Doing Business in Russia

Doing Business in Russia 17 Debt-to-equity conversion According to Russian corporate law, converting debt into equity is an option available to both LLCs and JSCs, excluding credit organisations (banks). An LLC's debt can be converted into equity in two cases. In the first, an LLC owes debt to a participant, and the participant exchanges the debt for additional charter capital. In the second, the LLC is indebted to a third party, and the third party can exchange the debt for a participatory interest equal to the amount owed. Shareholders are permitted to off-set their monetary claims against a company by purchasing additional shares in the JSC only if the shares are issued via a closed subscription. Liquidation A company can be liquidated by: A decision made at a general shareholders/participants meeting; - A court decision if the company has become insolvent or bankrupt; - - A court decision if the company has grossly violated certain laws; A court decision if the goals, which the company was established to achieve, cannot be realised; Expiration of the term or achievement of the goal for which the company was established (if provided for by the charter). Liquidation procedures include forming a liquidation commission, notifying creditors via issuing announcements on liquidation in mass media outlets, settling creditors' claims, distributing the remaining assets among the shareholders/participants, and deregistering the company with the state authorities with which the company originally registered. Tax deregistration can cause significant delays in completing the procedures, as a tax audit is performed before tax deregistration is permitted. Once a liquidation commission has been appointed, all rights to manage the company are transferred to the commission. If the liquidated company does not have sufficient assets to discharge its liabilities, insolvency procedures are applied. Insolvency Bankruptcy law provides protection to the creditors of legal entities and outlines the procedures to be followed in the event of bankruptcy. Bankruptcy is understood as the inability to satisfy all pecuniary claims made by creditors or the inability to meet and execute pecuniary obligations as recognised by a court. A legal entity is considered insolvent and consequently can be declared bankrupt by a court if it fails to meet its pecuniary obligations for three consecutive months after the date on which the obligations were due. Bankruptcy legal proceedings can be initiated if the debt owed to a legal entity is at least RUB300,000 (approximately USD4,600). A Russian legal entity is considered insolvent and can consequently be declared bankrupt by a court if it fails to meet its financial obligations (of approximately USD4,600) for three consecutive months following the date on which the obligations were due. Reorganisation Mergers, consolidations, split-ups, spin- offs and transformations are permitted under the Civil Code, under JSC law and under LLC law. It is possible to reorganise an entity via a simultaneous combination of the above different forms of reorganisation. Reorganisation entails a number of steps, e.g. a tax audit of the company by the Russian tax authorities; written notification to creditors, who are entitled to request that the company's obligations be prematurely terminated or accelerated; etc. This can mean that completion of a reorganisation can require considerable time and effort for an individual entity. ©2016 KPMG. All rights reserved.

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