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Businessmen Can’t Find Their Place at MIFC

04.12.2013 00:00 / Kommersant

The Government and major business continue to be at odds over new affiliation criteria, drafted as part of the Moscow International Financial Center (MIFC) effort. These rules are bound to radically expand minority shareholders’ rights, which is opposed by leading players from nearly all key industries. The parties have decided to take a break until mid-January to allow companies time to prepare cases of negative MIFC impact on business.

Yesterday, First Deputy Prime Minister Igor Shuvalov hosted a meeting on amendments to Article 4 of Part 1 of the Civil Code, defining and stipulating criteria of affiliation, said sources. Top executives from Rosneft, Lukoil, Gazprom, Surgutneftegaz, SUEK, Alfa Group Head Mikhail Friedman, CEO at TMK Dmitry Pumpyanksy, CEO at Kaskol Sergey Nedoroslev, Head of the Russian Union of Industrialists and Entrepreneurs (RUIE) Alexander Shokhin. The parties fialed to reach a consensus and adjourned until mid-January. Shuvalov’s representative says he proposed to form a special committee of “well-known legal experts”, appointed by the Government, the Supreme Arbitration Court and RUIE. In a month and a half, companies are expected to pick five most convincing cases of changes putting their trades in jeopardy. “Trades have to be real. If the independent committee finds that amendments may have a negative effect, debate will continue”, says Shuvalov’s rep. He stated that at any rate, companies will enjoy a proposed 2-3 year timeout to prepare “all necessary amendments to internal corporate procedures”.

Sources name the Surgutneftegaz top exec Vladimir Bogdanov as the source of most complaints, claiming that “shareholder meetings will have to be called on a daily basis, otherwise shareholders will have to review thousands of trades, and the Kirishi Oil Processing Plant will have to be shut down along with mining”. Shuvalov’s objection that in Western markets companies have no problem with ‘transparent schemes’ unlike in Russia, does not apply to Surgutneftegaz, a company with no foreign projects. Other participants declined to comment on this difference in approach.

Civil Code amendments were drafted as early as 2012. The changes are geared to increase trading transparency, disclose end beneficiaries, clarify the definition of affiliation. The amendments have already been reviewed by the State Duma, but affiliation and controllers’ liability were dropped from the draft after the first reading. This, in turn, provoked disagreement from the initiators — private equity managers who are part of MIFC Taskforce, such as Prosperity Fund. In March, Igor Shuvalov, who supervises the process, commissioned new amendments to the bill.

Major business strongly opposed this. In June, Head of Rosneft Sechin spoke to Putin about this, with support from Gazprom, Surgutneftegaz and Lukoil. In their joint appeal, oil majors stated that the amendments “make the concept of affiliation too wide and unclear”, leading to “artificial construction of nearly endless connections”. As a result, companies expect “massive abuse from minority shareholders”, while courts are allowed to establish affiliation at their discretion. Companies fear that management will be displaced from the driver’s seat, and Boards of Directors will be de facto paralyzed. This is the standpoint backed by Sergey Ivanov of the President’s Executive Office in early October. Meanwhile, businessmen see more and more reasons to worry. Tomorrow, the Supreme Arbitration Court Presidium will discuss the draft resolution on major transactions and interested party transactions. While the amendments are in discussion, the SAC already gives courts some leeway in dealing with affiliation.

Sources close to the Government do not rule out possible compromise with the business if “real problems are uncovered”. Mikhail Safarov, Partner at Vegas Lex, says the business mostly fears a wider interpretation of affiliation by courts. Minority shareholders could abuse this, notes the lawyer, and the Russian business is not fond of disclosing affiliates. He thinks that at the end of the day companies may settle for Civil Code amendments that contain a list of affiliation criteria, with nothing left to the courts’ discretion.

Kirill Melnikov, Anna Zanina

Corporate and contract lawProject Group №2