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MIFC Boosts Shareholder Rights

05.09.2011 / «Kommersant-Online»

The MIFC Taskforce, headed by Alexander Voloshin, has proposed a right for shareholders to disclose confidential business information to protect their rights, e.g. in court. They also propose introducing criteria for ‘controlled entities’ and holding the head company responsible for their non-disclosure.

The MIFC Taskforce, headed by Alexander Voloshin, has developed amendments to the Shareholders’ Information Rights bill introduced by the Ministry for Economic Development in early June. The Ministry bill allows shareholders to demand access to documents of directly or indirectly controlled companies. The need for change has been explained by the common practice of conducting all corporate business through controlled entities, which effectively prevents shareholders from obtaining documents that reflect the actual business of the head company. The bill even allows shareholders to access business-sensitive information on non-disclosure terms, including a confidentiality agreement. The bill also lists documents that the company is required to keep on file and disclose to shareholders.

Head of Corporate Law and Governance Project Group Alexander Branis told Commersant that MIFC Taskforce gives the bill general support with a few substantial amendments. Mr.Voloshin’s workgroup says the bill imposes limitations on the number of available documents in comparison with the current version of the Companies Act. Today, shareholders may receive documents according to any Russian Federation law, while the Ministry amendments are limited to FCSM regulations. This eliminates a considerable portion of documents listed in the Ministry of Culture decree of 25 August 2010. The decree was contested in the Higher Arbitration Court by Norilsk Nickel, however, on 1 September the case was dismissed. MIFC Taskforce also notes that the bill allows shareholder access to subsidiary documents with no criteria for direct or indirect control. The Taskforce suggests two criteria: the company shall present the shareholder with documents of all legal entities included in the IFRS financial reports, and in the absence of such reports, all controlled entities according to the Securities Market law. This embraces all the controlled entities, including foreign, that have not been mentioned in the Ministry for Economic Development bill.

The Taskforce is of the opinion that responsibility for non-disclosure shall lie with the company, not the subsidiaries and other controlled entities, as stated in the bill. This shall be accompanied by a 10-day disclosure timeline from the date of receipt of the request instead of 7 days from the date of receipt of the documents from the controlled entity. Confidential info disclosure is regulated by the bill only in terms of access to business sensitive information, while the Taskfors proposes to include other types of information as well. The amendments stipulate that banking and state secrets are off-limits and should be regulated separately. Besides, MIFC Taskforce considers it important to allow the shareholder in receipt of confidential corporate documents to share this information with third parties, including state bodies, for the purpose of statutory rights and interests’ protection (or those of the company). The Taskforce opines that “not granting this right would render the whole concept pointless, as possession of documents without the possibility of presenting them, for instance, in court strips the person of the right to defend their statutory rights”. In the event of a shareholder becoming aware from confidential documents of asset draining or preparing for bankruptcy — property rights cannot be restored without disclosing the information in a court of law.

 

Anna Zanina

Improvement of corporate governanceProject Group №2Alexander BranisAlexander Voloshin