CEDH · CASELAW;JUDGMENTS;CHAMBER;ENG — 9 octobre 2014

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RUSSIA   (Applications nos.   39483/05 and 40527/10)                   JUDGMENT     STRASBOURG   9 October 2014     FINAL   09/01/2015   This judgment has become final under Article 44 § 2 of the Convention. It may be subject to editorial revision.   In the case of Liseytseva and Maslov v. Russia, The European Court of Human Rights (First Section), sitting as a Chamber composed of:   Isabelle Berro-Lefèvre, President,   Khanlar Hajiyev,   Mirjana Lazarova Trajkovska,   Julia Laffranque,   Erik Møse,   Ksenija Turković,   Dmitry Dedov, judges, and Søren Nielsen, Section Registrar, Having deliberated in private on 16 September 2014, Delivers the following judgment, which was adopted on that date: PROCEDURE 1.     The case originated in two applications (nos.   39783/05 and 40527/10) against the Russian Federation lodged with the Court under Article   34 of the Convention for the Protection of Human Rights and Fundamental Freedoms (“the Convention”) by two Russian nationals, Ms Irya Yakovlevna Liseytseva (“the first applicant”) and Mr Sergey Mikhaylovich Maslov (“the second applicant”), on 8   September 2005 and 28   May 2010 respectively. 2.     The first applicant was not represented by a lawyer before the Court. The second applicant was represented by Ms T.S.   Tarasova, a lawyer practising in Arkhangelsk. The Russian Government (“the Government”) were represented by Mr G.   Matyushkin, the Representative of the Russian Federation at the European Court of Human Rights. 3.     On various dates the President of the First Section decided to give notice of the applications to the Government. It was also decided to examine the merits of the applications at the same time as their admissibility (former Article   29   §   3). 4.     The Government objected to the joint examination of the admissibility and merits of application no.   39483/05, but the Court rejected this objection. THE FACTS I.     THE CIRCUMSTANCES OF THE CASES 5.     The first applicant was born in 1953 and lives in Petrozavodsk, in the Republic of Kareliya. The second applicant was born in 1956 and lives in Mezen, in the Arkhangelsk Region. A.     Application by Ms Liseytseva (no.   39783/05) 6.     The first applicant was an employee of the municipal unitary enterprise “Avtokolonna   1126” (Auto Transport Column   1126) in Petrozavodsk, the Republic of Kareliya. 1.     Available information on the debtor company 7.     “Avtokolonna   1126” was set up by a decision of the administration of the Town of Petrozavodsk (“the town administration”). It provided public transport services in the town on a commercial basis. The company had “the right of economic control” (право хозяйственного ведения ) over the assets allocated to it by the town administration in order to carry out its statutory activities. Legal provisions on the status of municipal unitary enterprises and the right of economic control are summarised in paragraphs   55 ‑ 75 below. 8.     At the request of the company, on 29   December 2001 the town administration withdrew unspecified assets of an aggregate value in excess of 25,000,000 Russian roubles (RUB) from the company’s economic control and immediately allocated them to the same company for temporary use free of charge under a loan agreement. 9.     Under several agreements between the company and the town administration, including one dated 21   January 2002, the company undertook to provide transport services to certain sections of the population free of charge, and the town administration was to reimburse it for the expenses incurred out of the budget allocated for that purpose by the Ministry of Finance of the Republic of Kareliya or the federal budget. According to a letter from the Committee of Housing and Communal Services of Petrozavodsk dated 19   March 2003, at some point the respective budgets accumulated a considerable debt towards the company owing to a shortage of funds. Consequently, the company was unable to pay its employees in due time. The town administration requested the legislative body of the Republic of Kareliya to consider the allocation of additional funds to cover the company’s debt in 2004, but to no avail. 10.     On an unspecified date the administration ordered the restructuring of the company in the form of a spin-off and transferred the assets mentioned in paragraph   8 above to the newly created municipal unitary enterprise “Avtokolonna   1126 Plus”. The debt accumulated in respect of the unpaid salaries was not transferred and remained with the applicant’s employer. 2.     Decision on the debtor company’s insolvency 11.     On   6   July 2003 the Commercial Court of the Republic of Kareliya declared the respondent company insolvent, and a liquidation procedure commenced. 3.     Final judgments in the applicant’s favour 12.     The applicant sued her employer for salary arrears. 13.     On 20 June 2003 the Petrozavodsk Town Court awarded her RUB   5,421.89 in salary arrears, compensation for non-pecuniary damage and court expenses. The judgment was not appealed against and became final ten days later. On 4   July 2003 the bailiffs’ service received the writ of execution in respect of the award. 14.     On 22 June 2003 the applicant was dismissed from the company in view of its upcoming liquidation (see paragraph 10 above). 15.     By a final judgment of 25 November 2003 the Petrozavodsk Town Court granted her new action and ordered the respondent company to pay her RUB   19,445.53 in salary arrears for a different period of time, severance pay and compensation for non-pecuniary damage. The applicant obtained a writ of execution in respect of the award. 16.     By a final judgment of 16 April 2004 the same court, in separate proceedings, awarded the applicant RUB   4904.95 in compensation for loss of salary, based on the average wage, and compensation for non ‑ enforcement of the above-mentioned two judgments as well as non ‑ pecuniary damage. On 17 May 2005 the writ of execution was forwarded to the bailiffs’ service. 4.     Insolvency proceedings in respect of the debtor company 17.     At some point the bailiffs discontinued the enforcement proceedings in respect of at least two judgments (22 June 2003 and 16 April 2004) and forwarded the writs to the liquidator. 18.     By separate judgments of 21 and 24   June 2004 and 12 and 13   August 2004 the Commercial Court of the Republic of Kareliya ordered the Federal Treasury and the Republican Treasury to reimburse the company the cost of the transport services it had provided free of charge under the respective agreements (see paragraph   9 above) and rejected a similar claim against the town administration. 19.     At some point the liquidator received the writ of execution in respect of the judgment of 25 November 2003. 20.     According to the liquidator’s notes on the respective writs of execution, at some point the applicant received RUB   4,358.98 of the amount awarded on 20 June 2003, RUB   8,782.78 of the amount awarded by the judgment of 25 November 2003 and RUB   4,604.95 of the award made on 16 April 2004. The remainder of the judgment debts has not been paid to the applicant. 21.     On 4 October 2006 the Commercial Court of the Republic of Kareliya discontinued the insolvency proceedings and ordered the respondent company’s liquidation. The creditors’ claims, which had not been satisfied during the liquidation procedure, including the remainder of the applicant’s claims, were considered as settled. On 15 October 2006 the liquidation was recorded in the Register of Legal Entities, and the company ceased to exist. 5.     Proceedings for subsidiary liability brought by the applicant 22.     In 2005 the applicant lodged an action against the town administration, claiming that it was liable to repay her the remaining judgment debt plus compensation for the delayed enforcement of the court orders and non-pecuniary damage. She argued that the insolvency of the debtor company had been caused by the actions of the town administration. First, it had failed to reimburse the expenses the company had incurred for providing transport services, as stipulated by the respective agreements (see paragraph   9 above). Second, the company’s inability to meet the creditors’ claims had been caused by the transfer of the assets to a different company carrying out the same functions. As a result, the debtor company had become unable to continue to carry out its activities as defined in its articles of association. 23.     On 21 January 2005 the Petrozavodsk Town Court dismissed the action. The court established that the federal and republican authorities owed the applicant’s former employer RUB   1,883,370 for services provided at a reduced price. However, with reference to the Commercial Court’s findings (see paragraph   18 above) the court concluded that the debt had been accumulated as a result of the federal and republican authorities’ inaction and therefore it could not be attributed to the town administration. As regards the transfer of the assets, the court found as follows: “The restructuring («реорганизация») of the municipal unitary enterprise ‘Avtokolonna   1126’ in the form of a spin-off and the creation of a separate unitary enterprise, ‘Avtokolonna   1126 Plus’, was within the property owner’s rights. [The applicant] failed to prove the existence of a causal link between the restructuring ... and the enterprise’s insolvency”. 24.     The court further observed that, in any event, the applicant’s claim was premature, since the insolvency proceedings had been underway at the material time. On 22   March 2005 the Supreme Court of the Kareliya Republic upheld the judgment on appeal. 25.     Once the debtor enterprise was liquidated, the applicant lodged a similar claim with the Justice of the Peace of the 10th Court Circuit of Petrozavodsk. In addition to her earlier submissions (see paragraph   22 above) she reiterated that the debtor company had reported to the owner and the latter had been fully aware of its financial difficulties. However, no measures had been taken to remedy the situation. 26.     On 21   May 2007 the Justice of the Peace rejected her claims, largely referring to the findings of the Petrozavodsk Town Court of 21   January 2005 (see paragraph   23 above). She found that even though the liquidation proceedings had been terminated, the applicant had failed to adduce any additional evidence to demonstrate that the owner had caused the company’s insolvency. The Justice of the Peace noted that the company had been a separate legal entity liable for its debts with all its assets, and therefore rejected the applicant’s argument about the town administration’s inaction as irrelevant. 27.     On 12   September 2007 the Petrozavodsk Town Court endorsed those findings as regards both the failure of the authorities to compensate the cost of the transport services and the restructuring of the company. The court noted, in addition, that the withdrawal of the assets on 29   December 2001 had taken place pursuant to the company’s own request and that, moreover, those assets had been returned to it for free temporary use, which had permitted it to continue its activities. The court further found the applicant’s arguments about the authorities’ inaction ill-founded and emphasised that the applicant had failed to submit evidence in support of her claims. B.     Application by Mr Maslov (no.   40527/10) 28.     The applicant was an employee of the municipal unitary enterprise “Zhilishchno-Kommunalnoye Khozyaystvo of Mezen” (“Housing and Communal Service of the Town of Mezen”, hereafter “the company”) in the Arkhangelsk Region. 1.     Available information on the debtor company and the beginning of the liquidation procedure (a)     The company’s articles of association and activities 29.     The company was set up by decision of the administration of the Mezen District. It had the right of economic control over the assets allocated to it by the district in order to meet its statutory objectives. In accordance with the company’s articles of association, it was a commercial organisation performing the following activities, among others: renovation and maintenance of the municipal housing stock; heating and water supply; maintenance of the sewage systems in Mezen; cartage and passenger transport; funeral services; maintenance of municipal boiler plants, artesian wells and related infrastructure, as well as heating supply systems; production of fast-moving consumer goods; and disposal of dry waste and household waste, 30.     According to its articles, the assets of the company consisted of the profit generated by its activities, capital investments, and grants from the federal, regional and local budgets and other sources. The company’s financial resources were made up of profits, amortisation charges, loans and other revenues, as well as “grants from the local budget to cover any losses incurred through the provision of housing and communal services”. 31.     The company planned its activities and development itself. It proposed prices and the tariffs for its products and services in accordance with the domestic legislation and submitted them to the district administration for approval. The plans were based on contracts with consumers, including State bodies and suppliers, “concluded on a commercial basis”. (b)     Employees’ salaries 32.     The basic salaries of the employees of the housing and communal sector for 2005-07 were set by the Sectoral Tariff Agreement for the Housing and Communal Sector of the Russian Federation (Отраслевое тарифное соглашение по организациям жилищно-коммунального хозяйства Российской Федерации ) concluded between the employees of the “essential public services sector” represented by the trade union, and the employers, represented by the Communal Enterprises Union. The agreement applied to the municipal authorities that empowered the parties to make such an agreement, as well as to all entities operating in the housing and communal sector, unless they explicitly refused to apply it. No such refusal was made by the applicant’s employer. (c)     Available information on tariffs for heating supply 33.     The district administration was responsible for setting the tariffs of the company’s services and was also a major consumer of its services. The tariffs in place until 2005 were based on 5 per cent profitability. According to the submissions of the director of the company which employed the applicant in the subsidiary liability proceedings brought by the applicant (see paragraph   48 below), as a result of the application of those tariffs the enterprise had become unprofitable; the loss in profits amounted to RUB   300,000 and was not reimbursed by the administration. The administration failed to pay RUB   2,500,000 for the company’s services. According to its director, the company was put in a difficult financial situation as a result of the actions of the owner. (d)     Restructuring of the company 34.     On 23   December 2005 the Head of the Mezen district administration ordered the restructuring of the company in the form of a spin-off, creating a new municipal unitary enterprise “MUP ‘Mezenskiye Teplovyye Seti’ (Mezen Heating Supply Systems) of the Mezenskiy District” (hereafter, “MUP ‘MTS’”). 35.     On the spin-off balance sheet approved by the Head of the Mezen district administration on 20   April 2006, the unpaid salary debt was not transferred to the newly created company. 36.     On 24   May 2006 the Head of the Mezen district administration ordered the withdrawal of coal and all other assets, except for the company’s authorized capital, from the company’s economic control and their allocation to MUP “MTS”. The director of the company which employed the applicant became director of MUP “MTS”. 37.     On 13   July 2006 the Head of the Mezen district administration ordered the applicant’s employer’s liquidation. 38.     On 29   May 2007 the Commercial Court of the Arkhangelsk Region declared the respondent company insolvent, and the liquidation procedure was set in motion. 2.     Final judgment in the applicant’s favour 39.     The applicant sued his employer for salary arrears, claiming that his salary rate was below that provided for in the respective Sectoral Tariff Agreement (see paragraph   32 above). The liquidator accepted the claims. On 19   June 2007 the Justice of the Peace of the Court Circuit of the Mezen District of the Arkhangelsk Region awarded the applicant RUB   80,892.63 in salary arrears against his employer. 40.     The judgment was not appealed against and became final. 3.     Enforcement of the judgment and liquidation of the company (a)     Writs of execution and register of creditors 41.     On 16   July 2007 the bailiffs’ service initiated the enforcement proceedings in respect of the judgment. On 19   July 2007 the bailiffs terminated the enforcement proceedings and forwarded the writs of execution to the liquidator. 42.     At some point before 1   February 2009 (date of the liquidator’s report, see paragraph 45 below) the applicant’s claims were included in the second priority line of the register of creditors’ claims. (b)     Application to the Arkhangelsk Commercial Court 43.     According to the Government, on 1   October 2007 the applicant petitioned the Commercial Court of Arkhangelsk with a request to order the liquidator to enforce the judgment in his favour. 44.     On 4   October 2007 the court returned the petition unexamined, referring to section   60 of the Insolvency Act (see paragraph   120 below). The parties have not submitted a copy of any document produced by the court in that respect, or a copy of the applicant’s petition. (c)     The company’s liquidation 45.     On 1   February 2009 the liquidator produced a report stating, inter alia , that the assets of the debtor company had not been found and the receivables had not been established, “for lack of financial records”. 46.     On 24   February 2009 the Commercial Court of Arkhangelsk terminated the insolvency proceedings and ordered the respondent company’s liquidation. The creditors’ claims which had not been satisfied during the liquidation procedure due to the debtor’s shortage of funds, including the applicant’s claims, were considered as settled. The court further ordered that the enforcement proceedings in respect of that debt be terminated. 4.     Proceedings for subsidiary liability brought by the applicant 47.     The applicant lodged a court action against various respondents claiming, inter alia , that the town administration was liable to repay him the unpaid judgment debt, as well as compensation for non-pecuniary and pecuniary damage resulting from the non-enforcement. He argued that the insolvency of the debtor company had been caused by the actions of the district administration. 48.     On 16   September 2009 the Mezenskiy District Court of the Arkhangelsk Region heard the parties, including the applicant, the district administration representative and the head of the liquidated company who was, at the time of the events, employed as the director of MUP “MTS” (see paragraph   34 above) and granted the applicant’s claims in part. The court reiterated that the debtor company had been set up by the district administration, which, as its owner, had been entitled to decide on its restructuring and liquidation under Article   295   §   1 of the Civil Code. The owner could not be held liable for the insolvent company’s debts unless the insolvency had been caused by the owner’s actions. The court established that as a result of the administration’s tariff-setting policy (see paragraph   33 above) the company had been put in a pre-insolvency situation. Furthermore, the court emphasized that the district administration had withdrawn all assets from the company except for its authorized capital, which resulted in the company’s inability to continue its activity in accordance with the goals and objectives assigned to it. With reference to the Court’s case-law ( Shlepkin v.   Russia , no.   3046/03, 1   February 2007; Grigoryev and Kakaurova v.   Russia , no.   13820/04, 12   April 2007; and Aleksand rova v.   Russia , no. 28965/02, 6   December 2007) the District Court found that the administration had subsidiary liability for the insolvent company’s debts, ordered that the judgment debt be recovered from the district administration at the expense of the district treasury and rejected the remainder of the applicant’s claims. In particular, the court found that the newly created company was not liable for the debts of the applicant’s employer since they had not been transferred to it in the spin-off procedure. 49.     On 17   December 2009 the Arkhangelsk Regional Court quashed the judgment on appeal and remitted the case for a fresh examination. The regional court found that it was for the applicant to demonstrate that the insolvency had actually been caused by the owner’s actions. However, he had failed to do so. Turning to the tariff-setting issue (see paragraph   33 above), the regional court noted that under the domestic law the owner was not obliged to finance the company directly. The regional court further considered that the assets had not actually been withdrawn from the company which employed the applicant, but that the company itself had transferred them to the newly created company on the spin-off balance sheet after the restructuring. There was nothing in the case to suggest that the lawfulness of the transfer of the assets had at any point been challenged in court. Furthermore, Russian employment law had not contained any provisions on the subsidiary liability of owners for the debts of municipal unitary enterprises. On the other hand, the first-instance court had failed to examine the issue of MUP “MTS”‘s liability for the debts of the restructured company. 50.     On 19   February 2010 the Mezenskiy District Court rejected the applicant’s claims. The court found that, as a result of the withdrawal of all assets from MUP “MTS”, the latter had become unable to continue its activities, which indeed constituted a reason for its insolvency. However, the court went on to find that “... the insolvency occurred through no fault of the owner, since they [sic] had been bound by the federal law. Therefore, one of the criteria for the application of subsidiary liability, namely, fault on the part of the owner, is missing.” 51.     In so far as the applicant’s claims for compensation for delayed enforcement were concerned, the court noted, in addition, that he had failed to raise that issue before the main debtor, that is, the employer company, and was therefore prevented from making such claims in the subsidiary liability proceedings. Lastly, the claims lodged against the newly created company could not be granted since the debt in respect of the salary arrears had not been transferred to it. 52.     The applicant appealed, arguing, inter alia , that the liquidator had not been heard by the first-instance court and the documents on the debtor company’s remaining assets had not been available to him. 53.     By a final judgment of 6   May 2010 the Arkhangelsk Regional Court upheld the lower court’s findings of 19   February 2010 on appeal. The regional court rejected the applicant’s argument regarding the unavailability of the company’s documents as irrelevant, having noted that the claimant had to demonstrate that the insolvency had been caused by the owner’s actions and not by the company’s own management “and, in any event, not vice versa ”. The court endorsed the remainder of the lower court’s findings. II.     RELEVANT DOMESTIC LAW AND PRACTICE A.     General provisions on State and municipal unitary enterprises 54.     Article 49 of the Civil Code of the Russian Federation provides that a legal entity enjoys the civil rights corresponding to the purpose and aims of its activity, stipulated in its constitutional documents, and discharges the duties related to that activity. Commercial organisations, with the exception of, inter alia , unitary enterprises, possess the civil rights and discharge the civil duties indispensable for the performance of any kind of activity that is not prohibited by the law. 55.     The Civil Code of the Russian Federation defines State and municipal unitary enterprises as commercial organisations that do not exercise a right of ownership in respect of the property allocated to them by their owners (Article 113 § 1 of the Civil Code and section 2 of Federal Law no.   161-FZ of 14 November 2002 on State and Municipal Unitary Enterprises, hereafter “the Unitary Enterprises Act”). The property of the unitary enterprise is indivisible. Unitary enterprises cannot create subsidiary companies (дочерние предприятия ) (section 2 of the Unitary Enterprises Act). 56.     Only State-run and municipal enterprises can be set up in the form of unitary enterprises (Article 113 § 1 of the Civil Code). Under section   8(4) of the Unitary Enterprises Act, a State or municipal unitary company may be created in order to: “-   ensure the use of estate the privatization of which is prohibited, including the assets necessary to ensure the security of the Russian Federation; -   conduct activities to carry out social tasks (including the production of specific goods and services for a minimum price) and organise and conduct purchasing and commodity interventions to ensure the national food security; -   conduct activities reserved exclusively for State unitary companies, as defined by federal laws; -   conduct scientific and technical activities related to the security of the Russian Federation; -   design and produce certain types of goods within the sphere of interests of the Russian Federation and which guarantee the security of the Russian Federation; -   produce specific types of goods excluded from circulation or of limited circulation.” 57.     A unitary enterprise may acquire and make use of pecuniary and non ‑ pecuniary rights and bear responsibilities, and be a claimant and a defendant in courts (section   2 of the Unitary Enterprises Act). 58.     The State or municipal authority retains ownership of the property but the unitary enterprise may exercise the right of economic control (право хозяйственного ведения ) or operational management (право оперативного управления ) over it (Article   113   §   2 of the Civil Code and section   2 of the Unitary Enterprises Act). 59.     The following summary of the domestic law provisions concerns only enterprises with the right of economic control over the assets allocated to them. B.     Unitary enterprises with the right of economic control 60.     A unitary enterprise with the right of economic control over the assets allocated to it is set up by a decision of the State or the competent local self-government body if the law does not stipulate otherwise (Article   114   §   1 of the Civil Code). 1.     Constitutional document, assets and profit 61.     A company’s articles of association are its constitutional documents and are approved by the State body or local self-government body (Article   114 of the Civil Code and section   20 of the Unitary Enterprises Act). 62.     The articles should contain information on the size of the company’s authorised capital, its sources, and the manner in which it was set up (Article   113   §   1 of the Civil Code). The owner sets up the company’s authorised capital and may decide to increase or reduce it (sections   14 and   15 of the Unitary Enterprises Act). If, at the end of the fiscal year, the value of the net assets of the company proves to be less than the size of its authorised capital, the founder is under the obligation to reduce the authorized capital in conformity with the procedure established by law. If the value of the net assets falls below the amount fixed by law, the company may be liquidated pursuant to a court decision (Article   114 of the Civil Code). 63.     The Unitary Enterprises Act stipulates that a company’s assets consist of the property allocated to it and under its economic control, the profit made as a result of its activity and other sources in accordance with the law (section   11 of the Act). 64.     The unitary enterprise creates a reserve fund from the net profit it generates, as well as other funds in accordance with its articles (section   16 of the Unitary Enterprises Act). 65.     The owner has the right to obtain a part of the profit generated by the company (Article   295   §   1 of the Civil Code and section 17(1) of the Unitary Enterprises Act). Unitary enterprises are required to make yearly transfers of part of the profit that remains after the payment of taxes and other compulsory payments to the respective budget in an amount and in accordance with a procedure determined by the respective State or municipal authority (section   17(2) of the Unitary Enterprises Act, as well as Articles   51, 57 and 62 of the Budget Code of the Russian Federation, which define the respective payments as non-tax revenues). 2.     Purpose and aims of the municipal unitary enterprise’s activity and failure to comply with them (a)     Legal provisions 66.     The owner of the property under the economic control of a unitary enterprise defines the purpose and aims of the company (Article   295 of the Civil Code). The articles of association of the unitary enterprise should contain information on its purpose and aims (Article   113   §   3 of the Civil Code and section   9 of the Unitary Enterprises Act). The State or municipal unitary enterprise may dispose of assets only in a manner which does not prevent it from carrying out its activities in accordance with its statutory purpose and aims. Transactions made in violation of this requirement must be declared void (section   18(3) of the State Unitary Enterprises Act). 67.     The owner oversees the use of the property assigned to the company in conformity with its stipulated purpose and the maintenance of that property (Article   295   §   1 of the Civil Code). (b)     Binding clarifications by the higher courts 68.     As clarified by §   10 of Ruling no.   10/22 of the Plenary Session of the Supreme Court and the Supreme Commercial Court of Russia adopted at the Plenary session of 29   April 2010, transactions of the type mentioned above must be declared void irrespective of whether the owner consented to them. 3.     Management of assets (a)     Legal provisions 69.     The owner of the property under the economic control of a unitary enterprise may decide to restructure or liquidate the company (Article   295 of the Civil Code and section   29 of the Unitary Enterprises Act). The restructuring may take the form of consolidation, a merger, split, spin-off or transformation into a different legal entity (sections   29-35 of the Act). In particular, in the cases of a split or spin-off, the owner must approve the balance sheet of the respective operation (sections   32 and 33 of the Unitary Enterprises Act). 70.     The owner’s consent must be obtained for any transaction that may lead to the encumbrance or alienation of real estate (Article   295 §   2 of the Civil Code and section   18(2) of the Unitary Enterprises Act). The unitary enterprise can independently dispose of the rest of the property under its economic control, except in the cases established by law or other normative acts (Article   295 §   2 of the Civil Code and section 18(1) of the Unitary Enterprises Act). 71.     In the absence of the owner’s consent, the unitary enterprise cannot make transactions related to, inter alia , the provision of loans and guarantees, the obtaining of bank guarantees or other encumbrance, assignments of claim or debt transfer agreements, or to enter into a “simple partnership” (unincorporated venture) contract (section 18(4) of the Unitary Enterprises Act). The owner must approve any loan agreement (section   24(2)) and any major transaction by the company (крупная сделка), which involves assets of a value exceeding ten per cent of its authorized capital or 50,000 times the minimum monthly wage established by law (section 23(1) and (3) of the Act). 72.     The company’s financial documents are subject to a compulsory annual audit and must be forwarded to the competent State and municipal authorities (section 26 of the Unitary Enterprises Act). 73.     The owner sets the company’s the economic performance targets and oversees its achievement of those targets (section 20 of the Act). 74.     The gains, products and profits generated by the use of the property under the economic control of a unitary enterprise, as well as property acquired by the enterprise under a contract or on another basis, are placed under the economic control of the enterprise in accordance with the provisions of the Code and other laws (Article   299   §   2 of the Civil Code). 75.     The right of economic control can be terminated on the same grounds and according to the procedure set out in the laws on the termination of property rights, as well as in cases where the owner legitimately seizes assets from the unitary enterprise (Article   299   §   3 of the Civil Code). The company’s right to property may be extinguished, in particular, where the owner renounces that right (Articles   235   §   1 and   236 of the Code). (b)     Relevant case-law (i)     Binding clarifications by the Supreme Court and the Supreme Commercial Court of Russia (α)     Invalidity of certain transactions made by the owner involving the assets placed under the enterprise’s economic control 76.     By Ruling no.   6/8 of 1   July 1996 the Plenary Session of the Supreme Court and the Supreme Commercial Court of Russia reiterated that the owner’s rights in respect of the assets allocated to a state or municipal unitary company under the right of economic control were listed in Article   295   §   2 of the Civil Code and emphasised that the owner was not entitled to seize, lease or otherwise dispose of such assets. Acts of disposal by the State and local authorities of the assets allocated to the unitary enterprise under its economic control had to be declared invalid pursuant to a claim by the respective enterprise (§   40 of the Ruling). According to Ruling no.   10/22 of 29   April 2010 (cited in paragraph   68 above), the owner cannot dispose of such assets irrespective of the consent of the enterprise (§   5 of the Ruling). (β)     The enterprise’s right to bring proceedings against the owner 77.     By Rulings no.   8-O of 25   February 1998 and no.   10/22 of 29   April 2010 the Plenary Supreme Commercial Court emphasised that unitary enterprises enjoyed the same rights as the owners to seek court protection of the assets placed under their economic control, including the right to bring a vindicatory or negatory action ( actio negatoria ) against the owner. (ii)     Case-law of the commercial courts (α)     Different approaches to the management of assets acquired as a result of the company’s commercial activity 78.     By judgment no.   6709/97 of 21   April 1998 the Presidium of the Supreme Commercial Court found that where real estate is acquired by a unitary enterprise as a result of its economic activity, the owner’s consent to a transaction involving that real estate is not required. 79.     In case no.   Ф08-1332/2002 municipal unitary enterprise O. sold unfinished premises to a private company. The administration of district K., the owner of the company’s property, challenged the validity of the contract since it had not been approved by the owner. The lower courts rejected the action, stating that the company had built the premises at its own expense and could therefore dispose of them irrespective of the owner’s consent. By final judgment no.   Ф08-1332/2002 of 30   April 2002 the Federal Commercial Court of the North-Caucasus Circuit quashed the lower court’s findings with reference to Article   299   §   2 of the Civil Code (see paragraph   74 above), having found, inter alia , that the gains, products and profits generated by a municipal unitary enterprise as a result of its use of the assets placed under its economic control should, in turn, also be placed under the economic control of that enterprise, and thus are also governed by Article   295   §   2 of the Civil Code, which explicitly prohibits any transactions involving real estate in the absence of the owner’s consent. (β)     Evolution of the domestic court’s approach to withdrawal and transfer of assets by the owner 80.     On the one hand, until 2008 it had not been uncommon for the domestic commercial courts to accept an enterprise’s renouncement of assets as a lawful ground for their removal. For instance, by final judgment no.   Ф ‑ 1893/08-C06 of 25   March 2008 the Federal Commercial Court of the Ural Circuit summarised the lawful grounds for the removal of assets as follows: (a)   the liquidation or (b)   the restructuring of a unitary enterprise with the right of economic control, (c)   the use of the assets in non ‑ compliance with the unitary enterprise’s statutory purpose and aims or (d)   the unitary enterprise’s renouncement of the assets. In that case, the court disallowed the liquidator’s action lodged within the insolvency proceedings in respect of municipal unitary enterprise N. challenging the owner’s decision to restructure the company and to transfer its assets to a different unitary company. The court noted that the company itself had requested the assets to be withdrawn from its economic control, and therefore the owner had lawfully decided to transfer the assets within the meaning of Article   299 of the Civil Code taken in conjunction with Article   236 (see paragraph   75 above). The same test was also applied by the Federal Commercial Court of the East-Siberian Circuit in case no.   69 ‑ 576/08-Ф02-847/2009 concerning municipal unitary company “Hotel   K.”‘s challenge of a lease agreement concluded by the owner and a private company in respect of property placed under the hotel’s economic control, although in that later case the court found no evidence of the company’s renouncement of the assets, and found that the owner had not been competent to enter into the agreement in question. 81.     Since late 2008 domestic commercial courts took a different approach regarding the validity of the transactions involving the withdrawal and transfer of the assets. First, neither the Civil Code nor the Unitary Enterprises Act provided for the owner’s right to withdraw the assets. Second, section   18(3) of the Unitary Enterprises Act prohibited a unitary enterprise with a right of economic control to renounce title to assets since as a result of such a renouncement and the ensuing removal of the assets the company would no longer be able to perform its statutory activities in compliance with its designated purpose and aims. For instance, in case no.   32-4047/2008-4/99 a liquidator of a municipal unitary company in charge of water supply for the area requested that the owner’s decision of 2006 to withdraw the company’s assets be declared invalid. The first ‑ instance court rejected the action on the ground that the transfer had taken place pursuant to the company’s own request and had therefore been lawful within the meaning of Article   299 in conjunction with Article   235   §   1 of the Civil Code (see paragraph   75 above). However, the appeal court – and subsequently the Federal Commercial Court of the North Caucasus Circuit acting as a cassation instance – granted the company’s claim and declared the withdrawal unlawful since it precluded the company from a possibility to further perform its statutory activities (cassation judgment no. Ф08-2397/2009 of 9 June 2009). By decision no.   ВАС ‑ 11340/09 of 16   September 2009 the Supreme Commercial Court rejected the owner’s application for supervisory review, having found the cassation court’s interpretation to be both correct and consistent with the Supreme Commercial Court’s recent case-law. Similar reasoning was applied by the Supreme Commercial Court in a number of subsequent cases (see, for instance, decisions no.   ВАС-6841/11 of 16   June 2011 and no.   ВАС-7685/11 of 30   June 2011 rejecting applications for supervisory review, and several other cases). (iii)     Prosecutor’s complaint 82.     In a limited number of cases, a prosecutor acting on behalf of the employees of a municipal unitary company requested that the owners’ orders to transfer assets and dismiss personnel be declared unlawful. Such an action was granted, for instance, on   13   October 2010 by the Regional Court of the Yevreyskaya Autonomous Region. The case concerned a municipal water supply company. Referring to the company’s financial difficulties, the owner ordered that all its assets be removed for further transfer to a different legal entity, and instructed the head of the enterprise “to prepare orders for the employees’ dismissal”. The court rejected that argument and set aside the owner’s order, since it had not been demonstrated that the company’s management of the assets had not been economically rational, or that it had failed to meet its statutory goals. The withdrawal prevented the company from further performing its statutory activities and resulted in the “mass dismissal” of employees in violation of their employment rights. C.     The director of a unitary enterprise 1.     Appointment and liability 83.     The director of a unitary enterprise is appointed by, and reports to, the property owner (Article   113   §   4 of the Civil Code and section   21 of the Unitary Enterprises Act). The owner may sue the director for damage caused to the enterprise (section   25 of the Unitary Enterprises Act). 2.     Relevant provisions on the director’s dismissal 84.     Article   278 of the Labour Code of the Russian Federation, as amended on 30   June 2006, provides that the employment contract of a director of an organisation may be terminated by the owner’s decision. A decision to dismiss the director of a unitary enterprise must be taken in accordance with the procedure established by the Government of the Russian Federation. 85.     Decree of the Government of the Russian Federation No.   234 of 16   March 2000, as amended on 4   October 2002, governs the employment contracts and appraisal of the directors of federal state unitary enterprises. Section   2 of the Decree provides for the following specific grounds for dismissal of a director of a State unitary enterprise: failure to meet its economic targets, perform the company audit in a timely manner or comply with the decisions of the Government; making transactions involving the assets under the economic control of the company in violation of the laws or the special legal capacity of the company as established by its articles of association; and failure to pay salaries for a period of more than three months where the fault lies with the director. The specific conditions of employment and appraisal of the directors of municipal unitary companies are defined by the respective municipal authorities. D.     Insolvency of State and municipal unitary companies with the right of economic control 1.     Insolvency procedure 86.     The unitary enterprises in question may be declared insolvent in accordance with the insolvency procedure applicable to private companies. That procedure is established by the relevant provisions of Federal Law no.   127-FZ of 26   October 2002 On Insolvency (Bankruptcy) (“the Insolvency Act”) which replaced the earlier Insolvency Act of 8   January 1998 (see, for a summary of the provisions of the 2002 Insolvency Act governin