Among these were specialized installation entities (Specialized Building and Construction Works for Electrification of the Moscow Railway Junction (Rb 1065.41m) and Elekrotsentrmontazh (Moscow, Rb 330m), Moscow research institutes (NIITECHIM (Rb 554.615m), Vitamin Research Institute (100%, Rb 491,546m), MNIIRS (Rb 355.175m)), agricultural sector enterprises (OJSC Doskoye (Rb 476.49m) and the First Horse Cavalry Stud Farm (Rb 303m) (both are located in the Rostov Oblast)). Also Buryatia Hotel and Tourist Complex (Ulan-Ude, Rb 508.2m). The overwhelming majority of the foregoing cases included the sale of 100% participatory interest held by the state1.
Therefore, it may be suggested that the emerged investment priorities mean the opportunity to have access to sought-after resources (land, immovable property in major cities) and largescale cash flows, which in markets with high entry barriers created through capital-intensive and highly specialized equipment must generate the demand of natural monopolies with potential co-financing on the side of the state, rather than interest in the offer to run business in one or another sector of the economy.
An effort to launch a large-scale sale of other property assets as part of the treasury of Russia became another specific feature of privatization in 2011.
In 2010, decisions on the terms of privatization of such assets (only 10 property assets) were made and publication of information announcements of sale were published not until the very end of the year, while the results were summed up as early as the beginning of 2011: six of the eight property assets were sold for a total of Rb 196.91m www.rosim.ru Section Institutional Issues Of 132 property assets subject to sale under the Privatization Program for the period of 2011–20131, and 86 of those offered for sale, the results in 2011 were summed up only for property assets, of which only three were sold at no more than Rb 5m, and no sale took place for 13. Eleven sales of other property assets for a total of Rb 84.3m have been recognized as completed since the beginning of 2012. Therefore, no success was achieved.
Nevertheless, the amount of the proceeds generated in 2011 from sale of the federal property subject to privatization totaled Rb 121.44bn, i.e. 2.5 times as much as the total amount of revenues generated from the this source in the previous four years (2007 thru 2010), as the Ministry of Economic Development and Trade of Russia and the Federal Agency for State Property Management reported. More details on the federal budget revenues from privatization and usage of state-owned property assets are provided in other sections herein based on the budget statistical data.
6.1.3. Updates to the Law on Privatization The law on privatization was constantly improving during the previous year, like the year before that2.
Four federal laws were issued a time in July 2011 to amend and update the Law “On Privatization of Public and Municipal Property” of December 21, 2001, (No. 178-FZ). The Federal Law of July 1, 2011, No. 201-FZ, was considered most important, as it intended to amend the applicable Law on Privatization, whereas the other three laws updated the same in the context of other legislative initiatives.
The following significant amendments and updates to the Law were made:
- it is accepted that disposal of 15 categories of property which are not covered by the law3, can be regulated not only by other federal laws, but also other regulations (only regulations adopted under federal laws were mentioned previously);
The main part (about 72%) of the treasury property assets included into the program was subject to be included into integrated entities.
See Annual Review “Russian Economy in 2010. Trends and Outlooks (Issue 32)” issued by IET (P. 6.1.5. New Stage in the Implementation of National Policy on Privatization of State-Held Property: Key Priorities and Objectives, Actions and Risks, p. 426-459).
It was in the original version of the law that relations arising out of transfer of property were not supposed to be within the scope thereof, namely transfer of (1) land, safe for transfer of land plots on which property assets are located, including property complexes; (2) natural resources; (3) public and municipal residential properties;
(4) public and municipal property, (5) property assets located outside the territory of the Russian Federation; and in (6) the cased provided for by international agreements (accords) signed by the Russian Federation; (7) faithbased buildings and facilities, including the land plots which pertain thereto, and other faith-based property owned by the state and municipalities which are transfer on a compensation-free basis to faith-based organizations which will use thereof for the faith-based purposes; (8) public and municipal property to non-profit organizations and entities established as a result of transformation of public and municipal institutions; (9) the property assigned to state and municipal unitary enterprises, state and municipally institutions on the basis of economic management or control; (10) public and municipal property on the basis of a relevant court order; (11) shares (interest) in the cases when the Russian Federation, constituent territories of the Russian Federation and municipalities become legally entitled to demand from a joint stock company to purchase such shares (interest).
Later these were complemented with the following types of property: (1) publicly and municipally owned land plots on which buildings, facilities and structures owned by all-Russia societies of the disabled and organizations are located, and these societies are the sole founders of such property being transferred to them on a compensation-free basis (in 2005, this types of property was combined into a single category with faith-based property being transferred to faith-based organizations); (2) the stocks of a joint stock company (OJSC), including securities to be converted into such stocks, in case of retirement thereof pursuant to the procedure set forth in RUSSIAN ECONOMY IN trends and outlooks - the composition of one of the foregoing category of property was extended through transfer of the title of public and municipal property to non-profit organizations (NPOs) established as a result of transformation of public and municipal unitary enterprises (the category previously included the property transferred to NPOs established as a result of transformation of public and municipal institutions, as well as the federal property transferred to public corporations as an asset contribution from the Russian Federation);
- there is a provision for the possibility to privatize unitary enterprises through incorporation thereof not only into open joint stock companies (OJSCs) (as previously) but also limited liability companies (LLCs), which, consequently, resulted in many updates to the text of the law, including the emergence of “business entities” category which within the meaning of it covers a wider population of business organizations;
- it is the size of the charter capital of a company established through privatization that serves as the criterion for bidding of one of the foregoing methods: if the size is smaller than the minimum charter capital requirement for OJSCs established by the Russian laws, a unitary enterprise shall be transformed into LLC, if its charter capital equals or beyond the requirement, it should be incorporated into a joint stock company, but if one of its performance figures (such as (1) average staff headcount, (2) proceeds from sale of goods (works, services) net of VAT in the period of three calendar years prior to the privatization, (3) the amount of residual value of its fixed assets and intangible assets as of the latest reporting date) is equal or less than the ceiling established for small business entities pursuant to Federal Law No. 209-FZ, dd. July 24, 2007 “On the Development of Small and Medium Size Enterprises in the Russian Federation”, the unitary enterprise property complex also can be privatized through transformation thereof to LLC;
- LLCs like OJSCs may not buy their interest; the emergence of a special regulation, i.e. if the buyer of public or municipal property was not entitled to purchase thereof, the relevant transaction shall be deemed null and void. This regulation is of general nature though;
- an explicit rule was included into the law on that the size of the charter capital of a business entity established through transformation of unitary enterprise equals to the book value of the unitary enterprise’s assets subject to privatization which includes the value of land plots;
- the text of the law was complimented with a provision on that to define the composition of the privatized property complex of a unitary enterprise, creditors’ claims shall be duly considered without having to obtain the consent of creditors as to address their claims to a successor in title of the unitary enterprise;
- a list of the data to be included into a decision on federal property privatization was complemented with data on the size of charter capital of OJSCs’ or LLCs’ established through transformation of unitary enterprises, the number, category and par value of a share in OJSCs and interest in LLCs which is held by one or another level of public authority;
Article 84.8 of Federal Law No. 208-FZ dd. December 26, 1995, “On Joint stock Companies” which regulates the retirement of securities of joint stock companies as demanded by a person who holds at least 95% of interest in such OJSC (2006); (3) property to be transferred to public corporations (state-owned companies) (2007) and the Russian Housing Development Foundation as an asset contribution from the Russian Federation (2008);
(4) property transferred to the RF Presidential Center for Historical Legacy which ceased to perform its duties (2008); (5) federal property pursuant to the decisions of the Government of Russia made for the purpose of creating conditions for the attraction of investments, stimulation of the stock market, as well as modernization and technical development of the national economy (2010).
Section Institutional Issues - some amendments were made to the regulation on how buyers of privatized property should submit relevant documents: (1) instead of having to provide a written decision on the purchase of property made by a relevant governing body, legal entities must have a document which confirms the powers of the head of a legal entity to act on its behalf without a power of attorney or with a power of attorney authorizing him/her to act on behalf of an bidder1; (2) a requirement that the bidder or a representative thereof bind, enumerate, seal and sign (required for legal entities) all the pages of documents (or specific volumes thereof) submitted together with bids, attach (to a bid) two copies of the record statement thereof, one for the seller, another one for the bidder; (3) the bidder must observe the foregoing requirements, which means that bids and the documents to be attached thereto are submitted on behalf of the bidder2;
- the same way one should consider a new explicit rule emerged in the law, which prohibits to impose other requirements on the documents to be attached to bids, as well as require other documents upon the abolishment of the previous rule requiring that the bidder prove that he is entitled to purchase public or municipal property;
- with regard to social guarantees to the workers employed in OJSCs and LLCs established through privatization, it was ascertained that a new collective agreement may be entered into or the previous agreement may be extended for a period of up to three years upon expiration of three months from the date of registration thereof (previously, the agreement in effect was allowed to be revised without having to specify its terms, in addition to a new one);
- in case of privatization through tenders, shares or a participatory interest in the charter capital of OJSCs or LLCs, accounting for more than 50% of their charter capital, may be sold, whereas previously the unitary enterprise property complex might be sold along with the sale of more than 50 per cents of OJSC’s charter capital;
- a list of the terms and conditions of tenders was added to the change in assigning specific property assets used for scientific or/and research purposes;
- a procedure for reimbursement on invalid transactions on purchase and sale of public and municipal property: budgets at a relevant level became the only source of financing thereof, whereas previously budgetary funds could be used subject to shortage of the proceeds from sale of property to other buyers under other privatization transactions prior to allocation thereof;
- public and municipal title must be protected the same way, i.e. with relevant budgets, while the priority of the norms set forth in the Budget Code of Russia was established with the regard to the money received with regard to defaults on privatization transactions, like interest transaction for the amount equal to the provided installment payment for privatized property;
- given the possibility to transform unitary enterprises into LLCs fully owned by the state (municipality), it was established that the charter of such LLCs may not provide for the prerogative right to buy the interest sold by its holder, as well as they are not subject to the norms set forth in the Federal Law “On Limited Liability Companies” on joint and Where the power of attorney authorizing to act on behalf of the bidder is signed by a person authorized by the manager of a legal entity, the bid also must contain a document which certifies the powers of such person.
Inappropriate meeting by the bidder of the requirement that all pages of documents attached to the bid must be enumerated is not considered a ground for denying the bid, though no sanctions are provided for in this respect.
RUSSIAN ECONOMY IN trends and outlooks several obligations of the members of such LLCs and an independent appraiser to bear subsidiary liability in case of shortage of LLCs’ property if non-cash payment for a participatory interest in the charter capital under their obligation is made to the extent equal to an overvalued amount of the property paid for a participatory interest in the charter capital made within three years from the date of state registration of the company or making amendments to the charter thereof;
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