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PRINCIPAL LAWS GOVERNING BUSINESS OPERATING IN
Business laws overview
One of the areas of major importance for the overall investment climate in Russia is the level of development of corporate and related business laws.
The Russian Federation is a civil law jurisdiction with a written constitution that lays down the fundamentals of Russian state governance and its regulatory framework. In the hierarchy of federal legislation, a law is the highest form of legislation under the constitution. Next are the acts of the president and statutory acts issued by the government and governmental agencies, these acts adopt more detailed rules and regulations than the laws. Since Russia is a civil law jurisdiction the court precedents serve only a recommendatory role in the regulatory framework.
Like in most civil law jurisdictions, Russia's legal system is largely built upon the codified laws. In particular, the Civil Code is the consolidation of basic legal principles that underpin economic relations. In addition to the Civil Code, the primary legislative acts regulating operation of business in Russia are the Federal laws on Joint Stock Companies, on Limited Liability Companies, on Securities Market, on Protection of the Rights and Lawful Interests of Investors on the Securities Market, on State Registration of Legal Entities, etc., as well as regulatory documents issued by the Federal Commission on Securities Market and other governmental agencies.
As in majority of countries, there are various routine legal requirements for maintaining a company in Russia. There are well developed procedures and fairly clear regulations in Russian law on registration of new companies, on disclosure procedures in connection with acquisition or holding of securities, on major and related-party transactions, on 30% takeovers, on dealing with the Ministry of the Russian Federation for Antimonopoly Policy (MAP) when the company is involved (depending on whether a transaction meets certain thresholds) in it taking a dominant position in the market or if the company plans to acquire a substantial stake in or assets of a Russian company and on other various aspects of maintaining a company under Russian law.
In addition, the Central Bank of Russia has developed substantial regulations regarding currency control. All hard currency operation in Russian companies must be conducted in accordance with the procedures established by the Central Bank of Russia. While these procedures are mandatory, they do not interfere with business operations. Most importantly, hard currency is available for any legitimate business purpose.
Although the procedures mentioned above are relatively well developed, problems tend to arise when these procedures are ignored and occasionally when the issue is totally new to government bodies and no clear practices has previously been adopted.
Legal Reform
Russia has adopted and continues to improve its new legal system. While not flawless and still controversial at times, Russian corporate governance and investor protection legislation is generally adequate in many areas.
President Putin’s economic advisors have placed corporate governance and investor protection reform high on the Government's economic agenda. Substantial progress has been made in the past few years and the Russian government continues to move forward with its investor rights/corporate governance agenda.
Amendments to the Law on Joint Stock Companies are among the key pieces of legislation already enacted under the legal reform. These amendments have been designed to minimize dilution risks for shareholders and to uphold the right of first refusal for existing shareholders.
The amendments to the Law on Protection of the Rights and Lawful Interests of Investors on the Securities Market have reconciled the differences between this Law and the Law on Joint Stock Companies. A much needed, if controversial Law on Insolvency (Bankruptcy) has also entered into force. The Law requires that professional insurance shall be acquired by all arbitral managers; grants the right of secured creditors to satisfy their claims from the proceeds of the security; provides a possibility of provision of financial support to the insolvent person by its owners; and allows termination of bankruptcy proceedings at any stage. However, no court practice has yet been formed and at this point it is premature to assess the success of this Law.
The bills currently in the legislative pipeline are the amendments to the Law on the Securities Market (designed to reconcile the differences between this Law and the Civil Code and to promote portfolio investments), the new Law on Derivatives, the amendments to the currency control regulations (these are concerned the liberalization of current export rules) and some others. These shall be carefully watched for the next year.
Court Proceedings
Judgments of foreign courts of general jurisdiction are enforceable in Russia where there is a bilateral treaty on recognition and enforcement of a foreign judgement. Unfortunately, Russia has no such treaties with most Western jurisdictions and therefore a foreign court judgement is unlikely to be given direct effect in Russian courts.
However, the Russian Federation (as successor to the USSR) is a party to the 1958 New York Convention on the Recognition and Enforcement of Foreign Arbitral Awards. In addition, Law No. 5338-1 dated 7 July 1993 "On International Commercial Arbitration" provides for the possibility of enforcement of foreign arbitral awards in the Russian Federation. Consequently, an arbitral award obtained for instance in New York, Paris or London should be recognized and enforced by a Russian court. The enforcement is subject to the qualifications provided for in the Convention and the Arbitration Law as well as compliance with procedures established by Russian legislation. We note, however, that in practice reliance upon international treaties may meet with resistance or a lack of understanding on the part of a Russian court or other officials.
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