Recent amendments to legislation on joint-stock companies and limited liability companies

On 27 December 2009 of Federal Law No. 352-FZ “On Amendments to Certain Legislative Acts of the Russian Federation with Regard to Revisions to Limitations for Business Entities during the Formation of Authorised Capital, Revisions to the Methods for Protecting the Rights of Creditors in the event of a Reduction in the Authorised Capital, Changes to Requirements on the Value of Net Assets and Revisions to Limitations Relating to the Issue of Bonds by Business Entities”. The law entered into force on 31 December 2009.

The Federal Law introduces some amendments on increases in the authorised capital (issue of additional shares), the implications of the impairment of net assets below the value of the company’s authorised capital, guarantees to creditors and some other provisions of corporate legislation.

Lifting of limitations in the event of an increase in the authorised capital of a company and the issue of additional shares

The Federal Law eliminates the previous limitation regarding payment for the increase in the authorised capital of a limited liability company and additional shares of a joint-stock company through the offset of the company’s accounts payable. A joint-stock company may pay for additional shares through an offset if they are issued through a private offering. This limitation remains in force for credit institutions.

Moreover, the federal law removed the limitation established by the Russian Civil Code concerning an increase in the authorised capital of a joint-stock company performed to cover its losses.

Implications of an impairment of the net assets of a company below the value of the authorised capital of said company

The Federal Law has revised the implications of an impairment of the net assets of a joint-stock company below the value of its authorised capital and also imposed some additional obligations on the companies. These amendments only concern joint-stock companies and do not apply to limited liability companies.

The Federal Law regulates two possible situations where it transpires that the value of the net assets of a joint-stock company is impaired below the value of the company’s authorised capital at the end of the second or subsequent financial year: (1) when the value of the net assets exceeds the minimum amount of the authorised capital and (2) when it is less than this amount. In the first case the company is granted a delay of one financial year to restore its financial health. At the end of this period the company should decide within six months whether to decrease its authorised capital to an amount equal to the value of its net assets or to stop operating as a going concern. In the latter case the company should issue a decision on liquidation within six months. The state authorities retain the right to enforce the company’s liquidation, if the joint-stock company fails to take the relevant decision within the specified term.

As we noted above, some additional obligations have been imposed on joint-stock companies. First of all, the board of directors (supervisory board) is obliged to include in the annual report a section containing information on the company’s net asset, if the value of the net assets falls below the authorised capital. Secondly, the company must publish announcements on the impairment of its net assets in the “State Registration Bulletin”. Such information is required if the value of the net assets is at least 25% below the authorised capital at the end of each quarter of the financial year following the second or subsequent year in which the value of the net assets was lower than the authorised capital. The announcement should be published twice with an interval of one month.

These rules do not apply to credit institutions established as joint-stock companies.

Guarantee to creditors if the authorised capital is reduced or the net assets of a joint-stock company are impaired

The Federal Law makes amendments to the procedure for notifying creditors on a reduction in the authorised capital and also establishes the procedure for granting the claims of creditors seeking the early discharge of obligations. These amendments only concern joint-stock companies.

Now information that a company is reducing its authorised capital and the value of the net assets of the company will be reported in the Unified State Register of Legal Entities. Joint-stock companies also assume a new obligation: they must submit a statement to the registration agency on a quarterly basis on any amendments to be made to the Unified State Register of Legal Entities regarding the value of their net assets. All joint-stock companies must comply with this requirement, irrespective of the value of their net assets.

The procedure for announcing reductions in the authorised capital has been revised: fr om now on such announcements should be published twice with an interval of once a month. The first announcement should be published within three business days of the adoption of a corresponding decision by the company (previously a company was accorded 30 days to comply with this requirement). The Federal Law also stipulates that a company should notify the registration agency within three days, instead of sending written notifications to each creditor.

Creditors may file claims for the early discharge of obligations by the company not later than 30 days since the date of the last announcement. The Law makes it crystal clear that such right is only granted to creditors, the rights of claim of which emerged prior to the publication of the announcement on the reduction in the authorised capital. The same right is granted to creditors, the rights of claim of which emerged prior to the publication of the announcement on the impairment of the company’s net assets.

Other key amendments concern litigation regarding claims filed for early discharge of obligations. The statute of lim itation for filing such claims has been established at six months since the date of the last publication. Moreover, a court may refuse to meet the claims filed by creditors for early discharge in the following instances: if (1) the reduction of the authorised capital does not violate the rights of the creditor; or (2) sufficient collateral has been provided against said obligations.

Other amendments

The Federal Law reduces the term for preparing a report on the voting results and the minutes on the general meeting of shareholders from 15 to 3 days.

Moreover, a number of amendments have been made to the Federal Law “On the Securities Market,” inter alia regarding clarification of the list of persons entitled to act as guarantors for the company’s obligations under bonds. In addition, article 27.5-4 has been introduced. This outlines the procedure to be applied by business entities issuing bonds.

For further information, please contact:

in Moscow – Nikolay Solodovnikov, Head of Corporate Practice, or Vladislav Vdovin, attorney, on tel.: (495) 967-00-07 or by e-mail: info@pgplaw.ru

in St Petersburg – Andrey Pekhovsky, Head of Corporate Practice (Spb), on tel.: (812) 333-07-17 or by e-mail: spb@pgplaw.ru