Improvement of procedure for reorganization of legal entities in Russia
- Author: Anastasia Fomicheva
- Date: 29.08.2014
Federal Law No.99-FZ “On introducing changes to Chapter 4 Part One of the Civil Code of the Russian Federation and on acknowledgment of certain provisions of the legislative acts of the Russian Federation as void” (hereinafter the “Law”) came into effect on September 1, 2014.
The Law significantly amends the provisions of the Civil Code of the Russian Federation (hereinafter the “Civil Code”) regulating reorganization of legal entities.
In particular, the Law provides for the following changes:
1. Form of reorganization
Prior to the Law entering into force, only joint stock companies could on certain conditions combine reorganization in form of division or separation with simultaneous merger or consolidation of legal entities established as a result of such reorganization (Article 19.1 of Federal Law No.208-FZ “On joint stock companies”).
Starting from September 1, 2014, any legal entity is entitled to combine several forms of reorganizations (for instance, division and merger). Furthermore, the Law now prescribes that several legal entities at once can participate in the reorganization process (Part 1 Article 57 of the Civil Code).
Participation in reorganization of legal entities with different forms of incorporation will be possible on the condition that the Civil Code or the law allows reorganization of legal entities from one of such forms into another. For instance, joint stock companies (AO) and limited liability companies (ООО) can simultaneously participate in reorganization, but limited liability companies (ООО) and autonomous non‑commercial organizations cannot.
2. Timeframes for state registration of legal entities in the course of reorganization
For the first time the legislation prescribes that the decision on state registration of a legal entity established as a result of registration can be rendered by the registration authority no earlier than the expiry date of the period for appealing a decision on reorganization (Part 4 Article 57 of the Civil Code).
Now such decision is to be adopted no earlier than Three (3) months from the date an entry in the Unified State Register of Legal Entities is made on starting the procedure of reorganization (Part 1 Article 60.1 of the Civil Code).
3. Transfer act
Under the previous laws, legal succession of legal entities during reorganization was reflected in the transfer act (during transformation and consolidation) and division balance sheet (during division and separation).
On September 1, 2014, the transfer act became the only document containing information on succession and being executed under any form of reorganization (Article 59 of the Civil Code).
The requirements as to content of the transfer act have been clarified. Now the transfer act must specify the procedure for determining the succession in the event that after the date on which the transfer act is executed, there is a change in property characteristics (type, content and cost) and/or scope of rights and obligations of the legal entity being reorganized (Part 1 Article 59 of the Civil Code).
4. Guarantees of rights of creditors of a legal entity under reorganization
The scope of guarantees of the rights of creditors of a legal entity under reorganization has been expanded (Article 60 of the Civil Code).
In particular, the legal entities created as a result of reorganization will be jointly and severally liable for the obligation of the reorganized legal entity (1) in the event it is impossible to determine the successor under such obligation and (2) in the event of unfair distribution of assets and obligations resulting in substantial violation of the creditors’ interests (Part 5 Article 60 of the Civil Code).
5. Invalidity of decision on reorganization
For the first time the procedure and consequences of acknowledging the decision on reorganization being invalid have been established.
The claim on acknowledging the decision on reorganization invalid can be filed within Three (3) months from the date an entry in the Unified State Register of Legal Entities is made on starting the procedure of reorganization (Part 1 Article 60.1 of the Civil Code).
In the event the decision is acknowledged invalid, the persons which promoted its adoption in bad faith, and legal entities organized as a result of the reorganization will be jointly and severally liable for the losses caused to the creditors of the reorganized legal entity, as well as to those of its participants who voted against or did not participate in voting on the issue of reorganization (Part 4 Article 60.1 of the Civil Code).
6. Acknowledgment of the corporation reorganization as failed
Starting from September 1, 2014 the court can declare the decision on reorganization of corporation as failed on the following grounds:
(1) Participants of the reorganized corporation did not adopt the decision on its reorganization; or
(2) Documents with incorrect information on reorganization are submitted for state registration of the legal entities established through the reorganization.
A participant of a corporation who voted against the decision on reorganization or did not participate in the voting at all is entitled to make a respective claim (Part 1 Article 60.2 of the Civil Code).
In the event the reorganization of a corporation is recognized as failed, according to the general rule the corporation shall “return” to the state it was in before reorganization. In other words, the legal entities that existed before reorganization shall be re-established and those being organized as a result of reorganization shall cease to exist. Furthermore, the transactions made by the legal entity established as a result of such reorganization, shall be deemed void. An exclusion is made for transactions with persons who relied on the succession in good faith. Such transactions remain in force and the re-established legal entities become joint and several creditors and debtors under such transactions (Part 2 Article 60.2 of the Civil Code).
Federal Law No.99-FZ “On introducing changes to Chapter 4 Part One of the Civil Code of the Russian Federation and on acknowledgment of certain provisions of the legislative acts of the Russian Federation as void” dated May 5, 2014.
Should any questions arise in connection with the above or if you need any additional materials, please contact Anastasia Fomicheva or Anna Khaprova, St. Petersburg Office of Capital Legal Services.
This Information letter keeps the clients of Capital Legal Services and other interested parties abreast of information that may, to any extent, affect their activity or cater to their particular interests. The opinions and commentaries expressed in this information letter shall not be deemed as legal opinions and do not cancel the need to obtain legal advice or legal opinion on separate issues.
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Tel.: +7 (812) 346 79 90