The Ministry of Economy proposes to improve the performance of corporate agreements between business partners

The Ministry of Economy proposes to increase the efficiency of corporate agreements between business partners. This department expects to do this by severely limiting the possibility of reducing the amount of penalties in case of their violation, as well as by judicially recognizing the shareholder as voting in accordance with the agreement, and not contrary to it.

The Ministry of Economy has prepared draft amendments to the Civil Code, laws on JSCs and LLCs, which provide for the fine-tuning of the mechanism of corporate contracts. Such agreements are entered into between business partners to consolidate agreements (for example, on voting or disposal of shares) and to avoid conflicts, but are often nominal. In this regard, the Ministry of Economy is developing additional guarantees for their execution – the first attempt was made in 2021 (see Kommersant of November 3).

The key innovation introduced to the project during this time is the consolidation of the possibility of a non-public company to be a party to the agreement. As Ilya Torosov, First Deputy Head of the Ministry of Economy, explained to Kommersant, business proposals are taken into account – “the company will be able to receive additional rights and obligations in accordance with the company’s goals, for example, the mandatory provision of any documents to shareholders.” According to him, the changes are “quite in demand by the business community, and their application will contribute to the development of corporate activities of companies in the market.”

In general, the concept has remained the same: in order to increase the enforceability of corporate agreements, it is planned to quite severely limit the possibility of reducing the penalty established by them as the main measure of liability for breach of agreements. Now, the department explains, the procedure for contesting the amount of the penalty does not create confidence among the parties to the agreement that the “foreseeable and reasonably expected” consequences of a violation of the conditions will occur. According to the project, the reduction is not allowed, unless it is proved that when agreeing on the amount of the penalty, the other party acted in bad faith: the recovery of the fine may lead to it receiving more benefits than it would have received if the counterparty had fulfilled the terms of the contract.

For the same purpose, the consequences of non-compliance with voting agreements are fixed – it is proposed to recognize such a vote as invalid in court or recount it in the voting results as given in accordance with the agreement. It is also proposed to enshrine in the law the mechanism of options within the framework of agreements – we are talking about a joint sale of shares, when one party can join the sale of shares to a third party initiated by a partner (tag-along), or forcing a sale (the selling shareholder requires a partner to join the sale, drag-along).

Some of the proposals of the Ministry of Economy consolidate existing mechanisms, for example, options are already used in corporate agreements, said Zoya Galeeva, managing partner of the Center for working with distressed assets. Also, despite the absence of direct permission in the legislation, Valerian Mamageishvili, senior lawyer at Better Chance Law Firm, adds, the company often already becomes a party to a corporate agreement, however, he calls this innovation a solution to a controversial issue. Among the problems that really need to be settled, Ekaterina Baranova, senior lawyer at BGP Litigation, notes the failure to fulfill the obligation to vote in a certain way – now there is no way to force the counterparty to fulfill it. However, Alexander Panin, managing partner of PB Legal, warns that in cases of “replacement” of a vote, it is important to maintain a balance of interests, “judicial practice will have to avoid the mechanical application of this provision, since otherwise the interests of participants who did not conclude a corporate agreement may be infringed.”

Evgenia Kryuchkova