B2B: Changes to the Civil Code: Myths and Reality

Agreat debate over theRussian Civil Code was set inmotion onJuly 18, 2008, with thesigning ofthe Presidential Decree on

Svetlana Barinova

Of counsel
Dentons

Improving theCivil Code ofthe Russian Federation. Five anda half years later, thedisputes surrounding theCivil Code have not subsided, changes are still being made, andthere is no end insight.

Early on, inimplementation ofthe edict, a"Concept forDevelopment ofthe Civil Legislation ofthe Russian Federation" was developed. TheConcept envisaged systematic changes inall major divisions ofthe civil law. In2009, after theConcept was approved, work began onmaking it areality. Theresult ofthat labor was more than 200 pages ofdraft amendments covering all four parts ofthe Civil Code. Inthat form—amendments toall four partsa bill passed thefirst reading onApril 27, 2012.

Atthat time, inApril 2012, it was expected that thebill would swiftly be implemented; second andthird readings were planned inthe coming weeks, with entry intoforce targeted forSept. 1, 2012. But nothing went according toschedule; so many comments were submitted concerning theApril bill that thesecond reading was first postponed tothe autumn session andthen pushed back several times. Finally, inNovember 2012, anunprecedented decision was made: tosplit thebill intoseveral parts andconsider them separately atthe second reading.

Andso it happens that now, instead ofone big law onamendments tothe Civil Code, we have several small laws: some that have taken effect, some partially passed but not inforce, andsome not yet passed. Thesmall laws that have been passed often differ greatly fromwhat was originally proposed inthe first big bill. Tocomplicate matters further, thesmall laws have been approved not inthe order ofthe parts ofthe Civil Code, but rather based onwhere thefewest disputes arose, with theresult that theamended parts inthe Civil Code alternate with those that remained unchanged. Furthermore, some articles ofthe Civil Code have been changed more than once.

Ofcourse, thesituation is anot asimple one, andthere are numerous questions anduncertainties. Practice shows that many are confused about what has changed inthe Civil Code andwhat hasn't, andif something has changed, then inwhat wayas set out inthe first bill, or insome other way? Some mistaken opinions have been repeated so often that they already qualify as myths about theCivil Code. Here are some ofthem:

Myth #1. TheCivil Code has changed completely. Forget everything you have learned. First, it has not changed completelythe changes mainly affect parts 1 and3 (despite theoriginal plan toamend all four parts ofthe Civil Code). Parts 2 (contractual obligations) and4 (intellectual property) are nearly untouched. Second, two very important sections ofPart 1 have been left unaltered: legal entities andreal rights (rights inrem). Andit is currently unknown when they will be changed or whether they will be changed atall. Third, incomparison with thefirst big bill (which was not adopted), thesmall laws (which have been) are less radical interms ofthe number andquality ofthe changes.

Myth #2. Corporate relations have been included inthe sphere ofcivil law. Onthe one hand, this is correct this is now expressly indicated inarticle 2 ofthe Civil Code. Onthe other hand, before theCivil Code was amended, many aspects ofcorporate relations, although not referred todirectly inthe Civil Code, were nevertheless effectively regulated byit (such as activities ofcompanies, rules ofcorporate governance, rights andobligations ofparticipants andshareholders, etc.). Thus theamendments have not changed thestatus ofthese issues under theCivil Code, but rather fixed theprevailing view andeliminated grounds fordisputes.

Myth # 3. All CJSCs have toreorganize immediately! Shareholders inclosed joint-stock companies can rest easy there is no need toreregister or reorganize. First, legislators' desire toreplace closed andopen JSCs with public andnonpublic companies was never accompanied bya requirement toreorganize or reregister existing JSCs. Onthe contrary, it was stated inthe transitional provisions that CJSCs could attheir option convert toLLCs or production cooperatives or (note!) retain thelegal form ofa joint-stock company. Second, thechapter onLegal Entities, which contains thearticles onjoint-stock companies, not only remains unchanged, but is not even included inthe State Duma's discussion outline. When these chapters ofthe Civil Code will change, or whether they will change atall, is still unclear.

Myth #4. Theperiod oflimitation ofactions has changed. Infact, thegeneral limitation period remains unchanged, atthree years fromthe time defined inarticle 200 ofthe Civil Code (i.e., when aperson learned or ought tohave learned about aviolation ofhis rights). However, aperiod ofrepose has been introduced: themaximum period forjudicial protection ofa violated right is now 10 years fromthe date ofviolation ofa right. Interestingly, article 196 was changed twice in2013: first a10-year limit was established, andthen the10-year limit was lifted forcircumstances involving terrorist activity (which are established bythe Law onCounteracting Terrorism).

Myth #5. Everything has changed with powers ofattorney: they can be irrevocable, open-ended, andnot certified with aseal. There are indeed innovations that affect powers ofattorney, but not as many as there may seem tobe. Irrevocable powers ofattorney are permitted only inconnection with business activity. Moreover, they can still be revoked: first, if arepresentative abuses his or her powers and, second, if such abuse may occur.

Thethree-year time limit ona power ofattorney has been removed, but, as before, attention should be paid when specifying thedate andduration ina power ofattorney, because if theduration is not specified, it automatically lasts forone year, andif thedate ofissuance is not specified, it is null andvoid.

What prompted lawmakers toabolish therequirement ofa seal ona power ofattorney froma legal entity? Theanswer is unknown, but time will tell whether that innovation will stand thetest ofpractice. Atpresent, common practice continues tobe that legal entities put stamps inall documents that they issue.

Myth #6. New rules forholding meetings ofshareholders or participants have been established. Superficially, this is true; theCivil Code now contains anew chapter 9.1 entitled "Resolutions ofmeetings."However, therules ofthis new chapter apply only tothe extent applicable laws or theprocedures established thereby do not provide otherwise. Because there are special laws onjoint stock companies andlimited liability companies, themeetings ofparticipants andshareholders remain thesame, without significant changes.

Ofcourse, it would be completely incorrect if, after having read theabove, one thinks that nothing has significantly changed inthe Civil Code andcontinues living as before. Tothe contrary many things have changed! Indeed so many things that lawyers, theauthors ofdraft laws, representatives ofthe Supreme Arbitration Court andother interested persons keep discussing theinnovations andjointly endeavor todevelop practical recommendations fortheir implementation. Further, thework onthe Civil Code continues two more laws which historically were parts ofthe initial big bill are inthe State Duma's discussion outline. So, as oftoday, theCivil Code is intransitional status, andthe changes thereto can only be evaluated as ofthe current moment, without long-term recommendations.