Overview of legislation changes corporate governance during the COVID-19 pandemic
16 April 2020
As a result of the coronavirus pandemic, many companies may be or are already unable to carry on normal business activities or perform corporate procedures. Therefore, during the period of self-isolation and non-business days timely fulfilment of obligations stipulated by corporate law becomes really vital. So, relevant amendments were adopted to Federal Law No. 14-FZ of 8 February 1998 "On limited liability companies" (hereinafter, the Law on LLCs) and Federal Law No. 208-FZ of 26 December 1995 "On joint-stock companies" (hereinafter, the Law on JSCs).
The amendments were introduced by Federal Law No. 115-FZ of 7 April 2020 "On amendments to certain legislative acts of the Russian Federation regarding the content unification for annual reports of state corporations (companies) and public law companies, establishment of specifics of corporate relations regulation in 2020 and suspension of effect of of certain legislative acts’ provisions of the Russian Federation "(hereinafter — the Law), as well as Federal Law No. 50-FZ dated 18 March 2020 “On Acquisition by the Government of the Russian Federation of Ordinary Shares of Public Joint Stock Company Sberbank of Russia from the Central Bank of the Russian Federation and on Invalidating Certain Provisions of Legislative Acts of the Russian Federation’ "(hereinafter — Law No. 50).
The Law provides for the following key changes concerning regulation of operations of joint-stock companies (hereinafter, JSCs) and limited liability companies (hereinafter, LLCs).
Decision on whether a JSC is a Publicly-traded Company
If the charter and the name of a JSC contains an indication that this joint-stock company is public, but, in fact, the JSC has no signs of a public company as established by the Russian legislation, the legislation provided for an obligation for the JSC to take a decision and adequate actions until 1 July 2020 to confirm the public or non-public status of its operations. The Law provides a JSC with an additional six-month period (i.e. until 1 January 2021) for making this decision.
Annual General Meetings in LLCs and JSCs in 2020
The annual general meeting of JSC shareholders may be held within a timeframe determined by the board of directors (supervisory board), but not earlier than two months and not later than nine months following the end of the reporting year (i.e. not later than 30 September 2020).
The ordinary annual general meeting of LLC participants is held not earlier than two months and not later than nine months following the end of the financial year (i.e. not later than 30 September 2020).
Consolidated Financial Statements for FY 2019
The deadline for submitting and publishing consolidated financial statements in 2020 has been changed for companies required to prepare and publish such financial statements. The amendments apply to both, annual and interim reporting.
For issuers required to disclose information in accordance with Federal Law No. 39-FZ of 22 April 1996 "On the securities market", the disclosure deadline has been extended by 90 days for annual consolidated financial statements and by 120 days for interim consolidated financial statements. For other entities required to publish their consolidated financial statements, the disclosure period has been extended by 60 days for annual consolidated financial statements and by 90 days for interim consolidated financial statements.
Holding a General Meeting in a JSC
Law No. 50 amended the Law on JSCs so that any general meeting of shareholders (including annual meetings) may be held in the form of absentee voting until the end of 2020, regardless of the issues on the agenda. No similar changes are provided for LLCs, and the general meeting of their participants shall be held in the form of in-person voting as before on certain issues of competence of this corporate governance body.
Support for companies with negative net assets by the end of 2020
According to the Law, decline in the value of a JSC’s net assets below its charter capital does not entail an obligation for the board of directors (supervisory board), while preparing for the annual general meeting of shareholders, to include a section on the status of its net assets in the annual report, and a JSC shall be released from an obligation to take a decision on the share capital decrease to an amount not exceeding the value of its net assets or on its liquidation.
A similar rule is provided for LLCs. A decrease in the value of an LLC’s net assets below the size of the charter capital will not constitute the basis for an obligation to take a decision on share capital decrease to an amount not exceeding the value of the LLC’s net assets or on its liquidation.
Internal audit
The Law has changed the deadline for the establishment of internal audit at a public JSC, and now the corresponding obligations arise from 1 January 2021 (rather than from 1 July 2020, as previously stipulated).
The changes relate to the establishment of an audit committee by the board of directors (supervisory board) of a public JSC, performance of internal audit, approval of internal documents determining the policy for organisation and performance of internal audit, appointment of a person responsible for organising and conducting internal audit, as well as other issues pertaining to internal audit in accordance with the Law on JSC.
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