Текст книги "Правовая поддержка иностранных инвестиций в России"

Автор книги: авторов Коллектив

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Receipt of permission documents

Documents permitting the import on to the customs territory of Russia of manufacturing equipment subject to mandatory certification are:

• a certificate of conformity of Gosstandart of Russia;

• a sanitary and epidemiological opinion from the Chief Sanitary Inspector of Russia (hygiene certificate).

In addition, written permission must be obtained from the Ministry for Natural Resources of the Russian Federation to import equipment (if the equipment is part of the production complex being transported) containing coolants that are not ozone-depleting substances, the trade in which is subject to regulation (licensing) in accordance with the provisions of the Vienna Convention of 22 March 1985 “On Protection of the Ozone Layer” and the Montreal Protocol of 16 September 1987 on substances that destroy the ozone layer. This applies, in particular, to refrigerators and drying facilities, industrial air conditioners, etc.

The effective legislation in the sphere of technical regulation does not envisage mandatory certification of used equipment imported into Russia[50]50
  See: Letter of Gosstandart of Russia No. MG-110-25/5036 of 15 December 2003 (commentary 8 to the List of goods for which confirmation of mandatory certification is required for release on to the customs territory of the RF).


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An alternative to a Gosstandart certificate in this case is two documents:

• an expert opinion issued by an authorised local structural subdivision of the Chamber of Commerce and Industry of Russia in response to a request from the freight importers or the customs broker;

• a certificate of customs inspection of the equipment, drawn up by a structural subdivision of the customs authority during inspection and customs control of the imported equipment.

In this case, the constituent documents of the foreign-invested Russian enterprise and the shipping documents (above all the proforma invoices) contain a reference to the fact that the goods being transported have been in use previously (preferably indicating the year of manufacture).

At the same time, it is worth noting that, on completion of the importation procedure, customs clearance, installation, start-up and commissioning of the equipment, the question will arise concerning certification of the output produced. According to the rules for certification, this will necessitate additional certification of the equipment imported and installed and submission of the relevant permission documents, including a sanitary and epidemiological (hygiene) opinion[51]51
  See: Federal Law No. 52-FZ of 30 March 1999 “On the Sanitary and Epidemiological Welfare of the Population” (articles 11 and 13).


[Закрыть] and a certificate of compliance of Gosstandart of Russia for the production equipment.

In our case, certification of the equipment should be carried out in advance. The current legislation does not envisage any responsibility for certification of equipment that has been in previous use, but work to obtain a hygiene and a Gosstandart certificate for the equipment sill make it possible, subsequently, to organise and simplify the customs clearance and certification procedure for the finished product. In this case, it only remains for the project manager to reconcile the expenditure part of the former (the declaration of the equipment as having been in previous use) and the latter (declaration of the equipment as new) project and take a final decision.

In order to obtain a certificate from Gosstandart of Russia, the project manager needs to request any Russian or foreign certification centre authorised by Gosstandart to conclude an agreement on performance of certification work and present:

• an application for performance of certification work, indicating the details of the applicant company (the equipment importer);

• a technical description and drawings of the imported equipment and the production process;

• the TN VED codes and the codes of the All-Russia Classifier of Goods (OK 005-93 (OKP))[52]52
  All-Russia classifier of Goods OK 005-93 (OKP), approved by Resolution of Gosstandart of Russia No. 301 of 30 December 1993 (in the version with amendments No. 1–31).


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• foreign safety and quality certificates of the ISO 9000 system;

• declaration by the manufacturer (in our case, the former owner of the production complex) on compliance with the safety and quality norms and standards, including noise and vibration, electrical and other parameters;

• the all-Russia standards and norms in compliance with which the equipment was produced (preferably);

• the possibility of physical certification of the equipment (subsequent control of equipment imported into Russia is possible).

It should be noted that a hygiene report is an interim document for obtaining a Gosstandart certificate and is issued exclusively by state institutions, namely the territorial body of the sanitary and epidemiological inspectorate of the Chief Sanitary Inspector of Russia.

The set of documents required for a hygiene report is approximately the same as for certification.

The number of certificates depends on the quantity of:

• goods batches transported,

• goods (equipment) manufacturers,

• TN VED codes,

• countries of origin of the goods.

For the case under consideration (the former owner of the production complex being the manufacturer and shipper of the equipment), three Gosstandart certificates of conformity may be obtained (according to the number of goods batches and TN VED codes).

Like a certificate of conformity (meaning a certificate within the system of mandatory certification), a sanitary and epidemiological opinion (hygiene certificate) has legal force throughout the territory of the Federation, irrespective of which specific regional division issued it and in which region it is presented for customs clearance and confirmation of the relevant safety and quality standards.

To avoid possible difficulties and delays, it is recommended to perform hygiene certification of the equipment and the finished output subsequently produced at the local territorial division of the sanitary and epidemiological inspectorate.

Conclusion

It is worth mentioning once more that the importation of manufacturing equipment (either used or new) consists of a complex of interconnected steps to fulfil legal, transport logistics, customs and certification tasks.

Correct co-ordination of the actions of the corresponding services and subdivisions, both state control authorities and commercial organisations, as well as good solutions to these tasks will result in timely and due performance of the work on the import project, and certification and customs clearance under a preferential tax regime for the complex of manufacturing equipment.

As innovative cost-minimising solutions to the project tasks, on the basis of successful practice of implementing such projects, Pepeliaev, Goltsblat & Partners proposes classifying, transporting and performing customs clearance and certification of a complex of production equipment according to the principle of reasonable aggregation of classified combinations of machines by sector (line), thereby minimising the number of goods batches and, correspondingly, the number of sets of permission and shipping documents required.

The author hopes that the material provided will help project teams of foreign investors find their way about in the given situation and take confident steps towards moving foreign investments into the Russian economy.

A. Sitnikov, Partner, Head of Corporate Practice Pepeliaev, Goltsblat & Partners

Due Diligence as an integral part of a company purchase transaction

The need for a legal analysis and check on the history of a legal entity (Due Diligence) may result from a variety of circumstances. It may be initiated by the shareholders or the management of the company, or by outsiders. In the event of М&А transactions (Mergers and Acquisitions), such entities require information for decision-making on subsequent actions and are interested in a preliminary analysis. They may plan to acquire shares/a stake in companies of interest to them or to undertake a reorganisation resulting in their merger with the company subjected to the Due Diligence.

Let us take a look at Due Diligence initiated by such entities.

The objective of Due Diligence is determined by the questions requiring answers, as well as the lines to be followed by the investigation and its scope, including the period and amount of detail required (level of materiality of the operations to be investigated).

Due Diligence should encompass such spheres of research as corporate law (including the governance structure of the company or group of companies, securities, anti-monopoly regulation), real estate, rights to other property, intellectual property, licences, major economic operations, environmental legislation, the work team, including relations with trades unions, the structure of accounts receivable and accounts payable, taxation issues, currency legislation, litigation and claims by counterparties, cases or possibilities of being held liable. A company’s operations may be checked for compliance not only with federal but also regional legal acts and, if necessary, an applicable legislation and jurisdiction other than the Russian, the standards of the stock exchanges on which the company’s securities are traded or on which it is planned to place them.

Attempts to formulate a standard plan for performing Due Diligence may be compared with preparing legal advice applicable to all possible cases.

The methodology used for organising the audit is also strictly individual. It may be performed only on the basis of materials provided by the company being checked or by obtaining materials from third parties (the company’s registrar, the registration authority, the judiciary for registering real estate title, etc.), on the basis of originals or copies of documents, including or without interviewing officials.

In our practice, one of the most widespread purposes for which Due Diligence is performed is preparation for transactions involving acquisition of companies. In this case, the check will resolve two main issues: expert assessment of the company (“what is being acquired” and what legal risks might affect the transaction, including the price) and gathering of materials for optimum structuring of the deal (acquisition process).

At the same time, irrespective of the aim of the Due Diligence, the programme for the investigation includes corporate aspects (this section includes checking on organisation of governance of the company (or group), relations with shareholders/participants, legislation on securities, anti-monopoly legislation, performance of material corporate actions), i.e., the company’s activities are studied to a given degree of detail. No matter what operating period is investigated, the purpose is not to reveal all possible violations, but to determine those that might still entail material negative consequences.

Let us consider certain major aspects of the performance of the corporate part of Due Diligence, using examples of violations that have been disclosed over the last few years.

The creation of a company is always checked proceeding from the angle that a legal entity may be liquidated in connection with gross violations of the law committed in the process, if they cannot be remedied. The company may be extremely vulnerable, as was demonstrated a few years ago in relation to the biggest industrial company in the Far East region. The number of violations disclosed, taking into account violations committed in increasing the authorised capital, is, as a rule, directly proportional to the length of time the company has been in existence.

One essential issue is observance by the founders of the set procedure for decision-making on setting up a company. This includes determination of the body of the founding legal entity whose terms of reference included decision-making on participation in other organisations, of whether the monetary funds or other assets contributed to the authorised capital of the company met the criteria of a major transaction for the founders, and of whether the transactions involved a conflict of interest.

In a number of regions of central Russia, in the mid-1990s, there was a widespread practice of participation by regional committees in managing assets in the founding of joint-stock companies, which is prohibited by article 10 of the Federal Law “On Joint Stock Companies”.

No matter how long ago the company was founded, the question is still important as to which property and within which time period the authorised capital of the company was formed. It often turns out that the shares (this concerns ZAO (closed joint-stock companies) particularly) or stakes were paid up over a year from state registration of the company. We have, on several occasions, come up against situations when the shares were paid up on the last day of the year following that of state registration of a company’s share issue, rather than a year after state registration of the company itself. The founders apparently proceeded from the rules of the Law “On the Securities Market” regulating an issue placement.

Breach of the deadline for paying up shares/stakes has the most serious consequences – loss by the shareholder/participant of the right to the shares/stake not paid for in the course of a year and their transfer to the company. If it fails to establish this fact, the founder may perform transactions with such shares/stakes, and these will be regarded as null and void. Shareholders often find out that they are not shareholders at all only after Due Diligence has been performed and the time for completion of the merger-acquisition has already been determined by the counterparty.

The same consequences might derive from errors committed in recording a contribution or paying for it with property.

When drawing up a list of facilities to be handed over as a contribution to authorised capital, founders often use account data literally. Among the equipment handed over, such items are discovered as landscaping, laying of asphalt, planting, destumping and installation work. From the point of view of accounting, all these constitute assets, but from the civil law point of view they are not related to either property or rights, since the costs incurred did not lead to the creation of anything. Such outlays may be taken into account by an appraiser when determining the value of the property item to which such expenditures relate, but their contribution to authorised capital as an independent facility contravenes the law. Such violations might result in the transaction involving transfer of the property to the authorised capital being declared invalid in the corresponding part and, consequently, to incomplete payment for this capital and loss of rights to shares/stakes.

What might the consequences be of incorrect use of appraisal data provided by an independent appraiser? Ideally, the report should indicate that the value of the property was assessed for the purposes of contribution to authorised capital. Often, however, the appraiser’s report gives a price of the property including VAT. Since contribution of property to authorised capital is not subject to VAT and the value of the contribution set by the founders cannot exceed that determined by the appraiser, in such a case, the property may be contributed at the value set by the appraiser, minus VAT. If the price including VAT is used, the value of the contribution is, in effect, being overstated, leading to partial non-payment of the contribution and entailing subsidiary liability of the founder for the company’s obligations within the scope of the overstatement of the contribution’s value. The authorised capital will also turn out not to have been formed, which, in turn, should have prompted the company to pass a resolution on a reduction of the authorised capital and/or its liquidation, depending on the size of the approved authorised capital.

Particular attention should be focused on studying payment of authorised capital “by other items or property rights, or rights with a monetary evaluation”. Founders have a boundless imagination in this respect. We have come across payment for shares/stakes by means of “the right to use a telephone on the founder’s premises on working days between 9:00 and 18:00 hours”, a “dog’s kennel” and an “East European Sheepdog”, an “obelisk memorial to the Second World War”, a “pot plant”, a herd of cattle, indicating the name, number, initial and residual value (for some of them – 0 roubles) of each animal. Although the creditors’ interest might theoretically be put in doubt, the given examples are fully in line with the law.

In relation to foreign-invested enterprises, it is important to establish whether they were registered by the correct authority. Until recently, foreign-invested enterprises were subject to registration in the State Register of Enterprises if the volume of foreign investment in them exceeded 100,000 roubles or if the organisation operated in the oil and gas sector – irrespective of the volume of the foreign investment. At the stage of company formation, this procedure was, most often, observed but violations are often encountered in companies in the oil and gas sector, in which foreign shareholders/participants appeared at later stages, after the company had been set up. This should have involved a change of registering authority, but this was far from always observed in practice. A consequence of this is the risk of the constituent documents registered by the wrong authority being declared invalid. Big open joint stock companies with a large number of shareholders might not be aware that a foreign company has become an owner of their shares. In addition, risks associated with this violation raise the participation by nominal holders in the development of corporate schemes.

It should be noted that, over the last few years, there have been increasing numbers of cases when the results of privatisation have been disputed, which, although not creating a precedent, might be borne in mind when preparing M&A transactions in relation to companies set up as a result of privatisation. We have come across cases when the results of investment tenders for the sale of a company’s shares have been disputed and privatisation plans declared partially invalid because they include facilities, privatisation of which is prohibited (for example, property of defence or “dual purpose”; property located abroad). Since the size of the authorised capital of a joint stock company set up as a result of privatisation is determined proceeding from the value of its assets, recognition of the privatisation plan as partially invalid entailed the need to reduce the size of its authorised capital. In addition, the risk arose of suits being entered against the company by bodies managing state property, claiming unjust enrichment received as a result of using unlawfully privatised property.

The constituent documents of a company are checked for compliance with the law and to establish specific aspects that might be taken into consideration in assessing corporate actions and the structuring of future deals. Such an analysis might help reveal material violations in the performance of its corporate actions. For example, if the provisions of the articles of association on the powers of a given body, on the procedure for approving transactions, the exercise of preemptive rights to acquire shares, and the procedure for holding shareholders’ meetings do not comply with the law, there is a high probability that the given actions were performed in the manner established by the articles of association and might, therefore, be open to dispute.

Similar tasks are fulfilled in investigating all previous versions of the constituent documents, taking into account, of course, the possibility and likelihood of negative consequences ensuing from previous violations.

Let us list the main questions requiring an answer from the results of the investigation into the authorised capital and the rights of current shareholders/participants to shares/stakes:

• what is the current structure of the company’s capital (distribution of shares/stakes among certain entities)?

• do the current shareholders/participants hold their shares/stakes on lawful grounds?

• can the current shareholders/participants dispose of their shares/stakes and exercise other rights in relation to them?

• what risks does entering into a deal with them entail for the purchaser?

In order to answer these questions, it is not enough merely to familiarise oneself with the shareholders’ register or constituent documents of a limited liability company. During an investigation, it often turns out that substantial blocks of shares (stakes) have been acquired by shareholders under invalid transactions or that their blocks/stakes might be lost or reduced on other grounds. For this reason, the procedure used for forming and increasing the authorised capital, as well as all transactions with shares/stakes, has to be studied.

It must be clarified whether the law was observed in increasing the authorised capital and issuing additional shares, since failure to observe the legislation in these cases might entail their being declared null and void and, for example, non-payment of shares/additional contributions might lead to a change in the stakes/blocks of shares.

In the past, bills of exchange issued by a company and handed over to “friendly” entities were used as means of payment for additional shares (contribution). From the point of view of the conservative approach often taken during the performance of Due Diligence for the purposes of M&A transactions, such a means of payment for a contribution (shares) is regarded as releasing the shareholder (participant) from paying for the contribution by offsetting against claims on the company, which is prohibited by law.

In limited liability companies, special attention should be focused not only on observance of the deadline for making additional contributions, but also that for presenting documents for state registration of amendments associated with an increase in the authorised capital and a change in the sizes of stakes. Failure to observe these deadlines leads to the increase being declared as not having taken place, to the contributions being returned to the contributors and, consequently, a change in the sizes of their stakes.

In spite of the guarantees set by the legislation for a bona fide purchaser, there is still a risk of the shares being recalled from the latter in connection with violations committed in the performance of previous transactions. For this reason, it is recommended, if possible, that the audit embrace all cases of the transfer of rights to shares/stakes before they are acquired.

Case law sometimes regards conclusion of transactions by a body of the legal entity beyond the scope of its powers as withdrawal of property from the legal entity’s possession against its will. In this connection, if the procedure is not observed for approving a particular transaction with shares/stakes of the company that is a major or conflict-of-interest transaction for the seller, irrespective of the number of times these shares/stakes change hands subsequently, there is a risk of them being recalled from the final purchaser.

The methodology for organising the audit presupposes establishing the number of transfers of the shares/stakes on the basis of the data included in the shareholders’ register (registration ledger) of a joint stock company or previous versions of the constituent documents of a limited liability company. In big open joint stock companies, there is usually no point in studying the issue in such detail. In such cases, a level of materiality may be established for operations (1–5 % of the shares).

Each operation qualifying as material, if the necessary documents can be obtained, is assessed according to the following key aspects:

• the possibility of the seller disposing of the shares/stakes. With respect to shares, this means, above all, establishing that the shares were paid for when placed and the results of the issue were registered; with respect to stakes – establishing that full payment was made for them;

• observance by the seller of the necessary corporate procedures (approval by the relevant body of a major or conflict-of-interest transaction; passing of a resolution on withdrawal from another organisation, if this is envisaged by the articles of association of the seller; confirmation of refusal by other shareholders/participants to exercise their preemptive right of purchase, obtaining of the consent of the other participants and the company itself to disposal of a stake);

• observance of analogous corporate procedures by the buyer;

• agreement of the transaction with the Federal Anti-Monopoly Service (Ministry for Anti-Monopoly Policy) or subsequent forwarding of a notification (although the risk of the FAS entering a suit to recognise transactions concluded in violation of this procedure as null and void is largely theoretical, said right might be exercised by this body within a year of it becoming aware of the violation);

• assessment of the terms of the transaction from the point of view of the risk of its being declared invalid (for example, sale with mandatory repurchase under certain circumstances might testify to the sham nature of the transaction and an intention by the parties to give rise to other legal consequences);

• proper performance of settlements under the transaction. Non-payment entails the seller acquiring the right of pledge in relation to the shares/stakes;

• performance of actions associated with transfer of rights to shares/stakes. With respect to shares, this means proper drawing up of the transfer instruction and entry of the operations in the shareholders’ register or custody accounts in depositories; with respect to stakes – proper notification of the company of the given cession.

Of major significance is a study of the activities of the company’s governing bodies, taking into consideration the likelihood of negative consequences of possible violations. For example, a resolution of the general meeting of shareholders may be appealed against only by shareholders that did not participate in the voting or voted against adoption of said resolution and only within six months of the day when the shareholder became aware or should have become aware of the resolution. According to Resolution No. 4/8 of the Plenary Session of the Supreme Court of the RF and the Supreme Arbitration Court of the RF, dated 2 April 1997, in cases when the parties to the given judicial dispute refer to a resolution of the general meeting of the shareholders as justification for their claims or objections but, at the same time, the court establishes that the given resolution was passed in breach of the legislation, the court must proceed from said resolution lacking legal force, whether it was disputed by any of the shareholders or not. This means that the possibility of disputing any of the company’s actions performed on the basis of a resolution passed by the meeting in breach of the law (for example, approved transactions, registration of amendments to the articles of association) may last for a long time.

Often, the shareholders’ meeting, evidently proceeding from its status as the supreme body of the company, goes beyond the scope of its terms of reference as determined by law or the articles of association. For instance, one comes upon resolutions on “dissolution of the board of directors in connection with lack of feasibility”, after which the shareholders’ meeting, for a long time, passes decisions on issues falling within the terms of reference of the board of directors, without deleting from the articles of association the provisions on this body and its powers. Resolutions passed by the shareholders’ meeting on the given issues and actions performed on their basis may be recognised as null and void. The shareholder’s meeting often takes the place of the board of directors in appointing or dismissing the general director, which might lead to attempts to dispute the dismissal of the director and to the emergence of parallel governing bodies.

In conclusion, let us note that the Due Diligence process performed within the scope of M&A transactions is an extremely important stage in the transaction. The negative consequences that companies ignoring this stage might encounter often turn out to be considerably more significant than the expenditure of time and money that the parties were trying to avoid by doing without legal analysis, while such consequences could have been greatly reduced and, in a number of cases, excluded entirely thanks to Due Diligence.

A. Nikonov, Partner A. Tereschenko, Senior Attorney E. Trofimova, Attorney Pepeliaev, Goltsblat & Partners