Minority shareholders panicked, and the Ministry backed down: the revised bill imposes the new rules on non-public companies only. Public company shareholders need not worry, almost nothing has changed for them.

The Ministry for Economic Development declined comment. A source at the Ministry confirmed that the amended version exists: the bill is going through Government approvals. The draft was initially more radical, admits the source: major transactions are defined worldwide as leading to liquidation or reorganization, whereas in Russia major transaction approval is a form of control over top managers.

The Central Bank and MIFC Taskforce intervened, claims the source, arguing that the approval is not the whole point. The role of the Board versus management monopoly diminishes.

The CB opposed these amendments, confirms a CB source. Even a 25% transaction forms a considerable chunk of the company’s turnover, and could lead to sizeable damages or asset drain. The CB insists on preserving this institution as is – extra control over any major transaction. Non-public companies with small assets need a clearing of red tape anyway, says another official. As a rule, these companies have fewer minority shareholders as well.

Transactions worth 25–50% assets are not deemed major, yet they remain within the purview of the Board of Directors, enthuses Prosperity Capital’s Denis Spirin. Non-public company shareholders are put at a disadvantage if their Boards lose this functions, claims Spirin. Soon non-public company shareholders are to be granted access to major transactions approval process: new amendments to the Joint Stock Company Act enable shareholders to abolish or amend existing rules by unanimous vote. This option, however, does not make minority shareholders’ life easier in the long run, stresses Spirin: first their position will be weakened, then they will have to plead with the controlling stakeholder to bring back regulation that existed in the original law.

This flaw aside, minority shareholders even benefit from this law, beams Spirin. For instance, property valuation in case of alienation is based on both book value and purchase value, which is normally higher.

The Ministry of Justice insisted on raising the bar for major transactions: approvals required for a large scope of transactions put pressure on the company and threatens its cash flow stability. The bill has reached its goal without compromises, claims a Ministry source: the burden of over-regulation had to be lifted for small and medium enterprises, with tougher penalties for rule-breaking. The new draft does not require proof that a contested major transaction is a loss-maker – the old version stated the same. Transactions requiring approval still equal those that lead to liquidation or reorganization.

Major joint-stock companies with adequate management and control should have been excluded says Herbert Smith Freehills lawyer Margarita Slavina: constant approvals are redundant. Russia has a higher risk of transactions contested due to shareholder-management agreements, a surprise for foreign companies, points out a major bank lawyer: a very Russia-specific invention.

There is no burden of approval – stats show the opposite, and these transactions are hard to contest, concludes Spirin.

Corporate and contract law, Project Group №2