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Access to Subsidiaries

30.06.2011 / Vedomosti / 118 (2884)

The State Duma passed the bill in the first reading, which allows minority shareholders access to sensitive business information and information about subsidiaries (amendments to the JSC Act and Securities Market Act).

JSC and its subsidiaries are given seven days to provide documents. However, shareholders can apply for disclosure directly to subsidiaries, but they need to sign a Non-Disclosure Agreement. Assets can be transferred to subsidiaries, and in the case of premeditated bankruptcy of associated company, the parent company will be liable for its debts, Department Director of the Ministry for Economic Development Ivan Oskolkov explained. There are some restrictions in the amendments, only shareholders with more than 25% of shares get access to the accounting records.

Shareholders with more than 10% of voting shares will have a right to initiate an extraordinary audit at their own expense. However, the Asset Committee of the Duma opposes this norm. The Committee states that this can lead to abusive practices including blackmail.

“When the amendments are passed, companies will continue to conceal information from minority shareholders”, says Dmitry Stepanov, Partner at Egorov, Puginsky, Afanasiev and Partners, information disclosure was obligatory before, the Supreme Arbitrage Court explained in February. For example, a company can allege that a minority shareholder is a shareholder in a competing company, he argues.

Even after the Supreme Arbitrage Court clarification, Rosneft sued its minority shareholder Alexey Navalny accusing him of misuse of rights. In April, the Ninth Arbitrary Appeal Court obliged Rosneft to disclose the Protocols of the 2009 Board of Directors Meetings, the decision went into effect, but the documents have not yet been received, Navalny says. Disclosure of these documents should be limited as circulating them among shareholders may induce harm to others, according to a source at Rosneft (who refused to comment).

Companies will refrain from disclosing information unless really high penalties for the violation of the law are imposed and minority shareholders receive more power to litigate against managers, says Navalny.

 

Philip Sterkin

Improvement of corporate governanceProject Group №2Project Group №2Ivan OskolkovDmitry Stepanov