REFORM OF RUSSIAN CIVIL CODE
New challenges for practicing law and doing business in Russia
By Tatiana Bicheva, partner and Dmitry Dmitriev, associate, Lidings Law Firm
CIVIL LAW of the Russian Federation has existed without major changes since the disintegration of the USSR. Since that time, the economy and in particular business transactions, as well as other
laws, regulating commercial turnover have changed
dramatically. That is why the changes in one of the
most significant documents in Russia demandable. But,
as we know, changes are not always welcomed,
because they somehow modify, and in case of such
major changes as the proposed amendments, even
reshape the whole sphere of business. The proposed
amendments, published on the 13th of November by
the Scientific centre of private law, are also called
simply “a new Civil Code”. Provided, that the majority
of lawyers and law-makers call the Civil Code “the
second most important law after the Constitution”, one
can imagine what would the reaction of business be.
INCREASE OF THE MINIMAL CHARTER CAPITAL
REQUIREMENTS (ARTICLE 66.2 OF THE PROJECT)
The authors of the project believe that the increase of
the minimal amount of the charter capital will be an
efficient measure to fight “fly-by-night” companies that
are currently being used for tax evasion and fraudulent
transactions. As of today, the minimal amount of the
charter capital for a limited liability company is 10
thousand rubles (approx. USD 350), joint-stock company
– 100 thousand rubles (approx. USD 3500). The project
proposes a 50-ply increase of these figures: 500
thousand rubles for a limited liability company (approx.
USD 17 500), joint-stock company – 5 million rubles
(approx. USD 175 000). Another reason for including
such a provision into the project was to make the civil
turnover more stable and to secure creditors’ rights.
Some lawyers believe, that such an increase does not
have any practical sense, others think, that such
measure will be efficient. The main reason for criticizing
this amendment is that it would cause significant
problems for small and middle-size enterprises to open
and do business. As for the “fly-by-night” companies, as
many lawyers believe, the increase will not be a problem.
Proponents of increasing the minimum capital are
advocating for early adoption of the amendments, and
some even consider them too late. In their view, for
small businesses, there are other forms of
administration of commercial activity - such as sole
entrepreneurship, complete partnership (members are
liable with all their property, that is, liability is not
limited, as is the case with corporations). Part of the
panelists also agreed with the developers of the new
Civil Code that the increase in minimum capital will be
an effective measure against the firms-by-night.
There are also a number of other proposed changes
in the corporate law, in particular it is planned to
restructure the classification of legal entities, where
such a popular form as a closed (non-public) joint-stock
company would be eliminated, with an option to reregister either as a limited liability company or as a
public corporation. The practicality and the effects of
such a change is also actively discussed.
PRE-CONTRACTUAL NEGOTIATIONS (ART. 434.1)
Here the authors of the reform suggest to introduce a
new form of non-contractual liability for the parties who
negotiate in bad faith and, ultimately, reject of
conclusion of an agreement.
Opponents argue that application of such rules will
be hampered by difficulties in determining the evidence
base for misconduct of the counterparty. Moreover, this
infringes one of the fundamental principles of civil law -
the principle of freedom of contract, which among other
includes the freedom to choose sides for its conclusion.
But there are positive aspects of introducing this
norm. They relate, for example, to provisions governing
the ability of the parties to claim damages in case of
disclosure of confidential information obtained during
the negotiations.
PERSONAL RESPONSIBILITY OF LEGAL ENTITY OFFICIALS
(ART. 53.1)
Paragraph one of this article is very doubtful. Based on
the literal interpretation of its provisions, it can be
concluded that with respect to the head of the
company, the principle of culpability, that is, the burden
of proving innocence rests on his shoulders. This
principle does not also correspond to the clause 5 of
Article 10 of the amendments, pursuant to which due
care of participants of civil turnover is presumed.
In conclusion, the civil law regulatory framework
needs to be updated in order to meet new challenges of
the globalized world. What the changes will be, only
future discussion in the State Duma (Russian
Parliament) will show, but the fact that some categories
of businesses will have to change their strategy or leave
the market, leaving space for new, more flexible ones,
which will be positive for the economy. ■
Lidings
Business Centre Pollars, 11V, Derbenevskaya emb.,
Moscow, 115114, Russia
Tel: + 7 495 989 44 10
Fax: + 7 495 989 44 20
Email: moscow@lidings.com
Web: www.lidings.com
