Shareholders’ agreements as a way to freedom


Just over half a year has passed since the re-introduction of shareholders’ agreements into Russian law, a good moment to stop and look at how this legislative infusion has changed the way deals are actually structured in Russia.

‘Although the change has not fundamentally altered the landscape of large investment deals with the participation of Russian companies,’ says Andrey Filippenko, an associate in Baker & McKenzie, ‘in most cases these deals still involve foreign entities, but now we are more likely to work on projects where our clients enter shareholders’ agreements under Russian law.’

This is an important victory; yet a reluctant one: the legislator had no choice but to interfere and reinstate shareholders’ agreements which by that time had nearly died at the hands of the judiciary.

‘Legislative regulation of shareholders’ agreements was in a sense a measure of necessity,’ Mr Filippenko notes, ‘Recently in several notable cases the courts have questioned the very possibility of shareholders’ agreements in relation to Russian companies.’

And here is the glitch. Though the existence of a shareholders’ agreement in Russian law is no longer an issue, its scope remains obscure.

Indeed, where does the freedom of shareholders to regulate their affairs end and the compulsory rules of corporate law begin? While the problem may seem theoretical, it is not. Are additional shareholder rights allowed – apart from those determined by the law – such as, for instance, the right of a veto?

Another issue to be resolved is the remedy for breaching an agreement. It is now possible for the parties to agree on a penalty if an agreement is broken: it can be a fixed sum or determined by an agreed set of rules. This is a big step forward, as it relieves the non-breaching party from the burden of proving actual damage. Yet, there is a chance that courts would be willing to exercise their right to interfere and lower the penalties.

Finally, the question of the possibility of arbitration is open: can a dispute based on a shareholders’ agreement be referred to arbitration and resolved outside the state courts and, in a wider perspective, outside national law?

Here lies the essence of this legal instrument and the key to its misfortunes. It is supposed to be the quintessence of contractual freedom, unobstructed by a paternalistic, soft-hearted judiciary and perennial complainers unwilling to cling to their promises. When it is not, it is not really needed as there is always an alternative out there, beyond Russia’s borders.


February 10, 2010