On the Evolution of the Domestic Practice of Relations between the Main and Subsidiary Companies

Abstract

From the point of view of improving the efficiency of competition law and corporate business management, it is of interest to regulate relations and transactions between the parent and subsidiary organizations. The key to understanding the regulation of relations between the main and subsidiary enterprises is to consider them as a single economic entity and property complex. Therefore, often transactions between the main and subsidiary enterprises are considered as unilateral, gratuitous. In the legal language of Russian justice, the peculiarity of such transactions is called “lack of direct counter representation”. The Decree of the Presidium of the Supreme Arbitration Court of the Russian Federation No. 8989 approved the principle: “The absence of a direct counter-provision is a feature of the relationship between the main and subsidiary companies, which, from an economic point of view, are a single economic entity”. We will look at various cases of jurisprudence (the body of court decisions) that apply this principle, and see how this principle has evolved and developed. Judicial acts referring to Decree No. 8989 have impressively expanded the situational field of its application. Variants of such schemes: gratuitous transfer of fixed assets of the main company to a subsidiary and vice versa, as well as in relations between subsidiary structures; preferential pricing in contractual relations between the main and subsidiary companies, as well as in relations between subsidiary structures (finished products, raw materials, components, energy carriers, works, services, etc.); gratuitous transfer by holding companies of the results of intellectual activity; implementation of the contribution of the main company to the property of the “daughter” in compliance with the procedure established by law; the obligation of the subsidiary company to strictly comply with the specifics of the use of the relevant property established by law for the parent company; forgiveness of the debt of one of the companies associated with corporate control of another; mobilization of dividends of a subsidiary company to pay debts of the main company in the course of its bankruptcy; guarantee transactions of one holding company to secure obligations of another; transactions of preferential borrowing in relations between holding companies; gratuitous transfer of funds from one holding company to another, explicitly or implemented within the framework of a “business contract”.