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The Moscow Times Moscow Guide – Winter 2008

Since the middle of autumn one of the most important topics of discussion, could only be … no, not the financial crisis… New Year! The winter issue of The Moscow Times Moscow Guide is entirely devoted to New Years celebrations. Seven great ideas for celebrating the “Night of Nights” will help readers finalise their plans and choose how and where to party, give fresh ideas and lots of practical advice.

And don’t forget – problems will come by themselves, but happiness and luck need an invitation. That why the more cheerful and light-hearted your celebration of the coming holiday is, the happier and more successful 2009 will be for you.

The Crisis: Signs of a Kremlin Fearful Of Unrest
Sociologist Yevgeny Gontmakher has painted a disturbing picture of what might emerge from the financial crisis, forecasting continued unemployment, huge protests and spreading violence.

Market Matters: Huge Grain Harvest No Boon for Farmers
This year Russia is enjoying the biggest grain harvest it has ever seen -- and farmers couldn't be more worried.



Thursday, January 08, 2009 Updated at 31 December 2008 22:36 Moscow Time.

The Moscow Times » Issue 3998 » Business For Business

Preparation and Maintenance of Purchase and Sale Transactions

29 September 2008By Alexander Ermolenko / Head of corporate practice, FBK-LegalQuite often, even before the due diligence procedure, the investor already knows (or thinks he knows) how the transaction related to the purchase of a business will be structured or what the most material assets are. The clients often order pre-investment research (due diligence) along with an elaboration of transaction details, beginning at the execution of the transaction and even after purchase of the assets. Such an approach is due not only by negligence of details, but rather by competition, and the necessity of outrunning business competitors. The irregularity and undesirability of such a scenario is obvious: data on the object of the transaction obtained as a result of due diligence is the basis for making further decisions, including those related to implementation of the transaction itself.

The practice of transaction structuring allows for a number of generalizations, emphasizing those key moments that form a special structuring frame for almost any transaction. The next three issues should always be considered: method of property transfer; procedure for conduct of actions; and ensuring the performance of obligations.

The first issue considers possible legal mechanisms related to the transfer of control over a property or business from the seller to the buyer. The simplest way is to use a purchase and sale contract; however, the drawbacks of this method include a considerable tax burden, and it is almost unacceptable if the business in whole is sold. Due to this, in the majority of cases transactions with management tools, i.e. shares and participatory interests in the capital stock of business entities, are used. This method allows both purchase of the property itself and goodwill, as well as established business contacts. At the same time, the buyer risks obtaining the proverbial Trojan horse -- a transaction with unnoticed or intentionally hidden obligations. It is common knowledge that the most thorough due diligence does not allow protection against bills. One of the ways to transfer control is through reorganization of the company by various combinations of division, extraction, accession or merger. In this case, one can transfer a part of property with a portion of claims, or divide economically attractive parts of a business and non-profile or loss-making business segments.

The next issue is the procedure for conduct of actions under the transaction. The very sequence of counteragent activities may act as an element securing interests: "you pay in the morning and receive goods in the evening." From the other side, when developing a step-by-step plan for the transaction, one should consider the actions which are compulsory by law: for instance, one can not dispose of realty before state registration of title to it, all licenses shall be re-registered at a division of the company, and receipt of funds from the purchaser in one or another reporting period changes tax burden for the transaction, etc.

The last, but probably most important issue in structuring a transaction is development and approval of a mechanism ensuring the interests of the parties, mainly the purchaser, as he bears risks related to purchased property. In this sense one can talk not only about ensuring due execution related to the transfer of property, but about guarantees in case any drawbacks of the purchased business are revealed. For this purpose, both traditional methods set in civil legislation can be used (for instance, penalty or bank guarantee) and more exotic ways, such as repurchase agreements or deposit pledging.

There is no universal formulation for the stated issues: in any case, the main advice is to engage a qualified project team, pay attention to the indicated moments and plan everything in advance, if possible.