Putin signed the law on the issuance of „substitute” bonds

President Vladimir Putin signed a law that establishes special regulation of corporate relations in 2022-2023. During this period, companies will be able to have a „truncated” board of directors, and those subject to foreign sanctions will not be able to elect it at all. Russian companies that are faced with problems in fulfilling obligations under Eurobonds will be able to issue „substitute” local bonds in a simplified manner by the end of 2022 .

Law No. 292-FZ of July 14, 2022 was published on the official Internet portal of legal information on Thursday.

„Substitute” bonds and the limitation of cross-defaults
The law is designed to solve the problem of payments on Eurobonds, which Russian companies and banks faced against the backdrop of the introduction of unprecedentedly tough sanctions against the Russian Federation after the start of the military operation in Ukraine. Foreign correspondent banks and agent banks freeze payments of companies that are on the sanctions lists themselves or their owners appear on them. As a result, borrowers who are ready to pay on Eurobonds do not have the technical ability to do so.

The document allows Russian borrowers to place bonds until December 31, 2022 without registering a prospectus to „replace” Eurobonds. Payment for „replacing” bonds will be carried out in Eurobonds or in cash, the intended use of which is the purchase of Eurobonds. The document stipulates that the amount and term of payment of income, as well as the maturity and par value of Russian bonds must comply with similar conditions for Eurobonds.

In addition, until the end of 2022, the possibility of declaring cross defaults is limited if the borrower paid off Eurobonds in accordance with the temporary payment procedure or if he was unable to pay them (or paid them improperly) due to „non-financial circumstances” that are not could be prevented by the debtor. In such cases, the company’s creditors will not be able to demand early performance of obligations on other bonds, as well as on loans and borrowings.

More Time to Hold Treasury Stocks
The law softens a number of corporate procedures. The deadline for holding the Annual General Meeting of Shareholders (AGM) in 2022 is postponed from the end of June to the end of September (according to current rules, companies must hold it before June 30).

The period during which PJSC has the right to keep on its balance sheet treasury shares redeemed under a simplified procedure in 2022 is increased from one to two years. The simplified mechanism is valid from March to the end of August 2022, thanks to which companies, when buying back their shares on the stock exchange, have the right not to set the purchase price in buyback programs, that is, they can buy them at a market price.

Before the expiration of the established period, the company must sell the repurchased shares or reduce the authorized capital by redeeming these securities.

Until the end of 2022, the rules for calculating the share buyback price from shareholders who do not agree with the reorganization of PJSC are changing. The minimum price in this case will have to be determined based on the results of trading on the stock exchange for one month, and not for six months, as is now indicated in the law.

The right to act without a board of directors
Companies subject to foreign sanctions will not be able to elect a board of directors until the end of 2023 if such a decision is made by shareholders, the law says. The functions of the board of directors, if the joint-stock company refuses to elect it, will be performed by the collegial executive body (board, directorate), and in its absence – by the director, president or other sole executive body, the law establishes. However, not all the powers of the board of directors will be transferred to them. Decisions on the choice of priority areas of the company’s activity, increase in its authorized capital, approval of the annual report, annual financial statements will have to be taken by the general meeting of shareholders.

In addition, even in those Russian companies that did not fall under sanctions, until the end of 2022, the board of directors will be able to function in a truncated composition, but subject to the condition that at least three people remain in its composition. The law allows the powers of the boards of directors to be retained until the moment of re-election, even if more than half of the members have left them.

According to the current rules, the number of members of the board of directors is determined by the companies themselves, but it cannot be lower than the legal minimum. For non-public joint-stock companies – at least three people, for PJSC – five. However, if the company has more than 1000 or more than 10 thousand shareholders, then there must be at least seven and nine members of the board of directors, respectively.

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