Evaluation of squeeze-out procedures

Wed, 24/03/2021

Bank of Russia issues a consultation paper on potential improvement of the squeeze-out procedures


On 25 January 2021, the Bank of Russia issued a consultation report, aimed at analysing the existing regulations and market practices for corporate squeeze-out procedures, as well as proposing potential improvements in the area.

According to the Federal Law on Joint Stock Companies, the majority shareholder has the right to announce the compulsory acquisition of the remaining stakes from the minority shareholders. This provision applies to those majority stakeholders who have acquired more than 95% of the share capital of a Russian company in the course of either a voluntary or a mandatory offer.

In its consultation report, the regulator concludes that the following potential adjustments might strengthen protection of minority shareholders’ rights and help to better fine-tune the balance of interests between the minority and majority shareholders:

- squeeze-out procedures could be launched via a preliminary court decision, which would allow the court to act as an arbitrator between the shareholders;

- certain steps could be taken to improve the price setting procedures. An independent evaluator, determining the squeeze-out price, could be appointed by the court or via a tender procedure supervised by the Bank of Russia. The requirements to the valuation date could be set more precisely, and the share price discounting to the factor of minority shareholding could be prohibited;

- purchase amounts could be transferred by the majority shareholders to specialized registrars’ or custodians’ cash accounts to avoid commingling with other funds held by them;

- legal grounds for squeeze-out procedures could be extended to include acquisition of the 95% stake by the majority shareholder under any circumstances (not only as a result of a preceding voluntary or mandatory offer). Indirect controls could also be taken into account.

The regulator and market stakeholders are currently discussing conclusions of the consultation report, and some of the initiatives raised by the Bank of Russia are expected to be introduced to the Law on Joint Stock Companies.