrei Barkhota. In a number of large companies, management may deliberately implement the migration of independent board members to “independent board members” to neutralize the effect of rapid consolidation, he explained.

Ksenia Kulikova