On 12 November 2019 the President signed Federal Law No. 377-FZ (Law No. 377) making amendments to certain laws, including Federal Law No. 129-FZ “On the State Registration of Legal Entities and Individual Entrepreneurs” dated 8 August 2001 as amended (State Registration Law).
The amendments adopted are intended to make it possible, among other things, to challenge transactions made in breach of the limitations provided in an agreement and to implement new provisions that were previously introduced in the Civil Code of the Russian Federation (Russian Civil Code) in relation to the possibility of granting a CEO's powers to several persons.
It is possible to include in the Unified State Register of Legal Entities (USRLE) information on a CEO's powers being granted to several persons who act jointly or independently of each other
From 1 September 2020, amendments to the State Registration Law become effective which provide that if the powers of a sole executive body (CEO) of a corporation are granted to several persons, the USRLE should include information on whether such persons act jointly or independently of each other.
As a reminder, during the 2014 reform, article 65.3 was added to the Russian Civil Code which makes it possible to grant the powers of a corporation's sole executive body to several persons acting jointly or independently of each other.
However, up to present, the State Registration Law has not been brought into line with the amended rules of the Russian Civil Code, so despite the technical possibility to record in the USRLE information that the powers of the sole executive body of a corporation have been granted to several persons it was impossible to state in the USRLE whether such persons act jointly or independently of each other.1 At the same time, it should be noted that, according to the position of the Supreme Court of the Russian Federation set out in section 22 of the resolution “On the application by courts of certain provisions of section I of Part One of the Civil Code of the Russian Federation”, if the USRLE contains data on several persons authorised to act on behalf of the legal entity, third parties are entitled to assume that the powers of each of such person are unlimited.
Therefore, until the adoption of Law No. 377, it was extremely disputable whether it is practically possible to grant powers of the sole executive body to several persons who act jointly.
It should be noted that to ensure the implementation of the abovementioned provisions, it will be necessary to adopt delegated legislation clarifying the technical peculiarities of recording such information in the USRLE.
It is possible to state in public registers information on limitations of contractual rights
The amendments to the State Registration Law entering into force on 1 April 2020 grant legal entities the right to state in the Unified Federal Register of Legally Relevant Information on the Facts relating to the activities of legal entities, individual entrepreneurs and other undertakings (Relevant Facts Register) any additional information on the facts of their activities, including, but not limited to, the following:
- where a party to a contract is entitled to repurchase the property (including property rights) transferred to the legal entity;
- where there are limitations on the rights under the agreement;
- where there is a lien on a thing and the conditions for the termination of such lien;
- where there is preservation of the title to a good;
- where there is a suretyship.
In the cases listed above, the Relevant Facts Register should record information on the parties to the relevant contracts, any material terms relating to the creation and termination of rights or limitations, if they arise by virtue of the contract (except for those the contract treats as confidential) and on the termination or variation of the abovementioned rights or limitations.
Importantly, Law No. 377 expressly provides that all third parties shall be deemed to have been notified of the rights created or limitations imposed on the legal entity's assets with effect from the next day, after such information is published in the Relevant Facts Register, or before the publication date, if they should have known such information. Therefore, we can say that Law No. 377 introduces a presumption of third parties' knowledge of contractual limitations recorded in the Relevant Facts Register.
This innovation may be used, in particular, by the parties to a shareholders agreement in order to increase the possibility of challenging transactions performed in breach of such agreement.
It bears reminding that subclause 3 of clause 6 of article 67.2 of the Russian Civil Code provides that a transaction concluded by a party to a shareholders agreement in breach of that agreement may be invalidated by a court at the claim of a party to the shareholders agreement only if the other party to the transaction knew or should have known of the limitations provided under the shareholders agreement.
Therefore, when the Relevant Facts Register contains information on the limitations of the rights provided under a shareholders agreement (taking into account the provisions that all third parties are deemed to have been notified of the limitations imposed), this significantly increases the chances of the parties to a shareholders agreement challenging transactions concluded in breach of that agreement.
Furthermore, it should be noted that it is the right, but not the obligation of parties to have such information recorded in the Relevant Facts Register; accordingly, in order to increase the chances of challenging transactions made in breach of a shareholders agreement, the parties to such agreement may expressly provide for the obligation to have information on the contractual limitations recorded in the Relevant Facts Register.
Other updates in Law No. 377
In addition, Law No. 377 makes a number of amendments to the State Registration Law, including, in particular, the following:
- effective 12 November, the following will be required to be included in the Relevant Facts Register: (i) information on the sale or lease of an enterprise; (ii) notices of a legal entity's winding up or reorganisation; and (iii) notices of the reduction of a legal entity's charter capital.
- starting from 1 September 2020, it will be possible to strike off from the Unified Register of Individual Entrepreneurs those individual entrepreneurs who have de facto ceased to conduct business, provided that the following conditions are met simultaneously: (i) 15 months have expired after the patent expiry date or no tax reports have been filed within 15 months, and (ii) the individual entrepreneur has a tax debt.
Previously, this course of action was only possible in relation to the removal of inactive legal entities.