On July 23, 2013 the Federal Law No. 210-FZ "On Amendments to the Federal Law "On Securities Market" and Certain Legislative Acts of the Russian Federation" (hereinafter – the "Law") was published at www.pravo.gov.ru, an "Official Legal Information Web Portal". The Law was adopted by the State Duma on July 2, 2013 and approved by the Federation Council on July 10, 2013.
The Law provides additional ways to protect the rights of bondholders. In particular, the Law introduces two new institutions — a bondholders' representative and a general meeting of bondholders, and makes an early bond redemption procedure more precise.
The majority of provisions in the Law come into effect on July 01, 2014. This review contains description of the main novelties introduced by the Law.
A bondholders' representative
An issuer may nominate a representative for bondholders, so that they can act jointly, which will contribute to further protection of their rights.
Starting from 01.07.2016, certain issuers (i.e., issuers of obligations offered through a public offering or admitted to trading) shall nominate a representative on a mandatory basis. A general meeting may at any time elect a representative, including a representative to replace the one earlier nominated by an issuer or elected by a general bondholders meeting.
A representative shall represent bondholders before an issuer, a security grantor and other parties and government authorities (including judicial authorities).
An authorised representatives list shall be maintained by the FFMS, information on the representative attributed to a certain issuer shall be disclosed in the relevant resolution authorising the issuance of bonds.
Requirements to representatives
Representative functions can be performed by persons with a certain occupation (i.e., brokers, dealers, depositaries, lending institutions) and any organisation that has existed during not less than 3 years.
The Law contains certain limitations on parties that shall not act as representatives. Such parties include organisations controlled by an issuer, parties rendering offering services, parties controlling an issuer etc. In some circumstances a representative shall be re-nominated by an issuer within 60 days, otherwise the lack of a representative will serve as a ground for an early redemption of bonds at the request of bondholders.
Functions of a representative
Duties of a representative include obligations to:
- execute resolutions issued by a general bondholders meeting;
- control the performance of bond obligations by an issuer;
- determine circumstances that may result in violation of rights and interests of bondholders, and implement protective measures;
- notify bondholders of events affecting their rights and interests (i.e., of
- events entitling bondholders to claim early redemption of bonds, or of default of an issuer);
- account and transfer funds paid to the representative in favour of bondholders;
- perform other duties provided by law, terms and conditions of the issuance
- or resolution of a bondholders meeting.
A representative may give its consent to amend a resolution authorising issuance of bonds, request a list of bondholders from a depositary, attend general bondholders meetings (with no voting rights provided), exercise powers of a pledgee, beneficiary or lender under a surety where bonds are secured.
Under the Law, generally bondholders shall not, acting individually, perform actions within the competence of their representatives provided by the Law, issuance terms and conditions or a resolution of a general bondholders meeting authorising the issuance.
Exception is provided where a representative does not apply to an arbitrazh court within a month after the relevant grounds arise or a general bondholders meeting does not issue a resolution waiving a right to submit such claims to courts.
Representative services, less judicial expenses, shall be paid by an issuer.
General bondholders meeting
Another key amendment is a new concept – the concept of a general bondholders meeting. Such meeting is authorised to pass resolutions on an exhaustive list of issues and its resolutions are binding for all bondholders, including those who has cast a negative vote or did not participate in the voting.
A general bondholders meeting is authorised to pass resolutions on the following issues:
- a consent for amendments to be inserted into issuance documents by an issuer, related to the scope of rights under bonds and their execution, if this issue is not resolved by a bondholders' representative (by a separate general meeting resolution);
- waiver of claims in relation to an early redemption of bonds or claims to the security grantor, if such bondholders' rights arise;
- a consent to execute a release agreement of behalf of the bondholders in relation to obligations under bonds, compensation payments or novation, as well as in connection with approval of provisions contained in such agreement;
- waiver of a right to apply to courts with claims against a bond issuer and/or a security grantor, including bankruptcy claims against the said parties;
- provision of a right to a bondholders' representative to decide upon amending issuance documents at its own discretion (as set forth above);
- election of a bondholders' representative;
- other issues provided in the Law.
General meeting resolution quorum requirements vary depending on a particular issue. The maximum quorum (9/10 votes) is provided for a waiver of a right to apply to courts with claims against a bond issuer and/or a security grantor.
A meeting can be convened by an issuer, a bondholders' representative or parties owning not less than 10% of issued bonds.
Early redemption of bonds
Under the current legislation, an issuer shall, at the request of bondholders, provide conditions related to early redemption of bonds in a resolution authorising the issuance.
Also, under the Law, early redemption of bonds shall be carried out at the request of bondholders irrespective of whether such early redemption is provided in a resolution authorising the issuance. In this case early redemption is permitted in case of a material breach of issuer obligations under bonds, and in other cases provided by law.
The following breaches are considered material (exhaustive list):
- delay in payment of interests or a nominal bond value, as well as a delay in bond purchase (if such obligation is provided by terms and conditions of the issuance) for more than 10 business days;
- loss of bond security or material decline in security terms. It shall be noted that until the Law comes into effect, default on bonds shall occur as a result of a delay in interest payment for more than 7 days and default on principal debt shall occur as a result of a payment delay for more than 30 days.
The Law also specifies a procedure for early bond redemption at the request of bondholders where the right is provided by issuance terms and conditions:
- an issuer shall redeem bonds within 7 business days after the claim submission term has expired;
- claim submission term shall be determined by a resolution authorising the issuance and shall be not less than 15 business days (from the date when information on accrual of early redemption rights has been disclosed);
- a resolution may provide early redemption for all issued bonds when a certain amount of bonds has been put.