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No Affiliation in New Civil Code

18.09.2012 10:34 / RBC - daily

The debate over the final version of the new Civil Code is in full swing. By the second reading, the draft lost affiliation and controlling entity norms, supported by MIFC Taskforce. Head of MIFC Taskforce Alexander Voloshin has pleaded with the Head of Duma Legislative Committee Pavel Krashennikov to retain the norms in the new CC draft. Expert opinions are divided: some say the omitted norms will mean a return to the `wild 90`s`, some point out that retaining these norms will be responsible for mass miscarriages of justice.

The new Civil Code 2nd reading draft was published on the Duma committee website yesterday. The new document omits all affiliation and controlling entity norms, drafted with MIFC Taskforce (including a norm that allowed the court a wider interpretation of affiliation, even if the case concerns indirect control).

In response to this, Head of MIFC Taskforce Alexander Voloshin addressed a letter to the Head of Duma Legislative Committee Pavel Krashennikov, asking to "support the draft bill in its original form, as passed by the Duma in the first reading". "These norms are central to the bill and form a vital cornerstone of the International Financial Center in Moscow", states the letter.

Mr.Krashennikov, however, denied the existence of the letter. "We are willing to hear all sides. Business people would benefit from joining forces and acting on a consolidated standpoint. The business is represented not only by MIFC Taskforce, but also the Russian Entreprenueurs Union and Business Russia Union. Their opinion is that these norms do not foster business, in fact they act as barriers. Affiliation is not a Civil Code matter. Nobody would put GPRS on an old magnetic compass", said the United Russia deputee.

Russian Entreprenueurs Union state that the norms were eliminated rightly, as they could allow courts a wider interpretation of affiliation, placing undue liability on shareholders. Corporate Relations Managig Director at Russian Entreprenueurs Union Alexander Varvarin says norms such as these in the new Civil Code could affect business.

The idea to exclude affiliation is not properly substantiated and stem from controlling shareholders` wish to prolong the favourable status quo, replies MIFC Taskforce member Denis Spirin: "These new principles offer fully-fledged regulation instead of existing ineffective norms, and are aimed at balancing the interests or corporate relations, which currently leans too much in favour of controlling shareholders".

Partner at Pepelyaev Group Sergey Spasennov fears that eliminating the norms from the new CC will prove a `step backwards into the past`, while mala fide entrepreneurs will continue to re-register assets whenever they want to avoid paying subsidiaries` debts. Anton Panchenkov, Head of Group at Goltsblat BLP, demurs: "These norms as they are leave too much to the judge`s imagination, with potential risk of abuse, given today`s corruption level. For instance, if your partner is also your neighbour, you could be qualified as affiliates, and treated as such".

Even if affiliation is omitted from the final Civil Code version, judges will still be looking for factual connection between companies and individuals, says Deputy Head of Private Law at the Supreme Arbitration Court Denis Novak. "This is the global trend", he concludes.

Yaroslav Nikolaev

Corporate and contract lawProject Group №2Alexander Voloshin