21 January 2016

On September 1, 2013, participants of society, whose CEO made a deal to obviously unfavorable conditions for society, a new opportunity to defend their rights: they may challenge such a transaction on the basis of para. 2, Art. 174 of the Civil Code. This rule allows you to refer to the fact of damage to society and to the dishonesty of the counterparty of the Company; the totality of the circumstances allows to recognize the transaction invalid. . Thus, this rule applies to contest only those transactions that were committed after 01.09.2013 (date of entry into force of the Federal Law of 07.05.2013 № 100-FZ «On Amendments to subsections 4 and 5 of Section I of the article and the first part of 1153 Three of the Civil Code of the Russian Federation «, which have been amended accordingly). Thus, at the moment of judicial practice approaches to the use of the base to challenge transactions still being formed. However, there are some examples of cases where courts have applied this ground of invalidity of the transaction (or, alternatively, just refused to apply it). Accordingly, the companies important to understand the reasoning of the court in such disputes in order to effectively protect themselves from the actions of unscrupulous directors.
Inequivalence price itself does not allow to challenge the transaction
To challenge the transaction n. 2 st.174 Civil Code of the Russian Federation must prove that the following conditions are met:
1) damage to the interests of the legal entity resulting from the transaction;
2) bad faith counterparty to the transaction, namely:
(a) contracting agreement with the CEO parties to the transaction;
(b) a case where the counterparty knew or should have known about the obvious damage to society, which is a party to the transaction.
Analysis of judicial practice shows that the most frequently to justify harm the public interest plaintiffs participating societies refer to non-equivalence counter security received on the transaction, and / or coordination of the parties agreed to defer payment on atypical conditions (usually disputed sales contracts shares or interests or leases).
The courts assess these arguments of the plaintiffs in the following way.

Inequivalence counter of the opinion of the courts, can testify to the Company due to the damage, if it is accompanied by other clearly atypical conditions of the contract (for example, the condition of the interest-free installment payment for a period of more than one year) and / or the specific factual circumstances (for example, the loss of the company the sole or main the object to make a profit) (Resolution AS Northwestern District from 05.06.2015 on case number A56-56225 / 2014 from 14.04.2015 on case number A56-65107 / 2014 speaker Ural district from 11.17.2014 on case number A60- 1731/2014 (the last resolution of the case was sent for retrial — acts of lower courts not usmotrevshih in the evidence of the damage have been canceled)).

However, in cases where the disparity of the counter is the only circumstance relied on by the plaintiff, the deal had not yet been recognized as invalid with reference to para. 2, Art. 174 of the Civil Code.
At the same time members of the Company who intend to rely on in court on the non-equivalence of the counter, it is important to consider the following fact: the documents confirming the rejection of the contract price from the market price level, the courts are quite demanding.

For example, the AU Northwestern District refused to accept as evidence the expert opinion. The Court pointed out that the document is neither an expert opinion or expert advice in the procedural sense. It does not correspond to Russian legislation on appraisal activity does not meet federal standards for evaluation in form nor in content (Resolution AS Northwestern District from 03.10.2015 on case number A56-21726 / 2014).
In another case, the AU of the Moscow District dismissed the link plaintiff’s statements, made in the framework of the examination, citing the fact that the experts do not take into account the income of the tenant from the rental property for sublease (the subject of challenge is an additional agreement to the lease contract, which increases the size of the lease payments) (Regulation Speaker of the Moscow District of 11.12.2014 on the case number A40-22371 / 14-28-192). In another case the AU Northwest district has not accepted the reports on the market value of buildings as reliable evidence, because, according to the court, these statements do not take into account the inadequate sanitary-epidemiological status of land on which there are buildings (Resolution AS Northwestern District of 01.27.2015 on the case number A56-73930 / 2013)
.
Thus, a reference to the non-equivalence of the counter under the agreement may be used for proving the existence of the damage — but not alone, and in combination with other circumstances.
Also, companies should bear in mind that, despite signs of losing trades, the court may deny the claim — in the event that a transaction deemed economically viable. According to the explanations of the Supreme Court, the court can come to this conclusion in the following cases:

— The transaction was a way to prevent even greater losses to society;
— The transaction, though it is itself losing, was part of related transactions with a common economic purpose, as a result of which the company received a benefit;
— Unfavorable conditions of the transaction was the result of mutual concessions equivalent in the relationship with the counterparty, including other transactions
(p.93 Resolution of the Plenum of the Supreme Court from 23.06.2015 N 25 «On application by the courts of certain provisions of Section I of the Civil Code of the Russian Federation»).
Deferred payment confirm the detriment of society in conjunction with the other circumstances
Quite often, participants in the company as evidence of damage to the perfect director transaction referred to defer payment under the contract for atypical conditions (usually for a period of about a year or more, while on an interest-free basis). As in the case of the disparity of the counter, together with other circumstances, such a delay is often interpreted by the court as proof of the fact of damage.
The most striking example is the case of the contestation of contracts of sale of shares of the company «Airport» Koltsovo «(determination of the Supreme Court of 05.08.2015 in case number A60-14063 / 2014). In two contracts it sold more than 60 thousand. Shares; the total price of the transactions amounted to approximately 1.7 billion. rubles. In support of the society, the emergence of damage from the seller of the transaction the plaintiff referred to the fact that the contract the buyer and seller have agreed on atypical for such large transactions condition — an interest-free deferred payment under a contract for 12 months.
Other circumstances also influenced the conclusion of the court of the occurrence of damage as a result of the transaction, was the retreat side of the dispositive norm n. 5, Art. 488 of the Civil Code: the parties have expressly provided that the shares prior to payment by the buyer are not pledged to the seller. As a result, courts have rightly pointed out, the buyer gets the opportunity to dispose of their shares before the payment (Resolution of the Seventeenth Arbitration Appeal Court of 10/21/2014 in case number A60-14063 / 2014).

At the same time in another case the postponement of payment under a contract for 3 years was the only circumstance referred to by the plaintiff in support of the transaction caused the damage. The amount payable under the contract, amounted to about 12 mln. Rubles. As a result, the courts of three instances rejected the applicant claims (AC decision from 02/10/2014 Moscow region on the case number A41-68629 / 13 decree of the Tenth Arbitration Appeals Court of 05.21.2014 in case number A41-68629 / 13, AS Moscow District 08.19.2014 on the case number A41-68629 / 13).

Thus, the members of the Company who wish to challenge the deal on n. 2, Art. 174 of the Civil Code, you have to be prepared to demonstrate to the court is a set of circumstances that would indicate damage to the public interest.
The counterparty should be aware of the damage to the transaction, if it is obvious for an ordinary member of turnover
Besides the fact of harm to society, to challenge the transaction according to claim 2 st.174 the Civil Code is also necessary to prove the bad faith of the counterparty. This transaction may be invalidated in the following cases:
— I found that the other party to the transaction knew or should have known about causing apparent damage to society as a result of the transaction;
— Established the existence of circumstances that indicate collusion or on other joint activities director and the other parties to the transaction to the detriment of society.
In view of the above, there are several approaches to proving the bad faith of the counterparty:
(1) demonstrate that, on the basis of this transaction, the counterparty must have known about the obvious damage caused to the public this deal;
(2) characterization of the relationship with the CEO of a company in terms of possibilities to assume the existence of collusion between them;
(3) the establishment of direct collusion of the CEO and the counterparty to the transaction.

It is easy to notice that the second approach involves not only crisp, unambiguous conclusions as construction arguments, ultimately based on assumptions. And this, in turn, dramatically increases the discretion of the courts in their assessment. The third approach is difficult to implement in practice: the parties shall enter into an agreement, apparently seeking to hide it from others. Because of this, directly prove collusion between the General Director and the counterparties tend to be impossible.

Thus, for practical purposes it is the first of these methods of proving best meets the needs of the plaintiffs challenging the transaction by reference to para. 2, Art. 174 of the Civil Code. In this approach, in fact, directed the participants of the turnover and the Plenum of the Supreme Arbitration Court. In his explanations, he pointed out that the other party should be aware of the presence of apparent damage when it was obvious to any ordinary contractor at the time of the transaction (para. 2 of Resolution of the Plenum of the RF from 16.05.2014 № 28 «On some issues, associated with challenging major transactions and related party transactions «). In this case, the presence of explicit damage to society indicates transaction to deliberately and significantly unfavorable conditions, for example, if the provision obtained by transactions of the Company, in two or more times lower than the cost of committed society in favor of the counterparty. Similar explanations were included in p.93 Resolution of the Plenum of the Supreme Court from 23.06.2015 N 25 «On application by the courts of certain provisions of Section I of the Civil Code of the Russian Federation.»

As the current judicial practice, this approach has prevailed, and in challenging transactions with reference to para. 2, Art. 174 of the Civil Code.
Thus, it is indicative of the wording used by the Arbitration Court of the Sverdlovsk region in considering the above-mentioned case of the sale of shares «Airport Koltsovo». The court agreed with the arguments of members of society-seller that any reasonable counterparty in the transaction on such terms [meaning the delay of payment for the shares for 12 months] had to use caution and to clarify the reason why a society with absolute participation of subjects of the Russian Federation shall provide such reprieve. Subsequently, this formulation in various forms has been reproduced and higher authorities, to examine the case.

Even more emphatically on a similar occasion expressed the AU Northwestern District: «The contents of the contract of assignment is not suspected as considered the Court of Appeal, and the obvious evidence of the transaction to the detriment of the interests of society and of the absolute awareness of the company to which the provisions of the treaty of cession can reliably know a clear damage done deal to society «(Resolution AS Northwestern District from 05.06.2015 on case number A56-56225 / 2014).

Thus, the interests of the plaintiffs, who want to challenge the transaction with reference to para. 2, Art. 174 of the Civil Code, in the best proof is clearly non-market conditions in which the transaction was concluded. This fact is considered by the courts and as a proof of damage to society, and as evidence of bad faith contractor (who must understand the nature of the non-market conditions).

On the other hand, if you show a «clear non-market» conditions is not possible, the situation is aggravated by the plaintiffs: in this case it is necessary to prove the conspiracy directly the CEO and the other parties to the transaction. However, if the company would still be able to prove the existence of such an agreement, the transaction may be invalidated (p.93 Resolution of the Plenum of the Supreme Court from 23.06.2015 N 25 «On application by the courts of certain provisions of Section I of the Civil Code of the Russian Federation») .

Accordingly, when the terms of the contract obviously point to the non-market nature of the transaction concluded by the Director General, the most effective for the purposes of contesting such a transaction will be the norm n. 2, Art. 174 of the Civil Code. At the same time, if the ordinary transactions of the transaction differs only one specific condition (even such an essential condition of the contract, the price), this will not be enough to successfully challenge the transaction. In this case, to the aid of other mechanisms for challenging transactions — for example, the Institute for related party transactions. However, if the related party transaction has been approved in the established order, but still caused damage to society, it can be challenged according to claim 2 st.174 the Civil Code (p.93 Resolution of the Plenum of the Supreme Court from 23.06.2015 N 25 " On application by the courts of certain provisions of Section I of the Civil Code of the Russian Federation «).

Thus, there is the practice of para. 2, Art. 174 of the Civil Code suggests that this provision is already a very effective mechanism to challenge transactions. But, of course, it should be remembered, and that, like any other legal provision, para. 2, Art. 174 of the Civil Code is not a panacea. Moreover, the challenges to the transaction shall not be the general rule, as a last resort, accessible only in exceptional cases.