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Civil Code Under Triple Siege. The President’s lawyers share their opinion on the amendments.

26.07.2011 / Kommersant / №135 (4676)

The Presidential State Legal Consultancy (SLC) has come up with a third edition of Civil Code amendments. The ideology of this project bears more resemblance to the Civil Code amendments by the MIFC Taskforce than to Veniamin Yakovlev’s Codification Council project, at odds with MIFC — thus the SLC version allows shareholder agreements, albeit with restrictions. On 2 August, the Ministry for Economic Development hosts a public debate on the three versions of amendments to the ‘economic constitution’.

Commersant has obtained the third edition of amendments to the Civil Code, commissioned by Dmitri Medvedev as early as 2009 to the Civil Code Codification Council, headed by Veniamin Yakovlev, President’s Aide and Chairman of the Supreme Arbitration Court prior to 2005. To recap, the Council amendments of early 2011 were severely criticized by the MIFC Taskforce lawyers, the hard polemic led to the Taskforce coming up with their own version of amendments. The conflict was supposed to be resolved by the Presidential State Legal Consultancy (SLC) headed by Larisa Brycheva. However, the Presidential lawyers were as meticulous in their approach to the compromise draft as their colleagues, making the third version of the Civil Code amendments an ideologically independent document.

On August 2, the Ministry for Economic Development and the Corporate Lawyers Union will hold public debates on the three alternative amendments to the Civil Code.

In terms of freedom of contract, the SLC draft appears closer to the Alexander Voloshin’s Taskforce standpoint than to the ‘restrictive’ stipulations of the Codification Council. The SLC draft had stirred controversy even before it saw the light. On June 27, the Codification Council recommended to turn down the Business Partnerships Act, developed by the Ministry for Economic Development — Mr.Yakovlev said that the authors ignored their pact not to introduce ‘business partnerships’ to the Civil Code and extended the application of these partnership beyond innovation, as was intended originally. The SLC draft covers Business Partnerships extensively in a similar mode to the Ministry for Economic Development draft — the June 29 bills were passed by the Duma in the first reading, despite protests from the Codification Council.

There is another issue, where Larisa Brycheva’s team does not side with Veniamin Yakovlev in the dispute between the Council and the MIFC Taskforce. The SLC draft allows ‘corporate agreements’ (de facto shareholder agreements) by joint-stock and limited liability companies, a practice strongly opposed by the Codification Council. The SLC, however, envisions a rather limited and softened version – yet with a provision that third parties (non-shareholders) may enter these agreements. The SLC also supports the public/non-public division of companies proposed by the MIFC Taskforce. In another major Civil Code dispute, on the exclusive power of the GSM to establish legal entities, the SLC supports Veniamin Yakovlev’s colleagues.

The most critical issue is how the Presidential Executive Office will choose one of the three drafts as the cornerstone: all three have minor amendments that are secondary to the key Civil Code debates. For instance, the SLC draft includes ‘depositing’ owner/beneficiary information for offshores active in Russia — the MIFC Taskforce is against, the Codification Council is more likely in favor. Still, the SLC draft contains norms that will apparently provoke Mr. Yakovlev’s colleagues — such as limiting the possibility to contest GSM decisions in the Civil Code. The proposed common rule for this is a 3-months non-restorable lapse period if decision is challengeable and not null and void — while the plaintiff has to substantiate the claimed damages and prove that passing the decision is a material breach. The SLC proposes simplified company reorganization — leaving only ‘intentional abuse of reorganization’ within the scope of the Civil Code — and, most importantly, liberalized liquidation.

Finally, some proposals by Larisa Brycheva’s team are less important to the other parties — like the ability of the federal government to establish ‘political corporations’. Given that the major part of the two alternative drafts contains similar novations, the process of three-part assembly of the new Civil Code may prove difficult — while the choice of the SLC version, let alone the MIFC draft will be unacceptable to the Codification Council, seeking to maintain its Civil Code reform monopoly.

 

Dmitry Butrin

Corporate and contract lawAlexander Voloshin