The following issues are scheduled for discussion at the Government Presidium meeting on May 25, 2009:

1. The results of the implementation of the federal budget in the first quarter of 2009

I. General parameters of federal budget implementation

The federal budget in the first quarter of 2009 is being implemented in the conditions of the financial crisis, which is causing a slowdown of economic growth.

In the first quarter of 2009 the GDP amounted to 8,213.0 billion roubles, a drop of 9.5%; inflation stood at 5.4%.

The federal budget revenue for the first quarter of 2009 was 1,732.7 billion roubles. The federal budget expenditure in the report period was 1,762.4 billion roubles. The federal budget deficit was 29.7 billion roubles.

II. Federal budget revenues

Of the total sum of the federal budget revenue of 1,732.7 billion roubles, tax revenues accounted for 53.6% and non-tax revenues for 46.4%. The largest part of the federal budget revenue has been formed by the value added tax (30%), proceeds from customs duties (26.2%), the tax on the extraction of minerals (9.8%) and the profit tax (5.5%).

1) The tax revenues of the federal budget in the first quarter of 2009 amounted to 928.9 billion roubles, i.e. 241.6 billion roubles or 35.1% more than the sum forecast for the first quarter of 2009.

The largest part of federal budget tax revenues came from value-added tax (56.0% of the total amount of tax revenues), the tax on the extraction of minerals (18.2%), the unified social tax entered in the federal budget (12.0%) and the profit tax (10.3%).

2) Non-tax federal budget revenues for the first quarter of 2009 amounted to 802.6 billion roubles, which is 332.4 billion roubles or 70.7% more than the forecast sum for the first quarter of 2009. In the structure of non-tax revenues, 56.7% was revenues from customs duties, 33.8% was revenues from the management of the Reserve Fund and the National Welfare Fund.

3) Targeted deductions from all the national federal lotteries in the first quarter of 2009 amounted to 1.2 billion roubles.

III. Federal budget spending

The total cash federal budget spending in the report period amounted to 1,762.4 billion roubles or 18.9% of the updated budget itemisation for 2009. The cash non-interest federal budget expenditure in the first quarter of 2009 was 1,698.7 billion roubles or 18.7% of the updated budget itemisation (in the first quarter of 2008 the figures were 1,279.5 billion roubles or 18.0% of the updated budget itemisation.

The cash expenditure on the implementation of priority national projects in the report period amounted to 27.8 billion roubles (10.5% of the updated budget itemisation), including the projects:

Name of priority national project, first quarter, 2009

(bln roubles, in % of updated budget itemisation)

Health

16.4 (11.9%)

Affordable and Comfortable Housing for Russian Citizens

4.0 (4.2%)

Education

7.4 (22.3%)

In addition, the expenditure on the project State Programme of the Development of Agriculture and Regulation of the Markets of Agricultural Produce, Raw Materials and Food from 2008 to 2012 in the first quarter of 2009 amounted to 52.7 billion roubles (29.7% of the updated budget itemisation).

IV. The size of the national debt and the Reserve Fund and the National Welfare Fund.

The national debt stood at 2,817.8 billion roubles as of April 1, 2009.

As of April 1, 2009 the total size of the Reserve Fund was 4,117.7 billion roubles and the total size of the National Welfare Fund at 2,915.2 billion roubles. In the first quarter of 2009 the size of the Reserve Fund increased by 90.1 billion roubles and the size of the National Welfare Fund by 330.7 billion roubles.

2. The draft federal law On Introducing Amendments to the Federal Law On the Federal Budget for 2009 and for the Planning Period of 2010 and 2011.

The Ministry of Finance has prepared a draft law to introduce the following amendments to the Programme of State Guarantees of the Russian Federation in the currency of the Russian Federation for 2009 approved by Federal Law No.204-FZ of November 24, 2008 On the Federal Budget for 2009 and for the Planning Period of 2010 and 2011:

• repeal of the provision setting down that the requirement of executing state guarantees is executed in an amount not exceeding 90% of the sum of arrears of the principal debt outstanding after the lending bank has fully exercised its right of claim (other than state guarantee) to security of fulfilment of the principal obligations under the credit agreement;
• reduction of the term of the state guarantee to the term of repayment of the credit established under the credit agreement increased by 70 days (and not by 2 years as was established earlier) in connection with the repeal of the above-mentioned provision.
• the adoption of the draft law rules out the need for prior claim by the lending banks of other (except the state guarantee) collateral on the credit (securing part of the obligations not secured by the state guarantee) prior to presenting to the Ministry of Finance of Russia claims for fulfilment of state guarantees. As a result, the procedure of the fulfilment of state guarantees of the Russian Federation on credits taken out by Russian enterprises to pursue their core production activities and for capital investment will be expedited, which in turn will make this type of state guarantee support more attractive for the Russian banks that credit domestic enterprises in the period of economic crisis.

The adoption of this draft law does not require the adoption, amendment, suspension or annulment of any other federal laws.

3. The draft basic guidelines for tax policy in 2010 and the planning period of 2011 and 2012.

I. Basic guidelines of tax policy in 2010 and the planning period of 2010 and 2011.

Most decisions in the area of tax policy were taken as anti-crisis tax stimulus measures whose budgetary assessment is contained in the Programme of Anti-Crisis Measures of the Government of the Russian Federation, approved by the Government of the Russian Federation.

As part of anti-crisis tax stimulus measures in 2008, the size of tax deductions under the income tax of natural persons has been increased, the rate of profit tax for organisations has been cut, the bonus depreciation for the profit tax of organisations has been increased, tax benefits for tax on the extraction of minerals (oil) have been introduced and the rate of the tax has been reduced.

All in all, in accordance with the guidelines of the tax policy for 2008-2010 amendments to the tax legislation covered the following areas:

• improvement of the profit tax of organisations;
• improvement of the value added tax;
• indexation of excise rates;
• improvement of the tax on the incomes of natural persons;
• improvement of the tax on the extraction of minerals;
• improvement of taxation under special tax regimes;
• broadening of international cooperation and integration into international organisations and agreements.

In addition, preparatory work was conducted to introduce the tax on real estate to replace the current land tax and the tax on the property of natural persons.

Over the next three years the priorities of the Government of the Russian Federation in the sphere of tax policy remain the same as before: creating an effective tax system while preserving the existing tax load on the economy.

However, it is understood that the tax policy, on the one hand, must counter the negative effects of the economic crisis and, on the other hand, create conditions for resumption of economic growth.

II. In 2010 and in the planning period of 2011 and 2012, the following primary measures are to be implemented in the framework of the Guidelines of the Programme of Anti-Crisis Measures of the Government of the Russian Federation and the projects stipulated by the Basic Guidelines of the Activities of the Government of the Russian Federation in the Period to 2012 in the Sphere of Tax Policy.

1.  General issues of tax administration

• improvement of tax supervision of the use of transfer prices for taxation purposes;
• creation of the institution of consolidated tax reporting of the profit tax by organisations;
• improvement of the legal framework and the mechanism of the use of deferment of the payment of taxes, levies, fines, investment tax credit and the development of corresponding provisions of the Tax Code of the Russian Federation. The list of grounds for granting deferment or an instalment plan will be open, while decisions to grant the same should be taken more promptly;
• improvement of the procedure of registration of organisations and natural persons with tax agencies;
• improvement of the interaction between tax agencies, banks, executive bodies, local administrations and other organisations obliged to report to the tax agencies data connected with the registration of taxpayers.

2.  Tax on the profits of organisations:

• review of the principles of structuring amortisation groups, approaches to their classification and determining the norms of amortisation;
• reducing the possibilities for tax minimisation, in particular, the introduction, beginning from 2010, of the special procedure of the carryover of losses due to reorganisation restricting both in terms of time and amount the profits used to redeem the losses of organisations being reorganised;
• improvement of the procedure of accounting certain types of expenditure, in particular, expanding, beginning from 2009, the composition of the expenditure of trading organisations taken into account for the purpose of collecting profit tax by including the cost of losses, damage, shortfalls of goods, the cost of improvement of premises; increase of the range of expenditure of organisations to develop natural resources; streamlining of the procedure of taxing the profits of taxpayers engaged in activities involving the use of facilities in the service industry;
• bridging the gap between tax accounting and bookkeeping accounting.

In addition, measures are envisaged to improve the taxation of professional participants in the securities and stock market.

3. Value added tax:

• optimisation of the list of documents that warrant the application of the zero tax rate;
• introduction of a special procedure of value added tax rebate whereby the decision on rebate will be taken before the off-site audit has been completed;
• improvement of the procedure of the application of the value added tax to organisations engaged in clearing activities;
• streamlining of the procedure of making invoices, introducing amendments therein and the possibility of making invoices with negative indicators;
• preparation of proposals on introducing amendments to the regulatory legal acts for the purpose of introducing an electronic billing system.

4. Excise:

• establishing a single date of the payment of excise, not later than the 25^th of every month following the reporting month;
• improvement of the procedure of calculation and payment of excise on alcohol-containing products envisaging above all tighter control over deductions on excisable raw materials used;
• improvement of the norms regulating the granting of bank guarantees for taxpayers who sell excisable goods;
• review of the procedure of refund of excise to exporters of excisable goods;
• indexation of excise under the following procedure: for oil products, preservation of the current rates for 2010 with adjustment for inflation forecast for the following years. Subsequently differentiated rates of excise on petroleum products will be introduced depending on the ecological class of petrol and diesel fuel on condition that the former level of budget revenues will be preserved as a result of such differentiation. For tobacco products, indexation of the specific rate of excise at a faster rate than currently, and an increase of the ad valorem rate by 0.5 percentage points a year. Regarding other excisable goods, indexation will correspond to the forecast values of the consumer price index.

5. Income tax for natural persons:

• relieving taxpayers who have no tax obligations to the budget from filing tax returns if they are filed to exercise the right to be relieved of tax or to enjoy tax deductions;
• simplification of tax declaration forms and the issue of simple and clear instructions on how to fill them;
• improving, in the medium-term perspective, the procedure of determining the tax residency status of natural persons;
• optimisation of the procedure of taxing natural persons who perform transactions with securities and with time transaction financial instruments.

6. Tax on the extraction of minerals (mining tax), levied on the extraction of hydrocarbons (oil and natural gas) as well as the extraction of solid commercial minerals:

• introduction of "tax holidays" for the extraction of oil in the new fields on the Black and Okhotsk seas;
• introduction of downward coefficients in calculating the mining tax for oil mining in small fields;
• continued work to provide tax and financial incentives for the utilisation of accompanying gas;
• introduction, as of January 1, 2010, of a natural gas mining tax rate with annual indexation thereof;
• introduction of a reduced mining tax rate for oil extracted from oil and gas, and oil and gas condensate fields;
• completing the preparations for the introduction of the tax on additional revenues from the extraction of oil at new fields instead of the current mining tax with effective period starting in 2011-2012;
• levying, beginning from 2010, of the coal mining tax in accordance with specific tax rates differentiated by type of coal with the use of a deflator coefficient that takes into account changes of the price of coal. A tax deduction is envisaged equal to the costs incurred to ensure occupational safety.

7. Special tax regimes:

• raising, over 3 years beginning from 2010, the threshold of incomes that make organisations eligible for using a simplified taxation system to 60 million roubles a year and cancelling the mechanism of the increase of the threshold size of income with the use of deflator coefficients;
• streamlining of the use of the simplified taxation system on the basis of a patent, including by extending the right of the regions of the Russian Federation to determine the potential annual revenue of an entrepreneur when determining the annual cost of the patent;
• review of the list of types of entrepreneurial activities for which a system of taxation in the shape of a unified imputed income tax can be introduced for certain types of activities as well as the physical indicators used to calculate the said tax;
• development of the procedure of determining the basic margins for types of entrepreneurial activities to which the unified imputed income tax is applied.

Furthermore, the following have been planned for implementation:

• settlement of issues connected with the taxation of organisations building transport, utilities and social infrastructure. To this end, amendments are to be introduced in the procedure of determining the profit tax base as well as, in the opinion of the Ministry of Finance of Russia, prepare amendments to the Urban Development and Land codes;
• optimisation of the list of legally significant actions, as part of improving the administration of state duties;
• introduction of several amendments to transport tax to increase the regional budget revenues;
• conducting an indexation of the rates of water tax not earlier than 2011;
• examining the issue of temporary exemption from property tax on the property of organisations of newly introduced transport infrastructure whose construction was partly financed out of the federal budget;
• improved taxation of non-commercial organisations, charitable and voluntary activities.

Plans have also been laid out to complete the preparatory work for the introduction of real estate tax to replace the current land tax and the tax on the property of natural persons.

4. The draft federal law On Introducing Amendments to the Federal Law On the Securities Market (with regard to the creation of mechanisms to protect the rights of bondholders)

The draft federal law envisages the creation of additional mechanisms to protect the rights of bondholders. The draft law would apply to organisations issuing bonds, the holders of bonds and other participants in the relations arising in the course of the issue of bonds.

The need to develop this draft law has been prompted by the rapid growth of the Russian corporate bond market in recent years. As the number of issuers has increased with more and more new borrowers entering the market, the credit quality of securities in circulation has deteriorated, which has greatly increased the risks of potential defaults and non-performance by issuers of their obligations to the bondholders. The issue may acquire added urgency today in connection with the international financial crisis as a result of which a significant number of Russian companies will be deprived of the possibility of refinancing.

The draft law envisages the introduction of universally recognised mechanisms based on the institution of the "representative of bondholders" called upon to ensure proper oversight of the fulfilment of obligations by the bond issuer, and the institution of the "General Meeting of Bondholders" to work out a consensus decision on issues connected with the fulfilment of bond obligations. The draft law also establishes other mechanisms aimed at protecting the rights of bondholders.

In particular, the draft law introduces the procedure of early redemption of bonds at the discretion of the issuer and at the request of the bondholder. The draft federal law determines that the decision on the issue of bonds subject to early redemption must state the sum (procedure of determining the sum) paid on each bond in the event of early redemption as well as the procedure of such redemption. The draft law sets the requirements to determining the sum paid in the event of early redemption at the issuer's discretion and in the event of early redemption at the request of bondholders when the right of bondholders to demand early redemption arises under the law.

In order to rule out abuses in early redemption and to ensure equal rights of all the bondholders in the event of early redemption of bonds, the draft law makes it incumbent upon the issuer to pay corresponding sums only after the expiry of the term during which bondholders may present claims for early redemption of bonds, and if the obligations connected with early redemption of bonds cannot be fulfilled with regard to all the holders of bonds who have lodged corresponding claims the issuer is obliged to meet such obligations in proportion to the claims presented. This approach would rule out circumstances where some bondholders receive the full payment whereas the rest receive only partial payment or none at all.

To ensure a uniform approach to all the bondholders, the draft law specifies cases when bondholders present individual requests to the issuer in case a representative of bondholders has been appointed (elected) or a decision on the said issue has been taken by the general meeting of bondholders.

The draft federal law proposes a differentiated approach to the appointment (election) of the representative of bondholders depending on whether or not the issue of bonds is public. The appointment of a representative of bondholders is mandatory only in the event of public offering of bonds (the issue of bonds by open subscription). In other cases, the issuer or the bondholders themselves have the right to decide whether or not to appoint (elect) a representative of bondholders.

The draft federal law establishes requirements to the persons performing the functions of the representative of bondholders, the procedure of replacement of the representative of bondholders and his remuneration, as well as defining the rights and duties of the said person and his responsibility to the bondholders. At the same time the draft law, with regard to regulating the activities of the representative of the bondholders mainly contains diapositive norms, which may be changed by the decision on the issue of bonds or the decision of the general meeting of bondholders.

Since for bonds with mortgage coverage, the functions analogous to those of the representative of bondholders are performed by the specialised mortgage coverage depository, the corresponding provisions of the draft law do not apply to bonds with mortgage coverage.

In correspondence with the introduction of the institution of the "general meeting of bondholders" the draft law sets general requirements for its preparation, convening and holding.

Under the draft law the general meeting of bondholders may be called by the issuer at his own initiative, at the request of the representative of bondholders as well as a person (persons) who own not less than 10% of the bonds issued.

The general meeting of bondholders makes decisions to approve amendments and additions to the decision on the bond issue; on early redemption of the bonds; on the claim of mortgage property or presenting claims to the guarantor in the event of non-performance or improper performance of the obligations under secured bonds; on granting the issuer a deferment in fulfilling obligations under the bonds with the payment of a fixed interest over the period of deferment; on agreeing the terms of termination of the issuer's obligations to the bondholders; on replacement of the representative of the bondholders; and on recalling the request of the representative of bondholders or a bond holder (holders) for early redemption of bonds and on other issues stipulated under federal laws and (or) the decision on the issue of bonds.

Considering the special procedure of registering the rights to bearer's bonds with mandatory centralised custody, the draft law envisages a special procedure of notification on the general meeting of bondholders and the sending of ballots to the owners of the said bonds. The proposed procedure envisages the sending of the above documents to the holders of bonds through the depository where the said bonds are in custody under a centralised administration.

Proceeding from the law enforcement practice regarding general meetings of shareholders, the draft federal law establishes that voting at a general meeting of bondholders can be only by ballot and confirms the procedure whereby the authenticity of the signatures of bondholders who are natural persons on the voting ballot must be notarised or certified by a professional participant in the securities market.

The decision of the general meeting of bondholders is binding for all the bondholders including the holders of bonds who have voted against the corresponding decision or did not take part in the voting. If the general meeting of bondholders passes a decision, independent claims of bondholders shall be met only in cases and in accordance with the procedure stipulated by federal law.

In correspondence with the introduction of the "general meeting of bondholders," the draft law introduces corresponding amendments to the rules on the procedure of claiming property that secures bonds with collateral and the presentation of claims to the guarantor of bonds obligations under which bonds are secured by the guarantee.

Since the general meeting of bondholders has the right to agree with the issuer amendments to the decision on the issue of bonds that provides for the settlement of differences that arise between the issuer and the bondholders, and considering the need to introduce amendments to the decision to issue securities in some other cases, the draft federal law introduces the procedure of introducing amendments to the decision on the issue (additional issue of securities and (or) of the prospectus of securities). It is deemed necessary to limit under the law the list of cases in which amendments may be introduced in the said documents.

The draft federal law also includes transitional provisions that make it possible in some cases to apply the provisions of the draft law to the legal relations that arise before the draft law comes into effect. The said provisions would make it possible to hold general meetings of bondholders and, if necessary, introduce amendments to the decision on the issue of bonds for bonds the decision on whose issue was registered before the draft law comes into effect.

The law has been drafted with due account of the experience of leading foreign states in enhancing the protection of bondholders through their organisation.

The introduction of the amendments proposed under the draft law to the Federal Law On the Securities Market will ensure that bond issues are stable and long-term, will strengthen investor confidence and provide for the settlement of differences arising between the issuer and the owners of bonds by taking into account the interests of the majority of bondholders.

5. The draft federal law On Introducing Amendments to Certain Legislative Acts of the Russian Federation (with regard to the review of restrictions on companies in forming their authorised capital, the review of methods to protect the rights of creditors in the case of reduced authorised capital, a change in requirements for companies in the event of a discrepancy between the authorised capital and the net asset value, and the review of restrictions on companies issuing bonds).

The main idea of the draft law is to improve the legislation of the Russian Federation on the issues connected with the formation of the authorised capital of companies, restrictions at the issue of bonds, the rights of creditors when authorised capital is reduced, as well as the requirements to companies in the event of a discrepancy between the value of net assets and the authorised capital.

The aims of the draft law are to revise the existing restrictions on the payment of contributions to the authorised capital through offset of claims to the company, the increase of the authorised capital of the association to cover its losses, the change of existing restrictions on the issue of bonds of companies, the change of the consequences of the discrepancy between the authorised capital of the company and the value of its net assets, as well as the revision of the existing methods of protecting the rights of creditors when the company's authorised capital is reduced.

To achieve the above goals, the draft law introduces amendments to Part 1 of the Civil Code of the Russian Federation, to the Federal Law On Joint Stock Companies, the Federal Law On Limited Liability Companies, the Federal Law On the Securities Market and the Federal Law On State Registration of Legal Entities and Individual Entrepreneurs.

The draft law envisages a revision of the restrictions under the current laws of the Russian Federation on the possibility of paying into the authorised capital by an offset of claims to the company and granting the possibility to issue shares to cover the losses sustained by the company.

The ban on forming the authorised capital through an offset of claims to the company, as well as for the purposes of covering the company's losses, has been imposed under the Civil Code of the Russian Federation. Thus, under Clause 2, Article 90 and Clause 2, Article 99 of the Civil Code of the Russian Federation a member of a limited liability company (shareholder in a joint stock company) may not be relieved of the duty to make a contribution to the company's authorised capital (payment for shares), including through offset of claims to the company. In addition, under Clause 2, Article 100 of the Civil Code of the Russian Federation the authorised capital of a joint stock company may not be increased to cover the losses it has sustained.

The said provisions had been included in the Civil Code of the Russian Federation to prevent the formation of authorised capitals of companies not supported by real resources (property). It has to be noted that payment into the authorised capital of a company through the offset of claims to such company cannot have a negative impact on the rights of the company's creditors since the company is not obliged to keep the property contributed to the authorised capital on its books. In this context, the question of "real substance" of the authorised capital (property) is relative. The experience of applying the said norms shows that current legislation is incapable of preventing the still practiced methods of creating "bogus" authorised capitals (contributing to the authorised capital the rights to use intellectual property, know-how, etc). In this regard, the said provisions of the Civil Code of the Russian Federation cannot guarantee the rights of creditors and are largely ineffective.

On the other hand, the offset of claims to the company cannot be equated to relieving the shareholder of the company of the duty to pay into the authorised capital, since in this way the company pays its debts to all these participants (shareholders). Moreover, the offset of claims is frequently the only possibility for the company to pay its debts and thus avoid bankruptcy. The same is true of the possibility to increase the authorised capital of the company to cover its losses. Thus the existing ban on the offset of claims to the company impedes the improvement of the financial situation of the company through the use of the resources of its participants (shareholders) or third persons who contribute money and (or) property to the authorised capital.

To resolve the above issues the changes under the draft law envisage:

• with respect to the possibility of contributing to the authorised capital by offset of claims to the company, the possibility of such payment with regard to financial claims to the company when its authorised capital is increased and for joint stock companies only on condition that additional shares are issued through closed subscription;
• as regards the ban on the increase of the authorised capital of a joint stock company to cover its losses, that provision is dropped.

The draft law proposes to change the regulation of the existing methods of protecting the rights of creditors in the event the company decides to reduce its authorised capital. Under Clause 5, Article 90 and Clause 1, Article 101 of the Civil Code of the Russian Federation, in the event the authorised capital of a company is reduced, the creditors have the right to demand, in writing, an early termination or performance of the company's obligations and compensation of damage. Similar provisions are contained in Article 30 of the Federal Law On Joint Stock Companies, Clause 4, Article 21 of the Federal Law On Limited Liability Companies. Thus, under Russian laws there is only one way in which creditors' rights can be protected, i.e. the right to early termination or performance of the corresponding obligations of the company and compensation for their damages. In this situation, the company becomes a hostage to its creditors, since the company, before reducing its authorised capital, has to pay up to its creditors and if resources are absent or short, the company is unable to reduce its authorised capital. The provisions aimed at protecting the interests of the creditors of companies must ensure a balance of the interests both of the creditors and the participants (shareholders) of the companies. It should also be noted that the authorised capital, although it is called upon to guarantee the interests of creditors, does not fulfil that function in practice. The size of the authorised capital, as a rule, is only sufficient to meet an insignificant part of the claims, so the creditors do not rely on the authorised capital, but resort to other ways of appraising its solvency and securing performance of the corresponding obligations.

Elsewhere in the world, the common approach to protecting the rights of creditors is to provide them with collateral. The creditor of a company is unable to influence the legal fate of various corporate actions, including the reduction of the authorised capital and reorganisation of the company. Thus, foreign legislation offers a more flexible system of guarantees of the rights of creditors compared with Russian legislation, which ultimately makes it possible to avoid the bankruptcy of companies.

The norms of the Civil Code of the Russian Federation, as well as the federal laws On Joint Stock Companies and On Limited Liability Companies, must envisage other forms of protecting the rights of creditors, for example, by providing collateral to secure the performance of the company's obligations to its creditors, if as a result of the decision to reduce the authorised capital the company is unable to meet its obligations to the creditor.

As regards the protection of the creditors of a company in the event of the reduction of authorised capital, the amendments introduced under the draft law make it incumbent upon the company to serve a written notice of the decision to reduce the authorised capital to the government body that registers legal entities and twice, with an interval of one month, publish in the media intended for the publication of data on state registration of legal entities, the notice on the reduction of its authorised capital. The data on the reduction of the authorised capital of a company would best be placed in the Single State Register of Legal Entities, which would ensure the transparency and accessibility of such information both for the company's creditors and for other persons.

In accordance with the changes introduced, a company's creditors, not later than 30 days after the last publication of the notice on the reduction of the authorised capital of the company, have the right to demand from the company early performance of the corresponding obligation and, should that be impossible, termination of the obligation and compensation for the losses it involves. Under the draft law, creditors may file the said demand with a law court within six months of the date of the last publication of the notice on the reduction of the company's authorised capital.

The court has the right to turn down the creditors' claims if the company proves that:

• the creditors' rights are not violated as a result of the reduction of the authorised capital;
• the collateral offered is sufficient for the proper performance of corresponding obligations.

The above-mentioned mechanism manifestly ensures in a duly manner the stability of civil relations and the balance of interests both of the company and its creditors.

The draft law also proposes a revision of the relations connected with the company's duty to maintain its net assets at the level of the authorised capital, specifically, the requirement that makes it obligatory for the company to reduce its authorised capital if it does not match the net value of its assets.

Clause 4, Article 90, Clause 4 of Article 100 of the Civil Code of the Russian Federation, Article 35 of the Federal Law On Joint Stock Companies, and Clause 3, Article 20 of the Federal Law On Limited Liability Companies make it obligatory for a company to announce the reduction of its authorised capital if at the end of the second and every following fiscal year the value of its net assets turns out to be less than its authorised capital. In turn, if the company's net asset value is less than the minimal size of the authorised capital, the company is obliged to self-liquidate; otherwise, the creditors have the right to demand from the company an early termination or performance of obligations and compensation of their damages; also, the authorised body may sue for the liquidation of the company.

It has to be noted that a change of the net asset value in the process of functioning of companies, which is a change of the difference between the book value of assets (property) and the size of a company's obligations, is a normal occurrence. Reduction of the net asset value, including negative value, does not mean that the company is insolvent. On the contrary, the practice of the functioning of companies in the Russian Federation over more than ten years shows that an enterprise may have negative assets for years and continue to operate, be solvent and be useful to the country's economy. The obligation to reduce the authorised capital, still less the liquidation of such legal entities, constitute interference in their business activities, which does not correspond to the requirements of the market and causes damage to the country's economic potential. It must be acknowledged that the current legislation has other mechanisms of protecting the rights of creditors if the enterprise operates at a loss, one such mechanism being the bankruptcy procedure.

With respect to the requirements to companies if their authorised capital does not match the value of net assets, the amendments introduced under the draft law make it incumbent upon the company to take the necessary measures.

If at the end of the second fiscal year and every subsequent fiscal year the value of the company's net assets turns out to be less than its authorised capital, it is the duty of the board of directors (supervisory board) (in limited liability companies of the CEO or the board of directors (supervisory council)) if such a body has been created by the company to include a report on the state of the company's net assets in preparing an annual general meeting of shareholders (regular general meeting of shareholders).

The report on the state of the company's net assets must contain:

• dynamics of the change of the value of net assets and the authorised capital of the company over the three last full fiscal years, including the report year, and if the company exists for less than three years, for every complete fiscal year;
• analysis of the causes and factors which, in the opinion of the CEO (the CEO or a collective executive body) and the board of directors (supervisory board) of the company, have resulted in the company's net assets being less than the authorised capital;
• proposed measures to ensure that the value of the company's net assets matches its authorised capital.

Considering that the item on approving the annual report is a mandatory item on the agenda of an annual (regular) meeting of participants (shareholders) of the company, its discussion will enable the participants (shareholders) of the company to express their attitude to the discrepancy between the value of net assets of the company and its authorised capital and, if necessary, take corresponding measures to react to the given circumstances.

In the event that the value of the company's net assets is still less than the authorised capital at the end of the fiscal year following the second fiscal year or every following fiscal year at the end of which the net asset value has turned out to be less than its authorised capital, the company is obliged to take one of the following decisions: the decision to reduce the authorised capital of the company to a level not exceeding the value of the company's net assets; a decision on the liquidation of the company.

If the company fails to make one of the above decisions during the time period fixed by the draft law (not later than six months after the end of the corresponding fiscal year), the creditors have the right to demand from the company early termination or performance of its obligations and compensation of their damages, and the agency for the state registration of legal entities or other federal or local government bodies authorised to make such claims under the federal law, shall have the right to file a demand for the liquidation of the company with a law court.

If the value of the net assets of the company turns out to be less than its authorised capital by more than 25% at the end of the 3^rd, 6^th, 9^th, or 12^th month of the fiscal year following the second fiscal year or every following fiscal year, at the end of which the value of the company's net assets has turned out to be less than its authorised capital, the company is obliged, twice with an interval of one month, to promulgate in the mass media (intended for the publication of data on state registration of legal entities) an announcement on the reduction of the net asset value of the company. The company's creditors, not later than 30 days after the last publication of the notice on the reduction of the net asset value of the company, may demand from the company early performance of the corresponding obligations and, should early performance be impossible, termination of the obligations and compensation of the damages connected therewith. The statute of limitations for filing such a demand with a law court has been proposed to be set at six months since the last publication of the notice on the reduction of the value of the company's net assets.

The data on the value of net assets of a company is to be reflected on a quarterly basis in the Single State Register of Legal Entities, thus ensuring transparency and accessibility of such data both for the creditors of the company and for other persons.

By the same token the draft law abolishes the duty of the company to announce the reduction of its authorised capital if, at the end of the second and every following fiscal year, the value of the company's net assets turns out to be less than its authorised capital. In the event that the value of the company's net assets turns out to be less than the value of the minimum authorised capital, the draft law makes it obligatory for the company to self-liquidate.

The draft law would revise the rules that set restrictions on the issue of bonds by companies. The first steps along that path were made by the amendments introduced in Clause 2, Article 102 of the Civil Code of the Russian Federation, Article 33 of the Federal Law On Joint Stock Companies and Article 31 of the Federal Law On Limited Liability Companies that make it possible to grant companies exemptions at the level of federal laws on securities whereby the nominal value of all the bonds issued by the company may not exceed the size of its authorised capital or the size of the collateral offered to the company by third persons for the purpose of the issue of bonds and whereby the company may only issue bonds after the company's authorised capital is fully paid up. In our opinion, the above restrictions played a positive role at the early stage in the emergence of the stock market in the Russian Federation, when the system of information disclosure was practically non-existent. The preservation of these restrictions for all companies impedes the development of the corporate bond market in the Russian Federation and significantly limits the possibilities of Russian issuers to raise funds through securitisation of their assets, including mortgage loans. Under Article 816 of the Civil Code of the Russian Federation, in cases stipulated under the law or other legal acts, the loan contract may be concluded through the issue and sale of bonds. Thus, the issue and sale of bonds constitute a method of formalising the lender-borrower relations between the issuer (debtor) and creditor (bondholder). In recent years, a growing number of Russian issuers have resorted to replenishing their turnover assets through the issue of bonds. This method of raising funds is a worthy alternative to the issue of bills of exchange and bank loans. The requirements of the law to secure fulfilment of obligations under bonds appears unjustified, considering that there is no obligation for the debtor to provide security if the borrowing relations are formalised in a different way.

Thus, the civil law of the Russian Federation envisages unequal forms of protecting creditors when a loan agreement is concluded. At present the degree of disclosure of information of the financial status of the issuer that may yield an objective and balanced decision on acquiring securities is a more effective protective measure for bondholders than collateral. Legislation of the Russian Federation should manifestly establish differentiated requirements to restrictions on the issue of bonds depending on the good repute of the issuer. To this end, the changes introduced under the draft law envisage that the current restrictions regarding the nominal value of all the bonds of a company, as well as collateral offered on the bonds of the company, will not be applied:    

• to mortgage-covered bonds;
• to companies whose securities are listed at the stock exchange;
• to companies and (or) bonds which have a credit rating of one of the rating agencies included in the list approved by the federal executive body on the securities market, not below the level established by the federal executive body for the securities market;
• to the bonds intended for qualified investors.

The draft law sets requirements to the guarantor under the guarantee agreement that ensures the performance of obligations under bonds. Thus the draft law envisages that the guarantor under the guarantee agreement that secures the performance of obligations under bonds can only be a commercial organisation whose net asset value is not less than the sum (size) of the guarantee.

Considering the specific nature of the activities of lending institutions and the need to protect the rights and legitimate interests of the clients of lending institutions, the latter will continue to operate under current restrictions on the payment of authorised capital, including through the offset of claims to the company when the authorised capital of the lending institution is reduced, as well as the existing procedure in the event the net asset value (the size of own assets (capital) of the lending institution turns out to be less than the authorised capital. To this end, necessary amendments are introduced under the draft law to the federal laws On Joint Stock Companies, Limited Liability Companies and On Banks and Banking.

The adoption of the draft law will strengthen the financial and economic position of companies, expand the possibilities for their activities, establish additional opportunities for raising funds through the issue of bonds and, consequently, improve the terms of investment in the said companies.

One can also predict a strengthening of social relations and mutual respect of the interests of the Russian Federation and companies and other persons in the exercise of legal mechanisms on related issues of the legal system of the Russian Federation and the improvement of the investment climate in the Russian Federation.

6. The draft federal law On Introducing an Amendment to Article 1501, Part 4 of the Civil Code of the Russian Federation.

7. The draft federal law On Introducing Amendments to Article 135, 137 and 396 of the Criminal Procedure Code of the Russian Federation.

The draft is aimed at eliminating the discrepancies between the provisions of the Criminal Procedure Code of the Russian Federation (hereinafter CPC), which lay down the procedure of compensation out of the Federal Budget of damages caused to a citizen as a result of prosecution, and the provisions of the Budget Code of the Russian Federation (hereinafter BC), which determine the procedure of presenting claims to the assets of the budgets constituting the budget system of the Russian Federation.

Under Article 135 of the CPC, damages caused to the citizen by criminal prosecution are compensated out of the Federal Budget by decision of the body that delivered a sentence and (or) a statement or ruling to drop the criminal case, repeal or amend unlawful or ungrounded decisions. The decision on compensation of damages may be taken by a judge and if the criminal case or prosecution was terminated at the preliminary investigation stage by the investigator or inquiry officer.

However, Article 239, Immunity of Budgets, of the BC establishes that the budgets constituting the budget system of the Russian Federation possess immunity, which is a legal regime whereby claims to the budgets of the budgetary system of the Russian Federation may be presented only on the basis of a court ruling, with the exception of some cases stipulated under the BC. The BC does not include the rulings by investigator or inquiry officer among such cases.

Thus, the provisions of Article 135 of the CPC contradict Article 239 of the BC, which has a negative impact on law enforcement practice in compensating damages in cases terminated at the investigation stage, which violates the right of citizens to legal protection and compensation of damages.

The draft law proposes to eliminate the said discrepancies and, in accordance with the changes to be introduced in Articles 135, 137 and 396 of the CPC, to establish that the decision on compensation of damages may only be made by the law court.

8. The contribution of the Russian Federation towards funding the public health and social well-being activities of the Northern Dimension Partnership Secretariat.

The Northern Dimension Partnership, an intergovernmental initiative in the sphere of public health and social well-being formed in 2003, is one of the two acting Partnerships in the framework of the renewed joint policy of the Northern Dimension of four equal partners: the EU, Iceland, Norway and Russia.

At present, the participants in the Partnership are Canada, Denmark, Estonia, Finland, France, Germany, Iceland, Latvia, Lithuania, Norway, Poland, Russia and Sweden. In addition, the Partnership includes the Barents Euro-Arctic Council (BEAC), the European Commission, the Nordic Council of Ministers, the Baltic Council, the Baltic Sea States Subregional Co-operation (BSSSC), the Joint United Nations Programme on HIV/AIDS (UNAIDS), the International Labour Organisation (ILO), the International Organisation for Migration (IOM), the World Health Organisation (WHO). According to Russian experts, the largest number of international projects aimed at stabilising the social economic and demographic situation are being implemented in the northwest of the country.

The newly created Partnership has identified the priorities of its activities which Russia unreservedly supports and which have been approved by the Russian Ministry of Healthcare. They include:

• prevention of infectious diseases, including HIV/AIDS, virus hepatitis and tuberculosis;
• the fight against alcoholism and drug addiction;
• occupational safety in hazardous and harmful workplaces;
• health and social support of women, children, teenagers and elderly people;
• improvement of primary medical assistance;
• the health of young people.

It is notable that the Partnership involves nine international organisations which possess considerable potential in terms of experience and possible financial aid to the implementation of projects under the above-mentioned priorities.

During the course of the Partnership forums, support has been voiced for the creation of a voluntary fund supplemented by government and private sector resources of the member countries, as well as assets of international organisations to ensure additional funding of the most successful projects, as well as the possibility of developing and implementing new projects.

In 2004, a secretariat of the Partnership was set up by decision of the Committee of Senior Representatives (CSR) to support the initiative's administrative and analytical functions. Its main functions are:

• coordination of the activities of expert groups created within the Partnership on priority issues;
• ensuring the liaison between the Partnership and government and non-governmental structures of countries and international organisations in dealing with the issues of project financing;
• information exchange between partners on ongoing and prospective international projects by creating a database of the Partnership with the use of a website to enhance planning and implementation effectiveness.

At present, the database and the website have been created. Their project's cost is estimated at 272,000 euros, with more than 80% (217,600 euros) of the cost having been covered by the European Commission, while the remaining 54,400 has been contributed by partners voluntarily.

In 2004, the CSR meeting in Copenhagen passed a decision on the formation of the budget of the partners through contributions of the Partnership member countries.

However, beginning from January 2005, the Partnership budget was formed without the participation of the Russian Federation, as in 2004, when the federal budget was formulated, the Russian Ministry of Healthcare was in the process of reorganisation as part of the administrative reform in the country.

After the formation of the Ministry of Healthcare and Social Development in 2004, cooperation with the Partnership resumed and the Russian side offered technical assistance in the holding of the Partnership meetings and providing free information to be included in the Partnership database.

Issues connected with filling the Partnership database have been finalised. The Russian side, with the support of the WHO, hosted meetings of the Committee of Senior Representatives in St Petersburg in 2006 and in Kaliningrad in 2007.

Russia has been elected co-president of the Partnership for 2008-2009.

The Partnership Secretariat's budget for 2009 is 317,618 euros. The voluntary contributions of "big" and "small" donors range between 4.4% and 11.7%.

Russia's contribution in 2009 is to be 34,714 euros.

The Nordic Council of Ministers, the International Labour Organisation and the World Health Organisation are planning to render financial support as well as methodological and organisational assistance in implementing youth programmes.

Moscow

May 22, 2009

*Press releases by the Department of Press Service and Information contain the materials submitted by the executive federal bodies for discussion by the Presidium of the Government of the Russian Federation.