Joint stock company liability for unlawful write-off of shares from shareholders’ personal accounts

25.02.2010

Legal Update No. 126

Goltsblat BLP advises that Resolution No. 2-P of the Constitutional Court of the Russian Federation of 28 January 2010 on a case checking the constitutionality of paragraph two, clause 3 and clause 4, article 44 of the Federal Law “On Joint-Stock Companies” pursuant to applications submitted by the open joint stock companies Gazprom, Gazpromneft, Orenburgneft and Sberbank of Russia has been published. The Resolution finalises the discussion on the legality of a joint-stock company being held liable for the actions of the registrar appointed to maintain and safeguard the relevant shareholders’ register.

The applicants believe that the challenged provisions violate their constitutional rights in that they impose liability on the joint-stock company engaging the registrar to maintain and safeguard its shareholders’ register for inappropriate performance thereby (invalid write-off of shares from shareholders’ personal accounts) when there is no guilt on the part of the joint-stock company itself.

It should be noted that Federal Law No. 205-FZ adopted subsequently, on 19 July 2009, did not eliminate the joint stock company’s liability for maintenance and safekeeping of the shareholders’ register and did introduce joint and several liability of the joint stock company and the relevant registrar for damage caused to shareholders by loss of shares as a result of inappropriate maintenance and safekeeping of the register. Since these amendments did not release the joint-stock company from liability for the actions of the registrar in maintaining and safeguarding the shareholders’ register, the Court proceeded to consider the case.
The resulting conclusion was that the challenged provisions (as worded before the above amendments) do not run counter to the Constitution of the Russian Federation since they are called on to balance the interests of shareholders (i.e., investors investing their funds in the charter capital of an issuer - joint stock company), the share issuer itself (i.e., the party required to keep a record of contributors to its charter capital) and the registrar actually maintaining and safeguarding the shareholders’ register within the relevant regulatory framework, in the event of unlawful write-off of shares from shareholders’ personal accounts.

At the same time, the Constitutional Court of the Russian Federation noted that this does not preclude further legislative improvements to the legal mechanism for regulating relations between shareholders, share issuers and registrars in order to develop more efficient and reliable methods for protecting their rights and legal interests (for instance, by introducing compulsory liability insurance for the parties maintaining and safeguarding shareholders’ registers) in the event of any damage being caused to shareholders as a result of unlawful write-off of shares from their personal accounts.

For additional information, please contact:

Anton Sitnikov, Partner,
Head of Corporate/M&A
Goltsblat BLP;
E: info@gblplaw.com

Anton Rogoza, Partner,
Corporpate/M&A
Goltsblat BLP;
E: info@gblplaw.com

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