Federal Law No. 142-FZ "On Amendments to Subsection 3, Section I, Part I of the Civil Code of the Russian Federation" (hereinafter – the "Law").
The Law contains the third set of amendments to Russian Civil Code (hereinafter – the "Code") as part of a civil law reform. The amendments introduced by the Law are intended to develop legal regulation of items subject to civil rights.
The following amendments to the Code are the most significant ones:
- introducing a new real estate type – a unified real estate complex;
- change of approach to defining the owner of fruitage, production and income;
- defining certified and uncertified securities as separate items subject to civil rights;
- limitation of joint-stock company rights to maintain shareholder registers on their own behalf;
- introducing the concept of securities public accuracy;
- legal provision of an opportunity to repossess uncertified securities.
Below we provide a detailed description for these and other amendments.
I. General provisions
- The Law provides a new real estate type – a unified real estate complex
A unified real estate complex means the whole of buildings, structures and other facilities combined for a single purpose, subject to the following two conditions in relation to such facilities: (1) such facilities (i) are inseparably interrelated physically or technologically, or (ii) are located on a single land plot, and (2) an ownership right to such facilities has been registered in the Unified State Register of Immovable Property Rights as a right to a single immovable property item. Indivisible item rules are applied to such unified real estate complexes.
The concept of a unified real estate complex has been mainly introduced in order to simplify civil transactions with infrastructure facilities: railways, electricity lines, pipelines and other facilities. The Law expressly provides an opportunity to combine such facilities in a unified real estate complex.
- Amendments to indivisible item legal regulation
First of all, the Law provides a more precise definition for an indivisible item. Such item should mean an item (i) that cannot be divided in kind without destroying, damaging or changing the purpose of such item, and (ii) that forms part of a civil transaction as a single item subject to property rights. In addition, an item is indivisible if it consists of components. If some of the components of an indivisible item are replaced by other components it should not result in creation of another item if major qualities of the item remain unchanged. Moreover, a law may be adopted or a court ruling may be issued, under which any component of an indivisible item may be enforced by way of separation of such component.
Such amendments have been inserted due to application of indivisible item provisions to unified real estate complexes.
- Change of approach to defining the owner of fruitage, production and income from the use of property
Under the previous Code version, receivables from the use of property were generally owned by a party using such property. The Law has changed such approach, providing that fruitage, production and income should be owned by the property owner, unless otherwise is provided by law or contract or results from relationship substance.
The most significant amendments have been introduced in relation to securities legal regulation. Chapter 7 of the Code has been fully restated and in its new version is divided in three paragraphs: a paragraph containing general provisions on securities and two separate paragraphs related to certified and uncertified securities.
It should be noted that amendments to securities legal regulation have lead to discrepancies between the Code (as amended by the Law) and a whole range of regulations, including Federal Laws "On Securities Market", "On Mortgage (Real Estate Mortgage)", "On Joint-Stock Companies". In this regard, provisions of the laws mentioned above should be brought in accordance with Code provisions.
- Certified and uncertified securities are deemed to be separate items subject to civil rights
Under the previous version of the Code, a security meant an instrument certifying property rights in a certain form, containing mandatory elements; uncertified securities were only deemed to be а registration form for such rights.
The Law has changed this approach completely; it provides that certified and uncertified securities are separate items subject to rights. Under the Law, uncertified securities should mean liability and other rights provided under a resolution approving securities issue, or any other act of a party that has issued the securities in accordance with the laws, where such rights can be exercised or transferred only in accordance with record rules provided by the Code.
The status of certified and uncertified securities as separate items subject to rights is also confirmed by the fact that they are attributed to different property categories and are subject to legal regulation on an independent basis.
- Change of consequences in case of incompliance with certified security documentation requirements
An instrument is deemed to be a certified security if requirements provided by law have been met. Under the previous version of the Code, if a security did not contain mandatory elements or was not in a form set forth for such security, such security was void. Under the new version, an instrument should not be a security in these circumstances; however, it should retain its value as a written obligation.
- Joint-stock companies may not anymore maintain shareholder registers on their own behalf
Before the Law, as applicable to jointstock companies with shareholders not exceeding 50, a shareholder register could be maintained by the joint-stock company itself or a party licensed to maintain registers (a registrator). The Law has provided limitations for jointstock company rights to maintain shareholder registers on their own behalf. Such registers should be transferred to a registrator by joint-stock companies till 1 October 2014.
- The Code provides a public accuracy concept
According to the concept, a party responsible for performance under a security may only make objections to a security holder claims arising out of such security. A party that has issued a certified security is also bound by the security if it has been admitted to circulation against the will of the party.
However, a number of limitations apply to this concept. In particular, it should not apply if a security holder (1) when acquiring such security, was aware or should have been aware (i) that there was no ground for rights certified by the security (ii) there were no rights attributed to former security holders, or (2) is not a conscientious purchaser. A conscientious purchaser should mean a party that contributed to the loss of rights by a legal security holder through its fraudulent or other illegal actions, or, as a former holder, was aware or should have been aware of other parties' rights to the security.
Moreover, a party bound by a security may make objections in relation to security falsification or challenging the party’s signature on such security (falsification of security).
- Legitimisation methods have been determined in relation to parties authorised to claim performance under a certified security
Under the Law, parties authorised to claim performance under a certified security include:
- bearer security holder;
- holder of an order security issued in its name or transferred to it from its initial holder under a continuous series of endorsements;
- registered security holder, if (1) the holder is recorded as a right holder, or (2) the security was issued in its name or was transferred to it by its initial holder under a continuous series of assignments.
- The Code provides repossession of uncertified securities as a remedy
If such securities have been illegally withdrawn from an account, a right holder may require that a party to the account of which such securities have been transferred, should (1) return the same amount of such securities, or (2) transfer the securities received from conversion of those illegally withdrawn from its account. However, securities should not be repossessed from a conscientious purchaser if (1) they were purchased on a paid basis, and (2) such securities (i) certify monetary claim rights only, or (ii) were purchased at trading.
If illegally withdrawn securities can be purchased at trading, a right holder may require that parties liable for losses incurred by the right holder, should (1) purchase similar securities at their own cost, or (2) indemnify all costs necessary for their purchase.
- Uncertified securities repossession consequences
Under the Law, when illegally withdrawn securities are to be repossessed, a right holder may require that (1) all receivables under the security (including property acquired following execution of a preemption right provided by the securities) should be repossessed, and losses (caused by an unconscientious purchaser) should be reimbursed, or (2) all receivables under the security, received during the period from when the security purchaser became (or should have become) aware of owning the security on a disproportionate basis, or have obtained a court notification of a security repossession lawsuit filed (by a conscientious purchaser) against it.
If a right to make meeting resolutions attributed to securities has been exercised by unauthorised persons, a right holder may challenge such resolution, subject to both of the following conditions:
- such resolution violates his/her rights and legal interests;
- a joint-stock company or persons that have influenced the meeting resolution, were or should have been aware of a security right dispute; and
- a right holder's vote could influence the resolution.
However, a court may maintain such resolution, if its invalidity will result in a disproportionate damage to joint-stock company lenders or other third parties.
Limitation of actions period for such claims should be three months from when a party entitled to the relevant security became or should have become aware of a disproportionate security withdrawal from its account, but not more than one year after such resolution was made.
- Supplements to security encumbrance provisions of the Code regulating encumbrances over uncertified securities
Under the Law, encumbrances over securities and limitation on the disposal thereof result from a record made by a party recording rights in a right holder's account or in an another party's account, as provided by law.
Encumbrances over uncertified securities should be recorded on the basis of right holder's instructions. Any changes in or termination of encumbrances should be recorded on the basis of right holder's instructions, subject to written consent of a party benefiting from such encumbrance, or without such instructions, as provided by law or an agreement between the right holder and a party registering rights to uncertified securities and a party benefiting from such encumbrance. If a right holder fails to provide instructions to make an account transaction, the relevant record may be made on the basis of a court decision.
- Amendments and supplements to Code provisions regulating restoration of rights under lost securities
9.1. Restoration of rights under order securities has been amended Before the Law, rights under such securities could be restored by court under summons proceedings.
Under the new version of the Code, a party that has lost an order security may make a written statement to all parties bound by such security. A bound party that has received a statement from a losing party, should, if such order security is presented by another party, (1) suspend execution performed in favour of the security bearer and notify the security bearer of the applicant's claims, and (2) notify the applicant that the security has been presented by another party. If a losing party does not apply to court with a relevant claim against a security bearer within three months after an order security loss statement submission, a bound party should perform execution in favour of the security bearer. If a dispute between a losing party and a security bearer has been settled by court, execution should be performed in favour of a party in favour of which the court decision was made. If there is no dispute over rights to an order security, a losing party may apply to court claiming execution by a bound party.
9.2. Restoration of rights under lost registered securities is for the first time ever provided by the Code.
Before the Law, an opportunity to restore rights under lost registered securities was only provided in relation to mortgages. The Law has made the right effective in relation to all registered securities. Restoration of rights under lost registered securities should be performed by court under special proceedings on cases concerning establishment of facts having legal significance. A restoration application may be filed by a party that has lost such security, as well as other parties, as provided by law.
- Restoration of records (1) on registered certified securities holders, and (2) recording rights to uncertified securities if lost
Restoration of records on registered certified securities holders should be performed by a recording party on the basis of registered securities that have been provided. If such person fails to restore records, they should be restored in court.
Records of rights to uncertified securities should be restored in court only.
In both cases a recording party should promptly publish information on records loss in mass media.
- The list of rights certified by securities has been supplemented
Under the previous version of the Code, securities certified proprietary rights only. Under the Law, securities should certify (represent) liability rights and other rights. Earlier, securities could certify other rights (apart from proprietary rights) in relation to issuable securities only.
- New concept - securities lock-up
Lock-up of securities should mean transfer of securities in custody to a party that may, by operation of law, have the custody of securities and (or) record rights to securities. Locked-up securities are subject to provisions on uncertified securities.
III. Intangible benefits and protection thereof
The Law has provided regulation where information discrediting honour, dignity and business reputation of an individual has become public and due to this fact it is impossible to make the public aware of a disproving evidence. In such circumstances any individual may claim that such information should be deleted and dissemination thereof should be terminated or prohibited.
Furthermore, the Law provides that if information discrediting honour, dignity and business reputation of an individual has become public in the Internet after dissemination thereof, the individual may claim that such information should be deleted and disproving evidence should be provided, so that Internet users can become aware of the disproving information. If there is an image of an individual in the Internet disseminated in breach of Code provisions, the individual may also claim that the image should be deleted and dissemination thereof should be terminated or prohibited.
The Law has introduced a special limitation of actions period in relation to dissemination of information contrary to actual information of the individual in mass media. Such term should be one year from its publication date.
The new version of the Code contains a new clause regulating individuals' privacy protection. Generally, this clause prohibits collection, custody, dissemination and use of information concerning privacy of an individual without consent of such individual