19.09.07

The legislative draft “On Reorganization of Commercial Entities” was forwarded to the government at the end of last week. Main regulation of the proposed law allowing reorganization of legal entities with different organizational structures has been viewed as a very positive change. Currently, mergers and acquisitions are only possible between companies with a similar organizational structure; prior to such moves, companies must first change their form of ownership.

While the bill may ease this, it also states that, in certain cases, reorganization is only possible with government approval. This may be a dangerous regulation since the article does not specify which governmental authorities would be able to approval – or disapprove – of reorganization. Currently, this power rests only with the Federal Antimonopoly Service. But under the current wording, the same rights might be given to other organizations, such as the Federal Tax Service.

The proposed document also foresees the necessity of companies providing “juridical and economical justification for reorganization.” Lawyers caution that this regulation, drafted with a purpose to prevent dishonest reorganization, will lengthen the procedure. The new bill may also change relationship that creditors and businesses have during reorganization. Creditors who believe that a company’s reorganization will worsen their situation, must turn to an arbitration court to claim early fulfillment of liability, or with a claim for provision in case of possible financial loss. If the court rules that company’s reorganization may not be in a creditor’s interests, early payments can be demanded. This requirement was instituted to protect companies from “extreme” creditors who demand such early fulfillment of liability and sometimes thus interfere with a company’s activity or even bankrupt a company.

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