On 1 October 2013 most of the third set of amendments to the Russian Civil Code (the “Amendments”) will come into force. Changes are being introduced in respect of various objects of civil rights and cover, first and foremost, securities circulation. Specific clarifications are also provided on the status of certain real estate objects, ownership over proceeds derived from the use of property, as well as the protection of honour, dignity and business reputation. The Amendments are aimed at reflecting in the Civil Code issues that are currently regulated by various other laws.
1. Securities circulation
Prior to the Amendments, circulation of securities was regulated by many different laws (Federal Law No. 208-FZ “On Joint-Stock Companies” dated 26 December 1995, Federal Law No.39-FZ “On the Securities Market” dated 22 April 1996, etc.), which led to discrepancies and gaps. The Amendments codify a general system of securities regulations so as to avoid any inconsistencies and are generally aimed at increasing the level of legal protection afforded to shareholders.
The Amendments provide for a more detailed classification of securities and introduce provisions regulating the relations concerning the execution of the certificated securities. Furthermore, several specific issues which are outlined below have been addressed.
Scope of the rights conferred by the ownership of a security
The scope of the rights conferred by the ownership of a security has been expanded to not only include property rights but also any contractual or other rights. This now covers, for instance, the right of a shareholder to receive information on the activity of a joint-stock company.
Shareholder register holders
All shareholder registers will have to be kept and maintained by an independent licensed registrar, irrespective of the number of shareholders. This means that joint-stock companies with fewer than 50 shareholders, which currently maintain their shareholder register themselves, have until 1 October 2014 to comply.
If uncertificated securities were illegally deducted from the account of a shareholder, that shareholder has the right to claim the same number of relevant securities from the person to whom the securities were credited. However, uncertificated securities evidencing only monetary rights or those purchased on a stock exchange may not be recovered from a good faith purchaser.
Another controversial issue resolved by the Amendments relate to the consequences of such illegal deduction of shares. If the person who illegally received the above securities has already voted at the general meeting or exercised any other shareholder right, the courts will be entitled to invalidate the decision taken at this meeting if the following conditions are met:
- the shareholders voting at the general meeting knew or should have known of the existence of the dispute about the rights related to the uncertificated securities; and
- the vote of the shareholder could affect the decision taken.
The deadline for challenging the decision of the general meeting is three months from the date when the person knew about the occurrence of the illegal transfer of the securities, with a cut-off period of one year from the date of the general meeting at which the decision was taken.
Immobilisation of certificated securities
The Amendments envisage certain situations when certificated securities may be immobilised (transferred to a person, who keeps custody thereof). While certificated securities are immobilised, the rules applicable to uncertificated securities apply to them for the purposes of circulation requirements.
2. Single Real Estate Complex / Railways, power lines and pipelines recognised as immovable property
The Amendments introduce a new type of indivisible thing: a single immovable complex. It consists of a set of buildings, structures and other things united by a common purpose and (i) either located on a single land plot, or (ii) inseparably connected physically or technologically; with the ownership right to the aggregate number of such objects to be registered in the state register as ownership over a single immovable thing. It is expressly stated that a single immovable complex may include linear objects (railways, power lines, pipelines and other). The main objective of this Amendment is to eliminate the ambiguous court practice on the legal status of such linear objects and, in particular, to ensure that the courts expressly recognise power lines, pipelines and other linear objects as a single immovable property notwithstanding that technically they may consist of several separate parts, including movable property. In addition, according to the Amendments the rules applicable to indivisible things shall also apply to single immovable complexes.
The notion of an indivisible thing has been substantially expanded. This notion was primarily established to clarify the legal status of linear objects. Pursuant to the Amendments, a thing used as a single object of proprietary rights that cannot be divided without destruction, damage or change of its purpose, shall be treated as an indivisible thing even if it consists of component parts. Furthermore, no replacement of any component parts of an indivisible thing shall result in the destruction of the existing thing or creation of a new thing provided that the essential properties of the thing remain unchanged. As a general rule, an indivisible thing may only be subject to enforcement in whole.
3. Ownership over proceeds derived from the use of property
Currently, under the general rule, all fruits, products and revenues derived from the use of a property belong to the person or legal entity lawfully using it (e.g. based on a lease agreement or free use agreement).
Pursuant to the Amendments, there will be a dramatic change– from now on, the owner of a thing will be automatically treated as the holder of the fruits, products and revenues derived from the use of such thing by another person, and therefore will be entitled to claim any such fruits, products and revenues, including those from the persons lawfully using the thing. This presumption will apply unless otherwise provided for by law, agreement or follows from the nature of the legal relationship.
It is therefore necessary for the interested persons to ensure that contracts for the use of a thing (such as for instance leases of equipment) contain express provisions on the ownership of the fruits, products and revenues of a particular thing being retained by the party using it.
4. Protection of honour, dignity and business reputation
The Amendments are aimed at protecting honour, dignity and business reputation (“Business Reputation”) of individuals and legal entities (“Persons”) against defamatory statements published in various media sources, including the Internet. It specifies the procedure for such protection and the measures available to the Person whose Business Reputation has been affected by false defamatory statements.
If the information discrediting the Business Reputation of a Person becomes widely known and it is impossible to refute it in public, the Person, apart from being entitled to monetary compensation, has the right to request that (i) the relevant information be removed; and (ii) measures be taken to ensure the prevention of it spreading further. The measures available may even include destruction without any compensation of manufactured copies of material carriers containing the defamatory information (such as newspapers or magazines) if it is impossible to otherwise delete it. If the defamatory information is available on the Internet, the Person is entitled to request that the relevant information be removed therefrom.
Persons who are legal entities seeking redress will not be able to claim for moral damages. This remedy is only available to individuals.In view of these Amendments media companies, website owners and other entities that publish information about other Persons must ensure that the articles they publish do not affect the Business Reputation of other Persons in order to avoid defamation claims and destruction of the manufactured copies of their product.