Corporate M&A 2020 Comparisons

Last Updated April 20, 2020

Contributed By VK Partners Law Firm

Law and Practice


VK Partners Law Firm specialises in supporting M&A transactions, various forms of joint ventures and projects in the field of banking and finance. The main strength and uniqueness of the firm’s corporate and M&A practice is that the firm has experts both on the transactional and investments side understanding the industry and geographical specifics of the clients’ needs. Established in early 2019, VK Partners has already engaged in several projects of note, such as structuring a joint venture with a major Russian fund, the establishment of an investment partnership for staging the musical “Chess” and advising a Chinese corporation for development on cross-border interbank loans.

The past year (2019) reflected increased number of transactions, growth in average deal value and amount of foreign investment becoming the most successful period for the last five years. According to KPMG’s Russian M&A Review 2019, despite the deal, activity increased by only 3% compared to 2018, the amount of the transactions increased by 21.5% to almost USD63 billion. 

The most significant growth was recorded in the oil and gas sector both in terms of aggregate deal amount (53% of the total deal value) and in terms of number of transactions. The innovation and technology sector with 12% of Russian M&A value in 2019 is one of the leaders taking into account the trend towards digital economy.

Russia raised approximately USD21 billion in foreign investment in 2019, which was 49.5% higher than inbound investment in 2018. The deal value of domestic investment has growth by 19%.

Choosing Russian Law for Structuring M&A Transactions

The number of transactions governed by Russian law have been increasing since the major reform of Russian contract law in 2015 when reputable foreign instruments for deal structuring were introduced to the Civil Code.

The legal instruments similar to representations and warranties, indemnity as well as conditional obligations and waiver have facilitated civil transactions and international business activities and allowed to structure more transactions within Russian jurisdiction (especially when the material assets located in Russia).

For the last five years Russian courts have developed certain approaches on application of utmost all new contractual institutions when considering disputes related to M&A transactions. This allows to enhance the contracting parties’ relationships certainty, to protect against inequitable conduct of the counterparty, as well as to enhance the property turnover, to raise the Russian legal system’s credibility and improve the investment climate.

However, the choice of foreign (primarily English) law and use of foreign SPVs is very common especially in complex cross-border transactions. Sometimes, key transaction documents are governed by foreign law, while the supporting (technical) documents (eg, share transfer instruments) are governed by Russian law.

Developing of Digital Economy

The market growth and turnover of various digital assets, as well as the increase in the number of transactions concluded via electronic means result in the adoption of number of laws establishing of a legal framework for the use of new technologies.

Developing of legislation in the field of digital economy resulted in increasing the number of M&A deals between start-ups and institutional investors (eg, state owned funds such as Russian Venture Company or Skolkovo Venture Company). Such mid-market transactions are likely to be governed by Russian law. Having a company with state participation acting as a buyer or seller might also materially increase the likelihood of a transaction being structured using Russian law.

Simplifying Corporate Procedures due to the COVID-19 Pandemic

In 2020, certain obligations imposed on Russian companies under corporate legislation were simplified or lifted by the Federal law dated 7 April 2020 No 115-FZ, due to the COVID-19 pandemic.

With respect to joint stock companies (AO) a rule prohibiting absentee voting on particular issues, including election of board of directors, auditor, and approval of annual report and financial statements, is not applicable until 31 December 2020. Thus, a general shareholders’ meeting is entitled to pass a decision on any issue by an absentee vote.

A new deadline for holding annual meetings has been introduced. In 2020, annual meetings in both AO and limited liability companies (OOO) may be held up to 30 September 2020 instead of June 30th and April 30th, respectively.

There is a rule providing that a company’s net asset value cannot be less than a company’s charter capital. Non-compliance with this rule may lead to the company’s liquidation. In 2020, this requirement relating to a company’s net asset value does not apply.

The law also provides for some rules related to public AO including acquisition of allocated shares and submitting consolidated annual financial statements.

The most substantial growth in M&A activity has been seen in the oil and gas and innovation and technology sectors, and in consumer markets.

There are following key types of transactions on acquisition of a company:

  • a share deal (acquisition of company owning assets as well as company conducting business activity);
  • an asset deal (including the acquisition of an enterprise as a complex of immovable and movable properties registered as a single real estate property);
  • a corporate restructuring;
  • and privatisation.

Share deal is most common and convenient way to acquire a company. The purchase acquires the effective business with its historical risks. The transaction with shares of limited liability company (OOO) is subject to notarisation and results in the respective amendments to the Unified State Register of Legal Entities (EGRUL). Provided that the rights to stocks (of joint stock companies) are contained in special registries maintained by registrars, the transaction with stocks shall be executed in simple written form and results in the respective amendments to such registry.

Acquisition of assets of the target company allows the purchaser to use such assets in the existing purchaser’s business. This type of acquisition is complex and normally involves a number of registration and other formalities, including registration of rights to immovable assets, transfer of IP rights, obtaining new or amending existing licenses and permissions.

Enterprise is a special object of civil rights. This is a complex of immovable and movable properties registered as a single real estate property. Buildings, land plots and other real estate comprising the enterprise are registered as standalone objects of real estate that leads to ambiguity which exactly real estate objects comprise the enterprise. In fact, the turnover participants do not consider the enterprise (as a unified complex of assets) as an object of M&A transaction.

A company may also be acquired through a corporate reorganisation through corporate merger or accession, but this technique is relatively rare.

Privatisation is a disposal of publicly owned property including the company’s shares or stocks to private ownership for a consideration. The most commonly used method of privatization is selling publicly owned property at an auction. However, the privatisation of particular assets is often subject to separate regulation and there may be special procedures in each case.

The Bank of Russia, as a key supervisor of the financial market, is vested with a wide range of regulatory powers relating to corporate and securities market activities, including M&A transactions with shares of joint stock companies.

The Federal Antimonopoly Service (FAS) controls mergers and acquisitions in Russia through preliminary transaction approval and post-transaction notification when such transaction is subject to control in accordance with the Law on Protection of Competition.

The Government Commission for Control over Foreign Investment in the Russian Federation performs control over transactions subject to The Law on Foreign Investments in Strategic Companies (see 2.3 Restrictions on Foreign Investments).

There are certain restrictions on foreign investment in Russia. The Law on Foreign Investments in Strategic Companies imposes certain restrictions on foreign investors (including inter alia Russian citizens with dual citizenship and Russian organisations controlled by foreign investors) in more than 40 areas of the economy that are of strategic value to Russia (eg, in the field of resources, nuclear energy, cryptography, manufacturing of military equipment, aviation and space). In addition, foreign investments in certain industries, including banking, insurance and mass media are also subject to certain limitations.

Transactions executed in breach of the Law on Foreign Investments in Strategic Companies are deemed void and the parties may be required to return everything acquired under such a transaction. If a deal is irreversible, or if a foreign investor fails to provide post-transaction notification to FAS in case of acquisition, a court may deprive the foreign investor of voting rights at the shareholders’ meetings of a strategic company.

In addition to the above, a foreign state needs to seek a similar consent to acquire or gain direct or indirect control of more than 25% of shares in any Russian acquisition.

In certain cases, preliminary clearance may be required from FAS if the aggregate asset value of purchaser, target and their “group of persons” exceeds RUB7 billion or the aggregate revenue earned by the entities and their “group of persons” from the sale of goods during the past calendar year exceeds RUB10 billion plus the book value of the total assets of the target and its group exceeds RUB400 million. In general, the transactions that should be cleared by FAS include provided that the specified thresholds and other conditions (if any) are met in each case:

  • mergers or consolidations between Russian companies;
  • the acquisition of more than 25%, 50% or 75% of the voting shares in a Russian joint stock company or more than one third, 50%, or two thirds of the shares in a limited liability company (OOO);
  • the acquisition of more than 20% of the aggregate book value of the main production (fixed) assets and intangible assets of the transferring entity (other than land and offices) of a Russian or foreign company located in Russia;
  • the acquisition of rights conferring the ability to determine the commercial behaviour of the target company (including as a result of change of indirect control over a Russian target company) or the right to perform the functions of its executive bodies;
  • the acquisition of more than 50% of the voting shares of or any right of control over a foreign company or the right to perform the functions of its executive bodies;
  • the entry by competitors into an agreement on joint activities in Russia (including joint ventures, co-marketing, co-promotion, etc.

Failure to meet merger control requirements can lead to an administrative fine and/or an invalidation of the transaction through the courts upon a claim filed by FAS.

The Labour Code sets minimum employment standards that cannot be overridden by an agreement between the parties. Any provision in an employment agreement that negatively affects an employee’s rights is not enforceable.

Normally, an employment contract is concluded for an indefinite term. Fixed term employment contracts may also be concluded but for no longer than five years and may only be used in a limited number of cases expressly listed in law.

Termination of employment in Russia is strictly regulated by the Labour Code and can only be carried out on specific grounds as set out in the Labour Code. Unjustified termination of an employment relationship by the employer is not allowed, except for the company’s CEO, who can be dismissed by the unilateral decision of the company’s shareholders provided the CEO is paid a severance compensation equal to at least the employee’s three months’ average earnings, or a higher amount if envisaged by the respective employment agreement. Herewith, payment of bonuses to CEO and other officers holding top management positions may be subject to scrutiny from the corporate law perspective as related party transactions or transactions conferring the company’s interests.

Non-competition and non-solicitation provisions are not enforceable in Russia due to constitutional principle of freedom of labour. Such provisions may create only a moral impact over the employee.

In order to work in Russia, a foreign employee must obtain a work permit conditional to the confirmation of the employee’s knowledge of the Russian language, Russian history and basic legislative principles. The process is easier for highly qualified persons receiving a certain salary per month. The certain salary amounts and areas of specialisation are determined by the Law on Legal Status of Foreign Citizens. For instance, any employee receiving RUB167,000 per month shall be deemed a highly qualified person.

According to the Law on Foreign Investments in Strategic Companies the preliminary control over acquisitions of companies engaged in strategic areas of Russian economy (see 2.3 Restrictions on Foreign Investments) are exercised by the Governmental Commission for Control over Foreign Investment and FAS. Transactions made in violation of this law are null and void.

Legal Developments

Recent legal developments in civil law are driven by the market growth and increase in the number of transactions concluded via electronic means. Since October 2019, the Civil Code envisages a legal framework for the use of new technologies when entering into transactions and passing meetings’ decisions:

  • written form of a transaction shall be met if the transaction is executed via any technical means accurately recording the content of such transaction;
  • a law or parties’ agreement may provide for a method of accurate determination of a person who has expressed their will;
  • a decision of a general shareholders’ meeting can be adopted by voting via technical means according to the rules for executing transactions in “electronic” form.

On 1 July 2018, major amendments were brought to Russian Civil Code concerning financial transactions used during mergers and acquisitions deals came into force. The changes relate to regulation of loans, bank accounts, escrow agreements, payment settlements, assignments of claims and factoring.

In 2018, a set of amendments were brought to the Securities Market Law aimed at improving the share issuance procedures and removing unnecessary formalities providing for expanding the list of exemptions from the requirements on prospectus registration, revision of disclosure requirements for certain issuers. Some amendments will enter into force in 2020.

Court Decisions

Russian legislation does not expressly require lower courts to comply with the decisions of higher courts. However, under the Civil Procedure Code and the Commercial Procedure Code a failure to comply with the interpretation of law given by the Supreme Court constitutes a ground to revise a lower court's decision on the discovery of new facts. As a result, in their decisions, the lower courts often refer to the legal positions of the Presidium of the Supreme Court or decisions by the Plenary Session of the Supreme Court.

In July 2019, the Plenary Session of the Supreme Court adopted the resolution clarifying certain issues of the application of private international law including its correlation with national law. It is important because the parties to M&A transaction involving foreign element often choose foreign law as a governing law for all of particular transactional documentation. According to the resolution, the court applies Russian super-mandatory norms aimed at protecting the public interest, regardless of the law governing the legal relations.

Such rules include, for example, certain restrictions on the acquisition of shares of certain organisations by foreign entities, etc. Supreme Court clarified that a shareholders’ agreement in respect of a Russian legal entity may be governed by the foreign law only to the extent not regulated by the mandatory rules of the Russian legislation.

In late 2019, the Plenary Session of the Supreme Court approved the Overview of practice on application of corporate legislation. The Court clarified certain issues related to procedure of challenging major transactions, acquisition of a share by a company upon a shareholder’s request (with respect to approval of major transaction and increase of charter capital), etc. Moreover, the Court pointed out that economic grounds shall be taken into account when considering a corporate action including a decision on increasing charter capital or determining the liquidation price of preferred shares.

In early 2020, the Supreme Court considered a case related to the application of rules on pre-contractual liability when negotiating the acquisition of a company (case No. А40-98757/2018). The Court ruled that the stage of negotiations itself cannot be regarded as a ground for bringing the party to liability. However, in case the parties’ negotiations are regulated by the agreement on negotiations with exclusivity clause, entering into another negotiation with a third-party results in the ground for reimbursement of damages by the breaching party.

There are continuing discussions on the revision of rules of voluntary and mandatory offers stipulated by the Joint Stock Company Law.

The main issues of existing procedure of acquisition of major block of shares to be resolved are combating the evasion of sending voluntary and mandatory offer (by acquisition of indirect control, splitting up shares, establishing the facade affiliation, etc), revision of mandatory tender offer thresholds (taking into account the concentrated shareholding in Russian companies), application of rules on voluntary and mandatory offer to preferred shares and foreign financial instruments certifying the rights to shares issued by Russian company.

The controversial draft federal law providing for some of the above-mentioned amendments was passed in first reading by the State Duma in 2017 and then dismissed in 2018. However, the topic is on the agenda that may result in new legislative initiatives in the future.

Taking into account the concentrated shareholding in Russian companies where the major block of shares are held by few shareholders, it is difficult to build a stake in the target prior to launching an offer in most cases. Various strategies involving the acquisition of indirect control or splitting up shares often connected with avoidance of mandatory and voluntary tender offer procedures.

The publicly traded company shall disclose direct or indirect acquisition or disposal of by a person of voting rights in the company, each time when such person’s voting rights exceed or fall below 5%, 10%, 20%, 25%, 30%, 50%, 75% or 95% of the company’s voting shares as a material event that may affect the financial results or business activities of the issuer in accordance with the regulation of the Bank of Russia.

A public company must also maintain and disclose the list of its affiliated persons and any changes in the list. Affiliated persons include, among others, holders of more than 20% of voting shares.

The list of information to be disclosed is quite extensive and includes among other things an information on a person who obtains or ceases to have control over the public company, a shareholders’ agreement being entered into in respect of the target and voting arrangements thereunder, etc.

Such information should be disclosed through one of the authorised news agencies (within one day of occurrence), through an Internet site (within two days of occurrence) and, in some cases, should be published in a printed publication that is compliant with requirements set by the Bank of Russia.

Provided that the whole procedure of stakebuilding including disclosure requirements stipulated by the legislation and the respective regulations of the Bank of Russia are of imperative nature, it cannot be amended by a company’s articles of incorporation or bylaws.

The Bank of Russia may release a joint stock company from its reporting obligations if the certain requirements including inter alia the absence of registered securities and limited number of shareholders are met.

Dealings in derivatives are allowed in Russia. Under Russian law, derivatives include options, futures, forwards, swap contracts, etc. Regulation of derivatives is provided for in the Law on the Securities Market Law and various subordinate regulations of the Bank of Russia. However, derivatives are commonly used in stock trading and not in M&A transactions.

In general, there are no special disclosure obligations relating to dealing in derivatives. Depending on the circumstances, however, rules on information disclosure may apply, eg, material fact disclosure. Also, a public company must divulge information on agreements entered into by the company (or by a person controlling it or by a person controlled by the company) containing an obligation to acquire shares in such a company (this requirement covering, among other things, derivative instruments).

As a general rule, there is no requirement for existing or potential shareholders to report on their intentions regarding control over a company or to disclose the genuine purpose of the acquisition. Yet, such disclosure might be required during special procedures, such as an antitrust filing.

Upon the discretion of a bidder (purchaser) when acquiring shares in a company via voluntary and mandatory tender offer may specify the plans regarding the target company and its employees.

If a transaction to acquire a company’s shares is to be made as a result of a voluntary or mandatory tender offer, the disclosure obligation comes into effect once the company receives this offer. Consequently, a public company must disclose information on any voluntary or mandatory tender offer it has received. There is no other specific obligation to disclose a deal unless it falls under other disclosure requirements provided for by the local legislation on the securities market.

In addition to disclosure obligations towards the target and the Bank of Russia, a bidder must publicly disclose the fact of submission of a tender offer to the Bank of Russia and the contents of the offer.

FAS shall publish, on its website, the information on the submission of an application for a merger control clearance and the decision of FAS on such application, subject to certain exceptions.

There is no specific requirement to disclose a deal for non-public companies. Information about the current shareholders is always available at EGRUL (for OOO) that is open for public.

Legislative requirements relating to companies’ disclosure obligations are imperative and any failure to observe them is a violation of law. There is no lawful market practice differing from the legal requirements and any violations of disclosure timing can entail an administrative liability.

According to the Civil Code, when negotiating and entering into a contract, the parties must act in good faith, which includes an obligation to provide accurate and complete information as required by law or regarding the substance of the negotiated transaction.

Where a public company has registered a securities prospectus, certain public company documents may be publicly available. For private companies, publicly accessible data is often limited. Therefore, the seller typically supplies information in response to a diligence request prepared by the purchaser’s legal counsel.

The scope of due diligence (DD) may depend on many factors, such as the size of the target company, the timeframe and resources allotted to the procedure by the buyer, and the terms of the agreement on the deal (eg, whether any representations and indemnities are given), etc. Complex DD often includes legal DD, tax and audit inspection, etc. The standard list of issues to be analysed during legal part of DD may be as follows:

  • corporate issues (good standing of the target, shareholding structure, title to and encumbrances of the shares and corporate governance);
  • material assets and IP rights (including immovable property and trademarks);
  • material contracts (contracts significant for the target’s business activity);
  • tax issues;
  • licenses and approvals;
  • labour issues (at least, a labour contract with CEO and chief accountant and other top managers, standard and collective labour contract (if applicable));
  • disputes and litigation (including court and administrative proceedings);
  • special regulation and “sanctions check” (whether the company is considered “strategic” under the Law on Foreign Investments in Strategic Companies or a “financial organisation” (“credit organisation”), or otherwise operates in a protected sector, whether the company has dealings with any sanctioned entities).

Delivery of information for the DD would ordinarily be made on the basis of a non-disclosure agreement or subject to the receiving party having received necessary clearance (eg, for state secret information).

Russian law provides for pre-contractual liability for negotiating in bad faith. The breaching party must reimburse the non-breaching party the costs incurred in connection with the negotiations (eg for conducting due diligence, preparing documents and filing them with state authorities) and with the loss of an opportunity to enter into a contract with another person.

Parties to the transaction may enter into the legally binding negotiation agreement, and it is becoming a common practice to include standstill and exclusivity provisions in term sheets or memoranda of understanding made under Russian law. Breaching the exclusivity clause provided for by a negotiation agreement may lead to pre-contractual liability in the form of reimbursement of damages (see3.1 Significant Court Decisions or Legal Developments).

The whole for voluntary and mandatory tender offers stipulated by the legislation and the respective regulations of the Bank of Russia are of imperative nature. According to the law, all terms and conditions of the share purchase shall be stipulated by tender bid with supporting documents. Provided that the Russian law does not directly prohibit additional documents (eg, definitive agreement), it is not common to submit an offer in a separate definitive agreement.

The length of time required for a private M&A transaction can vary significantly, depending on its scope, the parties’ intentions as to due diligence and other factors. The heads of terms/term sheet/letter of intent will usually outline the key points, objectives and the time schedule for the transaction and any key milestone dates that need to be met.

Regulatory issues connected with FAS may significantly protract large deals if approval is required, since FAS is permitted by law to extend its review time, in certain cases, to up to three months in respect of an ordinary merger filing. In cases of foreign investments in strategic companies, consideration of the relevant application by the Government Commission may take up to six months.

A typical timescale in private M&A deals for a reasonably big transaction would be two-four months for the completion of due diligence, one to three months to negotiate and agree the legal documentation, including the sale and purchase agreement (in practice, this often runs concurrently with the due diligence exercise) and then one to three months after signing to satisfy the conditions precedent and complete the transaction.

According to the Joint Stock Company Law, a purchaser must submit a mandatory tender offer if it has acquired (either solely or together with its affiliates) more than 30% of the voting stock in a Russian public joint stock company. The mandatory tender offer should be made within 35 days of the relevant shares being transferred or the acquirer becoming aware (or the date on which it should have become aware) that it holds, solely or together with its affiliates, more than 30% of the company’s shares.

Before the mandatory tender offer is submitted, only 30% of the shares held by the acquirer and its affiliates, if any, are deemed to be voting shares. The same rules apply if an acquirer already has more than 30% of the shares in a public joint stock company and it intends to increase its stake in the company to 50% or 75%.

Generally, monetary funds are more commonly used as consideration in Russian M&A transactions, but share considerations are permitted too. In certain cases, payment obligations may be performed by set off the monetary claims.

A special takeover regulation applies to acquiring shares in public companies only. A bidder may use voluntary or mandatory tender offer and a squeeze-out according to the procedures provided for by the Joint Stock Company Law. Both voluntary and mandatory tender offers must be submitted to shareholders via the target company.

An offer must contain, among other things, the following information:

  • the type, category and number of shares the bidder intends to acquire;
  • the number of shares in the target company already owned by the bidder and his or her affiliates;
  • the purchase price or method for calculating it;
  • the form of consideration for the shares (various consideration options may be provided but the choice must be on the selling shareholders’ side and a cash consideration should be available in any event); and
  • the time period for payment.

The offer may specify the plans of the purchaser regarding the target company and its employees.

In addition, a copy of an irrevocable bank guarantee securing the bidder’s payment obligations must supplement an offer. This bank guarantee must remain in force for at least six months after the expiry of the payment deadline.

A minimum acceptance condition is allowed only for a voluntary tender offer, which may stipulate the minimum number of shares the bidder is willing to purchase.

Despite the Russian legislation expressly provides that the performance of obligations and/or the exercise of rights under a contract may be conditional on the occurrence of circumstances that are under control of the parties (including an action by one of the parties). However, due to imperative nature of the takeover procedure, tender offers cannot be conditional on the bidder obtaining financing. Under the law, the tender offer must be supported by a bank guarantee securing the payment obligations of the purchaser.

As for the relations between seller and purchaser (out for the mandatory and voluntary offer), the performance of various conditions precedents is common practice both from purchaser’s and seller’s side.

On the contrary, squeeze-out is conditional upon the upfront payment of the purchase price to the minority shareholders, and the depositing, by a bidder, of the cash amount with a Russian notary that equals the purchase price for the shares held by shareholders whose bank details are unknown.

As a general rule, a contract cannot be unilaterally terminated unless this right is granted to the party by the agreement. The exception is a material breach of the contract entitling the non-breaching party to file a court claim for termination of the contract.

Transactional documentation or negotiations agreement (see 5.4 Standstills or Exclusivity) may stipulate exclusivity provisions and special break-up fee, ie, a payment for a voluntary unilateral refusal from the agreement or performance of particular obligations. However, a Russian court may, and often does, reduce the amount payable in such cases if it considers the amount to be excessive. The validity of “force the vote” and non-solicitation provisions are non-enforceable under Russian law.

Separate security agreements may also be executed (eg, suretyship or guarantees and pledges or mortgages). 

As a general rule, the corporate rights of shareholders in a public joint stock company are exercised proportionally to the number of shares they each hold. Even so, shareholders may enter into a shareholders’ agreement providing for veto right, casting vote, etc.

Corporate governance rules in a private company are more flexible, as weighted voting is permitted and the company’s articles of association may provide additional rights to certain shareholders. For instance, the Joint Stock Company Law provides for the opportunity to stipulate several types of preferred shares in non-public joint stock companies providing for voting rights (including the rights conditional on certain circumstances) on all or particular issues of the agenda, pre-emptive rights to acquire allocated stocks and other additional rights. Such rights shall be stipulated by the company’s articles of association.

A shareholder may exercise his right to participate in a general shareholders’ meeting and vote on the items on its agenda either in person or by proxy (through a representative). The representative must act on the basis of and in accordance with a power of attorney issued in compliance with the law. Irrevocable powers of attorney that widely used in corporate relations shall be notarised.

The Stock Companies Law allows a bidder whose shareholding, together with its affiliate, exceeded 95% in a public company to squeeze out the minority shareholders, but only if a bidder purchased at least 10% shares via a tender offer.

The bidder can make a squeeze-out demand within six months after expiration of the tender offer period. The whole process may take up to several months.

Moreover, a shareholder holding more than 95% as the result of a tender offer shall to buy out the shares from the minority shareholders at their demand. Such a mechanism is not available for private companies.

Irrevocable commitments are not common for public takeovers in Russia but are used for private acquisitions. It is common practice for the transaction documentation to contain certain conditions precedent to completion, such as obtaining corporate approval of the transaction by the buyer or the seller, FAS or other governmental authorities' approval or any industry specific consents, introducing the amendments to the company’s articles of association, etc.

A public company must disclose information on a voluntary or mandatory tender offer it has received and a public company wishing to acquire shares in another public company must disclose the contents of a voluntary or mandatory tender offer it sends to a company.

There is no general obligation to disclose a bid in relation to the acquisition of a private company. Even so, certain information relating to a bid may be covered by other disclosure requirements if it is made by or towards a public company required to disclose information potentially materially affecting the value of its shares. For instance, a corporate decision of a public company to approve a major or interested party transaction as part of a private bid process should be disclosed.

There are no disclosure requirements on a share issue by a private joint stock company. Any share issue by a public joint stock company must be disclosed. The issue of shares requires registration of a prospectus, after which the issuer must disclose a variety of information at each stage of the issue and placement process.

During M&A transaction, a bidder is not required by Russian law to produce financial statements in its disclosure documents.

It is not required to make any transaction documents fully public. The conditions of a voluntary or mandatory tender offer should, however, be disclosed by public companies. Also, some information may be disclosed on the basis of other specific disclosure requirements or to comply with mandatory requirements on providing certain information to the Bank of Russia.

The concept of directors’ fiduciary duties is generally recognised in Russia. Russian legislation establishes that members of the board of directors and of the management board and the CEO have a duty to act reasonably in the interests of the company and in good faith. Similar obligations are imposed on any controlling persons (ie, persons who have an ability to direct the company’s activities or give instructions to the executives and the members of the management board).

Legally, directors are not obliged to follow instructions from shareholders or other persons and should make their own judgements on the basis of the company’s interests. Moreover, the Supreme Court held that a director cannot be released from liability due to the mere fact that he or she entered into a transaction preliminary approved by a general shareholders’ meeting. Breach of fiduciary duties by a director might entail a claim for damages brought by the company or a shareholder acting on behalf of the company (a derivative claim).

In the context of a public takeover, the board of directors must assess the terms of the offer, including the price and the bidder’s plans with respect to the company and its employees, and recommend whether the shareholders should accept or reject the offer. The CEO is under an obligation to communicate the tender offer and the board’s recommendations to all shareholders.

Special or ad hoc committees may be established by a decision of the board of directors, including for a particular business combination.

The Russian Corporate Governance Code suggests establishing committees in the board of directors including the committee to resolve a conflict of interest among the management or the board of directors' members, to ensure the compliance with the company’s information policy, etc. Despite the Code is not being mandatory in nature, abidance of the Code is one of the conditions for the company’s stocks to be highly rated at the stock exchange.

Most common committees in major Russian joint stock companies are audit and ethics committee, personnel and bonuses, strategic planning and investments committee.

Members of the board of directors and of the management board and the CEO have a duty to act reasonably in the interests of the company and in good faith. If it is proved that a director acted not in good faith or unreasonably, including contrary to the ordinary course of business or ordinary business risk, those directors may be held liable for any losses the company might incur.

The Supreme Court has clarified that negative consequences for the legal entity occurred during the occupation of the CEO office by particular person per se do not mean that such person acted unreasonably or in bad faith, because the possibility of occurrence of such consequences connected with risk of business and/or other economic activity.

It is customary for companies to engage outside legal and financial advisers, as well as independent auditors or appraisers and, in some cases, it is obligatory to engage an independent appraiser for a particular corporate decision or transaction (eg, approval of certain major transactions, confirmation of the share price, etc). Yet it is uncommon for directors to engage a separate independent adviser for such purposes.

Usually, a conflict of interest becomes subject to judicial scrutiny when there is a risk that the shareholders’ rights have been violated.

As a general rule, related party transactions do not require mandatory approval. Preliminary approval shall be obtained at the request of the CEO, member of a collective executive body, member of the board or shareholder or shareholders holding at least 1% of the voting shares. Upon the respective request independent members of the board of directors, or shareholders with no conflict of interest, must approve a transaction in which a director or a shareholder has an interest (an “interested party” transaction). Breach of this rule constitutes the grounds for considering the transaction void.

There is no concept of a hostile transaction under Russian legislation. An unsolicited takeover of a public company is generally possible through a successful tender offer or a series of tender offers. Therefore, once the bid is launched, the only real power left for management to influence the shareholders is to provide them with an opinion and recommendations about the bid, including a proposed price for the target and its prospects.

The board of directors must issue recommendations on a voluntary or mandatory tender offer received by the public joint-stock company. The recommendations include an evaluation of the price offered for the shares.

Defensive measures are implemented at the discretion of the general shareholders’ meeting. As there is no clear hostile tender offer-screening mechanism, there are no specific response mechanisms, either.

Directors of a target company may not enact defensive measures during a public takeover. They are, however, bound to exercise a due level of care and prudence when making recommendations to shareholders.

In terms of public takeover, directors of a target company cannot block the procedure. However, with respect to a particular transaction (rather than through a public takeover) the directors are not obliged to follow instructions from shareholders or other persons and should make their own judgements on the basis of the company’s interests (see 8.1 Principal Directors' Duties).

Litigation in connection with M&A deals is relatively common in Russia. Most of the domestic disputes are resolved by state commercial courts. Due to the recent reform of arbitration, disputes related to title to shares, including disputes arising from share purchase agreements, may only be arbitrated by an institution having rules on arbitration of corporate disputes and accredited by the Russian authorities. There are few such permanent arbitration institutions based in Russia. As for international arbitration, recently, the Hong Kong International Arbitration Centre (HKIAC) and Vienna International Arbitral Centre (VIAC) have received governmental permission to administer arbitrations seated in Russia.

Usually, the parties file a lawsuit after closing the transaction. Recently, a number of cases related to pre-contractual liability (when one of negotiating parties refuses from entering into the transaction or conducting further negotiations) have been considered by the courts (see 3.1 Significant Court Decisions or Legal Developments).

Shareholder activism may be found especially in major public joint stock companies where minor shareholders request certain information about the company’s activity (including commercial contracts, minutes of the board meetings, etc), as well as financial information (financial statements, accounting documents, etc).

Provision of information to shareholders used to be one of the most recent grounds for corporate disputes considered by the courts due to ambiguity of list of documents to be provided to the shareholders that resulted in greenmail activity of unconscientious shareholders.

In 2017, the legislation was amended to specify this procedure. For instance, in joint stock companies information about major transactions and interested party transactions is available only to shareholders owning at least 1% of the shares. Moreover, a shareholder shall specify the business purpose to receive specific information that is a legitimate interest of the shareholder in obtaining information and documents reasonably required and sufficient for proper implementation of the shareholder rights.

Usually, activists do not seek to encourage companies to enter into M&A transactions spin-offs or major divestitures.

Activists being minority shareholders acting in good faith do not interfere with the completion of announced transactions provided that they have no significant impact on major business decisions and are entitled to exercise they rights related to the takeover. However, some activists may try to use the media coverage of the transaction in their own purposes.

VK Partners Law Firm

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Law and Practice in Russia


VK Partners Law Firm specialises in supporting M&A transactions, various forms of joint ventures and projects in the field of banking and finance. The main strength and uniqueness of the firm’s corporate and M&A practice is that the firm has experts both on the transactional and investments side understanding the industry and geographical specifics of the clients’ needs. Established in early 2019, VK Partners has already engaged in several projects of note, such as structuring a joint venture with a major Russian fund, the establishment of an investment partnership for staging the musical “Chess” and advising a Chinese corporation for development on cross-border interbank loans.