Article 169. Specifics of Split-ups (Spin-offs) Involving Joint-Stock Companies
1. The board of directors (supervisory board) of a company being reorganized in the form of a split-up (spin-off) puts to a vote of the general shareholders' meeting of such company the matter of the reorganization of the company and, also, the election of members of the board of directors (supervisory board) and management committee of each organization being created as a result of the reorganization where, pursuant to a law, the articles of association (founding documents) of the organization being created do not provide for the formation of a highest management body of such organization to perform the functions of the board of directors (supervisory board). 2. The election of the board of directors (supervisory board) of an organization being created as a result of a reorganization (or of an existing organization in the event of the re-election of the board of directors (supervisory board) and/or management committee of such organization) is by the shareholders of the company being reorganized amongst which, pursuant to the resolution on reorganization, the common shares of stock (equity stakes, participatory units) in such created (existing) organization must be distributed, and shareholders who are holders of preferred shares of stock in the company being reorganized (which, at the time the reorganization of the company is decided upon, are voting shares pursuant to the present Law), amongst which pursuant to the resolution on reorganization of the company, the shares of stock (equity stakes, participatory units) in the organization being created (existing organization) must be distributed. If, pursuant to a resolution on reorganization of a company in the form of spin-off, the sole member of the organization being created is a joint-stock company being reorganized, the shareholders of such joint-stock company being reorganized elect the members of the board of directors (supervisory board) of such organization. 3. The general shareholders' meeting of a company being reorganized in the form of split-up that adopts a resolution for reorganization, in determining the procedure for conversion (exchange) of shares of stock into shares of stock (equity stakes, participatory units) of each organization being created as a result of such reorganization and the ratio (factor) of conversion and distribution (exchange), must establish: the manner in which such shares of stock of each joint-stock company being created are distributed (the conversion of shares of stock into shares of stock or distribution of shares of stock in the joint-stock company being created (existing joint-stock company) amongst the shareholders of the joint-stock company being reorganized) or the exchange of shares for equity stakes or participatory units in each organization being created as a result of such reorganization (existing organization)) and the ratio (factor) of such conversion and distribution (exchange) applicable to shares of stock (equity stakes, participatory units) of such organizations. However, the conversion of shares of stock into shares of stock of joint-stock companies being created must be made upon terms and conditions that are identical for all holders of shares of stock in the company being reorganized that belong to the same category (class). 4. The general shareholders' meeting of a company being reorganized in the form of spin-off that adopts a resolution for reorganization, in determining the procedure for conversion or distribution or acquisition (exchange) of shares of stock (equity stakes, participatory units) of the joint-stock company being reorganized and the ratio (factor) of conversion (exchange) of shares of stock (equity stakes, participatory units), must establish: the manner in which shares of stock are distributed (the conversion of shares of stock into shares of stock or distribution of shares of stock in the company being created (existing company)) amongst shareholders of the company being reorganized or the acquisition of all shares of stock in the joint-stock company being created by the joint-stock company being reorganized) or the exchange of shares of stock for equity stakes or participatory units (acquisition of the entire equity stakes) in each organization being created as a result of such reorganization (existing organization) and the ratio (factor) of such conversion and distribution (exchange) applicable to shares of stock (equity stakes, participatory units) of such organizations. However, the conversion of shares of stock into shares of stock of the companies being created, and the distribution of shares of stock of the company being created amongst the shareholders of the joint-stock company being reorganized must be made upon terms and conditions that are identical for all holders of shares of stock in the company being reorganized that belong to the same category (class). 5. Each shareholder of a company being reorganized who voted against the resolution on reorganization of the company or failed to take part in the voting on reorganization of the company must receive shares of stock of each company created by way of reorganization in the form of a split-up which vest in her/him/it the same rights as her/his/its shares of stock of the company being reorganized, proportionate to the number thereof. The provisions of this clause apply to reorganizations that combine split-up with other forms of reorganizations and to reorganizations that involve and/or result in the creation of other organizations with other organizational-legal forms. In such case, a shareholder in a company being reorganized must receive an equity stake (participatory units) proportionate to the number of shares of stock in the company being reorganized held by him/her/it. 6. If a resolution on reorganization of a company in the form of spin-off provides for the conversion of the shares of stock of such company that is subject to reorganization into shares of stock of company being created or the distribution of the shares of stock of such company being created amongst members of the company being reorganized (exchange of shares of stock of the joint-stock company being reorganized for an equity stake or participatory units in another organization), each shareholder of the company being reorganized who voted against the resolution on reorganization of the company or who failed to take part in the voting on reorganization of the company, must receive shares of stock of each company being created which vest in him/her/it the same rights as her/ his/its shares of stock of the company being reorganized, proportionate to the number thereof. The provisions of this clause apply to reorganizations that combine spin-offs with other forms of reorganizations, and reorganizations that involve and/or result in the creation of other organizations with other organizational-legal forms. In such case, a shareholder in the company being reorganized must receive an equity stake (participatory units) proportionate to the number of shares of stock in the joint-stock company being reorganized held by him/her/it. 7. As of the moment of completion of reorganization in the form of a split-up (spin-off), the shares of stock of the joint-stock company created as a result of such split-up (spin-off), into which shares of stock (equity stakes, participatory units) of the reorganized legal person are converted/ exchanged, are deemed to be distributed applying the ratio (factor) of conversion (exchange) set forth in the resolution on reorganization.
III. Transformation
Article 170. Resolution on Reorganization in the Form of Transformation
1. Reorganization in the form of transformation takes place in pursuance of a resolution on reorganization in the form of transformation. 2. Such resolution on reorganization in the form of transformation must specify: 1) an indication of the name and location of the legal person being created as a result of a reorganization in the form of transformation; 2) the procedure of such transformation and the terms and conditions thereof; 3) the procedure for the exchange of shares of stock (equity stakes in the charter capital and participatory units held by members of a production cooperative) for an equity stake in the charter capital in the organization being reorganized (shares of stock, participatory units held by members of a production cooperative) and the ratio (factor) of such exchange; 4) confirmation of the transfer act with such transfer act being attached thereto where the organization being reorganized has decided to compile such a transfer act; 5) information about confirmation of the articles of association (founding documents) of each organization being created with the articles of association of the company (founding documents) of such organization being attached thereto; 6) an indication of the number of members of the board of directors (supervisory board) and/or management committee of the organization being created where, pursuant to a law, the articles of association of the company (founding documents) of such organization being created require that such organization have a board of directors (supervisory board); 7) a list of the members of the auditing committee or specification of the accountant of the organization being created as a result of a reorganization, where a law requires that the organization being created have such bodies; 8) a list of the members of the executive body of an organization being created as a result of a reorganization, where the articles of association of the company (founding documents) of the organization being created require that it have a executive body and where the formation thereof falls within the competence of such organization's highest management body; 9) a specification of the person who acts as the organization solely exercising the functions of the executive body being created as a result of such corporate reorganization. Specific provisions, as envisaged by Clause, may be omitted from resolutions on reorganization in the form of transformation where the reorganization taking place is combined with other forms of reorganization. In this case, the resolution on reorganization must contain comments explaining the omission of such provisions there from. A resolution on reorganization in the form of transformation may specify the accountant of the organization being created as a result of the reorganization, the registrar of the company being created, indicate the transfer of powers exercised by the organization solely exercising the functions of the executive body of the organization being created to a management organization or manager, and contain other factual information and reorganization provisions which do not contravene domestic legislation.
Article 171. Specifics Pertaining to Transformation of Joint-Stock Companies
1. The board of directors (supervisory board) of a company being reorganized in the form of transformation puts to a vote of the general shareholders' meeting of such company the matter of the reorganization of such company in the form of transformation and, also, the election of members of the board of directors (supervisory board) and management committee of the organization being created as a result of a reorganization where, pursuant to a law, the articles of association (founding documents) of the organization being created do not provide for formation of a highest management body of such organization to perform the functions of the board of directors (supervisory board). 2. Members of the board of directors (supervisory board) of a company being created as a result of a reorganization are elected by the shareholders of such company being reorganized amongst which, pursuant to the resolution on reorganization, equity stakes or participatory units in such organization being created, must be distributed, and the shareholders who are holders of preferred shares of stock in the company being reorganized (which at the time the reorganization of the company is decided upon are voting shares of stock pursuant to the present Law), amongst which pursuant to the resolution on reorganization of the company, the equity stakes or participatory units in the organization being created must be distributed.
CHAPTER XII. A GROUP OF COMPANIE S
Article 172. Controlling Organization and Dependent Company
1. A company is deemed to be dependent when any other person engaging in entrepreneurial activity (a controlling organization) has the possibility to directly or indirectly exercise a dominant influence over such company in the conduct of its affairs and the exercise of its activities. 2. A controlling person is deemed to be a controlling organization unless it proves that it does not exercise a dominant influence over a dependent company.
Article 173. Notice of Share Ownership
A shareholder who directly or as a controlling organization holds more than 10% [alternative options: 20%, 25%, 50% or 75%] (ten [alternative options: twenty, twenty five, fifty or seventy five per cent]) of the voting shares of stock is required immediately to notify the company. Until such notification has been made, such shareholder may not exercise any rights attributable to such shares of stock in respect to the company. Any use of a voting right in violation of this provision may be appealed to a court by interested persons.
Article 174. Agreements amongst Companies
1. A company may, by virtue of an agreement, be controlled by another organization and delegate management functions to such organization («a control agreement» [dogovor o podchinenii]) or lease its property to another organization (hereinafter «agreement amongst organizations»). An agreement amongst organizations is valid only where the general shareholders' meeting of a company has approved it by a majority constituting 75% of the votes cast by the shareholders attending such meeting. 2. A draft agreement amongst organizations, accompanied by an opinion letter of an independent accountant, must be made available for review of the shareholders or, upon their demand, must sent to shareholders four weeks prior to such general shareholders' meeting. The accountant's opinion letter, referred to above, must contain a conclusion on whether or not the indemnification or compensation proposed to a shareholder are adequate. An agreement amongst organizations must contain the following provisions: - the amount of compensation or indemnification proposed to shareholders who have voted against the appropriate agreement amongst organizations to cover losses incurred by such shareholders as a result of such agreement amongst organizations; - on the right of shareholders who have voted against such agreement amongst organizations to offer a controlling person (shareholder) to acquire her/his/its shares of stock, and on the procedure for such acquisition and determination of the price for such shares of stock. 3. An agreement amongst organizations is registered with the authority empowered to perform state registration of legal persons [rights to immoveable property].12 An agreement is deemed to be valid from the moment of its registration. 4. A controlling organization may give instructions binding to a dependent company under a control agreement. 5. A controlling organization is required to indemnify the losses incurred of a dependent company caused by such controlling organization during the term of a control agreement. A dependent company may not waive such indemnification of losses unless shareholders of the dependent company who previously voted against the appropriate control agreement have approved such waiver of indemnification of losses as the result of a separate voting held at a general shareholders' meeting. _________________________________ 12 Translator's note: These square brackets, and the text there between, appear in the original Russian-language version of the Model Law.
Article 175. Actual Control
1. Where there is no control agreement, a controlling organization may not use its managerial influence to influence a dependent company to conclude an unfavourable transaction or undertake or fail to undertake acts to the damage of its interests unless there will be compensation for the resulting damages. This provision does not apply where a controlling organization and a dependent company interact on the basis of general business plan and where there is aguarantee that the benefits and the losses arising from such interaction will be apportioned in a calculated and balanced manner. 2. Upon the motion of a person having a legal interest, a court must determine whether or not such interaction between a controlling organization and a dependent company meets the requirements set forth in Clause і of the present Article. A controlling organization must prove that such interaction meets such requirements. 3. Where a court determines that a controlling organization has abused its managerial influence and has damaged a dependent company, such controlling organization must indemnify the dependent company for the amount of damages incurred at the end of the current fiscal year unless the court has established a longer period of time. The indemnified damages must, at a minimum, compensate the losses incurred by the dependent company and an appropriate amount for lost income except for such damage which did not result from managerial influence of the controlling organization. In this case, the controlling organization must prove the absence of managerial influence.
Article 176. Continuous or Long-Term Loss-Making Management
1. Where a controlling person exercises management supervision over a company in such a way that the company engages in loss-making business activities for a long period of time, i.e., at a minimum for one year, the shareholders of such company are entitled to demand that the controlling person redeem the company's shares of stock held by them. However, the redemption price must correspond to the highest price for the company's shares of stock for the period of six months prior to the actual control by the controlling company plus a penalty on such price in an amount calculated pursuant to the regulations of the Civil Code for calculation of penalty under monetary obligations. The determination of the highest price for the shares of stock is made by applying quotations from appropriate, organized securities markets, and where this is impossible by employing an independent professional appraiser at the expense of the controlling person. 2. Where the dependent company continuously engages in loss-making business as a result of the influence of a parent or controlling company which results in the insolvency (bankruptcy) of such dependent company, depending on the situation, such parent or controlling company is liable for the debts of such dependent company where it has failed to satisfy the claims in full of creditors of such dependent company during bankruptcy proceedings. 3. Such parent or controlling company maybe released from liability where a court has established the circumstances set forth in , Part II, Clause 1, of Article 175 of the present Law.
Article 177. Interdependent Companies
1. Where a company and another organization are interdependent, they immediately are required to notify each other in writing of the amount of their participation and of any changes therein. 2. Where organizations are interdependent and they are aware thereof, rights to take part in the management of one them owned by the other interdependent organization may only be exercised by the latter within the limits of 25% of its equity stake (voting shares of stock) held in the first organization and vice versa. This provision does not apply to the preemptive right to shares of stock where the charter capital is increased at the company's expense.
CHAPTER XIII. LIQUIDATION OF A COMPANY
Article 178. The Liquidation of a Company
1. A company is subject to liquidation: 1) upon expiration of the period of time for which it was founded where the articles of association of a company provide for such period of time; 2) in pursuance to an appropriate resolution of the general shareholders' meeting as proposed by the board of directors (supervisory board) or management committee, adopted by a majority of the votes required to amend the articles of association of the company; 3) according to a court judgment rendered on the basis of a petition filed by shareholders, cumulatively holding not less than 10% of the shares of stock, where there are important grounds for liquidating the company based upon relations amongst the shareholders; 4) according to a court judgment where the articles of association of the company are found not to comply with current legislation upon a petition filed by the board of directors (supervisory board) or management committee or governmental bodies authorized to perform the state registration of legal persons. If a company's property is insufficient to cover the liquidation costs, the registration of the company may be revoked by a court judgment without conducting liquidation proceedings. 2. In the event of the voluntary liquidation of a company, the board of directors (supervisory board) of the company under liquidation submits a resolution to the general shareholders' meeting about liquidating the company and setting up a liquidation committee. The general shareholders' meeting of a company, being subject to voluntary liquidation, adopts a resolution on liquidating the company and setting up a liquidation committee. Where liquidation is carried out according to a court judgment, the court decides the number of members and the composition of the liquidation committee. The members of the liquidation committee may be replaced by other persons in a procedure identical to that for appointments to the liquidation committee. 3. Where a shareholder of company under liquidation is the state or a municipal entity, holding at least 10% of the voting shares of stock of the company, the liquidation committee includes a representative of an appropriate committee for property management or a property fund or an appropriate body of a municipal entity. 4. All duties for managing the company's property and its operations, envisaged by a law for corporate officers, are imposed upon members of the liquidation committee, and in the event of a violation of these duties, members of the liquidation committee are required to indemnify the company for damages on the basis of the norms of the present Law governing acts of corporate officers.
Article 179. The Voluntary Liquidation of a Company
1. From the moment of selection of a liquidation committee, it is required to promptly file a statement with the appropriate registration authority containing information about the liquidation of the company. As of the date of submission of such statement until the liquidation of the company is completed, all legal documents and business correspondence, including the exchange of information by means of electronic communications, must show the company's firm name accompanied by the phrase «in liquidation». 2. The liquidation committee must use an appropriate periodical not less than three times to publish information on liquidation of the company, liquidation proceedings and the terms and conditions upon which claims of creditors are satisfied. It also must seek to identify the company's creditors and to notify them about the liquidation of the company. 3. Within one month after its appointment, the committee must develop and provide the general shareholders' meeting of the company under liquidation with an interim balance sheet which must contain information on the property of the company under liquidation, the claims of its creditors and the results of the verification of the merits thereof. The interim liquidation balance sheet is approved by the general shareholders' meeting of the company. Prior to the end of each fiscal year of a company under liquidation, the liquidation committee also is required to compile liquidation balance sheets and liquidation progress reports. 4. The liquidation committee procures the economically sound, efficient, cost effective and prompt sale of all property required for repayment of the company's debts and distribution of the remaining property under the provisions of the present Law. To this end, the liquidation committee is entitled to conclude new transactions for and on behalf of the company and, also, to support the company's active operations for a certain period of time where this is necessary in order to generate additional income in the course of liquidation. Members of the liquidation committee represent the company in all respects related to the liquidation thereof, participate in legal proceedings and may enter into amicable agreements unless this is not as envisaged by domestic legislation.
Article 180. The Satisfaction of Claims of Creditors against Companies under Liquidation
1. The claims of creditors that are subject to satisfaction are satisfied in the order of the filing thereof. The claims of creditors that are subject to satisfaction are [not]13 satisfied without registering an appropriate application in the register of the company's creditors. Where the liquidation committee fails to recognize a creditor's claim, it is entitled to bring a lawsuit for satisfaction thereof in compulsory proceedings. Prior to the resolution of such dispute by a court, the company represented by its liquidation committee must deposit with the court a sum of money equal to the amount of the claim. Claims that have not matured, at the discretion of the liquidation committee, may be subject to early satisfaction, or the amount required for satisfaction thereof must be deposited by the liquidation committee pursuant to the provisions of legislation. 2. Where, in the course of liquidation, it is discovered that a company's property is not sufficient to satisfy claims of all the creditors, the liquidation committee immediately must initiate proceedings in bankruptcy. For failing to perform this duty, members of the liquidation committee bear liability for indemnifying the company's creditors for their damages. ______________________________________ 13 Translator's note: These square brackets, and the text there between, appear in the original Russian-language version of the Model Law.
Article 181. Distribution of Property of a Company under Liquidation amongst its Shareholders
1. The property of a company under liquidation, remaining after completion of settlements with creditors, is distributed by the liquidation committee amongst its shareholders in the following order of priority: 1) first priority is for payments upon shares of stock which must be redeemed pursuant to the provisions of the present Law; 2) second priority is for payments of accrued but non-paid dividends on preferred shares of stock and payments of the liquidation value on preferred shares of stock; 3) third priority is for distribution of property of the company under liquidation amongst its shareholders holding common shares of stock and all types of preferred shares of stock. 2. Distribution of property amongst shareholders of each subsequent order of priority takes place only upon the distribution in full of property amongst all shareholders of the previous order of priority. Payment of the liquidation value on a particular type of preferred shares of stock, as set forth in the articles of association of the company, only takes place after payment in full of the liquidation value on preferred shares of stock held by shareholders of the previous order of priority as set forth in the articles of association of the company. Where a company's property is insufficient for the distribution of dividends that have accrued but have not been paid, and for the liquidation value as set forth in the articles of association of the company, amongst all shareholders who are holders of preferred shares of stock of the same type, such property is distributed amongst the shareholders who are holders of such type of preferred shares of stock in proportion to the number of shares of such type held by them. 3. Distribution of property of a company under liquidation, amongst its shareholders, only takes place after the expiration of one year following the third publication of information on liquidation of the company. During this time, the liquidation committee must deposit funds, subject to distribution amongst the company's shareholders', into a special account pursuant to legislation. If a dispute arises amongst the shareholders regarding the distribution of property of a company under liquidation, the liquidation committee must suspend the distribution of such property until an appropriate court judgment is rendered and only proceed with such distribution pursuant to the court judgment after it enters into legal force.
Article 182. Completion of Liquidation
1. As of the moment of completion of distribution of a company's property, a closing (liquidation) balance-sheet is compiled. The liquidation committee advises the registration authority of completion of the company's liquidation so that an entry of this fact is made in the state register. 2. Where, after the registration of completion of a company's liquidation, property other property belonging to the company is discovered, upon the motion of an interested party or by virtue of a law, a court must resume liquidation and appoint a liquidation committee. The sole task of the liquidation committee in this case is to sell such discovered property and distribute the proceeds there from amongst the shareholders in accord with the distribution rules as envisaged by the present Law and the articles of association of the company. For such purposes, a legal person is deemed to have resumed its operations with restrictions upon the rights thereof to engage in business with the exception of its legal capacity to sell such discovered property and distribute the proceeds there from amongst its shareholders. 3. The discovery of new creditor claims does not result in resumption of the liquidation process. 4. The liquidation committee is required to keep books, documents and other information carriers of the liquidated company for five years following the liquidation of such company. Upon expiration of the aforementioned period, it has the right to destroy them pursuant to data protection legislation. 5. Liquidation of a company is deemed to be completed and the company is deemed to cease to exist from the moment the registration authority makes an appropriate entry in the state register.
Article 183. Liability of Shareholders
1. If a company under liquidation does not have sufficient property to satisfy all the claim of creditors, its shareholders are personally liability without limitation for such debts of the company where the shareholder have unlawfully abused the limitations of their liability for the company's obligations to the damage [vubytkok] of its creditors. 2. A shareholder may, pursuant to clause 1 of the present Article, also be held liable if: - they used property of the company as though it were their own property; - they gave instructions that accounting records of the company be maintained so as to make it impossible or difficult to categorize such property as that of the company or the shareholders; - they reduced the amount of property of the company for their own benefit or for the benefit of third persons such that they knew or must have known the company subsequently would be unable to repay its debts to its creditors.
CHAPTER XIV. LIABILITY14
Article 184. False Reporting
A founder, shareholder or corporate officer bears criminal liability where they submit reports, as envisaged by the present Law, which are materially untrue, incomplete and otherwise fail to materially comply with the existing requirements or factual circumstances. ___________________________________ 14 These are recommendations that are subject to inclusion into the Criminal Code. [Translator's note: This asterisked footnote and the comments, preceding this note, appear in the original Russian-language version of the Model Law.]
Article 185. False Balance Sheet
A person preparing a false balance sheet or profit-and-loss statement, or falsely determining profits or losses of a shareholder so as to itself make or to enable a third party to derive profits or adversely impact the company or a third party, bears criminal liability.
Article 186. Liability for Evasion of Declaring Bankruptcy
Corporate officers bear criminal liability for failing to institute or for evading the institution of bankruptcy proceedings after the company has become insolvent.
Contents
CHAPTER I. GENERAL CHAPTER II. FORMATION OF A COMPANY CHAPTER III. SHARES OF STOCK CHAPTER IV. RIGHTS AND DUTIES OF SHAREHOLDERS CHAPTER V. A COMPANY'S DIVIDENDS CHAPTER VI. THE CHARTER CAPITAL OF A COMPANY CHAPTER VII. BODIES OF A COMPANY I. General II. The General Shareholders' Meeting III. The Supervisory Board V. Management Committee V. Board of Directors VI. Responsibility of Corporate Officers CHAPTER VIII. CORPORATE TRANSACTIONS WITH SPECIAL CONDITIONS I. Transactions with Conflict of Interest II. Major Transactions CHAPTER IX. ACCOUNTING, REPORTING, AUDIT AND DISCLOSURE CHAPTER X. CHANGE OF SHAREHOLDERS UNDER SPECIAL CONDITIONS I. Squeezing out Shareholders II. Redeeming Shares upon Demand of Shareholders CHAPTER XI. CORPORATE REORGANIZATION I. Merger and Acquisition II. Split-up and Spin-off III. Transformation CHAPTER XII. A GROUP OF COMPANIES CHAPTER XIV. LIABILITY
Afterword: EBRD Support for CIS Model Laws
Alexei Zverev1
Senior Counsel, European Bank for Reconstruction and Development
For the past twelve years, the European Bank for Reconstruction and Development (the «EBRD») has been cooperating with the Inter-Parliamentary Assembly of the Commonwealth of Independent States (the «CIS IPA») on the development of certain key CIS model laws.2 These are instruments of harmonisation and integration based on international best practice that have a non-binding nature of guidance. According to the 14 April 2005 Resolution of the CIS IPA,3 model laws are aimed at harmonising legislation among CIS countries; improving current laws for resolving regulatory problems and tasks; and bringing these laws closer to international standards of best practice. This is done by developing non-binding model laws based on international principles of best standards which are then recommended for use in the national legislation of the CIS member states. The Commonwealth of Independent States (CIS) is made up of eleven member states: Armenia, Azerbaijan, Belarus, Kazakhstan, the Kyrgyz Republic, Moldova, Russia, Tajikistan, Turkmenistan, Ukraine and Uzbekistan. Turkmenistan and Uzbekistan, however, are not part of the CIS IPA.
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