Russian Legal Seminar 2014 - Legal advice for foreigners doing business in Russia

Russian Legal Seminar

05 March 2014 Helsinki, Finland

www.pwc.com

Dmitry Zhdanov, PhD Artem Moyseenko, LL.М.

PwC

Agenda

• Keystone principles and differences of Russian law to be considered by foreigners doing business in Russia

• Regulation on joint ventures

• Practical illustrations of Russian legal environment specifics and litigating in Russia

• Liability of shareholders and directors

• Questions & Answers

2 Helsinki, 5 March 2014 Russian Legal Seminar

PwC

Keystone principles and specifics of Russian law


PwC

Historic background of current Russian legal system • Historically based on French and German traditions

• Soviet law adopted to “market-driven economy”

• Strong imperative rudiments

• Adoption of foreign institutions into legal system, sometimes incoherent

• Economics driven by state – implications for civil laws

• Court system and procedural law is based on Soviet traditions


PwC

Sources of Russian private law

• Civil code (4 parts) – main source, being reformed

• Other “Codes”

• Special laws (LLC Law, JSC Law etc.)

• Delegated legislation (acts of President and Government)

• Court practice (gains more and more importance, but not really a source of law)

• Customary business practice


PwC

Court System

• Ordinary courts and business (arbitration) courts

• Business (arbitration) courts now being merged with the ordinary courts

• No special courts for administrative, financial, tax disputes

• Judges specialized, but not always (especially in regions)


PwC

General characteristics of Russian private law

• One law for all civil relationships (no separate “trade law”)

• Special regulations apply to legal entities, entrepreneurs and financial institutions

• Special laws may apply to specific relations or contracts in addition to general provisions of the Civil Code (e.g. consumer protection, mortgage, corporate entities)

• Contracts with state and sometimes with state owned companies are subject of special regulations (public procurement)

• “Hybrid” system of multiple institutions


PwC

Negative qualities of Russian private law

• Inconsistency of terms and institutions

• Low quality of legislation drafting

• Pure performance of legislative authorities

• Stable trend of changing the legislation in short terms

• “Mix” of institutions adopted from foreign jurisdictions

• Contradictions between different laws relating to same matters

• Provisions adopted in favor of specific interest groups without considering the impact on other groups

• Abundance of imperative regulations

• Formal approach for interpretation of law is the most common


PwC

Contract law Choice of law

• Russian parties: Russian law

• Russian and foreign party (foreign element): law chosen by the parties, unless Russian law is mandatory (ex, Russian real property)

• In the absence of a selected law:

• Sale and purchase agreement: seller

• Lease: lessor

• IP license agreement: grantor of license

• Loan: lender

• Real property: location


PwC

Contract law Limitations of contractual freedom

Contractual freedom:

• The parties are free to conclude or not conclude a contract

• The content of contracts is determined by the parties

• The parties may chose the type of contracts they conclude

• The parties may conclude a contract not named in the Civil Code

Limitations

• Compliance with mandatory rules

• No abuse of right

• Obligatory conclusion of contracts in case of public contracts and principle contract on the basis of preliminary contract

10

Helsinki, 5 March 2014 Russian Legal Seminar

PwC

Contract law Form of contracts

Oral contracts: unless written form is required and performed at conclusion

Written contracts:

• Contracts with legal entities

• When required by law

Special forms: notarization and state registration (shall be abolished)

Legal consequences of the defect of form may differ depending on type of contract


PwC

Contract law Remedies for breach of contract

Available remedies

• Compensation of damages (real damage and lost profit)

• Penalty

• Interest

• Specific performance

• Mutual restitution (in some cases)

Unless otherwise provided by law or contract:

• Undue performance: compensation of damages and penalties does not release from specific performance

• Non-performance: compensation of damages and penalties releases from specific performance

12

Helsinki, 5 March 2014 Russian Legal Seminar

PwC

Enforcement issues • The foreign court’s decision may be enforced if there is an international treaty (very

few in fact).

• Reciprocity.

• The foreign arbitration decisions may be enforced if there is an international treaty (Russia is a party to NY Convention on the Recognition and Enforcement of Foreign Arbitral Awards of 1958).

Foreign court’s decision may not be enforced :

- It did not come into force

- Defendant could not participate in proceeding following undue notification

- Case is referred to exclusive competence of Russian courts

- Court decision or case in process in Russia

- It violates public order in Russia

- Expiration of the term for enforcement


PwC

Company law Forms of legal entities

Foreign entities:

• Representation offices

• Branches

Legal entities

• Limited liability company

• Open and closed joint stock companies

• Partnerships

• Other forms (including newly established economic partnership, investment partnership)

• Trusts are not recognized under Russian law.


PwC

Company law Corporate governance

Russian companies use continental build up of company’s body

• General meeting

• Board of directors (optional in LLC)

• Sole executive body - general director

• Collective executive body (optional)

Competences established in charter, obligatory requirements of the law (much more imperative in the JSC)

Limitation of powers of the general director – one of the major issues

Options for piercing the corporate veil is very limited under current law


PwC

Regulations on Joint Ventures


PwC

Regulations • JVs in Russia were traditionally structured as “two-tier” structures

and using shareholders agreements under foreign laws

• Shareholders’ agreements acknowledged by Russian law since 2010

• No specific regulations – possible forms provided in laws related to specific legal forms (JSC Law, LLC law etc.)

• Lack of regulation on non-incorporated JVs

• Both LLC and JSC law contain only limited regulation on contents of such agreements


PwC

Main issues related to Russian law joint ventures

• Lack of developed and essential court practice re. JVs and SHAs

• Some institutions and mechanics used in international practice contradict mandatory provisions of Russian law

• Unenforceability of some arrangements in case of non-performance

• Unclear list remedies available to non-defaulting party


PwC

Practical illustrations of Russian legal environment specifics and litigating in Russia


PwC

Pros and cons using Russian and non-Russian law

• Analysis shall be performed on case to case basis

• Russian law may be preferable for one of the parties, not necessarily the Russian partner

If non-Russian law is used:

• More sophisticated law can be used, which allows cover substantially more issues than the Russian law

• Fair trial can be achieved

• BUT, enforceability against Russian company may be questionable


PwC

Deoffshorisation

• “Deoffshorisation” is currently big trend in Russia

• Foreign ownership structures may face risk of additional taxes and legal implications

• Potential impact to be considered for both offshore and onshore structures


PwC

Antimonopoly and anti-bribery regulations

• Russia has its own antimonopoly regulations:

• which are different from the EU antitrust law

• can apply both in case of mergers or

• with respect to commercial contracts limiting competetions

• No developed anti-bribery legislation – problems for compliance of big multinationals


PwC

Litigating and enforcement

Litigation in Russia will be necessary if your counterparty is a Russian entity and it does not perform its obligations

What to expect in Russian court:

• Cover of evidence

• Fake documents

• Delaying of process

What to expect from enforcement authorities:

• “No action without push”

• Delays and stoppages

• Lack of enforcement measures


PwC

Typical practical solutions

• Using combination of Russian law and non-Russian law documents

• Creating possibility to enforce both in Russia and outside of Russia

• Sufficient security measures

• Detailed pre-deal analysis and structuring

• Adopting Russian business parameters to existing risks

• Reserve plan for worst case scenario


PwC

Contacts Dmitry Zhdanov

tel.+7 (495) 967 6152

[email protected]

Artem Moyseenko

tel.+7 (495) 967 6293

[email protected]


Elina Kumpulainen

tel. +358 (0)20 787 7907

[email protected]

Jussi Laurila

tel. +358 (0)20 787 7809

[email protected]

mailto:[email protected]




PwC

Dmitry Zhdanov Director Corporate law & M&A practice leader of PwC Legal Russia

Dmitry has more than 15 years of experience with general commercial, transactional and corporate law projects. During his career, he has advised clients on a number of M&A and joint venture deals. In addition he has handled complex restructuring projects for major holding companies and represented clients in shareholder disputes involving multibillion-dollar assets.

He has assisted international clients with establishing and structuring their businesses in Russia, as well as Russian clients on legal issues related to their international business activities. Dmitry also has substantial experience advising clients in the finance, intellectual property, gaming and lottery sectors.

Prior to joining PwC Legal, Dmitry worked in the Moscow offices of a number of international law firms.

A graduate of the Faculty of International Law at Moscow State Institute of International Relations (MGIMO), Dmitry also holds a PhD from the Institute of State and Law of the Russian Academy of Sciences (IGPAN).

Dmitry is fluent in English and French.

26

tel.+7 (495) 967 6152 fax +7 (495) 967 6001 [email protected]

PwC

Artem Moyseenko Senior Associate of PwC Legal Russia Corporate law & M&A practice

Artem specialises in corporate law, focusing on mergers and acquisitions. He advises Russian emerging-growth companies and international corporations on various aspects of Russian and cross-border acquisitions, international joint-ventures and corporate reorganisations and has been involved in handling the legal aspects of complex multinational acquisitions and sales, portfolios and private equity investments in Russia and CIS.

Artem has experience representing clients on diverse Due Diligence, M&A and Joint Venture projects. His past experience includes advising of: a German multinational travel and tourism company on matters relating to the acquisition of local tour firms and following corporate restructuring, a European financial institution over the sale of shares in major Russian FMCG Company, a major German bank on the acquisition of the Russian subsidiary bank of an American financial institution, a leading European sound equipment manufacturer on the acquisition of a 49% interest in a Russian distribution company, a German blue-chip car maker in connection with the establishment of manufacturing facilities in Russia, a leading European producer of transmissions on expanding a joint-venture with a leading Russian truck manufacturer, a major Russian pharmacy retail chain by acquisition of regional pharmacy chains, a major American private jet company on a potential joint-venture in Russia, a German financial institution in relation to investment in Russian energy companies and related transactions.

Artem graduated from the law faculty of Moscow State University in 2005 and received an LL.M. degree from the University of Hamburg. Prior to joining PwC Legal, Artem worked as an associate with the Moscow office of a German law firm. Artem is fluent in German and English.

27

tel.+7 (495) 967 6293 fax +7 (495) 967 6001 [email protected]

Russian Legal Seminar 2014 - Legal advice for foreigners doing business in Russia

Business

Transcript of Russian Legal Seminar 2014 - Legal advice for foreigners doing business in Russia