Business asked the State Duma to remove the 1990s ban on matryoshka firms

The ban on the creation of so-called matryoshka firms by private businesses is a discriminatory vestige of the last century, the RSPP believes. it needs to be abolished

The ban on the ownership structure of the type “company A owns 100% of company B, which owns 100% of company C”, introduced into the law on joint-stock companies in 1995, should be repealed, since, on the one hand, it can be bypassed if desired, and on the other hand, it is possible situations of involuntary violation of the law, for example, when one of the two participants decides to leave the company. This is the opinion of the Russian Union of Industrialists and Entrepreneurs (RSPP, representing the interests of big business), which proposed the State Duma to adopt the relevant amendments. RBC has a letter on behalf of the HEAD of the RSPP, Alexander Shokhin, to the chairman of the State Duma Committee on Property, Land and Property Relations, Sergei Gavrilov, and the committee confirmed its receipt.

There are already exceptions to the ban on nesting doll structures for state assets: the “granddaughters” of defense concerns and the state corporations Roskosmos and Rostec can be 100% owned by structures whose only participant is a defense holding or the corresponding state corporation. In mid-April, the State Duma adopted in the first reading a bill allowing the state to transfer 100% of a joint-stock company to enterprises that themselves are 100% owned by the Russian Federation. Currently, in order not to violate the law, the state retains one share in such transferred companies.

The fact that private businesses, as well as regions and municipalities, are not exempt from the ban on nesting dolls is discrimination, writes Shokhin. “Business entities not associated with the Russian Federation will be forced to fully comply with the established ban, including when structuring a business for the purpose of circumventing sanctions, which is in the nature of discrimination based on the form of ownership,” the letter says.

RSPP asked to limit the rights of foreign shareholders Economics

The head of the Russian Union of Industrialists and Entrepreneurs proposed to abolish the ban on nesting dolls for all business entities. To do this, it is necessary to amend the relevant articles of the Civil Code, the law on joint-stock companies and the law on limited liability companies, where this prohibition is mentioned, follows from the letter.

The Property Committee redirected RBC's request to the State Construction and Legislation Committee, referring to the fact that the latter is specialized on this issue. The State Construction Committee, as well as the Ministry of Economic Development, did not respond to requests from RBC.

Rudiment of the last century

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The prohibition for business companies to have another company consisting of one person as the sole participant was introduced in the 1990s to prevent abuse by the parent companies of holdings and evade responsibility for the actions of subsidiaries, the RSPP letter says.

“Such an approach could be considered relevant at a time when civil and corporate legislation, as well as bankruptcy law, were just beginning to take shape and did not contain effective rules on the liability of controlling persons, as well as on control over related party transactions,” follows from the document.

The established prohibition mechanism was not initially effective and was easily overcome: it was enough to include a technical shareholder in the “grandchild” company, which, among other things, could be the parent company itself, Alexander Varvarin, vice president of the RSPP, explained to RBC. “Since the implementation of existing rules entails significant costs for the business of holding corporate events, it is necessary to get rid of the legal rudiment of the 1990s of the last century as soon as possible,” he stated.

Alexander Shevchuk, executive DIRECTOR of the Association of Professional Investors, agrees: “The norm is really outdated and, moreover, didn’t really work.” “The ban could be easily circumvented, so the rejection of such instructions would be positive,” he told RBC.

The current regulation is completely redundant, especially given the current difficult situation, says Tatiana Boyko, Senior Associate in M&A and Corporate Law at EPAM. “The ban forces participants in the circulation to circumvent it by introducing an often nominal second participant, which creates unnecessary costs,” she stated. If it is canceled, then companies will stop constantly “stumbling” on an unnecessary norm and will be able to solve the real problems that they now face, Boyko emphasizes.

Lifting the ban on nesting dolls will help organizations at risk of sanctions, Yulia Bunygina, a lawyer at Forward Legal, believes. Often, in the face of external restrictions, it is necessary to create new subsidiaries or sell existing ones, she said. “If at the same time there is a risk of a “matryoshka”, you have to introduce a technical participant. The adoption of the RSPP initiative will make one less formality,” she explained.

Difficulties due to "matryoshka"

In business practice, situations arise when one of the participants leaves a company that owns 100% of another company, as a result, the only participant remains in it. Although liability for this violation is not established by law, such companies are limited in making transactions: regulators can challenge them in COURT and declare them invalid.

If companies do not comply with the ban on the formation of the organizational structure of the "matryoshka", they face a number of significant legal risks, the letter says. Among them are the following.

The impossibility of withdrawal of the participant from the society.

If company X has two members (legal entities A and B) and one (B) leaves the membership, then the registration authorities can check whether member A itself has a single owner. If this is the case, some companies manage to register the changes, while others do not (there is no unified judicial practice on this issue).

Suspension from participation in competitions and auctions.

The Federal Antimonopoly Service clarified in 2015 that matryoshka companies cannot act as buyers of state property. This is also confirmed by judicial practice: the courts excluded such organizations from the list of participants in auctions for the sale of state property, the RSPP points out.

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