Interested Party Transactions: the Bank of Russia’s Instructions
Pepeliaev Group advises that the Central Bank of Russia has established the maximum figures for transactions with the involvement of joint-stock companies and limited liability companies which, if exceeded, may lead to such transactions being declared interested-party transactions.
Previously, Pepeliaev Group advised of the Bank of Russia’s intention to adopt, before the end of the final quarter of 2016, the Instruction "On maximum figures for the amount of business entities’ interested party transactions the price or balance-sheet value of property under which is no more than 0.1% of the balance sheet value of such business entities’ assets"*.
The above Instruction was not adopted by the Bank of Russia within the initial timelines and probably the draft document was referred for revision and approval by the Bank’s subdivisions.
After it was finalised the Bank of Russia issued Instruction No. 4335-U "On establishing the maximum figures for transactions with the involvement of open joint-stock companies and limited liability companies which, if exceeded, may lead to such transactions being regarded as interested party transactions" dated 31 March 2017** (“Instruction No. 4335”).
Please be reminded that Instruction No. 4335 was published in furtherance of the provisions of article 81 of the Law On Joint-Stock Companies*** and article 45 of the Law On Limited Liability Companies**** as amended by Law No. 343-FZ***** stating that the interested party provisions shall not be applied on grounds other than those specified by the articles in this paragraph to transactions involving property the price or balance-sheet value of which is no more than 0.1% of the balance sheet value of such business entities’ assets according to its accounting (financial) reports at the last reporting date provided the value of such transactions does not exceed the maximum amounts established by the Bank of Russia******.
Under Instruction No. 4335, the following are established as the maximum figures for transactions which, if exceeded, may lead to such transactions being regarded as interested party transactions:
Please additionally note that the maximum figures established by Instruction No. 4335 are applicable to business entities (joint-stock companies and limited liability companies) regardless of their status (public/non-public) and regardless of whether such entities are obliged to disclose information regarding the consummated transactions.
The consummation of transactions that formally meet the criteria allowing interested party provisions not to be applied but without having regard to the maximum figures set by the Bank of Russia may lead to such transactions being held invalid*******.
To avoid situations in which it is possible for transactions to face challenges when the amount of such completed transactions does not exceed 0.1% of the balance sheet value of the assets of business entities, it is advisable for the persons responsible for overseeing and duly documenting corporate resolutions and actions also to prepare, in good time, short analytical statements. These should reflect information about the ratio of the transaction amounts against the balance sheet value of the assets, about the interested parties, about the grounds/purposes of the transaction and so on. It is compulsory for such a note to be kept along with the contract or other supporting documents for a particular transaction.
Pepeliaev Group’s lawyers are ready to provide you with advice on issues related to the restrictions set for interested party transactions as well as on other matters of corporate law.
**The document registered with the Ministry of Justice under number 46460 on 24 April 2017 and shall come into in 10 days after being officially published. Date published on the website of the Central Bank of Russia - 02.05,2017
***Federal Law No. 208-FZ On Joint-Stock Companies dated 26 December 1995
****Federal Law No. 14-FZ On Limited Liability Companies dated 08 February 1998
*****Federal Law No. 343-FZ On amending the Federal Law On joint-stock companies and the Federal Law On limited liability companies” with regard to major transactions and interested party transactions dated 3 July 2016
******See article 81(2)(12) of the JSC Law and article 45(7) of the LLC Law.
******See article 45 of the LLC Law and article 84 of the JSC Law, in each case as amended by Law No. 343-FZ.
Previously, Pepeliaev Group advised of the Bank of Russia’s intention to adopt, before the end of the final quarter of 2016, the Instruction "On maximum figures for the amount of business entities’ interested party transactions the price or balance-sheet value of property under which is no more than 0.1% of the balance sheet value of such business entities’ assets"*.
The above Instruction was not adopted by the Bank of Russia within the initial timelines and probably the draft document was referred for revision and approval by the Bank’s subdivisions.
After it was finalised the Bank of Russia issued Instruction No. 4335-U "On establishing the maximum figures for transactions with the involvement of open joint-stock companies and limited liability companies which, if exceeded, may lead to such transactions being regarded as interested party transactions" dated 31 March 2017** (“Instruction No. 4335”).
Please be reminded that Instruction No. 4335 was published in furtherance of the provisions of article 81 of the Law On Joint-Stock Companies*** and article 45 of the Law On Limited Liability Companies**** as amended by Law No. 343-FZ***** stating that the interested party provisions shall not be applied on grounds other than those specified by the articles in this paragraph to transactions involving property the price or balance-sheet value of which is no more than 0.1% of the balance sheet value of such business entities’ assets according to its accounting (financial) reports at the last reporting date provided the value of such transactions does not exceed the maximum amounts established by the Bank of Russia******.
Under Instruction No. 4335, the following are established as the maximum figures for transactions which, if exceeded, may lead to such transactions being regarded as interested party transactions:
Please additionally note that the maximum figures established by Instruction No. 4335 are applicable to business entities (joint-stock companies and limited liability companies) regardless of their status (public/non-public) and regardless of whether such entities are obliged to disclose information regarding the consummated transactions.
What to think about, and what to note
The consummation of transactions that formally meet the criteria allowing interested party provisions not to be applied but without having regard to the maximum figures set by the Bank of Russia may lead to such transactions being held invalid*******.
To avoid situations in which it is possible for transactions to face challenges when the amount of such completed transactions does not exceed 0.1% of the balance sheet value of the assets of business entities, it is advisable for the persons responsible for overseeing and duly documenting corporate resolutions and actions also to prepare, in good time, short analytical statements. These should reflect information about the ratio of the transaction amounts against the balance sheet value of the assets, about the interested parties, about the grounds/purposes of the transaction and so on. It is compulsory for such a note to be kept along with the contract or other supporting documents for a particular transaction.
Help from your adviser
Pepeliaev Group’s lawyers are ready to provide you with advice on issues related to the restrictions set for interested party transactions as well as on other matters of corporate law.
**The document registered with the Ministry of Justice under number 46460 on 24 April 2017 and shall come into in 10 days after being officially published. Date published on the website of the Central Bank of Russia - 02.05,2017
***Federal Law No. 208-FZ On Joint-Stock Companies dated 26 December 1995
****Federal Law No. 14-FZ On Limited Liability Companies dated 08 February 1998
*****Federal Law No. 343-FZ On amending the Federal Law On joint-stock companies and the Federal Law On limited liability companies” with regard to major transactions and interested party transactions dated 3 July 2016
******See article 81(2)(12) of the JSC Law and article 45(7) of the LLC Law.
******See article 45 of the LLC Law and article 84 of the JSC Law, in each case as amended by Law No. 343-FZ.