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New review of the Supreme Court on the application of law on business companies


On December 25, 2019 the Presidium of the Supreme Court of the Russian Federation adopted the Judicial Review on certain issues arising in the application of law on business companies. 
 
By this Review, the Supreme Court changed some well-established regulatory approaches and additionally clarified some features of the law application. 
 
Notary certification of decisions of members’ meetings and decisions of the sole member of the LLC
 
Until 20201, the decisions of the sole member of LLC (ООО) did not require notary certification. The opposite approach is being applied now. A similar notary certification is also required now for the decisions establishing a different from the notary method of certification.
 
Shortly after the approval of the Review, it was noted2 in the ruling of the Supreme Court`s judge on refusal to transfer the case for consideration, that these rules were not retroactive and should be applied only to decisions adopted after December 25, 2019.
 
Corporate conflicts and the member`s exclusion from the company 
 
The Supreme Court upheld the position emerging in court practice that equal distribution of shares between the parties of a corporate conflict is not the reason to dismiss the claim on the exclusion of a member from the company, and the member with the number of shares more than 50% can be excluded by the court’s decision even if the articles of association grant the right to withdraw from the company freely. This position was already reflected in the court practice of the Supreme Court in 20153
 
Thus, the Supreme Court finally lifted the ban imposed by the Supreme Commercial Court of the Russian Federation and supported the latest developments in court practice4
 
The Supreme Court named the alienation of an asset at a price of more than four times lower than its market value as an example of causing significant damage to the company. It was emphasized that the existence of other ways to protect the right (contesting the transaction, recovery of losses) could not obstruct the satisfaction of the claim to exclude the member from the company.
 
Contestation of the meeting decisions
 
The decision of the general meeting of the company's shareholders to increase the charter capital by making additional contributions requires additional justification of the expediency of raising a significant amount of money for the company's activities. 
 
The decision approving the regulation on the procedure for awarding bonuses to the members of the BOD of the company, which establishes unjustified amounts of bonuses, may be considered invalid if there is evidence that the member who voted for the decision were themselves members of the BOD.
 
Absenteeism from the general meeting of the company's shareholders without a valid reason may serve as a ground to dismiss contestation of such decision. The behavior of the evading member should obstruct the general meeting from adopting significant economic decisions, such as electing a new director or approving a new version of the articles of association.
 
Other issues
 
The Supreme Court revisited some of the issues that had already been clarified by itself:
  • On the presumption that the counterparty is not aware of the content of the articles of association (even if such articles are published on the Internet)5;
  • On the liability of the sole executive body in case of committing acts that cause damage to the company, approved by the general meeting6;
  • On the procedure to be followed in the event of failure to enforce the decision on company’s compulsory liquidation7;
  • On the substantive nature of the violation of the order of meeting`s convocation, entailing invalidity, in case of failure to notify the member/shareholder, regardless of the number of the share/package of shares8.
_____
1Para. 1.3 of the letter of the Federal Tax Service of Russia dated 28.12.2016 No GD-4-14/25209@ On sending the "Review of judicial practice in disputes with the participation of registration authorities No. 4 (2016)", para. 2.3 of the letter of the Federal Notary Service dated 01.09.2014 No 2405/03-16-3 "On sending a notary's certificate of adoption of the decision by the general meeting of the company's members and the composition of the company's members present at the meeting".
2Ruling of the Supreme Court of the Russian Federation from 30.12.2019 No 306-ES19-25147.
3Decision of the Judicial Board for Economic Disputes of the Supreme Court of the Russian Federation from 20.07.2015 No 305-ES15-2706.
4Para. 11 of the Information bulletin of the Plenum of the Supreme Commercial Court of the Russian Federation from 24.05.2020 No 151 "Review of the practice of commercial courts in disputes involving the exclusion of a member from a limited liability company".
5Para. 22 of the Resolution of the Plenum of the Supreme Court of the Russian Federation from 23.06.2015 No 25 "On the application by courts of certain provisions of Section I of Part One of the Civil Code of the Russian Federation".
6Para. 7 of the Resolution of the Plenum of the Supreme Commercial Court of the Russian Federation from 30.07.2013 
No 62 "On some issues of damages compensation by persons who are members of ruling bodies of the legal entity".
7Para. 9 of the Information bulletin of the Plenum of the Supreme Commercial Court of the Russian Federation from 13.08.2004 No 84 "On some issues of application of article 61 of the Civil Code of the Russian Federation by commercial courts ".
8Ruling of the Supreme Court of the Russian Federation from 02.10.2015 No 303-ЭС15-12345.
 


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