Interests Of Minority Shareholders Research Articles

The Theoretical Underpinnings of Commercial Law: A Russian View of Bankruptcy and Securities

AbstractPart One. The history of bankruptcy in Russian law both before and after the 1917 Revolution is the tool used to introduce the reader to this article. During the Soviet period, creditors of enterprises never participated in proceedings for their liquidation. This state of affairs began to change in 1992 with the adoption of the first bankruptcy legislation in the post-Soviet period.However, as reality soon showed to most observers, this was not a successful piece of legislation—at least as regards the needs of liberalized trade and commerce. This prompted the Russian legislator to promulgate new bankruptcy legislation in 1998; in turn, its life span was but a short four years. The reader here will be offered critical comments on the most recent RF Bankruptcy Law dating from 2002 and thoughts on how its provisions compare with those from prior versions of RF laws on insolvency. This will include views on bankruptcy practice in Russian courts the case load of which is growing each year.Part of the growth in application of bankruptcy legislation in Russia is a function of its use by entrepreneurs as a tool to divide up business assets. This has led to the phenomenon of fictitious bankruptcies. Another major problem in the application of bankruptcy legislation in recent years in Russia has been—the authors argue—a failure to take into account the interests of minority shareholders in corporate bankruptcies as well as of those corporate creditors who obligations are secured by collateral.Part Two. Transactions that are declared invalid during bankruptcy proceedings are the subject of this section. This analysis will be made using the approach of classic, continental law to the grounds for declaring a transaction to be invalid. The authors then highlight the logic in applying this institution to the area of bankruptcy. In doing so, the specific features are revealed of voiding transaction in bankruptcy proceedings.In particular, the authors draw the attention of the reader to the criteria under which a transaction concluded by an insolvent debtor is either void (nichtozhnaia) or voidable (osporimaia). They also underscore the necessity of striking a balance between the interests of creditors and those of an insolvent debtor. In this regard, the institute of the invalidity of transactions is examined from the point of view of providing a pro-creditor, pro-debtor, or neutral system in bankruptcy legislation.Part Three. The development of the generic institute of securities in Russia—as a form of debt instrument—is the focal point of this section. The influence of the Pandect system of Russian law on securities is illustrated as is that of politics (that has led to substantial changes in commerce and entrepreneurial activity) and doctrine. The authors argue the point that the characteristics of a security—both those seen on a paper document as well as those in an electronic form—can be united into a single, generic concept. The particularities of this concept are of an evidentiary nature.Each security is an evidentiary document that is distinguished (both in paper as well as electronic form) from other documents in the manner in which it can be contested and entered into evidence in judicial proceedings. The contestability of a security depends, in turn, upon the type of security involved and the rights that they confirm (a good, money, income).Arguments are given by the authors of this article in support of the thesis—not uniformly shared by all Russian scholars—that such means of legal defense as vindication is permissible vis-à-vis electronic securities. Yet the authors here also speak of a just (spravedlivyi) balance of the risks between the holder of a security that has lost the legal control (ownership) there over and a bona fide acquirer of such a security. Justice is reached through a determination in substantive law of procedural norms that apportion in a set fashion the burden of proof among interested persons.Lastly, this work also highlights the work of regulating the institute of securities in other CIS jurisdictions. In doing so, the authors point out a few areas in which Russia is lagging behind as concerns the organization of electronic trading in securities.

American Corporate Reform Abroad: Sarbanes-Oxley and the Foreign Private Issuer

This article addresses the potential impact of the Sarbanes-Oxley Act on the willingness of foreign private issuers to cross-list in the U.S. The article suggests that although the Act appears to increase somewhat the costs of entering the U.S. markets, it may have very little impact on cross listing. In part, this is because cross-listing issuers are quite large and are thus better able to bear the costs that the Act imposes. At the same time, other costs of the Act (such as increased liability risk) may be overstated. Foreign issuers may be willing to bear any increased cost because of the substantial benefits they appear to obtain from cross listing. By cross listing, foreign issuers gain visibility, prestige, and are able to access more readily U.S. capital markets. By voluntarily submitting to U.S. disclosure requirements and the threat of SEC enforcement and private litigation, firms appear to send credible signals that they will protect minority shareholder interests and will not extract private benefits of control. Recent empirical studies suggest that this signal is most valuable for high growth companies with large controlling shareholders that seek to expand by raising equity capital or through acquisitions. Such firms appear to significantly lower their cost of capital by cross listing. Indeed, it is possible that certain provisions of Sarbanes-Oxley (such as executive certification) could even increase the benefits of a U.S. listing by strengthens the bond or signal that comes with cross listing. Even without such an increase, however, there are currently no close substitutes for obtaining these benefits, which means that the demand for a U.S. listing may be relatively inelastic and we may observe little impact on U.S. listings. A substantial decline among issuers that currently cross list is similarly unlikely. While a foreign private issuer may easily choose to enter the U.S. regulatory system, it is quite time-consuming and expensive for that same issuer to exit the system. Because the costs of opting out of the U.S. markets are likely much higher than the costs of complying with the Act, it seems unlikely that many firms will choose to exit from the U.S. markets.

American Corporate Reform Abroad: Sarbanes-Oxley and the Foreign Private Issuer

This article addresses the potential impact of the Sarbanes-Oxley Act on the willingness of foreign private issuers to cross-list in the U.S. The article suggests that although the Act appears to increase somewhat the costs of entering the U.S. markets, it may have very little impact on cross listing. In part, this is because cross-listing issuers are quite large and are thus better able to bear the costs that the Act imposes. At the same time, other costs of the Act (such as increased liability risk) may be overstated. Foreign issuers may be willing to bear any increased cost because of the substantial benefits they appear to obtain from cross listing. By cross listing, foreign issuers gain visibility, prestige, and are able to access more readily U.S. capital markets. By voluntarily submitting to U.S. disclosure requirements and the threat of SEC enforcement and private litigation, firms appear to send credible signals that they will protect minority shareholder interests and will not extract private benefits of control. Recent empirical studies suggest that this signal is most valuable for high growth companies with large controlling shareholders that seek to expand by raising equity capital or through acquisitions. Such firms appear to significantly lower their cost of capital by cross listing. Indeed, it is possible that certain provisions of Sarbanes-Oxley (such as executive certification) could even increase the benefits of a U.S. listing by strengthens the bond or signal that comes with cross listing. Even without such an increase, however, there are currently no close substitutes for obtaining these benefits, which means that the demand for a U.S. listing may be relatively inelastic and we may observe little impact on U.S. listings. A substantial decline among issuers that currently cross list is similarly unlikely. While a foreign private issuer may easily choose to enter the U.S. regulatory system, it is quite time-consuming and expensive for that same issuer to exit the system. Because the costs of opting out of the U.S. markets are likely much higher than the costs of complying with the Act, it seems unlikely that many firms will choose to exit from the U.S. markets.

Telecom Italia takeovers: Chinese boxing clever

During the recent past there have been two successive and successful takeovers of Telecom Italia, in both cases by other Italian companies and employing the device of “Chinese boxes” to secure control without the need either to hold a majority stake in the acquired company or to pay much regard to the interests of minority shareholders. This raises into question the extent to which “Anglo‐Saxon” attitudes in financial markets are making inroads in continental Europe; the willingness of continental European governments to permit foreigners to acquire control of the “commanding heights” of their economies; and the manner in which the European telecommunications sector is being restructured.

Protection of minority shareholder interests, cross-listings in the United States, and subsequent equity offerings

Abstract This paper examines the hypothesis that non-US firms cross-list in the United States to increase protection of their minority shareholders. Cross-listing on the NYSE or Nasdaq subjects a non-US firm to a number of provisions of US securities law, and requires the firm to conform to US GAAP. It therefore increases the expected cost to managers of extracting private benefits, and commits the firm to protect minority shareholders’ interests. The expected relation between the quantity of cross-listings and shareholder protection in the home country is ambiguous, because managers will consider both expected private benefits and the public value of their shares. However, there are clear predictions about the relation between subsequent equity issues, shareholder protection, and cross-listings: (1) Equity issues increase following all cross-listings, regardless of shareholder protection. (2) The increase should be larger for cross-listings from countries with weak protection. (3) Equity issues following cross-listings in the US will tend to be in the US for firms from countries with strong protection and outside the US for firms from countries with weak protection. We find evidence consistent with each of these predictions. Overall, the desire to protect shareholder rights appears to be an important reason why some non-US firms cross-list in the United States.

European and Australian proposals for corporate group law: a comparative analysis

The Forum Europaeum Konzernrecht and the Australian Companies and Securities Advisory Committee have each put forward proposals to reform their corporate group law. Both initiatives have the same fundamental goals of facilitating proper corporate group management and protecting the legitimate interests of minority shareholders and creditors of group companies. This article examines the European and Australian proposals, using the Forum Europaeum format to draw direct comparisons. It discusses key corporate group legal issues identified by the Forum Europaeum that have also arisen in Australia, and analyses the policies and procedures adopted or proposed in each continent to resolve them. This issue by issue comparison highlights the range of possible legislative responses to the same legal problems, and the benefits of drawing on the thinking and experience in both Europe and Australia in achieving the best corporate group law.

Protection of Minority Shareholder Interests, Cross-listings in the United States, and Subsequent Equity Offerings

This paper examines the view that non-U.S. firms cross-list in the United States to increase protection of their minority shareholders. We find that firms from French Civil Law countries, which have relatively weak protections for minority shareholders, are more likely to cross-list on an organized exchange than firms from English Common Law countries. Since listing on an organized exchange subjects the firm to U.S. securities law and requires the firm to conform to U.S. GAAP while listing a firm OTC or 144a does not, this finding is consistent with the view that firms from French Civil Law countries attempt to protect their minority shareholders by cross-listing. Subsequent to cross-listing in the U.S., equity offerings increase from firms from all countries, with larger post-cross-listing offerings from countries with lower shareholder protections. Equity offerings increase both in the U.S. and outside the U.S. Finally there is an association between shareholder protection in the home country and the location (U.S. or non-U.S.) of the equity offering, with non-U.S. offering more likely from countries with few shareholder protections. Overall, the pattern of cross-listing and equity offerings we observe in this paper suggests that bonding occurs when we expect it to be important, and that a significant reason for cross-listing in the U.S. is the legal protections of U.S. securities laws that are associated with the cross-listing.

The Burden of the Corporate Director Elected Noncumulatively

The author, a former Assistant Commissioner of the California Department of Corporations, argues that the standard of care provision applicable to corporate directors in the proposed revision of the California Corporations Code affords the opportunity to provide substantial protection of the interests of minority shareholders by taking into account the circumstances of the corporation, and in particular whether the directors were elected by cumulative voting or noncumulatively.