Russian Civil Law Clarifications

On 23 June 2015 the Plenum of the Supreme Court of the Russian Federation issued Ruling No. 25 "On application by courts of some provisions section 1 of part 1 of the Civil Code of the Russian Federation."

The Ruling contains a large number of clarifications of different aspects of civil law, particularly relating to individuals, legal entities, object of civil rights, general provision for transactions, resolutions of meetings and representation. The clarifications range from purely theoretical to strictly practical and from technical to in-depth.

Due to volume of the Ruling and its diverse nature we have chosen only the issues which, in our opinion, are the most important and the most practically interesting.

Powers of Sole Executive Body of a Company

By virtue of the Russian legislation all information about state registration of a legal entity shall be included in the Unified state register of legal entities (abbreviated 'EGRUL' in Russian), available to the general public. Any information contained in EGRUL is presumed to be true and authentic. Therefore the Supreme Court emphasises that in relationships with third parties a legal entity cannot refer to information not included in EGRUL.

Further, the Supreme Court describes that particularly a third party relying on EGRUL in respect of the powers of the Company’s Sole Executive Body(s) (CEO) may presume, by default, that the powers of person(s) authorised to act on behalf of the entity as per the EGRUL are unlimited. In case the EGRUL contains information about several Sole Executive Body(s) (CEOs), the authority of each of them is presumed independent, provided EGRUL does not explicitly indicate for the contrary.

According to the Supreme Court, while concluding an agreement with a company, a third party is not obliged to check and review the foundation documents of the company, unless this third party is the company’s shareholders and/or members of the company’s management bodies. Therefore all provisions of the company’s foundation documents stipulating the restrictions of such authorities cannot affect the rights of the third parties unless the third party had advance knowledge of such restrictions. All contradictions and vagueness in the company’s foundation documents shall be interpreted in favour of absence of such restrictions.

Liquidation

The Supreme Court supports established practice that the court cannot liquidate the company solely because of the repeated breaches of the law. It is stressed that liquidation is a last resort option and is possible only in case when it is proportionate to the nature of the breach and possible consequences thereof.

A legal entity can be liquidated at the suit by the company’s shareholder/participant(s) in case of impossibility to reach an aim for that the company has been established, including the cases when the activity of the legal entity becomes impossible or is significantly obstructed. For example, such legal suit can be supported by the court when other shareholders/participants evade the general meetings thus blocking the possibility to make any decisions in the absence of quorum, including the formation of the company’s management bodies, or in case of continuous corporate conflict.

Transactions

Earlier the Russian law officially recognised conditional contracts and contracts with resolute conditions, when the occurrence of a relevant event depends on activity and will of one of the parties. Following that the Supreme Court additionally confirmed legitimacy of such contracts and provided examples. These include:

(i) a lease agreement for a newly constructed building that becomes effective under a condition that the landlord receives the property certificate for this building and (ii) a supply agreement becoming effective given that the client (purchaser) receives a bank guarantee to ensure its payment obligations.

Further clarifications are provided for the so called 'sham transactions', ie. transactions effected only pro forma without intention to create actual legal consequences; such transactions are normally declared void. The Supreme Court explains that the parties of a sham transaction could sometimes perform actions evidencing for actual execution of the transactions, but if these actions have no factual grounds still this transaction can be declared void. An example is executing a purchase agreement in respect of the debtor’s property aimed to avoid seizure under the bankruptcy process, and drawing up a relevant delivery-acceptance act, but without the seller losing the factual control over the de-jure alienated property.

Representation

Several significant changes concerning representation are touched on by the Supreme Court as well. Due to the doubts for third parties concerning the scope of representatives’ authorities – as always arises in a situation where several attorneys are included into the power of attorney - the Ruling declares that if power of attorney does not explicitly indicate joint powers of the attorneys, the powers of every attorney are presumed independent.

Regarding representation, related with the Head of the Representative Office (Branch) the Supreme Court confirms the following: 

(i) no notary certification of a power of attorney issued by the Head of the Representative Office (Branch) by way of substitution is required and (ii) it is not enough just to lay down the authorities of the Head  in the Representative Office’s (Branch’s) regulations, but the separate power of attorney, specifying the scope of the Head’s authorities should be issued in due course.

Click here to read more about doing business in Russia, and get in touch with our expert team.

Never miss an update – subscribe to TMF Group eAlerts.

Keeping up to date

You can now receive our insights and regulatory updates direct to your inbox by choosing the topics and jurisdictions that most interest you. 

Subscribe to our e-Alerts.