Amendments to the Russian Civil Code
Within a large initiative of amending the Civil Code of the Russian Federation (the Civil Code) started a few years ago yet another batch of amendments substantially affecting corporate governance in Russian companies became effective on 1 September 2014.
Number of directors
Under the September amendments, it is now possible for a company to have several general directors (the maximum number of which is currently not specified), if such option is provided for in the company’s charter and registered with the register of companies. Depending on the company's charter, their duties will be performed independently by each director or jointly. If the directors represent the company jointly, the actions will be taken on its behalf only where all directors have expressed their will for such action to be taken. Previously the Russian companies could only have one general director performing duties of a ‘sole executive body’.
It is yet unclear how the authority to take actions on the company’s behalf may be allocated among such multiple general directors. There are several drafts in circulation aimed at bringing the Law on Joint-Stock Companies in line with the amended Civil Code, and it is difficult to say which proposition will prevail. Existing drafts contain different sets of options that may be provided for in the company’s charter, including joint representation of the company by all directors, independent representation of the company by each director (or a combination of independent and joint representation) or independent representation by directors acting within their authority in accordance with the charter.
Clarifications on liability
In line with a trend to broaden the liability of directors, under the September amendments directors are now liable for damages caused to shareholders of a reorganised company who have not voted for reorganisation and to its creditors where a decision on reorganisation was invalidated in court and where such director contributed to taking such decision in bad faith. If such decision on reorganisation was taken by a collective governing body of the company (e.g. board of directors) such liability will be joint and several among all directors voting in favour of such decision.
Prohibition to limit liability
The amendments to the Civil Code which became effective on 1 September have expressly prohibited limiting or eliminating liability of a director for bad-faith actions (and in a public company, also for unreasonable actions) by an agreement.
New Code of Corporate Governance
The new Code of Corporate Governance was adopted by the Central Bank of Russia in April 2014. The document sets out basic principles of corporate governance and is specifically intended for application by the joint-stock companies whose shares are admitted to trading through the stock exchanges and joint-stock companies with a large number of shareholders. Although it contains non-binding recommendations only, for certain public companies (predominantly state-owned) its implementation will be mandatory.
One of the main purposes of the document is to provide for clear rules on the formation of effective executive bodies accountable to the board of directors, which in turn is accountable to the shareholders. The Code also sets out certain professional and personal qualifications for candidates to directors and criteria of directors’ independence. The document also provides for a new approach to the remuneration of directors, aimed at limiting the size of golden parachutes payable on directors’ retirement.