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Due diligence requirements
What due diligence is necessary for buyers?
Buyers should carry out comprehensive due diligence on the target, as even small mistakes can have major consequences, given the form-over-substance nature of Russian law. The scope can vary greatly depending on numerous factors (eg, the target’s history, whether it is a listed entity and the number of shareholders). At a minimum, it should be confirmed that:
- the target was properly established;
- the target is in compliance with its tax obligations;
- the seller owns the shares free and clear of encumbrances; and
- share transfers were properly documented.
What information is available to buyers?
The information available to buyers typically depends on whether the target is a private or public company.
For private companies, publicly accessible data is often limited. Therefore, the seller typically supplies information in response to a diligence request prepared by the buyer’s counsel.
In certain instances – including where a public company has registered a securities prospectus – the company must disclose various information to the public. Therefore, certain public company documents may be publicly available (eg, at www.e-disclosure.ru or on the company’s website), including:
- quarterly reports;
- consolidated financial statements;
- foundation documents;
- certain shareholder information;
- information on affiliates; and
- information on material agreements and events.
What information can and cannot be disclosed when dealing with a public company?
Restrictions on information received from a public company include:
- information classified as confidential;
- information constituting state secrets;
- insider information; and
- information containing personal data.
Disclosure would ordinarily be made on the basis of a non-disclosure agreement or subject to the receiving party having received necessary clearance (eg, for state secret information). The volume of information about a public company that a selling shareholder may have will also depend on the size of its stake.
How is stakebuilding regulated?
Stakebuilding is regulated by the Joint Stock Companies Law and the Securities Market Law.
The issuer, the acquirer and the seller must disclose the direct or indirect acquisition/disposal of 5% of voting shares or any acquisition/disposal resulting in the acquirer holding more /the seller holding less than 5%, 10%, 15%, 20%, 25%, 30%, 50%, 75% or 95% of voting shares.
If an acquirer acquires more than 30%, 50% or 75% of the voting shares in a public company (including any voting shares in the company owned by the acquirer’s affiliates), it will be obliged to launch a mandatory tender offer to acquire the voting shares held by other shareholders at market value and at the request of such shareholders. An acquirer of over 95% of the voting shares in a joint stock company may squeeze out the remaining shareholders by purchasing their shares at market value or may be required to buy out those remaining shareholders at market value.
In addition, stakebuilding in certain industries (eg, banking, insurance and mass media), as well as stakebuilding by foreign investors, is subject to restrictions and may require regulatory approval.
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