Interconnected transactions is a term that is quite important in the framework of civil law relations in our society. Often, legislative bodies resort to it, despite the fact that a legal definition to this day has not been finalized. In many ways, the concept of “interconnected transactions” has become common among law enforcement for the same reason - there is no single interpretation of the term, which allows attempts to “pull the blanket to one’s side”.
Laws, rules, interpretations
The laws of our country do not currently give an exact definition of the term “transactions are interrelated”. Analysts expect the judiciary to resolve this issue, but there is no explanation yet, which is especially difficult amid a fairly diverse legal practice that makes it difficult to do business.
Civilists and specialists who are forced to interpret the concept one way or another agree that it is necessary to supplement the ninth chapter of the Civil Code with an appropriate definition. This will allow once and for all to resolve disputes related to whether it is possible to say in a particular case that the transactions are interrelated or the concept is not applicable to the situation.
In addition to laws examining the activities of legal entities, the concept of an “interconnected transaction”, its definition is important for the 28th federal law on competition in the market and the protection of this phenomenon. Such transactions are considered in the Tax Code and some articles of laws on bankruptcy.
Concepts and laws
For antitrust law, interconnected transactions are a phenomenon that must be taken into account when controlling concentration in the country's economy. As for corporate laws, for them the phenomenon plays an important role from the point of view of the correctness of the procedures associated with transactions classified as large. In addition, when concluding a variety of transactions for corporate law, the concept of interest comes to the fore. And it is largely based precisely on interconnected transactions.
Theory in practice
What is this about? For example, when concluding a fairly large transaction, company executives can get good benefits if they split it into several relatively small ones. Most often, this practice can be seen in the work of joint-stock companies. This avoids requesting permission from the shareholders meeting.
But if you study the 28th law on competition and the protection of this phenomenon, you can learn from the seventh paragraph that interconnected transactions are those that can be concluded only if the antimonopoly authority obtains approval. This applies to transactions in which they operate with shares, property rights or the property itself. The Federal Antimonopoly Service should coordinate the planned event when the object will be intangible assets, the book value of which is 20% of the book value of fixed assets. Obviously, trying to circumvent the laws and breaking up a single deal into many small ones, the leaders thereby commit illegal acts.
Bankruptcy
The federal law on the insolvency of legal entities provides for the use of interconnected transactions for the purpose of determining restrictions: which transactions can be arranged and which cannot. If a bankruptcy case has already been opened, this imposes a certain framework on the conclusion of agreements, therefore interconnected transactions, credit and collateral become key for the enterprise.It is also worth remembering that in 2009 a new chapter appeared that allowed to challenge transactions concluded by an entrepreneur, in relation to which the issue of bankruptcy is considered.
Related transactions - which ones?
In order to understand whether transactions fall into this category, the court analyzes various parameters, on the basis of which it draws a conclusion. There are a number of criteria, if satisfied, we can talk about mutual communication. Some of them have already become traditional for the judiciary during hearings in Russia, while others are still being studied. Analysts suggest that it will hardly be possible to systematize the criteria, how a definition will be deduced on their basis, allowing us to talk about whether the transactions belong to interconnected ones.
Often, the relationship is objectively explained if one transaction flows smoothly from another. Sometimes subjective reasons provoke the phenomenon of mutual connection, for example, a common goal pursued by a chain of interconnected transactions. Bankruptcy, the last buyer - these two aspects attract special attention of the court and serve as one of the indicators of mutual communication, coupled with the desire of the entrepreneur to evade responsibility.
AO: related transactions
Speaking about joint-stock companies, it is impossible not to mention the federal law. The 78th article discusses the concept of interconnected transactions. It is assumed that such are concluded so that the legal entity alienates, acquires certain property indirectly or directly. This article defines a major transaction as one whose value is a quarter of the carrying amount of the assets. The assessment is made at the moment when a decision is made in favor of the transaction. The exceptions are those arrangements that accompany economic activity in its usual course. Conducts in-depth workshops addressing related related-party transactions, Vegas Lex. The company is quite famous in Russia and has been operating since 1995.
From large transactions, the concept of interconnected obviously follows. If you want, it’s possible to include any of them, concluded by some enterprise, and there’s not even a time frame for establishing a mutual relationship between the two phenomena. This inaccuracy is a significant problem with current regulations. Those who jointly own a certain business can use such an imperfection of the legislation these days, against the background of which they can open litigations that take a protracted nature. As a rule, the aim pursued is pressure on other participants, shareholders.
And what in practice?
If we study the court cases, during which the interconnected transactions under the Federal Law 223 were considered, we can see that the court usually classifies events as events that quite obviously pursue the same goal. Judges reveal the mutual connection precisely against the background of conclusions about what were the real goals in each particular case.
Interconnected transactions for the purpose of determining a major transaction are those that could be combined into one, but with this approach it would prove to be approved. However, strictly limited criteria do not exist, therefore, the judge chooses circumstances that allow talking about mutual communication based on a personal view of the case, on the specifics of the case. Transactions in their appearance and nature often turn out to be such that there have never been similar cases in judicial practice, which forces lawyers to literally “invent a position on the go”.
It can be noted that if there was already a precedent when the judge decided in favor of classifying transactions as interrelated, then in future processes with sufficient similarity of situations, lawyers try to maintain this approach.
Improvements and stability
In the past few years, corporate legislation in our country in many aspects has become much more perfect than it was before.Nevertheless, some issues remain controversial, interrelated transactions will not be an exception. Judicial practice shows that the Federal Law No. 208 of 1995 and No. 14 of 1998 are insufficient to clarify the system. Moreover, the term “interconnected transactions” is often used to one’s own advantage in order to confuse the court, to defend one’s point of view - but without real reason for using such a concept.
Clarity of terminology is important not only in terms of the definition of large transactions and stabilization of the situation with them, that is, the exclusion of circumvention of laws. If we pay attention to the federal law under the number 208, and specifically to the first paragraph of Article 75, we can see that here the interconnected transactions are considered within the interests of the shareholders of a certain company. We are talking about the redemption by the company of a certain amount of stock (up to 100%) in the case when they decide in favor of a major transaction. This should be approved at the meeting of shareholders and if the results were not in favor of the transaction or the shareholders were not invited at all to such an event, then the question arises of the repurchase of shares back.
Qualification in practice
Conclusions about whether the court qualifies transactions as interrelated or refrains from doing this can be preliminary done by comparing a specific case with those already recorded in judicial practice earlier. It is worth remembering that usually the responsibility for interrelated transactions rests with the head of the enterprise in respect of which an investigation and trial is being conducted.
So, the key criteria to talk about the relationship between transactions and the breakdown of one large into several small ones in order to circumvent laws:
- subjects match;
- transactions affect each other;
- events are dependent;
- the economic goal is the same for all transactions.
How to ward off suspicion?
The most reliable method to remove suspicion is to prove that all of the above criteria are not applicable to the transactions considered by the court.
As for the composition of the subjects, it is assumed here that the transactions are planned by the same persons, concluded by them. These can be legal entities or individuals. The court may decide that, as a result of the perfect chain, the property is in the possession of one legal entity, which is the criterion for mutual communication.
On the other hand, a precedent is known when credit agreements secured by surety agreements were presented in the case, while several persons were borrowers, which did not allow the transaction to be classified as interrelated. The court ruled that each event was characterized by its own duties and rights.
Persons and groups of persons, as well as their goals
The court may recognize as an interconnected group of persons the contractors of one enterprise. This is based on the text of the federal law adopted in 2006 under the number 135. It is also allowed to add several affiliates to the group of persons. This is permissible based on the text of the law adopted in 1991 under the number 948-1.
Such phenomena, allowing to group people, can cause the classification of transactions concluded with them as interrelated. As part of the consideration of the case, the court identifies aspects of economic interaction. If such is found between the parties organizing the transaction, then we are talking about a mutual relationship.
A single goal, in turn, is considered in the context of the results given by the chain of transactions. If all of them allow us to come to some unified result, then the court can pass a sentence, evaluating the event as interconnected. This works when it is possible to prove that a similar result could be achieved with just one transaction, but it was deliberately avoided in order to circumvent the need for a meeting of shareholders.
However, there may not be a common goal between transactions.In this case, it is likely that the court does not recognize those as interrelated, but it does not equal 100%, a lot depends on other criteria.
Guilty - not guilty
If the company in court was able to prove that the chain of transactions suspected of being interconnected consists of activities that give rise to obligations, rights (this condition must be respected for everyone), then there is a chance to clear your reputation of any suspicions. But the court will draw conclusions about what kind of connections the transaction chain has, analyzing the direction of each individual operation. This is done even when the objects are different.
What is this about? An object is usually some property, rights. If the court finds that the chain of transactions has a single purpose, this will be a criterion for recognizing the relationship. On the other hand, if this criterion is the only one in the court that allows recognizing several measures as interconnected, then the prosecution will have to abandon its position: in itself it is considered insufficiently weighty.
Example
There was a situation when a certain joint stock company entered into a lease agreement. According to it, on a temporary use basis, it transferred the hotel complex, or rather, several specialized premises in it. In addition to him, there were other lease agreements that extended to other parts of the complex. The court ruled that the agreement was not interconnected because the subjects were different.
And what about the time?
This criterion is one of the most important for the court considering the recognition of transactions as related to each other. It is generally accepted that events that took place either simultaneously or in a rather limited time period are considered questionable from the point of view.
Judicial practice on this aspect still does not have a specific solution. There are many cases of judicial practice where the final decision was made in favor of recognizing transactions as not interrelated, since a fairly significant gap was observed between them in time. But the conclusion of several contracts on the same day immediately undermines the reputation of the company and gives rise to suspicions that this was done in this form, and not in the form of a single agreement, with one goal - to avoid bringing the issue to shareholders for discussion.
What time period is still considered suspicious, and which is not in doubt and allows us to talk about the lack of mutual communication? In the absence of specific statutory indicators, much will depend on the characteristics of a particular case, but in the general case, consider a fiscal year. Since this time period is important for accounting and reporting, and often plays an important role in corporate events, it is considered advisable to talk about a possible relationship only with respect to transactions that took place within one such period.
Evidence and evidence
The Arbitration Court of the Russian Federation ruled that the plaintiff, who believes that some enterprise has “turned” several interdependent transactions, must submit evidence of his position to the court. Based on the information provided, the judge may decide to assign this classification or refuse to recognize events as such.
If the plaintiff provides information from which satisfaction of several of the criteria mentioned above follows, but at the same time, the fact that each of the contracts is associated with unique obligations and rights obviously follows, the decision will be in favor of the head of the enterprise that concluded the transaction. Simply put, the court concludes that there is no relationship.
In order to prevent a discrepancy within the company, an internal regulation should be adopted that governs the specifics of concluding large transactions, where, among other things, the aspects of the parties ’interest should be registered.It must be remembered that recognition by the court of a chain of transactions as interconnected does not lead to their annulment. The only thing that follows from this fact is the requirement to obtain approval from the board of shareholders, the meeting of directors.