How Russian law will govern the M&A transactions

The IV IBA Conference “Mergers and Acquisitions in Russia and the CIS” was held in Moscow on October 24 and 25 of 2012. It was organized by the Committee on Corporate and M&A Law of the International Bar Association and the European Regional Forum of the IBA together with the Mergers and Acquisitions magazine.

270 M&A transactions (transactions, which resulted in the change/appearance of the controlling owner) were registered on the Russian market in 2011. The market reached 47,39 billion USD, somewhat more than in 2010. Foreign investors keep their interest towards the Russian assets, but that interest is rather potential, prognostic. Such “wait-and-see” position is also related to the highly unstable situation of some of the large world economies.

Representatives of judicial and executive powers, of banking and other commercial organizations as well as the experts of the leading Russian and international law firms took part in the Conference. Evgeny Zhilin, Associated Partner of the Law Firm "YUST", represented the Firm at the event.

The event’s format allowed the following discussions:

• Should a significant market growth be expected in 2012-2013?
• What are the factors that influence the development of the M&A market in Russia and the CIS most significantly nowadays?
• In what sectors of the economy should the most M&A activity be expected?
• What changes will be made this year to the corporate and antitrust law?

Denis Novak, Deputy Chief of Private Law Department of the SCA of Russia, Member of the Workgroup on Codification of the Civil Legislation under the President of the Russian Federation, pointed out that nowadays we may see “a unique occurrence, when the draft of the amendments to the CCRF is discussed for so long, in so much detail and in so many rounds”.

According to him, the creation of the composite workgroup upon instruction by the President of the Russian Federation in the end of 2011 was the turning point. The workgroup was formed on the platform of the Ministry of Justice and composed by members of the Codification Council, representatives of the SCA of Russia, of the Ministry of Economic Development, of the Ministry of Finance, of the workgroup on creation of the International Finance Center and other experts. Up to now, over 100 divergences regarding the issues of corporate law, shareholders’ agreements, various mechanisms of the law of obligation etc. have been resolved.

D.Novak pointed out that only two divergences remained unresolved:

• Whether or not should the information on the offshore-listed companies be deposited in a special government register;
• Whether or not the minimum amount of the charter capital should be raised.

Both of these provisions were not included in the draft of the Civil Code, which was submitted to the State Duma by the President D.Medvedev in April of 2012 and adopted in the first reading without changes on April 27.

Maxim Rasputin, Senior Lawyer of the AB “Egorov, Puginsky, Afanasiev and Partners” continued by telling about the compromises in more detail. Patrick Dziewolski, Partner of the “Bredin Prat” law firm, told the event participants of the foreign firms’ contribution of foreign experience to the process of elaboration of amendments to the CCRF. Anton Panchenkov, Head of Corporate Practice Group of Goltsblat BLP, told in his speech that the reform will affect the Russian transactions of mergers and acquisitions and spoke on the perspectives of development of the M&A market of Russia and the CIS.

Evgeny Zhilin, in his turn, called the attention to the legal governance of corporate agreements. A comparative chart of current provisions and the respective amendments planned to the CCRF was presented to the Conference members.

The expert pointed out that, when the draft is adopted, not only shareholders (stockholders) will be able to become parties to a corporate agreement, but also third parties (for example, creditors, potential buyers of shares (stock) etc.). Also, there will be a possibility to enter into preliminary corporate agreements, the possibility to apply options, contingent liabilities, escrow mechanism etc. will be widened.

E.Zhilin noted: “We have no illusions: large foreign business is unlikely to come to Russian law. Our task is a different one: Russian business should more actively resort to Russian law and launch a corporate agreement mechanism, which is truly efficient. And mark that we have a real chance of accomplishing this”.

The second day of the event was dedicated to the arbitration ability of the corporate disputes in M&A transactions in Russia and the CIS, mergers and acquisitions of public companies and in the area of telecommunication.

The experts compared the provisions of Russian legislation with the foreign legal analogues, discussed the matters of competence of independent directors and their specialized committees etc.

More details are available at the organizers’ website.