Dear Sirs,

On December 31, 2009 the provisions of the Federal Law No. 352-FZ of December 27, 2009 “On amending of certain legislative acts of the Russian Federation with respect to revision of restrictions applicable to business entities within formation of share capital, revision of measures of creditors’ rights protection in case of share capital decrease, change of requirements to business entities in case of inconformity of share capital to net assets value, revision of restrictions relating to bond issue by business entities” (hereinafter the “Law”) which introduce essential amendments to corporate legislation and to legislation on securities market, came into force.

We would like to draw your attention to the essential amendments to corporate legislation and legislation on securities market:

1.       Set off of the participants’ monetary claims to a limited liability company (except for credit organizations) is introduced and can be applied in case of additional contributions to the company’s share capital by its participants or the third parties that become the company’s participants.

2.       Set off of the shareholders’ monetary claims to the joint stock company (except for credit organizations) is introduced and can be applied in case of additional share issue in form of closed subscription.

3.       The Law changes the actions required from a joint stock company (except for credit organizations) if its net assets value becomes less than the amount of its share capital.

Thus, if at the end of the second or each subsequent financial year the company’s net assets value becomes less than the amount of its share capital, the board of directors (supervisory board) during preparation to the annual general shareholders meeting shall include to the annual company’s report the section relating to status of its net assets and other information stipulated by Russian law. If within statutory provided terms net assets value remains less than the amount of share capital, the company shall adopt one of the following decisions:

§       on decrease of its share capital to the amount not exceeding net assets value;

§       on the company’s liquidation.

If upon expiration of the prescribed term the company’s net assets value becomes less than its share capital for more than 25%, the company shall publish within terms and procedure provided by Russian law notifications on decrease of the company’s net assets value.

If upon expiration of the prescribed term the company’s net assets value becomes less than the statutory provided minimum share capital, the company shall adopt a decision on its liquidation.

4.       The Law establishes the rights of a joint stock company’s creditors (except for credit organizations) in case of decrease of net assets value and in case if the company fails to meet statutory provided deadlines in the event of net assets value decrease.

So if creditor’s claims occurred prior to publication of notification on decrease of company’s net assets value, such creditor is entitled within statutory terms to demand an acceleration or termination of obligation and compensation of damages. The limitation period for addressing to court with such a claim is 6 months from the date of last publication of the respective company’s notification.

In addition the Law envisages situations when the court is entitled to dismiss the respective creditors’ claims.

If the company fails to comply with statutory provided terms of performance of obligations in case of decrease of the company’s net assets value, the company’s creditors have the same right as in case of publication of notification on decrease of net assets value. Moreover, tax authority or other authorized state or municipal authority is entitled to file a suit on the company’s liquidation.

5.       A joint stock company within statutory terms is obliged to provide to the tax authority specified information on the decrease of its share capital.

If creditor’s claims occurred prior to publication of notification on decrease of company’s share capital, such creditor is entitled within statutory terms to demand an acceleration or termination of obligation and compensation of damages. The limitation period for addressing to court with such a claim is 6 months from the date of last publication of the respective company’s notification.

In addition the Law envisages situations when the court is entitled to dismiss the respective creditors’ claims.

6.       Additional information on a joint stock company shall be included to the Unified State Register of Legal Entities:

(A)      information on the process of share capital decrease;

(B)      information on net assets value as of date of termination of the last completed reporting period.

7.       The Law establishes requirements to surety under suretyship agreements which secure bond obligations.

8.       The following specifics of business entities’ bond issue are established:

§       bond issue by a business entity is allowed after full payment of its share capital;

§       nominal value of all business entity’s bonds shall not exceed the amount of its share capital and (or) the amount of security provided by the third parties to the business entity for this purpose;

§       if there is no third party’s security, bond issue is allowed not earlier than on the third year of the business entity’s incorporation, provided that annual financial statements for the two completed financial years were duly approved.

* * *

We hope the information above is helpful to you.

For further information on ALRUD Corporate practice please visit our Web-site

or contact directly Senior Partner Vassily Rudomino [email protected]

and Partner Alexander Zharskiy [email protected]

Kind regards,

ALRUD Law Firm

Please note: We would like to draw your attention to the informational purposes of this newsletter and to the fact that it cannot be a ground for making a decision in each particular case. When preparing this newsletter all the information was taken from open sources only.