Lifting of certain restrictions during establishment of and increase/reduction in corporate charter capital

26.01.2010

Legal Update No. 114

Goltsblat BLP law firm advises that Federal Law No. 352-FZ dated 27 December 2009 “On Amending Certain Legal Acts of the Russian Federation in Order to Change Restrictions on Companies during Establishment of Charter Capital and Methods for Protecting Creditors against Reductions in Charter Capital, Amend Requirements for Companies in the Event of Discrepancies between the Value of the Charter Capital and Net Assets and Revise Limitations on Bond Flotation by Companies” came into effect on 31 December 2009.

The amendments introduced into the first part of the Civil Code of the Russian Federation stipulate that increases in charter capital may be paid for by off-setting claims against companies in the cases envisaged by the Laws “On Limited Liability Companies” and “On Joint-Stock Companies”. The prohibition on joint stock companies increasing their charter capital in order to cover for their losses has also been lifted. Payment for additional shares by off-setting monetary demands is permitted only for privately placed ones.

Joint stock companies that decide to reduce their charter capital are given three days to communicate their decision to the state registrar and must arrange for two publications of the charter capital reduction notice. Creditors of such joint stock companies may demand either early execution or termination of obligations pertaining to receivables dating back to before such a publication. If the reduction does not violate the creditor’s rights or the company has provided sufficient security for its obligation, the creditor’s claims might be dismissed by a court.

The implications arising from the value of the joint stock company’s net assets being lower than its charter capital have been changed. If this is the case at the end of the second and every subsequent fiscal year, the amount of the net assets should be reviewed at the annual meeting of the company shareholders. Yet, if the value of the net assets remains lower than the charter capital at the end of the fiscal year following the second and every subsequent fiscal year at the end of which the value of the net assets fell below the charter capital, the Company should adopt a decision either to reduce its charter capital accordingly or wind-up its business.

Joint stock companies are also required to arrange for two publications of the net asset reduction notice in the cases provided for by the legislation. In such cases, the rights of the creditors of a company are similar to those of creditors of joint stock companies that decide to reduce their charter capital.

The amendments introduced into the Federal Law “On the Securities Market” clarify certain provisions pertaining to bonds secured by surety commitments and establish specific features of bond flotation by companies. The legal entities entitled to acts as guarantor and other restrictions pertaining to bond flotation have also been established.

The Federal Law supplements the list of data contained in the Unified State Register of Legal Entities and describes the procedure for introducing amendments into the data in the Register pertaining to a joint stock company undergoing the procedure for reducing its charter capital and ones relating to information about the value of its net assets .

For additional information, please contact:

Anton Sitnikov, Partner,
Head of Corporate / M&A, Goltsblat BLP,
by e-mail: info@gblplaw.com

Anton Rogoza,
Partner,
Corporate / M&A
Goltsblat BLP,
by e-mail: info@gblplaw.com

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