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Is it right to change the “rules of the game” within the joint-stock company?

03/02/2015, the draft law on amendments to some legislative acts regarding the protection of investor rights was adopted as a basis. The government initiated the changes to the legislation.

According to the developers, the main goal of the bill is to increase the level of protection of investor rights in the framework of the joint-stock company and the introduction of higher requirements for joint-stock companies. The main means of implementation should be the introduction of new and clarification of the procedural mechanisms governing the shareholder’s relationship with the company and its governing bodies.

But already during the initial legal analysis of the government project, a certain critical attitude to the issued standards arises.

Experienced lawyers from the Siberia Project company, providing consulting services in Tyumen, conducted a legal analysis of the innovations. In the course of studying the issue, it became necessary to clarify the nature of the initiative to refer disputes related to compensation for damage caused to a joint-stock company by an official of the company to the jurisdiction of economic courts. Obviously, the subject of such a case is not related to economic disputes, but is resolved in a civil order, or in the same manner, but within the framework of the criminal proceedings, depending on the circumstances and extent of the damage.

Why did you need procedural duplication? And how appropriate is it to grant the right to sue the owners of 5% of the vote of the total number of shareholders? Obviously, disagreements between participants and managers may appear at any industrial facility. The draft law is preparing a platform for the emergence of a significant number of lawsuits as an instrument of internecine struggle.

The adoption of this law will significantly increase financial costs for the organization of company management, which will negatively affect business structures that are only formally joint-stock companies, but in reality they are not. The provision on the annual re-election of the Supervisory Board does not provoke approval either. It is not clear how well members of the council for such a period can fulfill their job responsibilities.

The question arises, is it right to change the “rules of the game” within the joint-stock company when the business is below the survival line?

The answer is simple. The main goal of this legislative initiative is not to really protect the rights of investors and shareholders. The main goal lies behind the inability of the government to participate in the management of enterprises where there is a state share, as well as where the state share is 50% or more.

This situation is caused by the fact that private capital, by appointing “its” chairman of the board, controlling the members of the supervisory board, changing the charter of the company in favor of the management, retains the management of industrial facilities. It is rather difficult for statesmen to correct this situation within the framework of the current legislation.

It can be concluded that this draft law does not really protect the rights of investors. In a peculiar way, this is an attempt to create a “pill” from state insolvency to influence powerful business groups that control, including state property. But, when the norms of such a law fulfill their short-term purpose, a new need will arise for bringing the legislation in line with future realities.

Currently, the state needs legislative initiatives that are designed to stabilize the economic situation in industry and exclude the possibility of a constant struggle for industrial objects between business structures with the help of the state.

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