MIFC Roadmap

03.11.2015 MIFC / Moscow

MIFC Roadmap: Making progress.
October 2015


01.07.2013 MIFC / Moscow

MIFC Roadmap


01.07.2013 MIFC / Moscow

Interview with Alexander Voloshin

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MIFC: Key Facts / Project Group №2

 

Project Group №2 members

Project Group 2. Corporate law and governance, financial transaction taxes.

Financial Transaction Taxes
Civil Law
Corporate Law

Corporate Law and Governance, Financial Transaction Taxes Project Group (PG2) was formed in November 2010 and is chaired by O.Dergunova. The main goal of this Project Group is improvement of competitiveness and attractiveness of the Russian corporate law system and financial transaction taxes. The Group mandate covers protection of property rights, vulnerable contract parties, portfolio investors, improvement of corporate law and governance, liberalization of corporate affairs in private companies, maintaining the priority of preemptive defense instruments, compliance of Russian legislation with best international practice, drafting proposals for tax system reform to improve conditions for financial market development.

The Group drafts financial market regulation for submission to the State Duma, develops regulatory procedures.

The Group is subdivided into three areas:

1) Financial transactions taxation
2) Civil law general issues
3) Legal regulation of corporate affairs

The mandate of Project Group 2 is detailed below.

Financial Transaction Taxes

The Taxes area has analyzed the most relevant taxation issues in the financial sector and has drafted a number of recommendations for the improvement of the existing tax law.

The overall tax system in Russia is considered one of the world’s simplest, with some of the lowest rates for companies and private individuals among the developed countries. Nevertheless, certain aspects of the existing tax system do not comply with the objective of creating an international financial centre in Russia. Existing tax rules for financial transactions hinder the local development of various financial instruments and institutions that form an integral part of the financial system in the developed countries (e.g., complex derivatives, investment funds, trust management, life insurance, leasing).

  1. At present, tax laws do not provide clear tax procedures for a series of financial instruments that form the basis of the financial market. The absence of clear guidelines frequently cause debates between taxpayers and the Russian tax authorities.
  2. Tax administration is also an issue. It is most acute for financial institutions, as most of them act as tax agents and must therefore accurately account for their own taxes as well as calculate and withhold clients’ transaction taxes – private individuals and foreign entities.
  3. The existing system is not geared towards long-term investment and maximizing the involvement of people and businesses in the financial market.
  4. Some tax regulations in Russia differ from the same in developed financial markets, making the

    Russian market less competitive.

  5. The unpredictable interpretation of tax laws by tax authorities, mixed opinions between tax bodies of different level and ambiguous court practice affects the investment climate in general and the image of Russia in the eyes of foreign investors.

Project Group 2 has drafted a number of amendments to the Russian Tax Code.

Currently the Taxes Area is focused on eliminating contradictions and clarifying the tax law to make the rules more transparent and clear to investors, lifting restrictions that slow down development of some market segments. The Group also analyzes best international practices and researches ways of integrating effective principles into the Russian tax law.

The current focus of the Taxes Area is as follows:

  1. Improvement of Financial Instruments Transactions Taxation

    Tax base calculation for securities and derivatives operations: at present, only licensed securities market dealers have the right to balance all income and expenses/losses for all securities and term transaction financial instruments. Other market participants have to calculate several tax bases (traded/nontraded securities, traded/nontraded term transaction financial instruments). These market participants cannot balance losses from securities and nontraded term transaction financial instruments with profit for other transactions. This drives non-licensed market participants away from investing in securities and derivatives, as they cannot document these losses for tax purposes. We suggest studying best foreign practice (USA, Germany) and suggest that the Ministry of Finance change the existing procedure accordingly.

    Market pricing for securities: Today, the market pricing rules for traded securities ignore the trade details. We suggest amending p. 5 of Russian Tax Code Article 280, factoring in trade details (trade volume, privatization etc.).

    ADR/GDR/RDR: The bulk of the Russian market liquidity is concentrated in Global Depositary Receipts (GDR) and American Depositary Receipts (ADR), thus the possibility of settling related disputes will send a positive message to investors. Today, taxation of GDR/ADR/RDR conversions and cancellations is not regulated. We suggest amending the Tax Code to exclude GDR/ADR/RDR conversions and cancellations from taxation in Russia.

    Russian issuers do not see foreign/Russian investors as actual beneficiary owners, looking instead at an aggregate position of a foreign bank, such as Bank of NY Mellon (BNYM). Therefore, dividend payments to GDR and ADR holders involve maximum 15% tax withheld by issuers, whereas in reality actual beneficiaries are entitled to a lower tax, according to Double Tax Avoidance Conventions (for foreign investors), or 9% (for Russian investors). This means that investors have to file tax return claims, a long and complicated procedure. We suggest amending Tax Code Articles 23 and 25 to determine the actual beneficiary for ADR/GDRs and set the tax procedure for these types of income. This will enable issuers to apply the correct tax amount and investors will no longer have to file for returns.

    Russian Eurobonds: Today, Russian Eurobonds are issued via foreign SPVs (such as Luxembourg or Ireland), as a means of avoiding taxation in Russia when distributing the Eurobonds coupon. To simplify access to the global capital markets for Russian issuers (companies, the state and its Federal territories), we suggest amending Tax Code Article 309 to make the Russian Eurobonds coupon exempt from tax.

    Shares of companies with over 50% assets in Russian real estate: Today, securities traded on foreign stock exchanges do not incur income tax in Russia. However, trading similar securities on a Russian stock exchange does lead to income tax at the source in Russia. This leads to the bulk of trading in Russian securities financial instruments and derivatives being exported to foreign exchanges. At the same time, most Russian blue chips are natural resources companies with over 50% assets in real estate. We suggest amending Tax Code Article 309 to make Russia-listed companies exempt from tax at the source of shares. We suggest a procedure to determine the amount of real estate in other companies’ assets for paragraph 5 section 1 Art. 309.

    Rules for tax base calculation in partial par value redemption of securities: Currently, no procedure in Tax Law Chapter 25 regulates income recognition by partial par value redemption of securities. In the absence of special rules, tax payers have to indefinitely postpone the recognition of income received from the issuer, which complicates taxation. This problem has already been successfully dealt with in tax base calculation for private individuals’ securities transactions by amending Article 214.1 Chapter 23. We suggest similar amendments to paragraph 2 of Tax Code Aricle 280.

    Loss recognition for defaulted bonds, creating and employing reserves: The Tax Code does not expressly forbid recognition of losses, however, the Ministry of Finance does not allow taxpayers to recognize losses for bonds to decrease the profit tax base in the event of the issuer’s bankruptcy. Besides, licensed dealers cannot use the devaluation reserve to cover losses (Tax Code Art. 300). Banks have the right to form an allowance for doubtful debts in case of non-covered coupons. For placed equities, however, an underwriter is required for the approval of the prospectus. If the issuer defaults, the underwriter would normally also be bankrupt. Thus it is impossible to create a reserve for the coupon on these securities and cut the tax base. Suggestions: 1) amend Tax Code Article 300 as is the case with loan loss provisions; 2) clarify Tax Code Article 265 for losses in the event of bankruptcy of issuer; 3) amend Tax Code Article 266, allowing banks to create reserves for coupons, regardless of the coverage.

    REPO transactions: Different rules for REPO exist in the civil and tax codes. We suggest bringing the Tax Code provisions in line with the current Securities Market Law. Amend Tax Code Articles 214.3 and 282. There is no taxation rule regarding dividends and manufactured dividends for REPO and short positions. We suggest amending Tax Code Articles 282, 309-312 and setting the procedure for REPO and short position dividends taxation. At present, a possibility of creating provisions by licensed market participants for devaluation of securities, yet these rules are absent in cases of REPO and REPO loans. We suggest amending Tax Code Article 300 to include rules for REPO and REPO loan provisions forming.

    Loss accounting for term transaction financial instruments: In accordance with p.1 of Tax Code Art. 301, term transaction contracts are not allowed, unless they are subject to court remedy according to the Russian Civil Code. Losses for such contracts are disregarded when forming the tax base. The existing version of p. 1 Tax Code Art. 301 allows a loose interpretation and limits the possibilities of hedging risks by Russian exporters, importers and producers. This limitation is protectionist and discriminating to foreign market players in Russia. We suggest amending Tax Code Art. 301 and lifting the limitation of loss accounting for term transaction financial instruments, or discount losses for term transaction financial instruments subject to court remedy in foreign jurisdictions.

    Structured derivatives: Current tax law does not hold clear provisions for the taxation of structured combined instruments. Loose interpretation is possible, which may lead to tax disputes. We suggest setting the tax procedure for embedded derivatives and combined instruments.

  2. Income distribution and cost allocation in multi-national holdings

    Today, Russian tax authorities can decline to accept income and costs passed on by foreign companies to their Russian divisions in accordance with OECD transfer pricing principles. Same problems exist when Russian companies wish to distribute part of income/costs to subsidiaries abroad.

    We suggest developing the framework for accepting income/costs, distributed in multinational holdings, subject to discussion with the Ministry of Finance.

  3. VAT-exempt financial services

    Financial services rendered by Russian companies are 18% more expensive than by foreign companies. This affects the competitiveness of the Russian market: foreign companies prefer to sell financial services VAT-free through foreign divisions, to open Russian subsidiaries. We suggest amending Tax Code Art. 149 and making services rendered by licensed brokers, depositories, asset managers, underwriters and support providers VAT-free.

  4. Development of trustees and investment funds

    Mutual Investment Funds taxation: Today, property tax for closed-end mutual funds is not clearly defined (how the tax should be allocated, tax base calculation). We suggest amending p. 2 of Tax Code Art. 378 to clarify tax calculation and deduction. For market closed-end funds (upwards of 100 shareholders) we suggest exemption form property tax.

    VAT taxation of mutual funds is unclear. We suggest amending Tax Code Chapter 21 to include the VAT procedure for mutual funds.

    Trustees: The current Tax Code rules out loss accounting for trust management, if the beneficiary is the founder. Waiver of trustee losses significantly limits the possibilities of diversified investment of assets under management. This is crucial for pension funds and insurance companies. We suggest amending Tax Code Art. 276 to allow recognition of trust management losses, set a similar accounting standard for proprietary security transactions and trust management securities, allow to balance financial results by portfolio.

  5. Stimulating stock market investment by private individuals

    Russian private individuals act as net lender for banks and are inactive on the investment market. Bank deposits far outweigh the amount of share fund investments. This is partly caused by the tax regime, as bank deposit rates are normally exempt from income tax. To stimulate investment we suggest offering private investors certain benefits to make investment in financial instruments as lucrative as deposits. We suggest: 1) make transactions with securities and financial instruments exempt from income tax, if these are owned by the private individuals for a long period of time (e.g. 3+ years); 2) introduce income tax refund for long-term investments, with subsequent profit taxation; 3) make dividends on shares and coupons exempt from income tax; 4) introduce minimum income tax refund of RUB 400k per year for sums allocated by private individuals or their employers for individual private pension fund schemes. Suggested amendments for Tax Law Articles 208, 213.1, 214.1, 219.

  6. Profit tax exemption for dividends

    Profit Tax exemption for dividends, based on the concept of eliminating double taxation, is becoming increasingly popular worldwide. Many developed countries have conditional profit tax exemption for dividends (the Netherlands, Luxembourg, Belgium, the UK). A number of financial centres have made dividends tax-exempt (Hong Kong, Singapore). Tax exemption for corporate dividends is discussed in the USA. The current tax benefit for major shareholders in Russia allows for profit tax exemption for dividends, if the company receiving dividends has owned no less than 50% of the dividend payer for 1 year. This condition is rather strict and is available to a limited number of investors only. To boost the attractiveness of Russian assets to foreign investors, we suggest considering the possibility of profit tax exemption for Russian dividends.

  7. Stimulation of life insurance development

    Insurance industry in developed countries is a major source of investment into economy. The Russian life insurance market is severely under-developed – the share of life insurance premiums in GDP is some 0,02%, life insurance makes up about 3% of the insurance market, premiums per capita are USD 5. Life insurance development in Russia is hindered by a number of factors, most importantly lack of tax benefits for insurers. We suggest: 1) apply the social tax benefit to long-term life insurance; 2) increase (readjust) the maximum social tax benefit to RUB 200k and introduce automatic readjustment according to inflation level; 3) Cancel double taxation of insurance payment income, when beneficiary and policy holder are separate individuals (parents insuring children, spouses); 4) Equal tax rules for insurers and private pension funds (and insurance and premium payments to Russian Pension Funds, Social Insurance Funds, Compulsory Medical Insurance Funds). We suggest amending p.2 of Russian Tax Code Art. 219 and Art. 213, as well as Art.9 of Federal Law 212.

  8. Stimulation of leasing development

    VAT: Leasing companies are often denied VAT refunds. Trans-border leasing from Russia is also not classified as export of goods (with zero VAT and VAT refund rights). This leads to such transactions costing an extra 18%. We suggest amending Tax Code Ch. 21 to change the VAT rules for leasing. Make rules for trans-border leasing similar to rules for export (zero VAT and VAT refund rights).

    Lease financing: Leasing companies often attract financing from foreign branches. Debt to capital ratio is not clearly defined for leasing companies to calculate the profit tax rate. We suggest clearly stating in Tax Code Ch. 25, which leasing company has the right to apply 12,5:1 ratio for insufficient leasing company capitalization. Today, there is disproportion in accepting FX rate difference in financing raised by a leasing company (rate difference return) and fixed-FX rate lease financing by a leasing company (realized exchange rate difference). This leads to phantom profit or loss being accounted for tax purposes. We suggest amending Tax Code Ch. 25, granting taxpayer the right to revaluate the income and/or not revaluate raised financing (i.e. accept the realized exchange rate difference).

  9. Improving tax administration

    It is often impossible to apply low or zero tax rates at source to revenue paid to foreign investors. As a result, foreign investors are forced to file for tax returns. We suggest amending Tax Code Articles 309 - 312 to improve tax relief for foreign investors revenue at source in Russia and improving the tax return procedure.

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Civil Law

Recent months saw the Civil Law Area focused on reviewing the proposed Civil Code Amendments (“Project”). Despite the fact that the proposed changes to the Code are sufficiently positive, Project developers’ standpoint on several issues does little to contribute to flexibility and global integration of Russian corporate law, thus opposing the concept of MIFC in Russia. The Project Group vision on Corporate Governance and Civil Law has been presented to Vice Premier Shuvalov, Ministry for Economic Development and other state ministries involved.

The key amendments to the Civil Code by the Project Group are:

  1. Conditional Transactions

    Project Article 157 states that a transaction cannot be executed under condition that is exclusively or largely dependent on the will of one of the parties (potestative condition).

    Civil Law Area members consider this norm an obstacle to the competitive advantage of the Russian jurisdiction and MIFC development:

    • Almost all complex transactions (shareholder agreements, M&A, complex delivery, loan agreements etc.) contain these conditions;
    • Such restrictions do not exist in developed jurisdictions;
    • This restriction will become a convenient excuse for abusers to contest lawful contracts in court to evade their obligations.

    We suggest not only dropping this restriction from the Project, but directly stipulating such conditions in the Civil Code, while regulation of various types of conditional transactions should be confined to corporate law.

  2. Waiver of right

    Contracts often require waiver of rights (except when prohibited by the nature of such right). These waivers include common business practice, such as non-competition, non-solicitation, excluding threat to collateral or debtor’s financial standing). This will allow Russian business to use common financial market contracts that are not defined in the Russian law. Today, when the Project expressly states that the waiver does not effectively cancel the right, the structure of many transactions is exposed to considerable risk. We propose amendments to the Project.

  3. Freedom of contract

    Civil Law norms are excessively strict (as is the court practice) and preclude the business from freely defining contract terms, if they do not comply with the Civil Code or combine several types of contract. Creating an IFC in Russia will be a difficult process if the Russian contract law remains as imperative and restrictive as it was in the Soviet period, regardless of free market economy transition. Contracts should be regulated more flexibly and with freedom of choice for the parties, if this does not harm public interest, third party interest or customer rights protection. New norms should be included in the Civil Code to give parties free reign in defining contract terms. We propose amendments to the Project.

  4. Losses and damages

    Seeking loss compensation or claiming damages is a common way of rights protection. However, parties often find it difficult to claim damages (delivering proof of the loss amount in court, damages amount arbitrarily cut by court decision). As a result, Russian and foreign investors lack guaranteed rights protection which they are granted in other jurisdictions. The Project norms on damages should be amended: simplify the procedure of proving the damages, provide a compensation guarantee option (known elsewhere as indemnity), change the damages amount review rules, allow a minimum damages amount. We propose amendments to the Project.

  5. Irrevocable power of attorney

    The general rule allows POAs to be revoked at any time. Irrevocable POAs should be in place for business use, as they are a common guarantee of financial contract performance. We propose amendments to the Project.

  6. Representations and Warranties

    The absence of these norms in Russia causes business to turn to foreign jurisdictions to regulate contract performance, including contracts between Russian business acting through foreign entities. Representations and warranties should be introduced and regulated, with penalties for non-performance. We propose amendments to the Project.

  7. Consequences of voiding a contract

    The Project leaves open the consequences of declaring a contract null and void. This possibility could be abused. For instance, a party can assume contractual obligations under deception, force or threat, with a clause stating that if the contract is contested, all assets shall be transferred to the unfair party. We propose to leave this norm out of the Project, as it poses serious risks to foreign and Russian investors.

  8. Contractual subordination

    Contracts between co-lenders is common finance practice for capital raising such as IPO or syndicated loans. This regulates the execution of creditor rights, including prohibition of individual claims, claim subordination and distribution of borrower’s assets. We suggest incorporating in the Project the option of contractual regulation between lenders.

    Other non-Project related issues:

  9. Limiting the need to obtain notarization

    We propose limiting or reviewing the list of transactions that require notarization. Alternative measures include setting up special Registration Lawyers (licensed and insured, keeping a transaction registrar) to verify OJSC share transactions. We also propose to cancel the requirement to notarize copies and translations.

  10. Introducing trust ownership: escrow, security trustees etc.

    Borrower’s consent and release of property should not be necessary for change of lenders.

  11. Legal basis for SPVs.

    Legally set anti-bankruptcy measures for these entities are necessary.

  12. Lien, pledge and other forms of security.

    Make pledge a more effective financial transaction tool: define pledge amount with mandatory inclusion of the sum in the contract terms. Possibility of pledging assets to be owned or identified in the future, account and cash pledge, 1-year moratorium on the sale of pledged assets, define ‘disproportionate violation’, need for public auction, court involvement, possibility of pledging cash.

    We suggest making pledge more dispositive and not a penalty, regulated by the contract parties.

    We propose the use of transfer of ownership rights to lender for the period of existence of secured obligations, with the borrower losing the return right to his assets in the event of breach.

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Corporate Law

Globalization increases competition between corporate jurisdictions. The most popular jurisdictions are flexible in offering shareholders the option to define corporate governance; quick reaction of lawmakers and judges to the needs of the market; simple and brief formalities, e.g. company registration.

On the contrary, the Russian corporate law remains over-regulated despite recent change, with courts acting on the ‘all that is not expressly permitted by law is forbidden’ principle. There are continued attempts at spreading the tough regulation to non-public companies. Corporate law should aim to make non-public companies regulation more flexible instead of tightening public company requirements.

This could be solved by making Civil Code dispositive towards all non-public (closed joint stock) companies.

Other issues include:

  1. Transparency, availability of corporate information to investors.

    We propose grading shareholders access to corporate information. Introducing IFRS norms: 2012 for banks and insurance companies, listed issuers, 2013 for Limited Companies with 500+ shareholders, 2014 for all companies. Disclosure of conflict of interest, affiliation, management vote, number of shareholders. Disclosure of substantial information, access to subsidiaries’ documents, defining ‘general availability’ of press outlet, disclosure of previously incorrect data and record date.

  2. Liability.

    We propose introducing the notion of ‘control’ and defining its presence, application of liability for subsidiary debt, defining the extent of liability both «external» (auditors, appraisers etc.) and «internal» (audit committee, tally committee etc.), proxy liability, insuring management board liability, regulation of liability claims.

  3. Affiliation/beneficiaries.

    The current affiliation concept is outdated and formal, does not include many cases of actual affiliation. It is important to raise the level of responsibility of major shareholders, their directors and managers by letting minority shareholders claim damages to the company directly from these persons, improve the regulation of conflict of interest disclosure. All of this calls for improved definition of affiliation, its application, definition of “beneficiaries” and its relation to “affiliation”. Managers should be accountable only in the event of losses, and not on procedural grounds, as it is today (for breaching the approval procedure).

  4. Shareholder agreements.

    Shareholder agreements are a common means to regulate ownership. Despite their recent legalization in Russia, their effectiveness is low – the corporate law is imperative and court practice is conservative. The existing concept of Shareholder agreements is not functioning. We propose legislative change in order to enhance and enable Shareholder agreements to function. These agreements should be executable, the minimum compensation should be legal, potestative conditions should be allowed etc.

  5. Public/non-public companies.

    The Russian law does not provide a legal definition of public company as listed company, yet the regulation of such companies is de-facto in place, mostly through the Securities Market Act and further regulations. Special requirements to public companies are not based on civil or corporate but public law, and aim to protect a wide range of non-licensed investors. Thus the public company approach may be slightly less dispositive. And yet these companies should be given certain freedom of choice of corporate governance model, which should be in line with the company’s business.

    We propose to review delisting rules and corporate governance requirements for listing.

  6. Trades.

    Major transaction and interested party transaction approval protects minority holders, i.e. those who have only monetary interest in the company. Minority shareholders have too much power to block major transactions and interested party transactions. To cut the expense for business, a number of transactions should be exempt from approval, be pre-approved (as drafts or with a maximum amount outlined) or approved post factum, if the market conditions bear no loss for the shareholders.

    The current regulation of major transactions allows manipulation and stripping of assets, and the current regulation of interested party transaction does not cover many actual cases. We propose reviewing the criteria for major transactions and interested party transactions, setting the procedure for approval, review possible abusive practice, exceptions, consequences of non-approval, market conditions etc., making transactions null and void if they do not serve their normal purpose.

  7. Board of Directors.

    Effective penalties for non-performance of fiduciary duties are key to motivating directors and managers. To create a viable responsibility mechanism, we need a set of criteria of negligence or unreasonable actions. We suggest drawing a wider list of cases when the person giving orders to directors or managers is liable to the company for any losses incurred as a result of these orders (including cases of presumed connection between losses and actions of manager, who will have to prove otherwise).

  8. Mandatory cash offer.

    The current Mandatory cash offer concept (and practice) is not functioning: it is either avoided or the price is manipulated. We propose to review the following aspects of this process: the person who sends out the offer, the limit, the respective shares, the liability for non-performance /abuse, state control, requirements, correlation with other legal requirements, pricing, guarantees.

  9. Quasi-Reacquired Stock.

    Global practice often forbids voting with reacquired stock. Russian law also forbids voting with reacquired stock. At the same time, Russian law contains a loophole – voting with quasi-reacquired (bought by issuer’s subsidiary) stock is allowed. Today, this concept is not functioning in Russia. We propose criteria for reacquired stock and setting “no vote, no dividend” rules for such stock.

  10. Preemptive right.

    Current law protects existing shareholders during bonus issues (preemptive right). At the same time no protection is given when new type/class of shares is issued. We propose preemptive right for new class/type of shares, solving the fractional convertible bonds problem, other protective mechanisms against dilution of share/voting rights.

  11. Reorganization.

    Despite the 2008 amendments to the Civil Code, Companies and Bank Acts, current reorganization procedures do not reflect companies’ restructuring needs. Open Joint Stock Companies and non-public companies’ lenders can still ‘economically veto’ the reorganization and reduction of charter capital, mixed reorganizations are hardly possible. We propose a legal basis for mixed reorganizations by company type and reorganization type. Grounds for reorganization and procedure of contesting reorganization should be introduced. A set amount of legal facts should form the procedure. The creditor court claim procedure should apply to all companies. At the same time, investor rights should be guaranteed by transparency of reorganization procedures and liabilities for beneficiaries of unlawful reorganizations.

    Often the reorganization benefits a majority shareholder who passes the decision. We need a rights defense mechanism (e.g. a valuation procedure) - «interested party reorganization» - define it and set the valuation procedure.

    The reorganization is approved by all shareholders (i.e. preferred share owners cannot veto), while different conditions could be in place for ordinary and preferred stock. In a situation like this, owners of ordinary shares determine the economic effect of the reorganization for owners of preferred shares. The law always allows pref. shares to vote separately. We propose a separate vote for pref. shares when the reorganization implies different conditions for different share types.

  12. Enforcement.

    Investor rights and interests are under-protected largely due to the flaws of current corporate governance enforcement, and subsequent investor rights mechanisms fail due to inefficient enforcement. We propose transparent law enforcement and creating legal norms in accordance with enforcement practice (similar enforcement in similar cases, analysis and re-definition of elements of crime, regulator’s role in prosecution).

    Setting up a special Financial Arbitration Court, authorized to settle corporate disputes, is absolutely necessary.

  13. Appraisal and appraisers.

    Appraisal manipulation is a key problem for mandatory offers, reorganization, increase of share capital, buy-out, transactions etc. We propose drafting a set of requirements for appraisers, determine appraisers’ liability, rules of appraisal.

  14. Dividend payment.

    We propose introducing mechanisms of simultaneous dividend payment, tying the dividend amount to consolidated financial reports, considering the possibility of cancellation/revision of dividend payment decision.

  15. Registrar management, tally committee.

    We suggest regulating the procedure of issuer’s service payments to registrar, tally committee members appointment and resignation procedures.

  16. E-Voting.

    We propose setting up E-voting at General Shareholder Meetings, and also “mixed” meetings (when part of the shareholders is present and the rest vote via video-conference).

  17. Internal Control.

    We propose legally introducing internal control, setting the criteria for companies that require mandatory internal controlу. Requirements must be set for the introduction of internal audit committees (e.g., it may be unnecessary if the company already has an audit committee and internal audit procedure in place), developing the procedure if cumulative vote, granting additional powers.

  18. Strategic Investments Act.

    We propose defining the list of strategic industries with retroactive amendments, amending the notion of “acquisition by a group” with retroactive amendments, rule out conflict with mandatory offering norms.

Project Group №2 members

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