Companies promised new indulgences regarding the formation of the board of directors
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The Ministry of Economy proposes to introduce a more flexible approach to the formation of boards of directors in joint-stock companies – now the prompt replacement of retired board members is not possible. The problem with the management bodies of the companies escalated against the backdrop of sanctions and the withdrawal of foreign participants from the supervisory boards of JSCs – in some cases this even paralyzed the company’s activities. Lawyers note the systemic nature of the proposed amendments: the creation of a clear and efficient mechanism for the formation of management bodies ultimately increases the efficiency of the company.
The Ministry of Economy has prepared draft amendments to the laws on joint-stock companies and LLCs, correcting the procedure for forming a board of directors (supervisory board) in companies. We are talking about the ability to replace both candidates for members of this management body during preparations for the general meeting of shareholders, and members of the board of directors after the election.
The amendments were needed to preserve the legitimacy of the councils and ensure the effectiveness of their work. Recall that due to sanctions, the work of some companies was paralyzed, including due to the departure of foreign participants from the supervisory boards. Thus, the share of foreigners in the councils decreased from 30% in 2021 to 14% in 2022. As a result, almost a third of the companies have updated the composition of the boards by more than half.
The law adopted in 2022 allowed boards of directors to operate in a truncated composition (at least three people). Later, by decree, the president allowed a number of Russian companies to ignore the votes of co-owners from “unfriendly” countries until the end of 2023, and the Central Bank recommended not to take foreigners to the boards of directors.
However, it is now difficult to quickly replace retired members. “The current law for any change in the composition of the board of directors requires a general meeting of shareholders, at which this body must be re-elected in full. This is a rather lengthy and expensive procedure,” explains Alexander Panin, managing partner of PB Legal.
The draft law of the Ministry of Economy should prevent situations of election and functioning of an incomplete board of directors. In addition, it will be possible not only to form the minimum allowable composition of the board, but also to approve a reserve list – a “bench” for the prompt replacement of retired members of the supervisory board. They can be replaced by electing new members to replace the shareholders who left at the general meeting, and also (if provided for by the charter) by unanimous decision of a non-public company by temporarily appointing new members by decision of the entire board of directors. The amendments also allow for a repeat vote or a meeting of the general meeting of shareholders with the same agenda in the event that the board of directors is not elected at the first meeting.
Among the reasons for the departure of members of the board of directors or a candidate, both objective factors (death, restriction or deprivation of legal capacity, inability to exercise powers by court decision) and the motivation of the member of the supervisory board or the decision of the general meeting of shareholders will be recorded.
According to the founder of the consulting company “Quality of Solutions” Mikhail Fedorov, the simplification of procedures will lead to an increase in the manageability of companies. Oleg Kolotilov, a partner at Kulkov, Kolotilov & Partners, considers the bill to be relevant regardless of the sanctions, since the problem of the loss of efficiency of the board of directors has existed before. According to him, the actual problem of the departure of foreign participants was not massive. According to Alexander Panin, the project, due to more flexible mechanisms, will reduce the time and financial costs of companies.
Lawyers still have questions about details: for example, a situation may arise when, as a result of the replacement of several members of the board of directors, minority shareholders receive the majority in it, since they did not have enough votes to be elected, but they entered the reserve. Oleg Kolotilov also draws attention to the fact that all decisions require changes to the charter and the actual election of a reserve list, that is, two more general meetings of shareholders will be required before this mechanism starts working.
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