IN LEGISLATION — HOLDING STRUCTURE
Novelties in Russian corporate legislation — holding structure.
Currently, in the Russian business practice widespread the concept of "holding". However, in the legislation, this concept does not apply. Many of the problems associated with corporate governance within the group companies remain just that-a theory disclosed in scientific articles. Moreover, not only the law, but Russian judicial practice often does not recognize the group of companies as a single corporate structure. The case related to the transfer of assets from parent company to subsidiary and Vice versa, things that relate to assets outside of the group of companies are often resonant and pass through the three courts for consideration by the Presidium of the Supreme arbitration court.
In legislation on joint-stock companies associated with the possible emergence of the joint-stock company Charter of the right to enter a special mode of approval of the group of companies in our opinion, is fairly progressive, are a step towards full recognition by the Russian legislation the holding structure and will help to avoid various disputes and legal fees that in the Russian judicial practice was the place to be.
The legislator has already taken the first step in the recognition of a holding structure. Article 67.3 of the Civil code of the Russian Federation establishes the principle of shared responsibility and subsidiary companies for transactions concluded by the subsidiary company pursuant to the instructions or with the consent of the basic economic company (paragraph 3 of article 401), with the exception of cases of vote primary economic partnership or company regarding the approval of the transaction at the General meeting of participants of subsidiaries, and approval of the transaction by the management body of the main economic company, if the need for such approval is provided by the Charter of the subsidiary and (or) mainstream society.
Article 67.3 was also introduced relatively recently, Federal law No. 99-FZ dated 05.05.2014 "On amendments to Chapter 4 of the civil code of the Russian Federation and on invalidating certain provisions of legislative acts of the Russian Federation".
Consequently, the Ministry discussed the amendments to the legislation on joint-stock companies concerning the introduction of new possibilities of approval of the transaction by the parent company in our opinion, will provide a necessary Supplement and extension of the provisions of the Civil code. It will truly be relevant and progressive step towards recognition by the legislator of a special regime of management within a complex corporate formations, cut costs, and in the future will contribute to the preservation of assets within groups of companies, capitalization of shares, and also contributes to the systematization of legal regulation, establishing a unified instrument for the legal protection of the property of the group of companies and minority shareholders.
However, it is safe to say that such a step would be fully sufficient to establish a clear system of control within a holding company structure, as well as, the most effective protection of minority shareholders ' rights, as often, the subsidiaries are created specifically in order to withdraw assets from the primary companies.
Thus, it is possible to form two positions on this issue:
1) approval of the transactions at the level of the parent company will not be able to prevent the withdrawal of assets through subsidiaries.
2) approval of the transactions at the level of the parent company will be able to prevent the withdrawal of assets through affiliates
Position No. 1:
Judicial practice on this issue is really controversial. It is not always clear which remedy to choose in order to prevent the withdrawal of assets through subsidiary companies, particularly in the case where subsidiaries are created for the withdrawal of assets of the parent company. And in this case we can speak about the correctness of item No. 1, when approval of a transaction at the parent level will not be able to prevent the withdrawal of assets through subsidiaries.
What to do in this case?
Currently, widespread Institute, prosecute the top management of companies for losses incurred, including a withdrawal of assets through subsidiaries.
A striking example is the resonant case, "the Kirov factory" which was considered at the Presidium of the Supreme Arbitration court of the Russian Federation, they adopted a Resolution dated 06.03.2012 № 12505/11.
The essence consisted in the following:
In 2007, JSC "K." (hereinafter — the parent company) established its subsidiary, OOO "P." (hereinafter — the Subsidiary) and contributed to the Charter capital of 580 million RUB Then a Subsidiary has acquired shares constituting 66% of the Charter capital of "P" (hereinafter — Share), the transaction price is 612,8 mln.
During two months there were the following transactions on the transfer of rights to a Share: owning a Share of the General Director of mainstream society and his mother sell its share to a Cyprus company in which they are wholly owned by the shareholders. Cyprus company sells a Share of a company registered in the British virgin Islands (hereinafter – BVI), which in turn makes a deal with the Russian limited liability company (hereinafter LLC). After that, the right to Share proceeds from the Russian company to the Subsidiary.
A minority shareholder of OJSC "K." appealed to the Director General (hereinafter referred to as GD) on recovery in favor of the leading companies 579 517 000 in damages subject to the calculation of the market prices of trades conducted by the Subsidiary company to buy the Shares.
The minority shareholder has considered, first, that the transaction in which the shares were taken up by the Subsidiary, was between related companies and, second, the cost Share was too high. Trying to prove an argument about the connectedness of participants of transactions on transfer of rights on the Share, the plaintiff pointed to the fact that the transaction was carried out within a short time period — two months, they were one and the same object, and the end link of the scheme was affiliated. As for the cost of the transaction, the plaintiff submitted an opinion according to which the true value of the Share was much less compared to the paid by the Subsidiary company.
The courts of all instances have refused to the plaintiff, citing the failure to prove the totality of the circumstances presented to them. However, this argument does not seem convincing to the judges of the RF. Having considered the case, the Presidium has cancelled all previous decisions and has directed it on new consideration to court of the first instance.
As we can see, in this case, the initiative for the withdrawal of assets by a subsidiary of the company came from the CEO of the parent company. In this case, additional approval of the transaction, subsidiaries of the main company would not lead to a positive result, and conversely, could inhibit the protection of minority shareholder rights. The Director could refer to "approval of a transaction at the parent level of the company" that would have been an additional proof of its good faith and reasonable actions. The plaintiff would be harder to prove the fact of causing of losses, it would be more difficult to "transfer" the burden of proof on the unfair and unreasonable of the Director to recover the loss and thus return the derived assets, to contribute to the effective protection of the rights of minority shareholders.
Generally, litigation is the way of the prosecution of a parent for the withdrawal of assets subsidiaries and holding accountable the management of the parent company. Even in Germany a great importance in this area are judicial decisions of the Supreme court, they developed the concept of "long-term and comprehensive impact analysis" in accordance with which introduced a presumption of guilt mainstream society but the precedent of Bremen Vulkan somewhat shifted the emphasis and shifted the responsibility on the management of the parent company. In the Russian practice it is possible to result also in an example Case Maksimova (A60-1260/2009). The Presidium of the SAC No. 14989/11. You can also cite the example of the case number A56-2068/10
Position No. 2:
With regard to item No. 2, under which approval of a transaction at the parent level will be able to prevent the withdrawal of assets through affiliates, judicial practice is quite poor. This position is untenable, since harmonization at the level of the parent company will not be the only determining factor that can hinder withdrawal of assets through subsidiaries. In particular, it will be important interest in the transaction, the affiliated entities.
Conclusions: For whom are current innovations, potential costs in connection with the introduction of a new regime of approval of the transaction groups:
In our view, the amendments will be relevant to very large corporations with complex, stepped holding pattern. In particular, for the so-called "integrated holdings", in which companies associated technological chain in which the probability of affiliation, and relationship management and subsidiary companies is lower than in the small holding or "conglomerate" holding company in which enterprises are not linked by a single economic goal. Only major "integrated holding company" will be interested in the approval of special procedure of approval of the transaction by the parent company.
Moreover, the proposed innovations will be attractive for large holding companies with a foreign element, and, in the case where subsidiaries have equivalent stakes in the parent companies.
Difficult if this company's activities?
In our opinion, the answer to this question depends more on the organization of work of office management in the organization, level of professionalism, as even the most advanced legal instrument in unskilled hands can lead to very adverse consequences. In this case, the positive effect of the approval of the new management regime in the holding structure will be important for the investment attractiveness of Russian business. And management costs, which can lead to such legislative changes will be offset by involvement in the Russian economy needed foreign investment, foreign companies will be more willing to invest in Russian companies, when they see a clear legal mechanism for the protection of their rights.
Thus, these innovations will be the initial step for recognition of a holding structure as a separate economic entity, for approval by the mechanisms of corporate control in the holding structures.
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