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- adoption of new norms of company legislation publicly by all the parties concerned (in accordance with the procedure set for developing Directives);

- dependence of information disclosure level (transparency) on economic conditions:

company size, organization and legal forms of the company, ownership concentration (Fourth Council Directive and others);

- creditor protection and the requirement of independent valuation in cases of merger or takeover (Third and Sixths Council Directives)62;

- regulation of employees rights in case of company reorganization (Directive 77/197);

- development of conditions under which companies having subsidiary undertakings should be required to prepare consolidated (Seventh Council Directive), although meeting difficulties is enevitable (the Directive has not been implemented in every EU Member State);

- transparent and well-defined requirements to natural and legal persons responsible for carrying out audits (Eights Council Directive), although difficulties are to be expected with carrying out effective audits in cases of mergers of ownership and management (Russia) or with puppet Boards of Directors (some EU Member States);

- provision of incentives for single-member private limited-liability companies (Twelfth Council Directive), which is of particular importance under the Russian conditions considering the tendency towards closing themselves and the problem of owner liability;

- usage of proposals of Fifth Directive on cooperation with employees as recommended for companies, although in this case the position taken by a number of countries with weak traditions of cooperation (in particular, the British approach: such provisions are inappropriate within the framework of corporate law) 63;

- proposals by the High Level Group of Company Law Experts (2001) on issues related to takeover bids (see also Radygin, Entv, 2002);

- transparence of judicial proceedings at the EU level and control by the European Court over implementation of Directives and other EU acts (see also table 7).

At present the Duma and the Government of the RF review a draft federal law On reorganization and Liquidation of Commercial Organization. The designers believe the draft is aimed to attain two main objectives to achieve transparency and low costs of the process and the balance of interests of owners and creditors. In accordance with Third and Sixths Council Directives reorganization requires grounds and valuation for every company. It is assumed that the requirement for provision of grounds aims to protect small shareholder; valuation is voluntary. Given the problems of corporate blackmail a possibility of narrowing down of obligatory cases can not be excluded.

See also: Kargalova, 2001.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK In spite of the presence of other opinions it appears that the EU experience in the area of unification could be of minimum use for resolving the problem of relations between the Centre and the regions in Russia. As to applying the EU experience to harmonization of legislation within the CIS, in all probability, this is an objective of a distant future aggravated by some political problems.

Nevertheless, company law that regulates the most widespread organizational and legal form might become one of the first issues of harmonization in the area of economic legislation of the CIS countries.

Table 7. Main areas of corporate management improvementProblem Legislation in force Improvement measures Guarantees of Law On Securities market , development of standard terms of registration of acts by Federal Securities contracts with registrars investors ownership Commission selection of registrar and terms of rights in company contract with him should be subject to register approval by annual shareholders meetings registrars liability for rules violation in case of frauds or manipulations with the register on the part of the register owners (registrars or issuers) Dilution of stakes Law On Corporations, regulation of the procedure of by issuing new On Protection of Investors debentures convertible into shares shares Rights and Interests, provision of detailed regulation on standards of the Federal fraction shares, especially for cases of Securities Commission pre-emptive buy-outs and voting at shareholders meetings Violations of Law On Corporations - legal clarification of ambiguous issues procedures of (for example, sending voting ballots by carrying out post to be received after the meeting shareholders should be unambiguously interpreted as meetings a substantial violation opening the way to leave the company after receiving a compensation by a courts decision) - removal of the controversy arising from differentials in the time-schedules set for implementing various procedures in the course of preparing the meeting - regular checks of observance of the procedures of informing shareholders about the meeting and publishing its decisions (taking into account the amendments that updated the schedules) Transfer of the vote Acts by the Federal Securities Veto over issuing ADR and GDR if it to company Commission of the RF involves transfer of the vote to company management in cases management of ADR and GDR Irregularities in the Law On Corporations - widening the list of methods of process of company reorganization and introduction of reorganization and relevant amendments to the Civil Code consolidation of the RF, the law On Corporations, etc.

- apart from meeting the demand to maintain ownership structure in case of reorganization the necessity of a range Sources: IKPU, 2001; OECD, 2002; Radygin, Entv, Turuntseva et al., 2002.

Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK of measures aimed to protect creditor interests - introduction of the requirement on inviting an independent valuator - improvement of information disclosure procedures Violation of the Laws On Corporations, On improvement of the information requirement to Securities Market, On disclosure legislation disclose information Protection of Rights and return to the rule of providing Interests of Investors, information to shareholders having over standards by the Federal 10 % of the shares (under the new Securities Commission version of the law On Corporations 25 %) ban on asymmetric provision of information to certain privileged parties and using important and closed information to gain personal advantages.

- introduction of international accounting standards - introduction of criminal prosecution for failure to disclose information Opaque structure Large number of acts often - consistency and conflict-free legal ownership and containing contradictory framework, establishing procedures and control structure requirements (some acts are division of responsibilities between all ( based on the share in the parties (shareholders, issuers, authorized capital, others on registrars, trustees and the Federal the share of votes. Some acts Securities Commission) take into account indirect - provision of the norm on presenting to ( control through nominal the stock-exchange and the general owners. Finally, under the public of information on changes in effective rules there is no ownership is the responsibilities of mandatory requirement to shareholders (both domestic and disclose even official foreign);

agreements between the - legal rules on information disclosure shareholders). should cover cases of concerted actions , by the parties and cases that are de facto or de jure under control of other interested parties. Sanctions for non disclosure should be applicable in such , cases too.

- shareholders of PLCs are obliged to inform the issuer, the stock market and , mass media on their ownership stakes to the extent envisaged by the law. This obligation to disclose ownership stakes should apply to property registered . through nominal owners. Financial institutions that have the right of keeping accounts of nominal owners and registrars should be responsible for meeting the information disclosure requirement.

- The law should also envisage adequate and clear criminal and civil sanctions for failure to provide information on significant changes in ownership. Such sanctions should be Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK applicable to shareholders, issuers, registrars, and bailees.

Assets stripping Law On Corporations, - Labour legislation reform Criminal Code of the RF (simplification of the procedure of (Articles 165, 201, 204) dismissing Director General) - improving financial reporting procedures - more detailed requirements for concluding high-volume transactions and transactions by interested parties - qualification of transactions with affiliated persons, widening of the notion of affiliated person, - defining the notion of a group pf independent but economically coherent persons Transfer pricing Law On Corporations - improving tax legislation and its Criminal Code of the RF enforcement (Articles 165, 201, 204) - improving financial reporting Deliberate (fictitious) The law On Bankruptcy, - making receivers responsible for taking bankruptcy followed Criminal Code of the RF measures (transactions with assets) in by buying out of the interests of some creditor assets - development of legislation on disqualification of managers acting to the detriment of the company and its creditors - taking additional measures (developing criteria for initiating bankruptcy procedures) to prevent unfair ownership redistribution and opening procedures against actually solvent companies;

- wider use of the practice of turning down by courts of bankruptcy procedures as a means of debt settlement (abuse of power under Article 10 of the Civil Code of the RF) - defining with higher precision the role to be played by government authorities (as creditors and as representatives of the states interests)) in the bankruptcy procedures Hostile takeovers In respect of minority - detailed regulation of the offer, through the use of shareholders Law On equitable price and bidding procedure;

administrative Corporations, in respect of - the whole range of measures envisaged pressure economic concentration the by the institutional reform anti-monopoly legislation Ungrounded lawsuits Court practice only - introduction of an alternative dispute (blackmail) against settlement procedure carrying out issuer (large administrative or arbitration hearings by shareholder) the state regulator, - development of the system of courts of arbitrage - development of procedures aimed to protect the Board of Directors (management) from abuse of rights of Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:

WORLD TRENDS, EU LEGISLATION AND RUSSIAS OUTLOOK minority shareholders through () checking reasonableness of complaints, (b) usage of the so-called safe harbour (such means of legal protection as business discretion rule or rejection of groundless information disclosure requirements), (c) resolving the problem of lawsuits by the shareholder holder of 1 share (introduction of quotas or development of group lawsuits requirement) Law enforcement A set of legal and procedural - continuous setting of precedents (for (including the rules example, under the law On problem of the Corporations a shareholder has the shareholder right to recover in favour of the appealing to a court) company damages inflicted by the managers. It is next to impossible to describe such damages in the legislation.

Therefore, of special importance become specific court rulings) - judicial reform as a whole a set of anti-corruption measures - provision of better training in such areas as commercial law, company legislation, securities law, bankruptcy law;

- training of judges in business fundamentals as lack of experience sometime results in excessively literal interpretation of the law;

- studying the possibility of judges to be specialized in commercial law (establishing specialized units of courts of arbitrage dealing with corporate and securities lawsuits).

- open publication and distribution of written courts rulings aimed to increase responsibility of the legal system;

- development of mechanisms of private dispute settlement and of independent arbitrage (the system of extra-judicial dispute settlement - administrative hearings or arbitrage).

Limitation period on Under the Civil Code of the Reduction to 3 years privatization dealings RF - 10 years Policy Paper RECEP Alexander Radygin, Revold Entov UNIFICATION OF CORPORATE LEGISLATION:


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