Discount on corporate discipline – Newspaper Kommersant No. 218 (7419) dated 11/24/2022

The government bill on the extension of counter-sanction easing in terms of corporate law was adopted yesterday by the State Duma in the first reading. This, in particular, is about maintaining the possibility for companies to avoid liquidation if the authorized capital turned out to be higher than the amount of net assets, and about continuing the work of boards of directors in the composition truncated after the departure of foreigners. An innovation among business support measures is the mechanism described in the draft law for the forced transfer of accounting for shares of international companies re-registered in the Russian Federation. Lawyers note that temporary measures have avoided a collapse in the corporate sphere and may be useful in the future. They consider the transfer of registration of rights to shares, rather, only as a “stopping” of the problem of capital blocked abroad.

The State Duma in the first reading approved a government bill extending for 2023 a number of counter-sanction measures in terms of corporate legislation – we are talking about relief introduced in the summer and calculated by the end of this year. Joint-stock companies (JSC) and limited liability companies (LLC) will not be able to liquidate next year if the value of net assets drops below the size of the authorized capital, and also not to reduce it. There are also concessions during the reorganization of public joint-stock companies – securities from shareholders who disagree with this procedure can be redeemed at a cost calculated based on the results of trading on the stock exchange in just one month, and not for the “usual” six months.

Also, JSCs have the opportunity to work with a truncated board of directors until re-election. Recall that this rule was introduced against the background of the exodus of foreigners from Russian companies after February 24. Under the previous regulation, companies would have faced the need to conduct lengthy procedures for the re-election of boards of directors, despite the fact that this body is involved in resolving almost all issues significant to the organization.

In addition to extending existing measures, the adopted draft law also contains an innovation: a mechanism for the forced transfer of registration of rights to shares of international companies that are created in Russia upon re-registration from foreign jurisdictions to special administrative regions (SAR). The amendments enable the Russian registrar to submit an application for the transfer of shares held abroad. If they are accounted for in foreign infrastructure, but on the accounts of Russian depositories that have all the necessary information about the owners, then automatic crediting of securities is also possible.

According to Kirill Nikitin, director of the Vegas Lex law firm, in general, the temporary corporate rules turned out to be in demand by the market and, along with other measures, “allowed to prevent a collapse.” BGP Litigation adviser Elena Rybalchenko also believes that the extension of the temporary rules is justified: “The sanctions pressure is not decreasing, so it’s better to be prepared for different scenarios and lay a straw.”

The mechanism for transferring shares in the Russian Federation, notes Andrey Kramzin, a lawyer at the IEF LEGAL, slightly expands the possibilities for returning a business “to its native harbor” – in particular, in addition to the owners of securities, the persons who manage them will also be able to submit an application for the transfer of shares. As Kirill Nikitin explains, similar rules are established for the regulation of depository receipts issued for shares of Russian issuers. The reason for the introduction of such rules, he believes, is the same – the impossibility of carrying out transactions with shares due to restrictions imposed by foreign regulation. Yury Fedyukin, managing partner of Enterprise Legal Solutions, agrees with this: “It is not difficult to transfer a business, but returning the blocked capital is a problem, and in fact they are “fuel” for the further growth of this business.” The forced mechanism, the expert says, does not allow real money to be “moved” – the transfer of shares will only help to preserve the “shell” of the business, which to some extent will be a way out for companies if it is impossible to work abroad. According to Kirill Nikitin, this “can only stop the problem by postponing the adoption of a final decision on it.”

Evgenia Kryuchkova