Professional Documents
Culture Documents
Tutorial note: Answers to past exam questions are those of the examiner at that time. In some cases
the answer to a question or part thereof is minimal, whilst others are very extensive. Do not be
deterred by the length of the longer answers as they are intended to be informative and illustrative of
the range of valid answer points that could be made.
Answer 1 SYSTEM OF LAW
(a)
(b)
1001
Branches of law
With respect to the given situation one may apply the following branches of law:
(b)
Labour law, since Mr Ivanov worked under labour contract. The labour law is a
legal branch that regulates relations arising under a labour contract between the
employee and employer.
Civil law, since Mr Stepanov worked under a civil law contract for the performance
of work. Civil law is the law branch that determines the legal status of subjects of
civil turnover, grounds for arising and the procedure of implementation of the right
of ownership and other rights of estate, regulates contractual, proprietary and nonproprietary relations related to them based on equality, autonomy of will and
proprietary independence of the participants.
Social security law, since the reimbursement for the damage inflicted to the health
of the employees by a work-related injury (accident at work) is regulated by
provisions of compulsory state social insurance.
Change in situation
If it is supposed that the injured filed their claims to court for compensation for the damage to
health, norms of procedural law will be applied (in particular, civil procedural law).
Procedural branches of law regulate relations arising under settling disputes in court.
1002
(d)
Labour team
The right of legislative initiative implies that a person may introduce draft legal acts for
consideration by the State Duma or the Federal Assembly. The Russian Federation
Constitution determines the list of subjects possessing that right, including the Russian
Federation President, the Federation Council, members of the Federation Council, deputies of
the State Duma, the Government of the Russian Federation, and legislative (representative)
bodies of Russian Federation subjects. The right of legislative initiative also belongs to the
Constitutional Court of the Russian Federation, the Supreme Court of the Russian Federation
and the Highest Arbitration Court of the Russian Federation with respect to issues in their
competence.
As it follows from the Constitution of the Russian Federation, trade unions do not have the
right of legislative initiative.
(b)
Application of provisions
According to the Constitution of the Russian Federation (art. 15), the latter has the supreme
legal power, direct action and is effective throughout the entire territory of Russia. Laws and
other legal acts adopted in the Russian Federation cannot contradict the Constitution. That
means that, first, in case of contradiction between a legal act (like Labour Code) and the
Constitution, the latter has supremacy, and secondly, that provisions of the Constitution are
applied directly and do not require a special legal act aimed at the implementation of a
provision of the Constitution.
(c)
lowest level the district courts that serve cities and towns;
middle level the supreme courts of the constituent republics of the Russian Federation;
highest level the Supreme Court of the Russian Federation.
The courts of general jurisdiction preside over cases and claims in relation to criminal, civil
and administrative matters that fall outside the mandates of the constitutional and arbitration
courts. Inter alia, cases and claims heard before them include:
1004
civil, family and labour relations where at least one party to the action is an
individual (unless otherwise stipulated by the law);
Arbitration courts
In common with the courts of general jurisdiction, the courts of arbitration have a three tier
structure:
the first level is made up of the courts of first instance in matters concerning
commercial activity and economic disputes these serve specific districts and areas;
the second level is the courts of the federal regions, serving as courts of appeal;
the third level is the Supreme Arbitration Court this is the highest level and as
well as dealing with final appeals has the role of interpreting and ruling on matters
relating to commercial activity.
The types of dispute considered by the courts of arbitration are mainly concerned with
economic relations and activity. They include:
(c)
disputes and claims between individual entrepreneurs, economic entities and legal
entities;
dispute and claims between the Russian Federation and its subjects;
Jurisdiction in personam
A case relating to property in personam (generally, property other than real estate) is dealt
with at the location of the defendant.
(2)
Alternative jurisdiction
If the defendants location is unknown or indeterminate, the case is dealt with by a court in
the same locality as the defendants property or last known address.
(3)
Jurisdiction in rem
The term in rem mainly applies to immovable property, which comprises mainly real estate.
Claims in relation to property held in rem are dealt with at the same locality as the property
itself.
1005
Agreed jurisdiction
This is self-explanatory. The parties may agree to the location of the case, either by a clause
in the contract between them or otherwise by mutual express consent. Agreed jurisdiction
cannot apply to disputes in rem however.
Answer 5 IMPLEMENTATION
Tutorial note: This question aims to test your knowledge and understanding of concepts relating to
the implementation of law in the Russian Federation, and to give practical examples of these concepts.
(a)
Accomplishment
This term refers to individuals and legal entities taking the opportunities afforded by the law
to take actions or fulfil their obligations. In this respect, the law may be enabling or
restrictive. As Russian laws are mainly based on statute, it is generally accepted that actions
that do not cause harm to others and are not forbidden in law are permitted. Some laws
prescribe the actions that individuals and juridical bodies may take and the manner of
accomplishing them.
There are many examples of accomplishment. The individuals right to sell his or her
personal possessions is an accepted feature of the law, though certain possessions may be
divested only in a specified manner. Real estate, for example, has to be sold or transferred by
means of a written contract and the ownership vested in the new proprietor by State
registration before the action can be legally completed.
(b)
Execution
This term refers to the discharge of the legal obligations of citizens and legal entities as laid
down in the various laws and regulations that are imposed by government and municipal
bodies.
The most important examples of execution relevant to individuals are the fulfilment of
obligatory returns in the form of statutory records, including registrations of births, marriages
and deaths and the payment of monies due, such as taxes and other mandatory payments.
Another example is compulsory military service.
To the enterprise, it is necessary to make returns to the government in respect of constitutional
matters such as formation of companies, reorganisation, insolvency and dissolution.
Companies also execute obligations by paying taxes and mandatory payments to their staff.
(c)
Observance
This term refers to compliance with the limits laid down in relation to the activities of
individuals and organisations. It is a more negative concept in that it involves not taking
certain actions that are forbidden by law.
The restriction on the active capacity of young persons is a good example of observance,
especially in respect of activities that are prevented by the Civil Code before the individual
reaches the age of 18 years. The criminal (penal) law lays down instances in which specified
actions are deemed to break the conventions of society, the intention being to prevent
behaviour of which the State, acting vicariously on behalf of citizens, disapproves.
Individuals and legal entities must observe certain legal provisions when entering into most
types of contract, and even outside the scope of contract law can be held accountable if by
their actions they inflict loss or harm on others.
1006
Enforcement
This term refers to actions that ensure that individuals and legal entities comply with the law.
Where this is not the case, the law specifies the manner in which penalties, other sanctions or
other remedial actions may be taken against those whose behaviour is at odds with the law.
The clearest example of enforcement is the imposition of punishment or penalties against
criminals. However, enforcement is a broader concept in that any competent body may take
action to enforce the law within its specified terms of reference. The courts are integral
players in enforcing the law, such as in matters requiring the resolution of contractual disputes
and confirmation of the entitlements of citizens (such as payments from the State or from
their employers).
Legal entities incur certain obligations in the course of economic activity. One example is the
enforcement of the rights of creditors when the sums due to them become payable, such as on
maturity of the debt, on default by the debtor, on reorganisation or on insolvency.
Main sources
The primary source of law is legislation, enacted by central government and subordinate
bodies. This legislation is created within the overall framework established by the
Constitution. Legislation must be consistent with the Constitution, and any inconsistencies
may potentially be set aside by the constitutional court. The statutory legal framework is
hierarchical in nature, with the Constitution at the apex.
Federal laws are created by the government of the Russian Federation. These laws apply to
all subjects of law within the state and are superior in the hierarchy to laws adopted by
subordinate bodies. Under the Constitution, any inconsistency between federal laws and
subordinate laws is resolved with reference to the former.
As Russia is a federal state, it is appropriate that various bodies are empowered to make laws
that apply within their stated jurisdictions. Examples of such bodies include regional
governments, municipal territories, cities and towns. Laws enacted apply only within the
jurisdiction of each body. The principle underlying subordinate legislation of this kind is
often referred to as subsidiarity. Under this principle, legal authority should be devolved to
those who exercise regional or local power and authority when this can be achieved more
efficiently than through federal measures.
Under the Constitution, the President of the Russian Federation has the power to enact laws
by issuing decrees. Again, any such decree may not contradict the provisions of the
Constitution. This power of the President has been significantly reinforced in recent years. It
enables the President to fill voids in the law or resolve issues that require high level
intervention (see (b) below).
In an international context, the universal principles of international law and the provisions of
international treaties entered into by the state are deemed to apply and are therefore binding
on the government and other subjects of law. This aspect of the legal framework is becoming
increasingly important as international trade expands and the forces of globalisation continue
to erode territorial barriers.
1007
(b)
(1)
In common with many other large countries the Russian Federation has regions that
display different traditions and cultural stereotypes. To some extent, the customs
and traditions of each area may from time to time be reflected in the decisions of
judicial bodies.
(2)
As a legal system more closely aligned to the Germano-Roman model than the
Anglo-American common law model, it could be argued that the doctrine of judicial
precedent has no role in the Russian Federation. Although there is no formally
developed equivalent to judicial precedent in Russian law, the decisions of the
courts are documented and serve as a source of reference for judges presiding over
current cases. This is particularly important for the courts of arbitration which deal
with matters relating to entrepreneurial activity. To this extent, therefore, there is
some reliance on the previous decisions of courts as a source of law.
1008
Process of adoption
The process through which a draft law becomes legislation is laid down in the Constitution of
the Russian Federation.
Once a draft law is promulgated by its authors, it requires a simple majority of deputies in the
Duma and a simple majority of members of the Federation Council to vote in its favour.
However, the draft legislation cannot proceed to becoming law until it is signed by the
President.
The President has a right not to sign the draft law and to re-submit it to the Duma together
with his concerns. The Duma then reconsiders the draft law. If it is deemed appropriate, it
may overturn the President, but this is subject to a vote of not less than two-thirds of the
deputies and members of the Federation Council being in favour of this course of action. The
President must then sign the law.
The formal enactment of the legislation takes place 10 days after publication in the official
Rossiyskaya Gazeta, though the legislation may specify future dates on which the measures
to be implemented actually take effect. As a general principle, legislation is not enacted
retrospectively.
(c)
Organisational unity
The first characteristic of any legal entity is the entitys organisational unity that implies a
clear internal structure and the establishment of certain management bodies. Such a structure
is fixed by the statutory documents of the given organisation. The form of the organisational
unity is the organisations statutory document:
The content (implementation) of organisational unity is clearly set by the law and its
structure, by the organisations statutory documents. The Civil Code of the Russian
Federation and federal laws on individual types of legal entities both set general rules
concerning statutory documents and administration management and determine peculiarities
of application of these rules with respect to each type of legal entity.
1009
(c)
Proprietary responsibility
Proprietary responsibility is the third characteristic of the legal entity. Legal entities (with the
exception of institutions) financed by their owner are answerable for their obligations with the
entire property in their possession.
The founder (the participant) of the legal entity or the owner of its property is not answerable
for the legal entitys obligations, and the legal entity is not answerable for the obligations of
the founder (the participant) or of the owner, with the exception of cases, stipulated by the
Civil Code of the Russian Federation or by the statutory documents of the legal entity.
Founders or participants of an entity are answerable for the entitys debts only in case the
legal entitys property proves to be insufficient. This type of responsibility is called
additional or subsidiary. The law assigns this type of responsibility to full partners in general
or commandite partnerships, participants in superadded liability companies and production
co-operatives, founders of federal (treasury) enterprises and an organisations property
owners.
At the same time, it should be borne in mind that if the legal entitys property proves to be
insufficient and the insolvency (bankruptcy) of the legal person has been caused by:
other persons who have the right to issue obligatory instructions for the given legal
entity or may determine its actions in any other way;
then subsidiary liability under the legal entitys obligations may be imposed upon such
persons.
(d)
1010
Parental approval
Minors from 14 to 18 years old can effect certain deals with the written consent of their legal
representative: parents, adopters or guardian. The consent may be given before or after the
deal is effected.
Among the actions named in the case-study, student Petrov could effect the following on his
own:
Buy study materials, since minors from 14 to 18 years old may dispose of their
salary, grants or other income without the approval (consent) of their parents,
adopters or guardian;
Receive an authors fee for the published article, since minors from 14 to 18 years
old may exercise authors rights to a work of science, literature or art, to an
invention or to another legally-protected result of their intellectual activity without
the approval (consent) of their parents, adopters or guardian. This includes the
receipt of the authors fee.
Since the purchase of computer (due to its price) may not be regarded as disposal of a
students grant, salary or petty everyday deal, Petrov could not effect it without the consent of
his parents.
(b)
Circumstances
Civil legislation envisages such an institution as emancipation. That means that a minor who
has reached the age of 16 years may acquire full active capacity if (s)he has been declared
emancipated (i.e. if (s)he works by a labour agreement), or engages in business activities upon
the consent of the parents, adopters or guardian. Thus, after Petrov reaches the age of 16
years and providing he works by a labour agreement, he will be able to effect all the deals
listed on his own, without the consent of his parents.
Furthermore, full active capacity is acquired by a minor of less than 18 years in case (s)he
marries from the moment of entering into a marriage. Active capacity, acquired as a result
of entering into a marriage, is retained in full in case the marriage is dissolved before the
citizen reaches the age of 18 years.
A minor is declared as having acquired full active capacity (emancipation) by the decision of
the guardianship and trusteeship body upon the consent of the parents, adopters or guardian,
or, in the absence of such consent by court decision. Parents, adopters and guardians do not
bear responsibility for the obligations of an emancipated minor, in particular for those
obligations, which have arisen as a result of the inflicted damage.
(c)
Gift of car
It is quite possible to transfer the car to the boy of 12 years old. The minor of 614 years old
may accept the gift himself, but in case the transfer of property needs state registration (e.g.
immovable property) the deed of accepting the gift must be concluded in the minors name by
his parents. The contract must be made in writing, notary form must be observed and the
contract must be registered with state authorities.
(b)
Sale of apartment
It is quite possible to transfer the apartment to the boy of 15 years old. The underage person
may accept the gift himself, but in case the transfer of property needs state registration (e.g.
immovable property) the deed of accepting the gift must be concluded in the minors name by
his parents by the minor with a written consent (approval) of his parents. The contract must
be made in writing, the contract must be registered with state authorities.
(c)
Gift of bicycle
The bicycle may be transferred to the girl of five years old but all the transactions in favour of
the minor under six years old must be concluded by her parents. In order to make the gift
valid no special form is to be observed, the bicycle must be physically accepted by the childs
parents.
(d)
Empowering
The best way to empower an individual to exercise any actions and/or deeds in the name of
another individual is to issue a power of attorney. This power of attorney must directly
provide for the actions/deeds that the individual is empowered to exercise.
Russian legislation also provides for trust management as means of management of another
persons property, but trust management is not appropriate in the described situation because
only legal entities may be trust managers.
(e)
Testament
No. Testament must be done by the individual in person. The deed of empowering another
person to do a testament is invalid.
Answer 11 ANNA
(a)
Personal capacity
The relevant provisions of the Civil Code relate to the personal capacity of the individuals
involved. All citizens of the Russian Federation have passive capacity which confers general
civil rights. However, the active capacity of natural persons is determined in most instances
with reference to their age. Active capacity related to the extent to which each individual can
act on his or her own behalf, enjoy rights or incur obligations.
1012
Transfer of car
Lilia is 16 years old and cannot therefore drive the car legally. However, under the Civil
Code Lilia does have property rights including the right to own the car, even if she cannot use
it. Lilia can therefore accept the car, though the acceptance requires the participation of her
parents as the gift is an item of moveable property that requires State registration. The
transfer must be executed in written form and notarised. The contract and the particulars of
ownership must be registered with the State authorities.
(c)
Transfer of dacha
The gift of the dacha can be made to the four children. The only difference between giving
the car to Lilia and giving the dacha to the four grandchildren is that the latter is immoveable
property whereas the former is moveable property.
It would be necessary to make a legal conveyance of the dacha to transfer it into the joint
names of the new owners. This must be effected in writing and notarised. This would require
the participation of the parents, who would for the time being have to act on behalf of the
younger three grandchildren. Particulars of ownership would also be subject to State
registration.
One practical difficulty that Anna should consider is that it could be troublesome to change
the terms of ownership in the near future while some of the children are young. She should
also consider the possibility that she may be disenfranchising other grandchildren if Alexei
and his wife have more children in the future.
(d)
Actions to be taken
Anna could execute a general power of attorney to enable Katerina to act on her behalf. This
is a legal document that creates an arrangement of voluntary representation.
It would not be possible to establish a permanent arrangement, as the maximum duration of
the power of attorney is three years. However, provided she remains of sound mind, Anna
can renew the power of attorney on a rollover basis in the future.
1013
the expenses, which the person whose right has been violated, made or will have to
be made to restore the violated right;
the loss or the damage done to his property (the compensatory damage); and
the undeceived profit (i.e. missed profit) which this person would have derived
under the ordinary conditions of the civil turnover, if his right were not violated.
If the person who has violated the right of another person has derived profits as a result of
this, the person whose right has been violated has the right to claim, alongside with the
compensation of his other losses, the compensation of the missed profit in the amount not less
than such profits.
If for the non-fulfilment or an undue fulfilment of the obligations the fines have been ruled,
the losses should be recompensed in the part, which have not been covered by the fines.
The law or the contract may stipulate the cases when:
In the cases, when a limited responsibility for the non-fulfilment or an undue fulfilment of the
obligations has been established, the losses, liable to compensation in the part, not covered by
the fines, or above it, or instead of it, may be exacted up to the limit, fixed by such a
restriction.
1014
(c)
1016
If, by the application of the other party, the term of the limitation of actions is
applicable to the given claim and the said term has expired.
Novation of an obligation
The obligation is terminated by an agreement between the parties on replacing the primary
obligation, which has existed between them, with another obligation between the same
persons, stipulating a different object or a different way of the discharge (the novation).
The novation is not admissible with respect to the obligations on the compensation for harm
inflicted to life or health, and also with respect to those on alimony.
The novation terminates the additional liabilities connected with the primary obligation unless
otherwise stipulated by the agreement between the parties.
(c)
(b)
(c)
(d)
Demands by Company A
As Group X refused to execute duly its obligations under the contract the Company A is
entitled to demand:
(f)
The statutory documents also contain other information, stipulated by the Federal Law On
Limited Liability Companies.
The procedure of operating of the sole executive body of the company and decision-making
by it is set by the Charter of the company, its inner documents and by the agreement
concluded between the company and the person who executes the duties of its sole executive
body. Thus, founders (participants) may establish restrictions of the powers (competence) of
its executive body in comparison with the powers of that body set by the law.
(b)
Statutory documents
According to the Federal Law On Limited Liability Companies, in case of contradictions
between provisions of the Statutory Agreement and the Charter of a LLC, the provisions of
the Charter have priority.
1018
Contract of surety
Proceeding from that said above, there are no grounds to consider the contract of surety as
void.
Sale of premises
Krasnaja Ploshad as the owner of the premises could freely possess, consume and dispose of
the premises, including sale of the premises under a corresponding contract. At the same
time, in case of the sale of property, where the right is abridged by the rights of third persons
(the tenants), the seller should have informed the purchaser of such an abridgement.
(b)
(c)
Courts decision
If the bank goes to court with the claim on forcing the tenant to move out of the premises, the
court should reject the claim. At the same time, if the bank did not know or was not to know
about the fact that the premises purchased by it were fully or partially leased (i.e. was
abridged by the rights of third parties), the bank may demand to reduce the price of the
purchase or to dissolve the contract of sale.
Advertisement
The advertisements containing all the essential terms of the contract (in which is seen the will
of the person, who is making the proposal, to conclude the contract on the terms indicated in
the proposal with any responding person) shall be recognised as an offer (the public offer).
The advertisements and the other proposals without essence of contract and addressed to an
indefinite circle of persons are regarded as an invitation to make the offers. The letters,
telegrams and any other documents sent by a person and based on the advertisement and as a
response thereto are considered an offer (oferta).
(b)
1019
(d)
(e)
(f)
perform the actions involved in complying with the terms of the contract pointed
out in the offer (the dispatch of commodities, the rendering of services, the
performance of works, the payment of the corresponding amount of money, etc) that
will also be regarded as the acceptance.
(g)
1020
(b)
Can C sue D?
An economic entity such as a limited company can be held accountable for the damage
caused to third parties by its employees in the normal course of their duties. This is the
concept of vicarious liability.
Therefore, Company C can sue Company D for the damage caused by Federov and Galkin.
This is probably a better means of deriving financial recompense if the employees are of
limited financial means.
(c)
Rights of Company D
If Company D is held accountable for the damage caused by its employees as set out above,
the company may in turn sue its employees for the damage inflicted on the company by way
of regress action. They could recover monies due by way of deductions from salary, though
the extent to which this may be done is limited by legal and practical considerations.
(d)
Damages
It is necessary to distinguish between the damage caused directly by the actions of Federov
and Galkin and the expenses associated with the accident though not directly caused by it.
The former are subject to reimbursement whilst the latter are not.
The repairs and the need to buy new furniture were direct consequences of the accident. They
are therefore subject to reimbursement.
The furniture in the General Directors office was not damaged and was therefore still usable.
Although it may have been desirable to replace this furniture, its replacement was not caused
by direct damage as a result of Federov and Galkins actions.
The amount of damages due to Company C = 500,000 + 250,000 = 750,000 roubles.
1021
Meaning
The term surety applied to one of the six obligation security means permitted under the
Civil Code.
A surety is a person who personally guarantees to discharge the debt of another person.
Therefore, if in a debtorcreditor relationship the debtor defaults on the contractual
obligation, the surety becomes jointly and severally liable with the principal debtor for the
sum due.
The legal nature of a surety is contractual. When a loan is made conditional on a surety
agreement, two contracts come into existence. The first of these is the contract between the
debtor and the creditor. The second contract is a collateral contract that creates an obligation
of the surety to the creditor in the event of default of the debtor.
(b)
(c)
Termination
A surety agreement may be terminated in several ways:
Once the sum due to the creditor is discharged in full, the surety is released from the
obligation, whether this is paid by the debtor or the surety himself.
The surety contract exists for a specified period of time. On expiry of this period, the
obligation is terminated. The claim against the surety is also time-limited to a maximum of
one year from the end of the term of the principal debt. If the debt is open ended, the claim
against the surety must be filed within two years of conclusion of the surety agreement.
If the terms of the debt are varied to the detriment of and without the prior consent of the
surety, the obligation of the surety is extinguished. This also applies if the debt is securitised
or otherwise transferred without reference to the surety.
If the creditor refuses to accept due discharge of the debt by the principal debtor, the surety
cannot be called upon to contribute.
1022
1023
Forfeit
A forfeit is a financial fine or penalty that may be levied by one party to a contract on the
other party to the contract in the event that the latter fails to discharge the contract, or if the
contract is discharged improperly.
It is usual practice in the Russian Federation for written contracts to specify a forfeit to be
paid in the event of non-performance or improper performance.
A contract may make various stipulations in respect of forfeit:
Offset forfeit may be specified for losses not covered by the forfeit.
Penalty forfeit may cover losses suffered by the party over and above the forfeit.
Alternative forfeit entitles the claimant to impose forfeit or losses incurred.
Exclusive forfeit entitles the claimant to the forfeit but not losses incurred.
In turn, losses may be regarded as de facto losses caused by the breach of the contract, or
missed profits, which are the reductions in profit suffered as a result of the breach of contract.
(b)
Earnest money
Earnest money is another form of security for an obligation in a contract. It is a sum of
money paid by one party to the other to offset the payment due. It serves as proof of
existence of the contract and forms a means of security for payment on discharge.
1024
It fulfils a payment function, offsetting payments that will become due in the course
of time.
It is a form of security in that the payment lowers the risk to the recipient of the
monies paid. It fulfils an ascertaining function, confirming that the contract has
been entered into by the parties, thereby ascertaining that an obligation has been
created.
If the recipient of earnest money fails to discharge his or her side of the contract, then
payment of double the earnest money becomes payable to the other party once the breach has
occurred.
A contract that stipulates the payment of earnest money must be concluded in written form. If
this is not the case, the payment of one party to the other is treated as a simple deposit
representing payment ahead of schedule.
Answer 22 ALEXANDER
Tutorial note: This question tests your ability to resolve a scenario in which damage has been
inflicted through contractual and non-contractual relations.
(a)
In which court?
In the case study, Alexander has suffered loss and damage due to two separate incidents.
These are the traffic accident involving Igor and the subsequent accident, which appears to
have been caused by defective workmanship on his car.
Alexander wishes to pursue legal action for damage inflicted by Igor. At face value, it would
seem that Igor is liable for driving through a red traffic signal. The strength of the case would
depend on the evidence available and would be affected by the presence and testimonies of
witnesses. If Alexander believes he has a sufficiently strong case, he must pursue this
through the courts of general jurisdiction. The reason for this is that although Alexander is an
entrepreneur and Igor is a commercial driver, the incident did not take place in the course of
entrepreneurial activity between them.
For similar reasons, Alexanders case against OOO Carfix would also be dealt with in the
courts of general jurisdiction.
In reality, Alexander would probably be insured, even though it transpires that Igor is not
insured. This means that Alexanders insurance company may take action on his behalf under
its power of subrogation, instead of Alexander taking action on his own behalf. Such action
would be dealt with through the arbitration court.
(b)
1026
1027
1028
Andreis communication
In order for a binding contract to come into existence, there must be an offer and acceptance.
An offer is a statement that a person is willing to be bound on specific terms while an
acceptance is an unconditional agreement to all of those terms.
The law distinguishes between an offer and a representation to the public at large. Once an
offer is accepted, a contract is formed. A representation to the public is not an offer but is
regarded as an invitation to persons with knowledge of this representation to make offers.
Examples of this are general advertisements in the newspaper, leaflets and goods displayed in
a shop window.
A communication may be regarded as an offer if it is addressed to one or more specific
persons and is sufficiently detailed in relation to the terms of the proposal, including the terms
and conditions of the bargain.
There is sometimes a thin dividing line between these two concepts. In the scenario, Andrei
has written to 50 clients stating that a maximum of two boxes will be made available to each
client at a specified price. If the communication had been addressed to 500 potential clients,
there would be little doubt that this would be an invitation to do business and not a formal
offer. It would be quite impossible from a practical point of view to hold stock indefinitely
while replies were awaited from all 500 clients, some of whom would never reply. In this
particular case however it could be argued that the 50 persons that Andrei has contacted have
received a very specific proposal, with the content of the offer proposing a maximum quantity
and a specific price.
Andreis communication with the 50 clients would probably be regarded as an offer, which
the prospective clients are free to accept or reject. However, the ability of the client to rely on
this would depend on other factors, such as:
(c)
whether the communication indicated any actions that had to be taken to secure the
goods (e.g. proposing a method of acceptance).
Meanings
Pledge
A pledge is a secured contract for credit through which two parties enter into a series of rights
and obligations. The two parties are the lender and the borrower. The lender secures a right
over the property of the borrower, usually for a specified period of time, in return for making
funds available to the borrower. The borrower agrees to pay capital and interest according to
the schedule agreed in the contract.
A pledge must be executed in notarial form and registered in the unified State register.
Pledges may be used to enable commercial investors to purchase real estate. Marketed as
mortgages, they are likely to become increasingly popular for the purchase of residential
property.
A pledge always includes a set of rights in favour of the lender and obligations incurred by
the borrower. These are designed to safeguard the position of the lender should the borrower
fail to meet the obligations. As well as the obvious requirement to repay the capital and make
interest payments on the outstanding sum due, the contract may also require the borrower to
maintain the subject of the pledge (usually real estate) in good repair and to insure it.
Surety
A surety is an example of a collateral contract. It is an arrangement whereby a third party
enters into a commitment that if a debtor does not repay a creditor, the surety will bear
subsidiary responsibility for the obligation. This includes all of the obligation specified in the
contract, which may comprise not only capital and interest but also forfeits, costs and other
charges.
1030
(c)
1032
Entitlement to sub-contract
The absence of a provision stating that OOO Move should provide the services without
contracting to a third party may mean that it could transfer the obligation to another company.
OOO Move may be regarded as a general contractor, in which case it will have sub-contracted
the duty to perform the obligation to another company. However, as a general contractor,
OOO Move would be responsible for ensuring due fulfilment of the obligation and could be
sued by ZAO Book if the contract was not properly performed. In turn, OOO Move would be
able to sue the third party provider for undue fulfilment of the obligation. It follows that the
duty to reimburse the third party falls to OOO Move and not ZAO Show.
It could be argued that there is little difference between the duties of personal fulfilment
imposed by contract law on Igor and OOO Move. However, the two services are entirely
different, assuming that services for safe and secure moving of the equipment could be
provided by many companies, whereas the service to be provided by Igor is unique.
(b)
(c)
Reimbursement of expenses
In case of return of the property groundlessly received or saved or in case of the
reimbursement of its value, the purchaser has the right to demand that the victim compensate
for the necessary expenses on the maintenance and upkeep of property since the time from
which he is bound to receive income with the off set of the received benefits. The right to
compensation is lost if the purchaser deliberately retained property subject to return.
In this case X did everything possible to inform the supplier about the goods received and was
ready to give them back at any time. And it was only upon the suppliers will that the goods
were not given back to him immediately. X also did everything he could to safe keep the
goods and to prevent all kinds of losses to the goods. That is why his expenses in regard of
renting a warehouse are to be reimbursed by the supplier in full.
1033
Consequences of non-return
If it is impossible to return the groundlessly acquired or saved property in kind, the purchaser
compensates to the victim for the actual value of this property at the time of its acquisition
and also for the losses, caused by the subsequent change in the value of property, if the
purchaser has not reimbursed its value at once after he knew about unjust enrichment.
A person who groundlessly used the property of other people for the time being without his
intention to acquire it or used the services of other people is required to recompense the
victim all that he has saved owing to such use at the price existing at the time when this use
ended and in the place where the use took place.
In this case X was aware of the unjust enrichment but failed to return the goods in full. The
missing part of goods must be reimbursed in kind, or as X failed to do that in monetary form
at the price at the moment of acquisition (July 10) and also to reimburse the losses caused by
the price fluctuation (in this case 20%).
(b)
the expenses which the person, whose right has been violated, made or will have to
make to restore the violated right;
the loss or the damage done to his property (in this case it could be the expenses on
medical treatment, the acquisition of medicines); and
compensation for the moral damage (which the owner of the dog has right to ask
for). Moral damage should be compensated regardless of the property damage
subject to compensation.
Conclusion of contracts
The contract may be concluded in any form, stipulated for making the deals, unless the law
stipulates a definite form for the given kind of contracts.
The purchase and sale of the office building is the subject to the state registration and this
contract is regarded as concluded in written form and from the moment of its registration,
unless otherwise stipulated by the law.
The contract of sale of office furniture and computers must be in written form.
(c)
Risk of damage
The risk of an accidental destruction of the property or of an accidental damage inflicted on it
is borne by its owner, unless otherwise stipulated by the law or by the contract.
1034
Owner of building
If it is stipulated by the contract of sale of office furniture which was signed on 1 October
2008 and it was the moment of its transfer that the right of ownership arise from this moment
and the owner of office furniture at the moment of fire was OOO EFG.
Under general rules the building is subject to the state registration the right of ownership arise
with the buyer from the moment of such registration. In the case the parties to the contract of
purchase and sale of the office building signed documents proving transfer of property to the
buyer on 25 October 2008 that the owner of building at the moment of fire was also OOO
EFG.
(e)
Dissolving contract
OOO EFG has no right to demand dissolving of contract of purchase and sale of the building
and office equipment because at the moment of fire the contracts were signed by the parties
and the property under this contract were transferred to OOO EFG.
Under general rules the contract may be dissolve only by an agreement between the parties.
Upon the demand of one of the parties, the contract may be dissolved or cancelled by the
court decision only:
(1)
(2)
An essential violation is recognised, as violation of the contract by one of the parties entails
losses for the other party the losses, to a considerable extent depriving it of what it could have
counted upon when concluding the contract.
(f)
(g)
Duties of owner
The owner of a building that is of cultural and historical value has to take care under such
kind of property and In the cases, when the owner carelessly maintains these values, as a
result of which they may lose their importance, such values may be withdrawn from the
owner in accordance with the court decision, by way of their redemption by the state or by
their sale at an open auction.
In case of the redemption of the cultural values, the owner is recompensed their cost in the
amount, fixed by the agreement between the parties, and in the case of a dispute arising
between them by the court. If the values are sold at an open auction, the owner receives the
earnings from the sale, less the outlays for holding the auction.
1035
Circumstances
Mr Petrov and Mr Sidorov have the right to claim reimbursement for damage inflicted by Mr
Ivanov, since according to the Civil Code of the Russian Federation the person who inflicted
the damage should reimburse, in full, damage inflicted to a citizen or citizens property as
well as damage inflicted to the property of a legal entity.
Legal entities and citizens whose activity is related to enhanced danger for others (use of
transport vehicles is one of activities) are to reimburse the damage inflicted by a source of
such enhanced danger unless they can prove that the damage occurred due to force majeur or
the victims intention. Therefore, Mr Petrov and Mr Sidorov have the right to claim
reimbursement for damage inflicted by Mr Ivanov providing there was unlawful conduct,
damage inflicted and causal relationship between the unlawful conduct and the infliction of
damage. There is no need to determine the fault of the person who inflicted the damage.
(b)
Company X, that owns the car and hires Mr Ivanov as a driver, since it is Company
X who owns the source of the enhanced danger;
(2)
Mr Ivanov, who drove the car according to power of attorney issued by Mr Sysoev;
(3)
Mr Sysoev, who allowed Mr Ivanov to drive his car although Mr Ivanov had no
driving licence. Mr Sysoev may be exempt from the responsibility only in case Mr
Ivanov took the car from Mr Sysoev without the consent of the latter and in
violation of the law. In case it was Mr Sysoevs fault that Mr Ivanov took the car in
violation of the law, responsibility will be borne jointly. But if Mr Sysoev wittingly
passed the car into the possession of Mr Ivanov who had no driving licence,
responsibility for the damage inflicted is wholly and exclusively borne by Mr
Sysoev.
Damage to an individual
In case of maiming an individual (or of any other damage caused to his health) compensation
will be extended to:
1036
the earnings (i.e. income) which has been lost by the injured person and which he
had or could definitely have; and
the expenses incurred by damage caused to his health (including the expenses on
medical treatment, additional nutrition, the acquisition of medicines, prosthesis, care
by other people, the sanatoria and spa treatment, the acquisition of special transport
vehicles, retraining, if it is found out that the injured person is in need of aid of
these kinds and care and has not the right to receive them free of charge).
Health of minors
In case of maiming or any other injury inflicted on the health of a minor who has not attained
14 years-of-age and who has not got earnings, the person responsible for the inflicted injury is
obliged to reimburse the expenses incurred by the damages caused to his health.
1037
Death of a bread-winner
In the event of the death of the victim (bread-winner) the right to the redress of injury belongs
to:
the non-able-bodied persons who were dependants of the deceased person or who
had by the time of his death the right to receive maintenance from him;
the infant of the deceased person which was born after his death;
one of the parents, the spouse or any other family member, regardless of his ability
to work, who does not work and takes the care for his dependent children,
grandchildren, brothers and sisters who have not attained 14 years-of-age or
although have attained the said age but are in need of care by other people because
of poor health according to the finding of medical bodies;
the persons who were dependants of the deceased person and who have become
non-able-bodied during five years after his death.
One of the parents, the spouse or any other family member, who does not work and takes care
of the children, grandchildren, brothers and sisters of the deceased person and who has
become non-able-bodied during the period of this case, retains the right to the referred of
injury after the end of the care for these persons.
Injury is redressed for the following persons:
1038
one of the parents, the spouse or another family member who take care of his
dependent children, grandchildren, brothers and sisters until the attainment by
them of 14 years-of-age or the change in the state of their health.
Tests of liability
Even where there is no contractual arrangement between persons or entities, liabilities can
arise in respect of their actions to one another. Such obligations arise from a duty not to do
harm to others. Therefore, if the actions of one person lead to consequential harm, this can
give rise to a civil action for financial compensation.
These non-contractual obligations are sometimes described in terms of torts, or civil
wrongs. They include negligence, trespass, slander, libel and deception.
There are four tests that are normally applied when cases of this nature are brought:
(b)
(1)
Actual damage must have occurred. This damage may be monetary in nature, such
as the loss of stock caused by a fire which in turn was caused by carelessness on the
part of an individual. The damage may be moral or non-pecuniary in nature. It may
also be physical damage to a person.
(2)
The damage must have arisen from the unlawful conduct of the person alleged to
have caused it. The conduct may involve taking actions that should not have been
taken, or alternatively omitting to take actions that would have prevented the
damage.
(3)
There must be a causal link between the damage and the conduct of the person. In
practice, this must be both reasonably proximate and foreseeable. For example, the
failure to drive a car with due care may cause an accident and may result in a claim
for compensation, but if the injured person failed to check in for a flight as a result
of the accident and that resulted in the loss of a contract to his business, the claimant
may not necessarily succeed in a claim for loss of business arising from the missed
flight as this may not be regarded as sufficiently foreseeable or proximate.
(4)
There is fault, either through intent, carelessness or oversight on the part of the
person inflicting the damage. This does not necessarily require proof of intent to
cause damage: it may arise from pure carelessness or oversight.
1039
Right of regress
The Civil Code provides for the owners of resources incurring strict liability for damage
caused by application of those resources. Therefore, if a tile or brick falls from a damaged
building and injures a pedestrian, the owner of the building is liable. Similarly, if damage is
caused by a company vehicle, the company is liable.
Regress arises where the employer incurs a liability to compensate a third party and then takes
action against the employee to recover monies paid.
The right of regress may be included in the labour agreement. However, the Civil Code sets
limits on the amount that may be claimed from the employee with reference to a maximum
proportion of his remuneration.
(2)
Expiry of the labour contract, except for the cases when the labour relations actually
continue and none of the parties demanded their termination.
(3)
(4)
(5)
Employee transfer to another employer at his request or with his consent or transfer
to an elective work (position).
(6)
Employee refusal to continue to work because of the change of the proprietor of the
organisation, change of the agency affiliation (subordination) of the organisation or
its reorganisation.
(7)
(8)
(9)
(10)
(11)
Violation of the rules of conclusion of the labour contract specified in the Labour
Code or another federal law if this violation rules out an opportunity to continue to
work.
The labour contract may be discontinued also for other reasons envisaged in the Labour Code
and other federal laws.
In all cases, the day of employee dismissal is considered to be the last day of his work.
1040
(c)
(d)
(2)
(3)
1041
Change of the proprietor of the organisation (with respect to the manager of the
organisation, his deputies and the chief accountant).
(5)
Numerous failures to fulfil labour duties by the employee without justifiable reasons
if he has a reprimand.
(6)
(b)
(c)
(d)
(e)
(7)
(8)
(9)
(10)
(11)
(12)
Revocation of the clearance for state secrets if the fulfilled work requires being
cleared for state secrets.
(13)
Cases envisaged in the labour contract with the manager of the organisation,
members of the collegial executive body of the organisation.
(14)
In other cases specified in the present Code and other federal laws.
Dismissal for reasons mentioned above in (2) and (3) are permitted if it is impossible to
transfer the employee to another job with his consent.
1042
If the business at the airport is part of a larger whole, the employees are entitled to be offered
alternative employment elsewhere.
If the whole company is closing down this will not be possible. Failure to provide alternative
employment entitles the workers to severance pay of up to one months pay. They are also
entitled to remain on the payroll for up to two months or until new employment is secured,
depending which occurs first.
In relation to annual leave, employees are entitled to a minimum of 28 days paid leave each
calendar year. The individual labour contract may provide for longer leave entitlement but
not shorter.
Provided Galina has worked at the company for more than six months, she has the right to
this leave. If Galina has not taken the leave from work that is due to her, she has two practical
options either to take the leave due to her during the statutory notice period or to demand
monetary compensation on a pro rata basis for the leave that has not been taken.
Answer 34 LABOUR CONTRACT
The rights and obligations under a labour contract are laid down at the outset by a set of conditions to
which both parties agree. These are governed by the normal general provisions of contract law but are
also specifically governed by the provisions of the Labour Code. By contrast, the conditions of a
contract with an independent contractor are for the supply of a given service within the parameters
defined in the contract. The Labour Code does not apply to services that are outsourced, as the
contractor is not an employee.
1043
1044
Legal implications
A labour agreement is a formal contract, governed specifically by the Labour Code. It
contains a set of rights and obligations of the two parties to the agreement the employer and
the employee.
According to the facts of the scenario, the earnings that have not been claimed were set aside
voluntarily to help the company to address its financial difficulties. These earnings remain an
obligation of the company as the workers have agreed to delay the payments, not to forfeit
them. The company is therefore legally obliged to pay these, and as it is only one centre and
not the entire company that is being closed down, the liability to the workers cannot be
avoided by the company.
In similar manner, the right to redundancy (or severance) pay is a legal entitlement under the
provisions of the Labour Code.
This cannot be set aside by the proposed actions of the company, which effectively seek to
hold the employees to ransom by withholding the salaries due to them.
The workers should refuse to sign the declaration giving up their rights to redundancy pay.
(c)
1045
Legal status
The full-time staff of the company have a contractual relationship with the company governed
by the Labour Code. As such, they have extensive legal entitlements. The company must
adhere to the minimum terms of the contract as well as abide by all the provisions of the
Labour Code. The workers are protected from having to work excessive hours without
interruption and are entitled to rest days and holidays. They are entitled to have any disputes
resolved through the mechanisms created by the Code in relation to individual and collective
disputes. The Code also imposes obligations on the employer in the event of redundancy or
dismissal. Workers with young children and those caring for elderly relatives have additional
protection.
By contrast, the individual contractor has little protection other than general contract law as
set down in the Civil Code. The individual contractor delivers the agreed service under the
stated conditions and for the remuneration negotiated between the parties. There is no longterm relationship here, as both parties can walk away once the service has been delivered.
The great advantage to the company is that it only has to pay for what it gets. Contrast this
with the situation in which full-time lecturers have to be paid whether the college is busy or
not. However, the college has less consistency in its approach to repeat clients, especially if
the preferred outside provider is not readily available. Those engaging outside contractors
tend to have less control over the quality of output and can find it difficult integrating the
efforts of many outsiders towards the companys objectives.
The company may also encounter some practical difficulties in forming contracts with outside
providers in this field of work. For example, it may be considered inappropriate for an
outside lecturer to work for two or more competing organisations in the same city or town,
but it is difficult to prevent this in practice. With full-time and part-time employees such a
prohibition may be included in the labour agreement.
Both a labour contract and a civil contract may include a confidentiality clause, but this is
more difficult to impose and monitor in relation to the latter.
Ways of terminating
A labour agreement is a formal contract between an employer and an employee. The content
of the labour agreement and the exercise of certain rights under the agreement are governed
by the Labour Code.
From a legal perspective, labour agreements are rather different to other types of contract.
Most commercial contracts have a beginning and an end. However, a labour contract is often
open-ended and therefore ongoing until either party chooses to terminate the agreement.
Secondly, labour contracts are divisible, so partial performance may be partially remunerated.
This contrasts with many commercial contracts, in which a failure to perform all the
obligations in the contract may result in no payment being due.
A labour contract may be terminated by the employer or the employee.
The employer may terminate the contract at the end of a fixed period stated in the labour
agreement. This is a common feature of labour contracts for individuals in senior positions,
such as chief executives and finance directors. It enables the organisation to anticipate the
need to change key personnel.
1046
1047
Characteristics
A partnership is a form of business entity that comprises two or more persons working
together in pursuit of common business objectives. It is a specific type of legal entity
recognized in law, and as such has to be registered in order to participate in entrepreneurial
activity.
Partnerships are not subject to minimum capital requirements. The founding and any further
additional capital is contributed by the partners and is not sub-divided into shares.
There must be a minimum of two partners in either type of partnership.
The unlimited partnership carries out its business under the written terms agreed between the
partners. The rights and obligations pertaining to the partnership are inseparable from those
of the individuals involved. This contrasts sharply with the obligations of the contributors to
a limited liability business, whose liabilities are confined to the financial contribution that
they have made to the company.
The partners can distribute any profits between themselves in proportion to the contributions
made to the business or in any other manner stipulated in their agreement. They are jointly
and severally liable for any financial or other obligations incurred to third parties.
In dealings with others, the partnership must identify itself as such.
The partnership business form empowers each partner to act individually on behalf of the
partnership, unless the contrary is stipulated in the agreement between them. Any actions
taken by the individual on behalf of the partnership binds the partners.
Any clause in the contract that excludes a partner from entitlement to profits or obligations is
void in law.
Any partner who gives notice of resignation from the partnership remains liable for
obligations that arose before his or her partnership was terminated.
The limited or commandite partnership is a modified model of the unlimited version. It
shares numerous similarities with the unlimited version, including the requirement to register
the business with the State and the need to represent itself openly as a partnership in its
dealings with third parties. The fact that the business is a limited partnership must be made
clear in its formal dealings with others.
1048
1049
(b)
(c)
1050
(b)
Legal termination
Tutorial note: Note that the question specified apart from therefore no marks will be
awarded for consideration of dissolution.
A partnership may be dissolved if either of the partners lacks dispositive capacity, has limited
dispositive capacity or disappears unless the contract provides specifically for such instances.
The partnership is dissolved in the event of the death of either partner or on the insolvency or
either partner.
If a juridical person is a participant in the partnership, the reorganisation of the juridical
person terminates the partnership.
Some partnerships are created for a fixed term, so on expiry of the term the partnership is
dissolved forthwith.
A partnership may also be terminated by the State authorities if the business of the partnership
is for an illegal or improper purpose.
(d)
Trading form
Andrei and his brothers wish to minimise the risk of their new venture and maintain control of
their affairs. This suggests that they may consider a limited liability company (LLC). This
corporate form would confer limited liability on all of the participants, meaning that any
obligations are limited to the contributions made to the business. They would also have
absolute control of their business affairs, as any individual can withdraw from the company
but the remaining participants would be able to veto any third parties from joining the
enterprise.
The LLC would enable the participants to invite new members provided the maximum
number of participants did not exceed 50 persons.
The LLC would also enable the participants to make monetary and non-monetary
contributions to the starting capital, provided the non-monetary contributions are capable of
valuation.
An alternative corporate form is the closed company limited by shares. This would give them
less control over the ownership of the shares and would be more complex in terms of
compliance issues relating to constitution, management and administration.
Withdrawal of a participant
According to provisions of the Civil Code of the Russian Federation, a participant may
withdraw from a company irrespective of the consent of other participants of the company. In
case of the withdrawal of a participant, its share transfers to the company from the moment of
submitting the application for the withdrawal. The company must pay out the actual value of
the participants share, the value is determined on the basis of accounting data for that year
when the application for withdrawal was filed, or upon the consent of the participant to
give the property in kind to the same value. If the participant had not paid its share to the
statutory capital in full, it receives, upon withdrawal, the actual value of its share pro rata the
portion of the statutory capital paid.
1052
(c)
Answer 41 PEXO
(a)
Documents
The founders of the company enter into a contract in writing regarding the formation of the
company, which determines:
the procedure for their engaging into the joint activity of the founding of the
company;
the categories and types of shares subject to placement among the founders and
amount and procedure for the paying therefore; and
the rights and duties of the founders in connection with the formation of the
company.
A contract regarding the formation of a company is not the foundation document of the
company.
The foundation document of the company is the charter of a company.
All company bodies and company shareholders must comply with the requirements of the
company charter. The company charter must contain the following information:
the number, par value, and categories (common, preferred) of shares, and types of
preferred shares to be placed by the company;
1053
the composition and authority of the governing bodies of the company and the
procedure for the adoption of resolutions by them;
the procedure for the preparation and conducting of the general meeting of
shareholders, including decisions on matters to be resolved by a qualified majority
or unanimous vote of the governing bodies of the company;
The companys charter may impose limits on the quantity and total par value of shares held or
the maximum number of votes cast by any one shareholder.
(b)
Date of creation
A company is regarded as established from the moment of its state registration (with the body
exercising the state registration of legal entities) under such procedure as may be determined
by federal law on the state registration of legal entities.
The date of creation of Pexomal is 16 July 2009 the date of its state registration by Moscow
Registration Chamber.
(c)
Appraisers remuneration
When payment for shares is effected in non-monetary form, an independent appraiser must be
invited to determine the market value of such assets. The valuation of assets in terms of
money produced by the founders of the company and the board of directors of the company
cannot exceed the valuation produced by an independent appraiser.
Thus in case the contributions to the charter capital are made in non-monetary form, the
services of the independent appraiser are necessary for the process of formation of the
company. That is why the founders or the company itself are to pay for the appraisers
services, and in case these are the founders who have paid, the company may further on
reimburse the amount due.
(d)
(e)
1054
(g)
Answer 42 ZAO A
(a)
(b)
Ownership
A company has separate assets in its ownership, which are reported in a separate balance
sheet, and the charter capital of a company determines the minimum amount of the property
of a company securing the interests of its creditors.
A company may at its own discretion use, possess and dispose of the property that it owns.
Thus the property transferred to the initial share capital of the company becomes the
companys property and the shareholder who has transferred it loses all rights in respect of
this property (except the case of liquidation of the company).
1055
Disposal of property
Yes, it is quite possible to dispose of the property that belongs to the company (property
initially transferred to the share capital) provided that all the restrictions of law concerning
major transactions are duly observed.
(d)
(e)
Shareholders consent
A major deal must be approved by the board of directors (supervisory board) of a company or
the general meeting of shareholders. Thus in the described case the consent of three quarters
of shareholders present at the meeting will be necessary. As the quorum is formed by 50%
and more of shareholders, it can be supposed that, in order to get the approval of the general
shareholders meeting, the consent of the major shareholder(s) will be enough.
(f)
Shareholders rights
The shareholders that did not take part in the voting or voted against the major transaction
have the right to demand redemption of all or some of shares belonging to them. The relevant
demand must be presented to the company within 45 days since the moment when the
respective decision (on major transaction) was taken and contain information on name,
permanent residence of the shareholder and the amount of shares subject to redemption. The
redemption must be executed within 30 days upon expiration of the above-mentioned term.
Register of shareholders
A register of the shareholders of a company comprises information on each person registered,
the quantity and categories (types) of shares recorded in the name of each registered person,
and other information as might be required under legal acts of the Russian Federation.
The company must ensure the keeping and storing of the register of shareholders in
compliance with the legal acts of the Russian Federation starting from the time of the
companys state registration.
1056
Responsibilities
Either the company or a professional participant in the securities market licensed for the
activity of keeping registers of the owners of registered securities (a registrar) holds the
register of the shareholders of a company.
The register of shareholders of a company having more than 50 shareholders must be held by
a registrar.
A company that has entrusted the keeping and storing of its register of shareholders to a
registrar is not relieved from the responsibility for keeping and storing it.
A person registered in the register of shareholders must promptly notify the holder of the
register on changes occurring in his personal data and details. If he fails to present
information on such changes, the company and the registrar will not be responsible for the
losses inflicted in connection therewith.
(c)
Introducing records
Records are introduced to the Register at the demand of the shareholder (or nominee holder of
shares) not later than three days after the submission of the documents provided for by
statutory acts of the Russian Federation. A shorter term may be established by legal acts of
the Russian Federation.
A refusal to make records to the Register of a company is not permitted, unless it is directly
provided for by the laws of the Russian Federation. In the event of a refusal to make records
to the Register, the holder of the register must send to the person demanding the making of
the entry a reasoned explanation concerning the refusal to make the records not later than five
days from the presentation of the demand.
The refusal to make records to the Register of a company may be appealed in court. By
decision of the court the Register holder may be obliged to make the respective entry in the
Register.
(d)
Extracts
The Register holder of a company is obliged, at the demand of a shareholder (or nominal
holder of shares) to confirm the shareholders rights in respect of the shares by means of the
issuance of an extract from the shareholders register.
Steps to establish
A limited liability company (LLC) is a registered legal entity comprising a group of
individuals coming together to form an association with common business objectives. The
owners are the shareholders, who put up the risk capital of the enterprise. Once formed the
company has a separate legal personality and perpetual succession.
A LLC can be formed by no more than 50 persons. These persons can be private individuals
or legal entities.
1057
1058
1059
Answer 46 MR CHAIKIN
(a)
Validity period
In case the validity period is not indicated in the power of attorney, the validity period is
considered to be equal to one year since the date of issue. In this case the power will expire
on October 2, 2009.
(b)
(c)
Right to conclude
The power of attorney empowers the person only for execution of deeds and/or actions
directly provided for in the power of attorney. The examined power of attorney empowers Mr
Boiko for receiving goods and production due to OOO ABC but not for concluding contracts.
OOO ABC will be responsible on the contract with OOO Y only in case of subsequent
approval of the contract concluded by Mr Boiko by OOO ABC. Otherwise the contract will
create rights and obligations directly for the person, who signed it, and namely Mr Boiko.
And that will be Mr Boiko in person who will be responsible for fulfilment and nonfulfilment of obligations under the contract (exercise of pre-payment included).
(d)
(i)
No. The fact of change of owner of the company does not directly influence the personality
of General director. However, appointment of General director is the competence of general
participants meeting, and the new 100% owner has a possibility to convoke the meeting and
cease Mr Chaikins powers as a general director. But the director will be in any case changed
by the general participants meeting decision.
1060
No. The power of attorney was issued by the company OOO ABCand the change of owner of
the company does not influence the validity of deeds executed and concluded by the
company.
(e)
Answer 47 NIKITA
(a)
Contract of commission
Contracts of commission are one form of voluntary representation in the Russian Federation.
They are governed by the provisions of the Civil Code.
The case describes a contract of commission in which the two parties are Nikita and company
OOO CAET. Nikita is the commitant and OOO CAET is the commissioner. Under a
contract of commission the parties enter into transactions in their own names, so it follows
that when selling the goods the commissioner is liable for the quality of the goods.
The terms of the contract for the sale of the goods can therefore be legally enforced by
company OOO CAET and the purchaser of the goods.
(b)
(c)
Liability to Nikita
Generally, the commissioner is responsible for entering into the contract of sale for the goods
but not for the execution of the contract unless the arrangement is of a del credere nature.
Nikita cannot therefore enforce the terms of the contract by claiming against OOO CAET.
The situation is different if the goods are sold by OOO CAET in the open market, in which
case the company would incur a liability to Nikita.
In addition, if it can be established that OOO CAET did not act reasonably in identifying a
buyer, then the company may be liable to Nikita.
1061
General characteristics
The Civil Code provides for both obligatory representation and voluntary representation.
Obligatory representation arises where one person or entity must be appointed to act on behalf
of another. The simplest manifestations of this occur when a guardian represents a child or a
person who suffers a mental incapacity. The latter occurs when one person or entity chooses
to have another represent his or her interests. Voluntary representation may be effected
through a power of attorney and also through contracts of commission and mandate.
Generally, a representative acts on behalf of the person or entity he or she is representing. As
such, the actions of the representative are considered in law to be the actions of the donor of
the power to act. Any action of a representative that forms a contract with a third party is
deemed to be an action of the principal.
It is the duty of a representative to act in the best interests of the principal and not in his or her
own personal interest.
The powers and duties of a representative are not without limit. Such arrangements are
contractual and as such can be limited by the conditions contained in the contract. If the
representative exceeds his or her authority, the principal has a right to either ratify the action
or to disclaim it. In the latter case, the actions become the personal responsibility of the
representative. However, special rules apply to commercial representation through a contract
of commission.
In some instances the law requires the individual or entity to act in person. In such cases it is
not permitted for a representative to act on behalf of the person or entity responsible.
1062
Power of attorney
Definition
A power of attorney is a contract of agency through which a person, natural or juridical,
confers powers on another to act on his or her behalf. It is a legally binding arrangement that
persists for the duration and within the scope of the power, for the representative to act on
behalf of the other party.
Powers of attorney are commonly used by individuals to enable transactions to be made by
another individual. For example, an elderly person may decide that it is desirable for a
younger or more mobile family member to make financial transactions or discharge other
obligations or duties. A person who is to work outside the Russian Federation for a protracted
period may also delegate some or all financial affairs to another person. In all instances, the
creation of a power of attorney implies a high degree of trust.
Types of power of attorney
There are three types:
A general power of attorney confers a general power to act on behalf of the donor
for a given period of time.
To be valid, powers of attorney must always be executed in writing, and for some transactions
require execution in notarial form. If the document does not indicate a time limit, it is valid
for one year from its creation. All powers of attorney are time limited to a maximum of three
years.
(c)
Termination of rights
A power of attorney is terminated in the event of revocation by the donor (issuer) or refusal of
the donee (attorney) to act.
Any power of attorney automatically lapses after three years, even if the document specifies a
longer period of time. Powers of attorney that specify a shorter period terminate according to
the date specified.
In all instances, a power of attorney is terminated on the death, personal incapacity or
disappearance of the donor. This extends to the dissolution of a business organisation where
that organisation is the donor.
Meaning
A contract of commission is one form of voluntary representation identified in the Civil Code
through which one person can act on behalf of another, usually in the course of commercial
trade. This method of representation is especially suitable for businesses dealing with
overseas counterparties.
1063
(c)
1064
(b)
(c)
Symptoms of bankruptcy
No, it may not. The law On Companies Limited By Shares lists cases when a company has
no right to decide upon payment of the dividends or to pay the announced dividends. In
particular, such decisions may not be taken if a company has the symptoms of bankruptcy as
of the moment of payment or these symptoms may appear as the result of the payment of
dividends by the company.
(d)
Courts decision
In all given cases claims of the shareholders may not be recognised valid, therefore the court
decision to reject claims of Mr Ivanov, Petrov and Sidorov is lawful.
(c)
300 roubles to the holders of the cumulative shares (100 roubles 2 years
cumulative, plus 100 roubles for 2008);
100 roubles to the holders of the non-cumulative preference shares as set out on the
Charter;
125 roubles to the holders of the ordinary shares as the dividend rate cannot exceed
the value recommended by the Board (50,000 less 40,000 divided by 800), where:
(d)
Cumulative or not?
The Charter of a company may set down a provision that a dividend that has not been
disbursed or has been partially disbursed on preference shares of a particular type may be
accumulated within a term as also set down in the Charter. Such shares are deemed to be
cumulative preference shares. If there are no such provisions in the Charter, any preference
shares issued are deemed to be non-cumulative in respect of dividends payable to their
owners.
(e)
Mandatory audit?
A decision by a company to pay dividends is taken by the shareholders in general meeting,
often subject to executive recommendation. This decision in itself has no bearing on whether
an annual audit is mandatory.
(f)
1066
if the share capital as set down in the Charter is not paid up in full;
if the net assets of the company is less than the Charter capital, plus the value of the
reserve fund, plus the excess over nominal value of the liquidation value of the
issued preferred stock, or if the payment of the dividend will result in such a deficit.
1% shareholding
A shareholder with at least 1% of the voting equity in a company has the following rights:
information on the registered owner, the number of shares, the category of shares
and nominal value of shares belonging to them;
the list of persons entitled to attend the general meeting, though the addresses may
only be furnished with consent of the relevant shareholders;
to vote at the general meeting on the basis of one vote per share;
to litigate for losses caused to the company against a director, general director,
member of the management board or directorate, management organisation or
manager.
(ii)
2% shareholding
A shareholder owning at least 2% of shares in a company has the following additional rights:
to nominate candidates for the Board, collective executive body, internal audit
commission and accounts commission;
1067
10% shareholding
A shareholder owning at least 10% of shares in a company has the following additional rights:
to require an audit of financial and economic activity of the company at any time.
(iv)
25% shareholding
Shareholders with at least 25% of the voting shares of a company are entitled to access to the
accounting documents of the company and to sight of the minutes of meetings of the
collective executive body.
(v)
50% shareholding
75% shareholding
A majority of at least 75% of holders of voting shares is necessary to float new ordinary
shares in excess of 25% of existing issued shares. This same threshold applies to securities
convertible into ordinary shares.
A majority of at least 75% of holders of voting shares is also required to approve a major
transaction where the subject matter is valued in excess of 50% of the balance sheet value of
the companys assets.
(b)
Significant shareholdings
A person intending to acquire more than 30% of the total number of ordinary or preference
shares of an open company limited by shares, considering the shares belonging to such person
and its affiliated persons, must forward a public offer concerning acquisition of the said
shares addressed to the owners of the shares of the corresponding types (voluntary offer).
A person who acquired more than 30% of the total number of ordinary or preference shares of
an open company limited by shares or other emission securities convertible into shares,
considering the shares belonging to such person and its affiliated persons, must forward a
public offer concerning acquisition from other owners of the shares of the corresponding
types and owners of emission securities convertible into shares, addressed to the owners of
the shares of the corresponding types and owners of emission securities convertible into
shares, within 35 days from the date of entry of the record on the bankbook (obligatory
offer).
The price for the securities indicated in the obligatory offer cannot be less than the weighted
average price under the results of the bidding of the organizer of the bidding on the securities
market six months prior to the forwarding of the obligatory offer to the Financial Monitoring
Service.
After receipt of voluntary or obligatory offers the board of directors of an open company
limited by shares obtains recommendations on such public offer including estimation of the
price of the purchased securities. The company limited by shares must forward the above
offer within 15 days from the date of the receipt together with the recommendations of the
board of directors to the owners of the securities to whom the offer is addressed.
1068
not less than 70 or more than 90 days, in case of voluntary offer: and
not less than 70 or more than 80 days in case of obligatory offer.
On receipt by the open company limited by shares of the voluntary or obligatory offers, any
person is entitled to present a competitive offer on the corresponding securities. The price
for purchase of the securities in the competitive offer cannot be less than the price indicated
in the voluntary or obligatory offers.
If in case of execution of the obligatory offer a person has purchased more than 95% of the
shares in the open joint stock company (J-SC), this person must within 35 days from the date
of purchase forward to the owners of securities, having a right to demand redemption of the
securities, a notice on their right. A bank guarantee must be attached to the notice. The
owners of the securities are required to present claims on redemption of their shares within six
months from the date of forwarding the notice. A person buying more than 95% of shares of the
J-SC must buy the rest of shares of the J-SC under the claims of the owners of shares.
Within 6 month from the date of the expiry of the term for claiming redemption of shares the
owner of 95% of shares may demand other shareholders to sell shares to him.
Answer 53 CAPITAL AND FINANCING
(a)
Meaning of share
A share is a security representing the owners equity in a company. The stake that the owner
has is represented by the nominal value of the share as determined by the Charter of the
company. As such it defines the rights of the holder and any limitations on those rights.
The relationship of a shareholder with a company, and indeed with other shareholders, is
quasi-contractual, with the mutual rights and obligations arising from ownership of the share
determined by the Charter and other constitutional references. The terms of the relationship
may be dependent on the type of share held. For example, preference shares usually carry a
right to a fixed dividend while the dividend payable to ordinary shareholders is usually
established with reference to realisable profits.
As a contribution to risk capital, the share is a claim against the company. This claim is
deferred until the company ceases to exist, except where statute law or the constitution of the
company provide for redemption of the share. Even when the company ceases to exist, the
right to claim against the share is subordinated to the claims of others, including the liquidator
and creditors.
The share also signifies rights in relation to participation in decision taking. In the Russian
Federation, the general meeting of shareholders is the supreme decision taking body of the
company, though rights to participate are usually confined to holders of ordinary shares. The
shareholder has a right to attend meetings, vote at meetings or in absentia, and subject to
various thresholds determined by law, propose matters for inclusion on the agenda or
meetings and nominate directors. Shareholders can also convene extraordinary general
meetings, again subject to the provisions of law.
Subject to the constraints imposed by the constitution of the company, the share is a type of
transferable security. Is can be gifted, sold, bequeathed or otherwise transferred. It can be
mortgaged or pledged. Under certain circumstances it can be forfeited.
1069
Legal requirements
Placement of shares by closed subscription entails issuing shares to a limited number of
persons. The law On Companies Limited By Shares lays down regulations in respect of
placement by closed subscription. In addition, the Charter may make additional provisions if
they do not conflict with statute, or if the law is silent on the matter.
All shares placed by closed subscription require the support of a decision of the general
meeting of shareholders, passed by at least a 75% majority. This majority is also required if
ordinary shares exceeding 25% of the ordinary shares already placed are to be issued, and
where registered securities convertible into ordinary shares exceeding 25% of those already
placed are to be issued.
1070
(c)
Non-monetary contributions
The law On Companies Limited By Shares states that the consideration paid towards
statutory capital may comprise money, securities, other property or titles to property and any
other rights capable of monetary valuation.
A closed company limited by shares may therefore accept contributions to its statutory capital
in both monetary and non-monetary form. This would have to be with the consent of the
founders, who agree to the size of the statutory capital of the company, the categories and
value of shares and how they are to be paid for at the time of formation of the company.
1071
(c)
Use of property
The real estate is Natashas contribution to the company on or shortly after its formation. As
such, she owns shares in the business in return for the contribution and therefore no longer
has any right over the asset that formerly belonged to her. The shareholders of a company
have a claim against the company but do not own a proportion of the assets on an individual
basis. How the property is used is therefore a matter for the shareholders acting as a
collective decision taking body. It would be inappropriate as well as unworkable for Natasha
to expect 40% of the premises to be used for purposes dictated by her on the grounds that she
owns 40% of the capital.
Although Natasha has little individual control over the way in which the resources of the
business are used, she is in a relatively strong position as the main shareholder of the
company. As such, she has the ability to exert a strong influence at general meetings. If she
can persuade one other shareholder to vote with her, any decision requiring a simple majority
can be passed routinely. For votes requiring a 75% majority, she would need the support of
three more shareholders, which may prove more difficult.
As a major shareholder, Natasha can also propose items for inclusion on the agenda of the
general meeting of shareholders and nominate persons to serve on the board of directors. She
can also convene an extraordinary general meeting.
Although it is generally up to the shareholders to decide on the way in which the business is
run, including the retail operational model it is based upon, Natasha may have some power to
prevent the disposal of the premises. If the book value of the premises is 25% or more of the
assets of the company as at the last financial reporting date, the transaction is regarded as a
major transaction under the law On Companies Limited By Shares. As such, the
transaction will require the unanimous consent of the board of directors, or failing that a
majority of the shareholders present in general meeting. The majority requirement increases
to 75% if the book value of the asset exceeds 50% of the companys assets. The outcome
would ultimately depend on the support or lack of support from the other shareholders for
Natashas case.
1072
Implications
The auditors of a company are appointed by the founders on formation of the company and
thereafter by the general meeting of shareholders.
It is the duty of the auditors to make all necessary enquiries in order to discharge their
statutory functions. This routinely involves access to financial and other documents made
available by the company but also the right to have explanations to all reasonable enquiries
made of the executives and other management of the company. Failure to make such
enquiries simply because the executives of the business are too busy would constitute a
breach of the duty of care owed to the company.
If Natasha does not cooperate with the auditors there may be serious consequences. They
may at best bring this to the attention of the members in the form of a qualified report or at
worst convene an extraordinary general meeting to bring the lack of cooperation, and its
possible consequences, to the attention of the shareholders. Ultimately, they may decide that
it is impossible to form an opinion and report to this effect when addressing the shareholders.
If the auditors resign, this could also create serious problems. Potential replacement auditors
would probably be alert to the situation and may refuse office. The new auditors would
probably be more and not less searching in their enquiries as a result.
It is a relatively simple matter for Natasha to remove the auditors of the company provided
she has the support of her fellow shareholders. Auditors are appointed for a fixed period, and
on expiry of that period the general meeting of shareholders can replace one audit firm with a
new one. However, this would hardly solve Natashas dilemma, as the new auditors are likely
to be alert to the circumstances and make similar enquiries in the course of their future work.
If the auditors are removed ahead of expiry of their term of office this would constitute a
breach of contract and render the company liable to pay compensation. It would also have
serious ramifications for the perceived integrity of the company.
1073
Redemption
Circumstances
The shareholders of a company limited by shares have a legal right to redeem their shares if
the company is reorganised, if the company concludes a large scale transaction or if
amendments are made to the Charter that infringe the rights of the shareholders.
Procedure
The redemption price of the shares is determined by the board of directors. However, this
cannot be less than the market value of the shares estimated by an independent appraiser. The
appraiser must make this estimation discounting the effect on the share price of the decision
to redeem.
If a general meeting is convened to take decisions that may give rise to a right of redemption,
the agenda circulated in advance of the meeting must indicate this and inform the recipients of
the redemption price and how applications may be made for redemption.
Any shareholders wishing to exercise their rights to redeem shares must serve notice on the
company within 45 days of the relevant decision. This notice must include an address for
communication and an indication of how many shares are to be redeemed.
The total value of funds set aside for redemption may not exceed 10% of the value of net
assets. If this is inadequate, shareholders may partially redeem on a pro rata basis.
1074
(b)
1075
(d)
1076
Process to increase
A company may increase its statutory capital by either a decision of the general meeting of
shareholders or a decision by the board of directors. In either case, the powers may be
exercised within the provisions laid down in the Charter.
If the decision is taken by the general meeting of shareholders, a simple majority is required
to authorise the increase, which is normally effected by increasing the number of the
companys shares. Once sanctioned it is necessary to amend the Charter of the company.
For a decision to be taken by the board of directors it is necessary for the directors to be
unanimously in favour of this. The increase may be achieved by placing additional shares. In
order to maintain the rights of existing shareholders in terms of proportionate voting powers,
any placing of additional shares is made on a pro rata basis. The value of the increase cannot
exceed the net assets of the company less the combined value of the reserve fund and
statutory capital.
(b)
Process to reduce
A reduction in share capital may only be sanctioned by the general meeting of shareholders.
This is again subject to the provisions of the Charter of the company.
The decision to reduce share capital may be implemented by either reducing the par value of
all shares in the company or through a buyback (acquisition and repayment of shares).
If this reduction is approved the creditors of the company must be notified within 30 days.
The creditors may then demand repayment of monies due to them plus any compensation for
losses suffered.
(c)
1078
1079
(d)
1080
(b)
Is there interest?
With respect to OAO Zvezda such a deal is a deal in which there is interest, since the General
Director of the purchaser, LLC Ensk is a member of the Board of Directors of OAO Zvezda.
(c)
Order of conclusion
A deal in which there is interest must firstly be approved by the Board of Directors or by the
General Meeting of the company. In the given case, since the amount of placed ordinary
shares exceeded 2%, the decision upon the deal should have been made at the General
Meeting by the majority of shareholders that were regarded as not having interest in the deal.
(d)
Consequences of non-observance
A deal in which there is interest, concluded with infringements of the requirements set by
Federal law, may be regarded as void (disputable)
1081
any person carrying out the decisions of the Board of Directors of the company,
such as the General Director or an executive;
any shareholder who owns one-fifth or more of the companys voting shares;
any shareholders who together with affiliates owns one-fifth or more of the
companys voting shares;
In turn, the law On Companies Limited By Shares specifies that such persons are deemed to
be interested if they or connected persons:
own, in their own right or collectively with affiliates, one-fifth or more of the voting
shares of the counterparty to the transaction, or of an agent, representative or other
intermediary to the counterparty;
Connected persons in the context of this law are the spouse, parents, brothers, sisters, half
brothers, half sisters, step parents and step children.
(b)
1082
The names of companies or other legal entities in which they own, autonomously or
jointly with connected persons, one-fifth or more of the voting shares.
The names of companies or other legal entities in which they hold managerial or
executive positions.
There are specific exclusions to the rules on transactions in which there is an interest. An
interest is deemed not to exist where:
(c)
there is only one shareholder who also acts as the only decision taker;
Approval procedure
A transaction in which there is an interest may be approved by:
If the meeting is inquorate or the required majority cannot be achieved, the decision must pass
to a general meeting of shareholders. Where there are more than 1,000 shareholders, if all of
the directors are interested persons the decision must pass to the general meeting of
shareholders.
Transactions that may be approved by the general meeting include:
transactions in assets where the value is 2% or more of the balance sheet value of
the companys assets as at the last accounting date;
The transaction does not require approval of a general meeting where the terms of the
transaction do not differ significantly from the terms of transactions already concluded in the
course of ordinary business activity prior to the time that the person was deemed to be an
interested person. This rule applies to transactions between recognition of the person as an
interested person and the date of the subsequent annual general meeting.
The general meeting may adopt a decision to approve a transaction between a company and
an interested person in the course of ordinary economic activity. The shareholders may
specify the maximum amount of the transaction.
1083
1084
Roles
The provisions relating to the board of directors and the executive body are laid down in the
Federal Law On Companies Limited By Shares. The precise role of each is decided in
practical terms by the size of the company and the nature of its activities.
Board of directors
The board of directors may also be referred to as the supervisory council. Its purpose is to
exercise general guidance for the company and to decide on all matters that do not fall within
the exclusive competence of the general meeting of shareholders. In smaller enterprises the
board may not be required, so the law permits companies with less than 50 shareholders to
dispense with the need for a board. If this is the case, all decisions will be vested in the
shareholders meeting.
For other companies there must be a board of directors. The directors are elected annually
and can serve for an unlimited number of terms of office. The shareholders meeting may
determine the terms of reference of the directors, either in the founding Charter, by amending
the Charter or through ongoing decisions at general meetings. The shareholders also decide
on the number of directors, though the law prescribes that companies with more than 1,000
shareholders must have at least seven directors and companies with more than 10,000
shareholders must have at least nine directors.
Executive body
The executive body is responsible for the day-to-day operations of the company limited by
shares. It may either be collegial (a group of executives) or a single person or entity. The
shareholders meeting may sometimes decide to delegate executive powers to an external
management organisation or to an individual entrepreneur.
The executive body deals with a wide range of operational matters, including acting in the
companys name, representing its interests, carrying out transactions on behalf of the
company, dealing with human resources matters and issuing instructions and directions.
(b)
1085
(c)
Strategic direction of the company agreeing the strategic plan and apportioning
responsibilities for its execution;
Other dealing with matters charged to them by the shareholders or the Charter.
1086
Preparation
Shareholders are informed by the Board of Directors of the scheduled Meeting by:
date, time and place General Meeting is to be held, postal address to send filled-in
ballots;
date of closing the list of shareholders entitled to participate in the General Meeting;
Shareholders must be informed on holding the General Meeting not later than:
(b)
30 days before the scheduled date of the Meeting in case the agenda contains the
issue on reorganisation of the company
50 days before the scheduled date of the Meeting in case the agenda contains the
issue on electing the Board of Directors by cumulative voting
1087
In the last two cases, the Meeting must be held within 40 days of the request being
submitted (70 days in case the agenda contains an issue on electing the Board of
Directors by cumulative voting, unless a shorter period is envisaged by the Charter).
The initiator draws up the issues on the agenda and options of decisions, and determines the
form of conducting the Meeting. The Board of Directors may not change them.
After receiving the request, the Board of Directors decides within five days on convening
General Meeting or refusing to convene it and within three days notifies the initiators on its
decision.
Refusal is possible only if:
the person submitting the request possesses less than 10% of shares;
none of the items on the agenda are within the General Meetings competence;
an item on the agenda does not conform to the requirements of the law On
Companies Limited By Shares and other legal acts of the Russian Federation.
If the Board of Directors has not taken the decision in due time, the Meeting may be convened
by the initiators, and expenses may be covered by the company according to the General
Meetings decision.
(c)
Decision-making procedure
The Board of Directors sets the date for which the list of shareholders entitled to participate in
the scheduled General Meeting is compiled according to the register.
Such a list may not be composed earlier than the decision on convening the General Meeting
is made.
In case the agenda of the General Meeting contains the issue on electing the Board of
Directors by cumulative voting, the list of shareholders entitled to participate in the Meeting
should be compiled not later than 65 days before the scheduled date of the Meeting. In
general, the list of shareholders entitled to participate in the Meeting should be compiled 50
days before the Meeting is convened.
A nominal shareholder submits, for compiling the list, information on persons for whom he
holds the shares.
Shareholders possessing not less than 1% of votes may inspect the list, while the rest of
shareholders may obtain information on their inclusion in the list.
Voting standard One voting share One vote (exception cumulative voting on electing
members of Board of Directors).
Companies with the total number of holders of voting shares over 1,000 elect its Board of
Directors only by cumulative voting. Cumulative voting for companies with a lesser number
of shareholders may be stipulated by the Charter.
1088
Voting
The Board of Directors deciding upon convening the Meeting simultaneously determines the
form of voting at the Meeting (voting in presence of all shareholders, mixed voting or
absentee voting). If the General Meeting is convened by the demand of internal inspection
commission, auditor or individual shareholders of the company and the demand stipulates a
particular form of voting, the Board of Directors may not change this form.
Three forms of voting at General Meeting stipulated by law are as following:
Voting in presence of shareholders. Can also have the form of mixed voting
(shareholder having received a ballot beforehand may either send a filled-in ballot
or vote in person).
Mixed voting shareholder having received a ballot beforehand may either send a
filled-in ballot or vote in person.
Absentee voting (by sending completed ballot). There are certain restrictions to the
application of absentee voting. Thus, an absentee-voting Meeting may not
substitute a Meeting that should have had the form of voting in the presence of all
shareholders.
This means that ordinary Meetings may only be held in the form of voting in presence of all
shareholders or in the mixed form, when a shareholder may choose to send a filled-in ballot or
be present at the Meeting. Absentee voting is possible only for Extraordinary Meetings.
A tabulation commission draws up the protocol on the results of voting not later than 15 days
after the Meeting or after the deadline for accepting the ballots. Members of the tabulation
commission or the commissions representatives sign the protocol.
Answer 66 A, B, C & D
(a)
1089
(2)
(3)
Also according to the law (art. 58), the general meeting of shareholders is deemed to have a
quorum if it is attended by shareholders owning, in aggregate, more than half of the votes of
floated voting shares of the company.
As A and B are the shareholders who have registered for the purpose of attending the meeting
and they have a majority vote (60%) of the holders of voting stock of the company, it can be
concluded that the general meeting of shareholders is deemed to have a quorum.
(c)
Dividend payment
The decision with regard to disbursing annual dividends is adopted by simple majority (50%)
of votes, present at the meeting, thus the respective decision in the described case has been
adopted because A has a majority vote of the holders (2/3 of votes present at the meeting).
1090
Reorganisation
The decision with regard to re-organising the company has not been adopted because
according to the law (art. 49) the decision on this issue must be adopted by a general meeting
of shareholders by the majority of three quarters of the votes of shareholders owning voting
shares and attending the general meeting of shareholders (and A has only 2/3 of votes present
at the meeting).
(d)
Decision on reorganisation
In the case B voted for with regard to re-organising the company the decision on this issue
would have been adopted by a general meeting of shareholders.
(e)
Rights of shareholders
C and D (as they did not take part in the voting on reorganisation) have the right to demand
from the company to redeem shares belonging to them. The company is obliged to inform the
shareholders who did not take part in the voting or voted against the respective decision of:
The shareholders claim to redeem the shares must be presented to the company within 45
days after the respective decision was taken. The claim must contain information on the
name, place of residence of the shareholder and the amount of shares subject to redemption.
The shares are to be redeemed at the market price determined by the board of directors.
Opinion of an independent appraiser is also taken into consideration.
In case the shares are redeemed within the process of reorganisation they are to be cancelled
by the company.
Answer 67 ORDINARY MEETING
(a)
(b)
Who is empowered?
The decision on convening annual general meetings of shareholders is the issue within the
scope of responsibility of the board of directors (supervisory board) of a company.
The decision of a meeting of the board of directors (or supervisory board) is signed by the
person presiding at the meeting, who bears responsibility for the correctness of the drawing
up of the decision.
1091
(c)
Information to be submitted
An announcement of a forthcoming general meeting of shareholders must be made at least 20
days prior to the meeting and an announcement of a forthcoming general meeting of
shareholders having on its agenda the issue of re-organisation of the company, at least 30 days
prior to the meeting.
The following must be indicated in an announcement of a forthcoming general meeting of
shareholders:
the date, place and time of the forthcoming general meeting of shareholders, the
postal address to which they can be mailed, or in the event of the general meeting of
shareholders being held in the form of voting, the deadline for receipt of ballot
papers and the postal address to which completed ballot papers must be mailed;
the date of compilation of the list of persons entitled to attend the general meeting
of shareholders;
The information (materials) that must be presented to persons entitled to attend the general
meeting of shareholders in preparation for holding such a meeting is as follows:
1092
draft amendments to the charter of the company or a new version of the charter;
(e)
List of shareholders
The list of persons entitled to attend the general meeting of shareholders is drawn up on the
basis of data of the shareholders register of the company. The nominal holder of shares
submit data concerning the persons in whose interests he possesses shares on the date of
drawing up the list in order to draw up the list of persons entitled to attend the general
meeting of shareholders. The list of persons entitled to attend the general meeting of
shareholders contains:
information on the quantity and category (type) of the shares whereby the person
has voting rights; and
Type of deal
The deal concluded is a major (large-scale) deal. A major deal is a deal (several related deals)
related to acquisition or alienation of property whose value is over 25% of the book value of
the companys assets as of the date of the decision on the deal (except for transactions made
in the course of usual business activity of the company and transactions implying the
placement of ordinary shares).
(b)
(c)
date, time and place that the General Meeting is to be held, postal address to send
completed ballots;
date of closing the list of shareholders entitled to participate in the General Meeting;
Thirdly, during preparation for the Meeting, shareholders are presented with the companys
annual report, including the auditors opinion on the results of the annual inspection of
financial and economic activity, the information on candidates to executive bodies of the
company, to the Board of Directors and internal audit commission. In case any amendments
to the Charter or inner documents of the company are planned to be discussed at the Meeting,
the drafts of such amendments must be presented, as well as any other information stipulated
by the Charter.
In case the shareholder requires copies of any of the documents listed above, the company is
to present them at the prime cost of the copying.
(b)
Legal implications
Certainly, the Board of Directors of OAO OblSviazInvest infringed the requirements of the
law On Companies Limited By Shares and provisions of its own Charter. However, even if
Mr Ivanov, the holder of 8% of shares of the company, had participated in the Annual General
Meeting, his vote would not have changed the decisions adopted, since the representative of
the plaintiff proved that all the decisions on the agenda were made unanimously.
(c)
Court ruling
The court will reject the claim of shareholder Ivanov.
1094
Powers
The law On Companies Limited By Shares states that it is within the competence of a
properly convened general meeting of shareholders to approve a major transaction.
Therefore, assuming that the meeting was properly convened, the general meeting is within its
powers to consider the transaction.
The general meeting of shareholders is deemed to be quorate if it is attended by shareholders
representing at least one-half of the voting rights in the company. In the case of Company F,
the quorum is 50 shares (or votes). Shareholders representing 92% of the companys voting
capacity attended and voted at the meeting.
(b)
Validity of decision
A general meeting can approve a major transaction if 75% or more of the voting rights
attached to shareholders present at the meeting are cast in favour. In the case of Company Fs
general meeting, shareholders A, B and C all voted in favour. They represented 92% of the
voting rights with 80% in favour of the transaction.
The major transaction has therefore been properly validated by the meeting.
(c)
Submission of applications
The demand by shareholders who wish to redeem their shares must be submitted to the
company within 45 days of the decision by the general meeting of shareholders. This notice
must include details of the shareholders address and the number of shares that are to be
redeemed.
(d)
(e)
Rights of redemption
Shareholder C has no right to redeem his shares because he voted in favour of the resolution
to approve the major transaction.
Shareholder D has a right to redeem his shares as he voted against the major transaction being
approved.
Shareholder E also has a right to redeem his shares as he did not take part in the meeting.
1095
The law provides that in the event of shareholders being legally entitled to redeem their
shares, they will be paid a value determined by the Board of Directors, but this value may be
no less than the market value of the shares.
However, the net asset value of Company F is 10,000,000, so the value to be redeemed
exceeds the 10% maximum limit as set down in the law On Companies Limited By Shares.
As the 2,000,000 roubles is double the limit set by law, each shareholder entitled to
redemption of half of his shares.
Using the figures provided in the scenario, the company can redeem 10 shares. As already
stated, these will be redeemed on a pro rata basis, that is, in proportion to the demands of the
shareholders. The final situation will therefore be as follows:
shareholder A 45 shares;
shareholder B 25 shares;
shareholder C 10 shares;
shareholder D 6 shares remaining with the remainder redeemed;
shareholder E 4 shares remaining with the remainder redeemed.
The shares purchased by the company (10 shares in total) must be sold at their market value
within one year of the purchase by the company. In the meantime they carry no voting rights
and have no dividends attributed to them. Failure to divest these shares within the prescribed
time limit will lead to the shareholders adopting a decision at the next general meeting to
reduce the authorised capital of the company by redeeming the shares.
Answer 71 OAO CAET
(a)
1096
Cumulative voting
As a general rule, voting is often carried out at general meetings on the basis of one share
representing one vote. This ensures that democratic processes are observed but also means
that those who have made large contributions to the risk capital of the enterprise have an
appropriate degree of influence.
Cumulative voting may be used for elections of directors if stipulated in the Charter. Under
this method, each voting share gives the owner of the share the same number of votes as the
number of directors of the company. The member can therefore apportion all of these votes
for one candidate or spread then as desired across the candidates presenting themselves for
election.
Cumulative voting can therefore produce a profoundly different outcome to an election to that
which might apply if standard voting procedures are adopted. The member can strongly
support one or more candidates in order to tactically exclude others.
1097
Answer 72 MIKHAIL
(a)
(b)
Removal as a shareholder
Mikhail cannot be removed as a shareholder without his consent. Shares are a form of
personal property. They can be sold or otherwise transferred at the owners initiative, but the
owner cannot be dispossessed simply because of the circumstances concerning his
employment with the company or the choices made by the directors.
1098
(d)
Agenda
Every company must hold an annual general meeting of shareholders. The meetings can deal
with ordinary, routine business considered every year and also special business that is decided
by those entitled to place matters before the general meeting.
In addition, the law provides for the right of management, shareholders, external auditors and
the internal audit commission to convene an extraordinary general meeting as and when
required. Such meetings are normally convened to deal with important, one-off issues.
1099
Tabulation commission
The tabulation commission fulfils a scrutinising role. It is concerned with compliance with
the procedures and rules necessary to convene and hold a general meeting of shareholders.
The requirements for the constitution and activities of the tabulation commission are laid
down in the law On Companies Limited By Shares. Any company where the number of
shareholders with voting shares exceeds 100 must convene a tabulation commission.
Prior to the meeting, the tabulation commission must check the register of participants in the
meeting and their authority to vote, clarify voting protocols and determine the quorum for the
meeting (the minimum number of participants necessary to hold the meeting lawfully).
During and after the meeting, the tabulation commission is responsible for counting votes,
notifying the results of voting and registering the results in the companys records.
(c)
Quorum
The law On Companies Limited By Shares lays down the minimum numbers of
shareholders with voting rights who must attend the meeting if the business dealt with at the
meeting is to be constitutionally valid.
A general meeting of shareholders is quorate if the shareholders hold in excess of 50% of the
voting shares placed by the company.
If the meeting is inquorate it is necessary to decide a new date for the meeting with the same
agenda as the originally planned meeting. A lower quorum of 30% of voting shares may be
formed for the purpose of the rearranged meeting. For companies with more than 500,000
shareholders, the Charter may specify a smaller quorum.
1100
Absentee voting
All holders of ordinary shares in a company limited by shares are entitled to vote, usually on
the basis of one vote per share held in the company. Voting may be done in person and in
some cases in absentia.
Absentee voting is effected by shareholders who cannot attend the general meeting. This
must be done in writing by completing a ballot form.
Absentee voting is permitted on all matters except those expressly forbidden in the federal
law. These include most of the ordinary, routine business of all general meetings:
Cumulative voting
This special form of voting required for the election of directors in companies with in excess
of 1,000 shares that entitle the holders to a vote. In addition, companies with a smaller
number of voting shares may adopt cumulative voting by inserting a specific provision in the
Charter.
Cumulative voting enables the shareholder to cast a number of votes equivalent to the number
of positions on the board of directors. Therefore, if the company has eight directors each
shareholder has eight votes. These may be allocated entirely at the discretion of the
shareholder, who may choose to cast all votes for just one candidate or spread the votes across
a number of candidates in whatever proportion he or she desires.
(c)
Quorum
The term quorum refers to the minimum number of persons who must attend the meeting if
the decisions and other actions of the meeting are to be legally valid.
The quorum is set by the tabulation commission with reference to the register of equity
shareholders entitled to vote.
The normal quorum for a general meeting is shareholders possessing in total 50% of voting
shares. If the meeting attracts fewer shareholders any decisions taken are invalid and the
meeting has to be called again.
When a new meeting is required due to the original meeting being inquorate, a lower
minimum threshold of 30% of holders of voting shares is set. The reconstituted meeting must
have the same agenda as the original meeting.
For open companies limited by shares with in excess of 500,000 shareholders the Charter may
set a lower quorum.
1101
(b)
1102
(b)
1103
Turn of satisfaction
The Law provides for the following turns of satisfaction of creditors claims:
1.
2.
3.
4.
5.
In the above mentioned situation the creditors claims will be satisfied in the following turn:
(d)
(1)
(2)
(3)
Bank Z credit;
(4)
Taxes payable;
(5)
Amounts to creditors
Total amount of property available = 3,000,000 + 730,000 = 3,730,000 roubles.
(1)
(2)
Total amount of claims of the 2nd turn = (2,000 roubles 100 employees) + (1,200
roubles 100 employees 3 months) + 10,000 roubles = 200,000 + 360,000 +
10,000 = 570,000 roubles.
The claims are satisfied in full. After satisfaction of the claims of the 2nd turn
3,160,000 roubles are left.
(3)
The claim of bank Z (1,000,000 roubles) is satisfied in full. 2,160,000 roubles are
left.
(4)
Taxes (20,000 roubles) are paid in full. After payment of taxes 2,140,000 roubles is
left.
(5)
1104
Indebtedness:
Composition
Composition is a specific type of deal that may be concluded between the debtor and
creditors at any phase of arbitration court consideration of bankruptcy. Composition is to be
approved by arbitration court. Unilateral renunciation of composition, which is already
effective, is inadmissible.
Composition is to contain provisions on the amount, order and terms of performing the
debtors obligations and/or on terminating the debtors obligations by cancellation
compensation, novation of obligation or by other means stipulated by the Civil Code of the
Russian Federation.
Besides, composition may contain provisions on:
meeting creditors claims by other means not contradicting legal acts of the Russian
Federation.
(c)
1105
(b)
Alternative outcomes that may follow the submission of an external managers report
The report may be approved by creditors, in which case their demands will be settled in due
course.
If the report is not approved this will invoke insolvency proceedings and the company will be
wound up. The assets of the company will then be realised and the demands of creditors and
others met according to the priority determined by law or alternatively the priority of their
notices.
A composition may be agreed at any time during the insolvency procedure. If approved, this
will ultimately result in creditors demands being met in due course.
The external management may be prolonged in order to extend the period in which the
company may be rescued or creditors demands met.
1106
(b)
Bankruptcy process
Bankruptcy procedures are opened by a decision of the court of arbitration. It involves
compulsory liquidation of the company. The role of the bankruptcy manager is therefore to
liquidate the companys assets and discharge its obligations where possible. Special
provisions apply to securities companies, insurance companies, agricultural entities and
organisations employing more than 5,000 persons.
Once the bankruptcy decision is made, it is prohibited to transfer any property of the debtor to
other individuals or organisations without prior permission of the creditors meeting. All
management personnel of the company are de facto dismissed and the bankruptcy manager
assumes responsibility for its assets and obligations. The bankruptcy manager must assess the
value of the companys assets (which may be considerably less than the book value) and
prepare a formal inventory. The manager also has a responsibility to make appropriate
arrangements to secure the assets. The manager may operate the insolvent companys
property if it is in the interests of the creditors to do so.
Subject to the limitations imposed by the federal law On Insolvency, the bankruptcy
manager arranges for the disposal of assets of the company and has a responsibility to apply
the funds realised for the benefit of the creditors.
The bankruptcy manager has wide discretion in dealings with creditors of the company. The
claims of creditors may be allowed or refused, depending on the priority of claims and the
monetary value that may be realised by disposals. The bankruptcy manager may also make
claims against debtors on behalf of the insolvent company.
1108
1109
1110