The approval of major and interested party transactions by Russian limited liability companies and joint stock companies has for many years been a source of practical difficulties for corporate lawyers and caused legal uncertainties for counterparties. Federal Law No. 343-FZ of 3 July 2016 on Amendments to the Federal Law on Joint Stock Companies and the Federal Law on Limited Liability Companies with Respect to the Regulation of Major and Interested-Party Transactions has introduced amendments which purport to clarify and simplify this complicated area of Russian corporate legislation, and also to give more flexibility when concluding such transactions. These changes have come into force on January 1, 2017.
It should be noted that the conceptual approach has changed and the “approval” (“odobreniye”) is being replaced by a “consent” (“soglasiye") or “subsequent approval” (“posleduyushchee odobreniye”) for both major and interested-party transactions.
- The definition of major transactions has been clarified and the basic criterion is now whether a company is going beyond its ordinary course of business. A definition of transactions concluded within the ordinary course of business has also been adopted.
- Conclusion of lease agreements and agreements granting rights to use intellectual property are now expressly included among transactions subject to consent.
- A joint stock company must, for each major transaction, prepare and approve an opinion report (“zaklyucheniye”) containing information about the intended consequences of the major transaction for the company’s activities and assessment of its feasibility. The opinion report is subject to confirmation by the board of directors of the company, and in its absence – by the sole executive body of the company.
- The range of transactions requiring approval as major transactions has been narrowed. The additional exceptions to the major transaction procedure have been introduced, in particular: (a) transactions arising when rights to property pass in the course of a company's reorganization (for joint stock companies); (b) share purchase agreements concluded upon a mandatory offer to purchase shares (or other securities convertible into shares) of a public company; (c) transactions concluded on the conditions of a preliminary agreement if consent was duly obtained to enter into the preliminary agreement.
- The resolution consenting to or granting subsequent approval of the transaction may also contain a reference to the minimum and maximum parameters of the transaction's terms or a procedure for defining them, to alternative versions of the terms of the transaction that requires consent, to consent to carry out a number of similar transactions, to the time period for which the resolution is valid, etc.
- It is permitted to enter into a major transaction either before or after obtaining consent. In such case, the need for consent may be a condition precedent to the transaction.
- Only participants / shareholders holding participatory interests / voting shares representing at least one percent of the company’s charter capital may file claims to challenge a major transaction that was not properly approved. Members of the board of directors now have also the right to challenge such transactions.
- At least 15 days (or such other period mentioned in the charter) prior to concluding an interested-party transaction, a company must now inform non-interested participants (shareholders) and members of the board of directors (supervisory board) (if any) of such transaction.
- Such interested party transaction will only be subject to consent if requested by the chief executive officer, any member of the collective executive body, any member of the board of directors (supervisory board) or participants / shareholders holding participatory interests / voting shares representing at least one percent of the company’s charter capital.
- The term "affiliates" is no longer used to determine the range of persons with whom a transaction is considered to be an interested-party transaction. The terms "controlling party" and "controlled party (controlled entity)" are now used instead.
- Similar provisions on major transactions apply to the resolution consenting or giving subsequent approval to an interested-party transaction; however, there is one clarification: for interested-party transactions it is mandatory to state the person(s) interested in the transaction and the basis on which the person (each of the persons) interested in the transaction is an interested party.
- In the course of preparation for the annual general meeting, company participants (shareholders) must be provided with a report on interested-party transactions concluded by the company in the reporting year.
- An interested-party transaction is presumed to violate the company's interests if there was no consent to complete the transaction and the company did not provide information at the request of participants / shareholders holding participatory interests / voting shares representing at least one percent of the company’s charter capital, or of a member of the company's board of directors (supervisory board) concerning the transaction, including documents or other information confirming that the transaction does not violate the company's interests (that it was completed on terms not substantially differing from market terms, and other information).
- The definition of transactions not requiring consent generally coincides with similar exceptions from the procedure for completing major transactions, with the exception of the following: (a) transactions completed in the ordinary course of the company's business; (b) transactions for the company to place bonds via open subscription or for the company to acquire its outstanding bonds; (c) transactions concluded at a public tender or following a public tender, if the terms of such auction were confirmed in advance by the company's board of directors or general participants meeting; (d) transactions with a value of 0.1 percent or less of the book value of the company's assets.
- The maximum value of an interested-party transaction (or a series of related transactions) that the board of director may consent to is increased from two per cent to ten per cent of the book value of the company’s assets.
- The charter of a non-public company may establish a different procedure for approving interested-party transactions, or waive all requirements for the approval of interested-party transactions.