russia’s legal and regulatory reforms: overview 5 march 2015 alyona kucher
TRANSCRIPT
Russia’s Legal and Regulatory Reforms: Overview
5 March 2015
Alyona Kucher
5001047292
Introduction
• Despite political and economic situations, Russian law reform is progressing
• Legal framework for local businesses and for foreign investments has significantly improved over several years and, what is even more important, keeps improving. Russian law reform is continuing full speed
• Main areas of reform:– Civil Code reform– Corporate law reform – Judicial reform
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Civil Code Reform: main goals
• Russia is a codified law country with the Civil Code being its main commercial law
• Main goals:– Implementing best practices of other countries and
international commercial law (e.g., introducing concepts of representations and warranties, conditions precedent, shareholders agreements, etc.)
– Implementing various progressive legal positions developed by the market and by Russian courts over the years of market economy (e.g., duty of good faith, principles of director’s and controlling shareholder’s liability, more detailed rules regarding damages and fines, etc.)
• The main objective of the reform is to improve the business climate and bring Russian commercial law up to international standards
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Civil Code Reform: work in progress
• Civil Code is being revised gradually, by portions. The reform started 5 years ago and will continue for at least 5 more years
• The main parts of the Civil Code that have already been revised:– General provisions– General provisions on obligations and contracts– Provisions on legal entities– Private international law (conflict of laws rules)– Intellectual Property law
• The main parts of the Civil Code revisions which are now being considered by the legislator:
– Provisions on financial transactions– Property law
• Next steps of the Civil Code reform (not yet launched): Provisions on particular types of contracts (sale agreements, lease agreements, services agreements, etc.)
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Civil Code Reform: main developments
1. Introduction of an important concept of duty of good faith
– Applies to establishing and performing obligations and defending rights
– Precontractual liability
– Interpreting and performing contracts through the prism of good faith duty
2. Improved transparency due to establishment of new rules applicable to public registers
− Mandatory registers (Legal entities register (which also serves as shareholders register for LLCs); Register of rights to real estate; Intellectual property rights register; Shareholders registers for JSCs)
− Voluntary registers (PoAs register; Pledges register)
− Rights (including any limitations and encumbrances) are subject to registration. As a general rule, contracts are not subject to registration, which simplifies the procedure for entering into contracts
− Registers protect bona fide party
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Civil Code Reform: main developments
3. Main developments regarding transactions:
− Limiting the grounds for invalidation of transactions and radical reduction of cases when seizure of property could apply as a result of invalidity of transaction
− Loosening strict requirements to the form, exclusion of unnecessary formalities (seal of the legal entity, signature of the chief accountant, notarial certification of powers of attorney issued by legal entities, heads of branches or representative offices by way of substitution)
− Improving provisions on security (pledges/mortgages, guarantees, fines, suretyship, deposits, etc.)
− Introducing new types of bank accounts (escrow accounts, nominal accounts, joint accounts, etc)
− Stronger protection of non-breaching parties to the deals and protection of third parties (e.g., increasing the number of cases when a deal cannot be recognized invalid, if the other party has not been aware, or should not have been aware of the violation; protecting a third party not being aware of termination of the power of attorney)
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Corporate Law Reform
• Following changes to provisions of the Civil Code on legal entities, the Ministry of Justice in collaboration with the Ministry of Economic Development initiated substantial revision of corporate law in line with, and in furtherance of, the recent changes to the Civil Code
• Debevoise & Plimpton is actively involved in this reform as a member of the working group
• Three stages of the reform:– Changes to the provisions on interested party transactions (IPT) and major
transactions – at its final stage now. Draft law will be submitted to the legislator within 1 month
» Loosening burdensome requirements (increasing thresholds for major deals, cancelling mandatory approval of IPTs unless the Board decides otherwise, etc.)
» Improving approval procedures
» Limiting grounds for challenging IPTs and major transactions but at the same time making the procedure for challenging such transactions more transparent and streamlined
» Instead of challenging transactions that have not been properly approved, the emphasis is now put on bringing interested party to liability for damages caused to corporation
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Corporate Law Reform
• Changes to JSC Law and LLC to bring them in compliance with the revised Civil Code – in progress. The draft law will be submitted to the legislator within 1-2 months
• Adopting a new law on corporations that will supersede JSC Law and LLC Law – at the initial stage. The concept will be ready within half a year, the draft law within one year. Main goals:
– Further improvement of corporate governance standards– Improvement of provisions on MTO– Improving access to corporate information but at the same time
ensuring safety of confidential data– Further development of piercing corporate veil and directors’ liability
concepts– Further development of provisions on corporate finance (capital calls,
different types of shares, contributions into property, etc.)
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Judicial Reform
• Three main topics:– Merging Supreme Court (SC) and Supreme Commercial Court
(SCC)– Reform of arbitration law– Improving approach to enforcement of foreign court and
arbitration decisions
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Judicial Reform: Merging SC and SCC
• Effective 6 August 2014, the Supreme Commercial (Arbitrazh) Court of the Russian Federation (SCC) was abolished, while its previous functions were transferred to the new Supreme Court of the Russian Federation (SC). The new SC became the only supreme judicial authority for civil, criminal, administrative and other cases, and also for economic disputes.
• The new SC should consist of 170 judges, who will be selected again according to the new rules. The seat of the SC will be transferred to the city of Saint Petersburg (following the Russian Constitutional Court which moved to Saint Petersburg in 2008), while a permanent establishment will be opened in the city of Moscow.
• The reform does not change the existing two-tier system of lower-instance courts:
– Courts of general jurisdiction consider criminal cases and disputes with the participation of the public, organizations, state executive authorities and local government regarding disputes arising from civil, family, labor, housing and other legal relations (according to the rules of the RF Civil Procedural Code of 2002)
– Commercial (Arbitrazh) courts consider economic disputes and other cases related to the performance of entrepreneurial and other economic activities by legal entities and sole proprietors (according to the rules of the RF Commercial Procedural Code of 2002)
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Judicial Reform: Merging SC and SCC
• The new SC has established a new Judicial Panel for Economic Disputes. Most of the powers of the former SCC were transferred to this Judicial Panel: this instance became de facto, the final stage of the appeal on specific cases and on ensuring the uniformity of judicial practice for economic disputes.
• All the stages of the proceedings in the commercial courts (court of first instance, court of appeal, court of cassation, court of supervisory) are retained, but one additional stage has been added, a “second cassation” that should precede the transfer of the case to the court of supervisory instance.
• The legal positions of the former SCC will remain in force unless the new SC revokes or changes them. Consequently, as in the past, the previously published valuable decisions of the SCC (analog of case law) will remain binding for lower instance commercial courts.
• The electronic monitoring system of court cases in the commercial courts and databases of the published decisions of the commercial courts (http://kad.arbitr.ru/) will be preserved and combined with the analogous electronic system of the courts of general jurisdiction.
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Judicial Reform: Merging SC and SCC
• The goal of the reform is to ensure the unity of the judicial practice of commercial courts and courts of general jurisdiction
– can only be achieved upon expiration of some time– at the moment out of the 170 judges for the new SC, slightly more
than half of the judges have been appointed, which means that the court cannot start fully fledged work
• Owing to the aforementioned reasons:– the quality of the decisions of the new SC has fallen significantly.
Furthermore, during more than half a year of work, not a single decision of the supervisory instance and not a single judgment of the Plenum of the SC for economic disputes has been adopted
– lower-instance courts have lost an important benchmark in their work – the new SC has not published any new mandatory clarifications. Accordingly, the courts may sometimes adopt conflicting decisions on analogous cases
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Judicial Reform
• Russia historically had a dual arbitration system: for domestic arbitration and for international arbitration
• Main goals of the reform:– to close the gap between domestic and international arbitration and
bring both arbitration laws in compliance with the UNCITRAL Model Arbitration Law
– to combat corruption in arbitration proceedings – to improve collaboration between arbitration courts and state courts– to create infrastructure for establishing and operating modern
arbitration centers similar to LCIA, AAA, SCC, HKIAC
• Debevoise & Plimpton is actively involved in this reform as a member of the working group
• The draft law has been submitted by the working group to the Government for further submission to the legislator
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Judicial Reform
• Russia is gradually starting to enforce state courts decisions based on the reciprocity approach even in the absence of any treaties between Russia and the respective countries (e.g., Russian courts enforced decisions of UK courts, Netherlands courts, etc.)
• SCC adopted clarifications regarding “public policy grounds” for refusing enforcement of arbitration awards under the NY Convention (1958). The main message to the courts of lower instance is that the public policy ground should not be abused and should not be interpreted broadly
Questions?
