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For more details, see Art. 23.5 of FA of 2.12.1990 395-1 On banks and banking as amended in FA of 30.12.2008 315- FZ On introducing amendments to the federal Act on banks and banking and some other legislative acts of Russian Federation.

Section 6.

Institutional Problems The mitigation of the level of protection of creditors rights continued in December (FA of 27.12.2009 352-FZ1). Whilst considering lawsuits brought by creditors of companies wherein a decision was made to reduce a companys authorized capital, the court of law was granted the right to reject a claim in the event:

- The creditors rights are not abused due to reduction in authorized capital;

- Collaterization appears sufficient to ensure a due fulfillment of obligations (Art. 30 of FA On joint-stock companies).

Such novelties provide significant opportunities for abuse due to the dominating formal approach to consideration of cases by the courts and a low level of development of relationships and control in the property appraisal area.

Meanwhile, the company is obligated to report to tax authorities on the decision to reduce its authorized capital and to publish the information in media. The rights of creditors of companies wherein the decision to reduce the authorized capital was made were regulated in a manner analogous to the regulation of the rights of creditors to the aforementioned reorganized companies.

Plus, the Act has no longer held the obligation to identify the cost of the companys net assets (to present it to the general shareholders meeting) on the basis of the annual balance sheet or results of the financial audit. Instead, the Board of Directors should include in the annual report subject to submission to the general shareholders meeting indicators that characterize the dynamic of changes in the value of assets and the authorized capital over the three years, findings of the analysis of causes for, and factors of such state of affairs, and the list of measures the Board is going to undertake.

All the measures stipulated in the Act may not be applicable to credit organizations founded in the form of joint-stock company.

In July 2009 (FA of 19.07.2009 205-FZ2), the company law was enriched by the arsenal of measures aimed at minimizing possibilities for cancelation and challenging of rulings by management bodies of joint-stock companies and encouraging prevention and amicable settlement of corporate conflicts.

Specifically, the procedure for convening an extraordinary shareholder meeting was modified. Now it can be held only through a court proceeding, rather than by the shareholders initiative (Art. 55 of FA On joint-stock companies). As well, the new Act establish solidary responsibility of the company and the registrar for losses caused to the shareholder, with exoneration of the debtor who compensated for losses to another debtor in a volume of of the amount due (p. 4 Art. 44 of FA On joint-stock companies).

Both the uncertainty with regard to the sphere of the registrars responsibility and the previous mechanism of holding extraordinary shareholder meetings were sore spots that were actively used in the course of corporate raiding in the 2000s.

As to reduction of possibilities for challenging the companys management bodies rulings, the following novelties are worth noting:

Federal Act of 27.12.2009 352-FZ On introducing amendments to individual legislative acts of Russian Federation with regard to revision of limitations for economic companies in the course of formation of authorized capital, revision of means of protection of creditors rights under reduction of authorized capital, changes in requirements to economic companies in the event of authorized capital failing to match the cost of net assets, revision of restrictions associated with the exercise by economic companies of issuance of obligations.

Federal Act of 19.07.2009 205-FZ On introducing amendments to individual legislative acts of Russian Federation.

RUSSIAN ECONOMY IN trends and outlooks 1) 2-fold contraction (from 6 to 3 months) of the period of appeal of the general shareholders meetings decisions (p. 4 Art. 44 of FA On joint-stock companies);

2) Imposition of the ban on recovery of the default to a limitation period on claims on annulment of large transactions and non-arms length ones (p. 6 Art. 79 and p.1 Art 84 of FA On joint-stock companies), as well as on claims to recognize the general shareholders meetings decisions nude/illicit;

3) Introduction into the law of grounds for the court to reject a discharge of claims on annulment of large transactions and non-arms length ones;

4) Specification in the law of cases in which the general shareholders meeting and the Board of Directors rulings have no effect without the verdict rendered by the court of law (p. Art. 49 and p. 8 Art. 68 of the Federal Act On joint-stock companies). To all intents, this implies conditions of nullity of decisions made, but if implemented, these provisions can spark greater conflicts between shareholders;

5) Encouragement of the joint consideration of disputes on large transactions and non-arms length ones that involve challenging the general shareholders meeting, the Board of Directors decisions (p.p. 7,8 Art. 68; p. 3 Art. 70, p. 4 Art. 77 of the Federal Act On jointstock companies).

All these measures substantially complicate the return of assets the company sold and stimulate their re-selling from an intermediary to a bona fide purchaser. Meanwhile, the question of the constitutional legitimacy of the clause on the ban on extension of the default to a limitation period remains unanswered.

Besides, the shareholders rights were extended they were granted the right to challenge the Board of Directors ruling in the court of law, provided the decision abused the company or the shareholders rights and/or legal interests; they also were granted the right to claim, in a judicial proceeding, coercion of the company to place the question on the agenda of the general shareholders meeting or to include a nominee in the list of candidacies (p. 6 Art. 53 of FA On Joint-stock companies).

A logical continuation of the policy aimed at lowering the level of corporate transparency became the enactment in October 2010 (FA of 04.10.2010 264-FZ1) of an Act that allows joint-stock companies, following the ruling of their general shareholders meetings, to apply to FSFM for discharge of the obligation to disclose or submit information per the Act on securities (Art. 92.1 of FA On joint-stock companies). Such a decision should be passed by the margin of of shareholders voting, with holders of preferred shares also having the voting authority. The provision came into effect on 1 January 2011.

In 2009-10 non-for-profit organizations (NPOs) likewise saw notable changes in the legal regulation of their operations. In July 2009 (FA of 17.07.2009 170-FZ2), a simplified reporting procedure was introduced for non-for-profits whose founders (participants, members) are not foreign citizens (organizations) or apatrides. As well, the Ministry of Justices powers with regard to public registration of NPOs were limited the Ministry hence has no right to demand for submission of documents other than those stipulated in the Act.

Federal Act of 4.10.2010 264-FZ On introducing amendments to the Federal Act On market for securities and individual legislative acts of Russian Federation.

Federal Act of 4.10.2010 264-FZ On introducing amendments to the Federal Act On market for securities and individual legislative acts of Russian Federation.

Section 6.

Institutional Problems In April 2010 (FA of 05.04.2010 40-FZ1), the legislator introduced the notion of the socially oriented non-for-profit organization. Those are organizations which exercise activity to tackle social problems, development of the civil society, protection of environment, etc.

As amended, the Act on NPOs provides for measures of the state support of such organizations, including engaging such NPOs in delivery of supplies, works and services for the governments and municipal needs; granting the NPOs benefits, including tax ones, etc.

In addition, in December 2010 (FA of 28.12.2010 401-FZ2 and of 03.11.2010 292-FZ3, respectively):

1) The circle of transactions recognized as large ones and requiring their completion following a special procedure was slightly broaden;

Under the category of large transactions now fall transactions whose completion is obligatory for the society in compliance with the federal law or other legal acts of RF and settlements by which are made using prices and tariffs set by the Government.

Perhaps, the legislator believes that complicating the procedure for completion of the obligatory transactions should strengthen control over them; however, the mechanism of completion of large transactions, together with non-arms length ones, has proved the most inefficient one in the effective corporate law, so no positive changes should be anticipated in this regard;

2) The area of effect of legal norms on the obligatory offer of the companys equity (Art.

84.2. of FA On joint-stock company) continued to shrink.

The list of cases below constitutes those ones under which one is discharged of the duty to put forward a public offer in the event of buying a 30% stake in the company:

A) Acquisition of equity as a result of the Governments contribution with them to the authorized capital of a JSC in which the Government has been or is going to be an owner of more than a 50% stake.

B) Acquisition of equity with which the Government contributes to the payment of placed by means of closed subscription for supplement shares of JSCs included in the list of backbone corporations and JSCs approved by the RF President.

While these measures can be tagged as anti-crisis ones, they can also be regarded as new ways of solidification of the Government and/or its individual representatives position on the market for corporate control.

The novelties of the period between October 2008 and 2010 in the first place changed the balance of forces within a company by strengthening the shareholders positions, granting them the right to elect/dismiss the company head, the right to early termination of the Board of Directors powers, and the right to conclude shareholder agreement, etc. In addition the following agents saw their possibilities be cut substantially:

- Creditors to reorganized companies;

- Creditors to companies that made the decision to diminish their authorized capital;

Federal Act of 05.04.2010 40-FZ On introducing amendments to individual legislative acts of Russian Federation on the matter of support of socially oriented non-for-profit organizations.

Federal Act of 28.12.2010 401-FZ On introducing amendments to the Federal Act On electric power sector and individual legislative acts of Russian Federation.

Federal Act of 03.11.2010 292-FZ On introducing amendments to Art. 84.2 of the Federal Act On jointstock companies.

RUSSIAN ECONOMY IN trends and outlooks - Entities intending to challenge large transactions and non-arms length transactions concluded by joint-stock companies;

- Current and former shareholders of companies consolidated into public corporations and large holdings the Government created recently.

It is shareholders, old owners, as well as new ones, including the Government that has bolstered its corporate presence in 2007-08, state-controlled banks which provided loans for assets, including equity, and their affiliated structures, which acquired those assets, that have become beneficiaries resulting from such novelties. Between 2003 and 2009 it was corporations owned by financial structures that most often played the role of buyers of other companies their share in the aggregate amount of M&A deals accounted for 26% (and 33% of the total amount of funds spent on those)1.

It can be assumed that the problem of acquisition by the Government (the companies its controls) of new assets was replaced by the problem of obtaining an actual corporate control and negotiation of existing conflicts by more or less legal means. The list of the victims of the novelties comprises creditors to Rosnanotechnologii, Rosavtodor, Rosatom, FSUEs and FSIs consolidated into these corporations, as well as management (members of boards of directors and heads of companies, including those consolidated into state-controlled holdings).

It goes without saying, pluses of the novelties are associated with constraining the company managements arbitrariness and strengthening of shareholders position, introduction of the obligation to hold extraordinary shareholder meetings only through a court proceeding.

They will be instrumental for all the parties concerned; however, it is not excluded that once the new shareholder changes the old management, the legislators strategy in the corporate regulation area may change once again.

In July 2010, the Federal Act2 was promulgated, which established criminal responsibility for:

- Falsification of the Single State Register of Legal Entities or the Register of Securities Owners, particularly for entering into the latter knowingly inaccurate data. Such abuses are punished by the fine amounting from Rb. 100,000 to 300,000 or by deprivation of liberty for the term of up to two years with the fine of up to Rb. 100,000. In the event of falsification of the Single State Register of Legal Entities or the Register of Securities Owners with the use of violence or the threat of its use the punishment is deprivation of liberty for the term between three and seven years and the fine of up to Rb. 500,000;

- falsification of a decision of the general meeting of shareholders (participants) of the economic company or a decision of the Board of Directors (Supervisory Board) of the economic company. Such abuses are punished by the fine amounting from Rb. 100,000 to 500,000 or by deprivation of liberty for the term of up to five years with the fine of between Rb. 100,000 to 300,000. Such a penalty is provided for in the event the falsification was committed by means of intimidation of a companys shareholder, participant in the limited liability company, member of the Board of directors of the economic company to make him/her vote in a certain way or refuse to vote, along with a blackmail or threat to use violence or destroy or to cause damage to ones property;

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