Draft law on disclosure of shareholders’ agreement has been introduced to the State Duma

30 January 2018

On 8 November 2017 a draft bill1 (“Bill”) adopting amendments to the EFRS (Unified Federal Register of Companies’ Information) has been introduced to the State Duma of the Russian Federation. The Bill contemplates certain amendments to the Federal Law "On State Registration of Legal Entities and Individual Entrepreneurs“2 which make it possible to publish in the EFRS the information regarding the rights and restrictions stipulated in the shareholders’ agreement (“SHA”). The Bill is scheduled for the first reading in January 2018.

In particular, the Bill provides for a legal opportunity to register in the EFRS the information regarding the SHA’s parties and the essential information on the occurrence and termination of the rights and restrictions established by the SHA.

Pursuant to the current legislation the SHA can establish the rights and restrictions in the following fields:

  1. voting in a certain way at the shareholders’ meetings;
  2. deadlock resolution;
  3. company’s management;
  4. lock-up provisions and transfer of shares (inter alia, at the fixed price or subject to certain conditions).

According to the Bill a party to the SHA has a right rather than a duty to register such information in the EFRS. Furthermore, the registration does not require a consent of the target company. However, if the information has been entered into the EFRS, the person which initiated such procedure has a duty to update the information on rights and/or restrictions that has been entered into the EFRS at such person’s request within 3 days of the date such rights and/or restrictions have been modified or terminated.

Same as before there will be two ways to enter the information into the EFRS: (1) to file an application signed by a digital signature via a personal account on the official website (https://www.fedresurs.ru); or (2) approach a notary. After the application has been filed the information will appear on the EFRS official website on the next working day after the payment has been made to the EFRS’s operator3 . After the information has been entered into the EFRS, any party to the SHA will be able to obtain via EFRS official website an official confirmation (in the electronic form) that the relevant information is registered in the EFRS.

The Bill establishes that the third parties are deemed notified of the rights and restrictions established by the SHA on the same day such information has been registered in the EFRS. This rule, however, does not apply to the persons that knew or ought to have known of the relevant rights and restrictions before the information has been entered into the EFRS.

The amendments contemplated by the Bill will allow the parties to the SHA to effectively protect their rights by challenging the transactions made by the SHA’s parties in breach of the SHA4 .

Currently, the SHA’s parties are de facto deprived of the opportunity to effectively challenge the transactions made in breach of SHA. This is due to the difficulties of proving that the other party to the transaction acted in bad faith, that is knew or ought to have known that the transaction is restricted by the SHA. The other party to the transaction is in many cases unaware of the restrictions imposed by the SHA since pursuant to the current legislation the SHA is a confidential document that cannot be disclosed to the third parties (67.2 (4) of the Russian Civil Code).

Furthermore, another question arises with regard to confidentiality of the SHA, namely, its relevance in case of public disclosure of the SHA’s content. It could be that in case the Bill was adopted the SHA would practically no longer be a confidential document. This is because according to the Bill any party to the SHA will be able at its own discretion to publicly disclose the content of the SHA via the EFRS. In this regard the Bill does not provide any means of restricting the right of the SHA’s party to disclose such information.

Such restriction would be appreciated by the parties willing to keep their SHA confidential and eliminate the risk of its public disclosure. The lack of the possibility to establish such restriction could significantly affect the willingness of the shareholders to execute the SHA in the first place. Hence, this issue and its potential settlement will have a strong impact on legal and business practice.

It should be noted that previously there has been a legislative attempt to allow the public disclosure of the SHA’s content by virtue of including relevant information into the EGRUL (Unified State Register of Legal Entities)5. However, the procedure on how such information may be included into the EGRUL has not been established yet making this legislative attempt a futile one.

Consequently, if the Bill is adopted, the SHA’s parties will have an effective mechanism for challenging the transactions made in breach of the SHA despite the abovementioned defects of the current legislation.

1Draft Federal Law No. 307663-7 “On amendments on Insolvency (Bankruptcy) Federal law and to certain legislative acts of the Russian Federation”
2Federal Law dated 08.08.2001 No. 129-FZ “On State Registration of Legal Entities and Individual Entrepreneurs”
3The EFRS Rules of Operator-Client Communication dated by 17.10.2017 (https://www.fedresurs.ru/help)
4Art. 67.2(6); Art. 174(1) of the Russian Civil Code
5Art. 5 (1) (л1) — (л2) of the Federal Law dated 08.08.2001 No. 129-FZ “On State Registration of Legal Entities and Individual Entrepreneurs”