20.01.2017 — Supreme Court: Company’s Ultimate Beneficiary Is Not Only Entitled to Challenge Decisions of General Shareholders' Meetings, But Also Concluded Transactions

Supreme Court has for the second time upheld the position of an ultimate beneficiary of a Russian company, which the beneficiary owned through a chain of offshore entities and foreign trusts, permitting him to make use of corporate rights. The Supreme Court has previously confirmed that not only immediate shareholders of a company, but also its ultimate beneficiaries are entitled to challenge the decisions of corporate bodies (in particular, the decision on appointment of a general director). The Supreme Court has also recognized now that such beneficiaries may challenge transactions entered into by the company.

In the case considered by the Supreme Court, the ultimate beneficiary of JSC “Aspekt-Finans”, Mr. Moskalev, filed a claim to invalidate the sale of shares owned by the company. Mr. Moskalev referred to the fact that the asset was sold by its nominal, rather than market, price in favor of the director and its affiliates, and, furthermore, the transaction was not duly approved within the company. Lower courts denied these allegations, finding that Mr. Moskalev had no rights to challenge the transaction, not being an immediate shareholder of the company, rather owning it through a chain of trusts and offshore entities.

However, the Supreme Court did not agree with this position, and found that the beneficiary was entitled to challenge the transaction concluded by the company. Previously, the same position was expressed by the Supreme Court in respect of beneficiaries’ right to seek invalidation of the decisions of corporate bodies. Therefore the Russian court practice is leaning towards the liberal outlook on corporate structure and legal entity borders.

19.01.2017 — Banks May Be Entrusted with Issuance of Passports and Migration Documents

The Government of Russia is currently considering the option of letting the banks issue passports and formalize migration documents. Currently, these functions are performed by FGUP “Passport and Visa Center” or the multipurpose centers of governmental services. The Ministry of Internal Affairs, the Central Bank and Sberbank along with VTB have been asked to develop this idea.

Currently, passport and migration documents are the responsibility of FGUP Passport and Visa Center”, which is subordinate to the Ministry of Internal Affairs, or the multipurpose centers of governmental services.

In order to create competition in this field, the Government has proposed that a number of authorized banks be also entrusted with these governmental powers. If the necessary security measures are undertaken, this can significantly improve and facilitate the procedure of obtaining passports and migration documents. 

18.01.2017 — Fines Payable for Personal Data Law Violations May Be Raised Significantly

The State Duma has passed in the second reading a bill which raises administrative liability for breaching personal data laws. The bill foresees differentiated liability for different categories of violations in the personal data sphere, and significantly raises the maximum fines that can be imposed on personal data operators.

Currently, liability for personal data violations is foreseen in Art. 13.11 of the Russian Administrative Offenses Code. This article does not distinguish between different types of violations in this sphere, imposing a unified fine in the maximum amount of 10.000 rubles for legal entities (approx. 160 USD) for all violations.

According to bill No. 683952-6, which is currently under consideration in the State Duma, different types of personal data violations will be introduced to make liability differentiated. In particular, it is planned that separate liability rules will be implemented for processing personal data without consent of the individual in question, for the failure to publish personal data policy when required by law, and other types of wrongful conduct.

Moreover, the amount of fines in all cases are proposed to be raised substantially. For instance, legal entities may be forced to pay a fine of up to 75 000 rubles in certain situations.

17.01.2017 — In 2017 Government Will Allocate 107.5 Billion Rubles to Support Industrial Activities

The Government of Russia has approved financing in the amount of 107.5 billion rubles from the federal budget to support a number of economic sectors. The stated funds will first be allocated to the Russian automobile and agricultural machinery industries, as well as the food industry.

According to the proposal of the Ministry of Industry and Trade, more than 50% of the stated sum will be provided to support automobile production (over 60 billion rubles) and the industry of agricultural machinery (13.7 billion rubles). Moreover, recapitalization of the Industrial Development Fund is planned, which will involve investment of over 800 million rubles in budgetary monies. Additional financing will also be allocated to subsidies in the consumer goods industry (2.2 billion rubles), leasing of road construction and public utility machinery (2.5 billion rubles), as well as food industry (1 billion rubles), which is intended to increase the influence of Russian producers in the stated industries.

Apart from that, as a means of additional support to the industrial sector, the Government has approved financing in the amount of 1 billion rubles for production of innovative equipment by Russian producers. 

16.01.2017 — Constitutional Court Declared Judgment of European Court of Human Rights on YUKOS Case Unenforceable

The Constitutional Court, having reviewed the application of the Ministry of Justice, has declared that the European Court of Human Rights decision against Russia awarding €1.8 billion compensation to YUKOS shareholders is unenforceable. In the Court’s view, payment of such sum from the Russian budget to a company that has for a long period of time failed to duly pay taxes in significant amounts would be contrary to the Russian Constitution. Nonetheless, the Court did not exclude the option of compensation as a gesture of goodwill by the government.

In its ruling, the Constitutional Court noted that the European Court itself accepted that YUKOS violated Russian tax law, underpaying a significant amount of taxes into the budgetary system. In such circumstances, payment of compensation from the budget, which did not receive the taxes necessary to discharge governmental functions from the company, would violate the constitutional principles of equality and justice.

Nonetheless, the Court noted that, as a compromise, Russian authorities are entitled to pay certain sums of compensation to YUKOS’s minority shareholders who suffered losses due to the company’s management on the basis of YUKOS’s newly identified property.

Notably, this is not the first time when the Constitutional Court deemed the European Court of Human Rights judgment unenforceable as contrary to the Russian Constitution. Previously, the judgment on the case of Anchugov and Gladkov v. Russia received the same treatment. Certainly, the position of the Constitutional Court has some merit, but ignoring the decisions of the European Court of Human Rights against the background of significant political tensions may further deterioriate the relationship between Russia and the West.