The Limits of Analogy in the Private Legal Status of the Beneficial Owner of a Legal Entity

Mikryukov Viktor Alekseevich ORCID: 0000-0002-6856-1627 PhD in Law Assistant Professor of the Entrepreneurial and Corporate Law Department, Kutafin Moscow State Law University (MSAL) 125993, Russia, Moscow, Sadovaya-Kudrinskaya str., 9 vmikryukov@yandex.ru Other publications by this author

The beneficial owner (ultimate beneficiary) of a legal entity is legally defined in the public legal sphere as an individual who ultimately directly or indirectly (through third parties) owns a legal entity (has predominant participation of more than 25 percent in the capital) or has the ability to control its actions (art. 3, paragraph 8 of art. 6.1. Federal Law No. 115-FZ dated 07.08.2001 [as amended on 14.07.2022] On countering the legalization (laundering) of proceeds from crime and the financing of terrorism).

Identification of beneficial owners allows to fight corruption and other insidious phenomena when legal entities carry out banking operations ^{[1, p. 9–17]}, provides deoffshorization of the Russian economy and countering tax evasion ^{[6, p. 38–42]}, including discloses the facts of obtaining unjustified tax benefits as a result of the widespread "business fragmentation scheme" on the chain of organizations with controlled links ^{[3, p. 261–280]}, protects the national tax system in the most sensitive area for abuse of passive income (dividends, interest, royalties) ^{[11, p. 50–60]}, and creates conditions for holding the final beneficiaries accountable for violations of legislation related to the effective functioning of large energy projects in the oil and gas industry ^{[5, pp. 41–44]}.

Even though the public-law approach to the formation of the beneficial owner is not fully aligned with a strict civilistic view in which the category of "owner" does not fit in with the concept of "legal entity," which does not designate an object but a subject the status of the final beneficiary, it has a visible legal significance in the private legal sphere. So, currently, the subsidiary liability of beneficial owners of developer organizations for losses caused by their fault to citizens participating in shared-equity construction is legally fixed (Clause 4 of Article 23.2 of the Federal Law of 30.12.2004 N 214–FZ [ed. of 14.03.2022] On participation in shared-equity construction of apartment buildings and other real estate objects and amendments to some legislative acts of the Russian Federation). Establishment of the beneficial owner's signs in relation to a particular person that intersects with the legal characteristics of the person controlling this debtor legal entity (Article 61.10. FZ of 26.10.2002 N 127–FZ [ed. of 28.06.2022] On Insolvency [Bankruptcy]; paragraphs 3–7 of the Resolution of the Plenum of the Supreme Court of the Russian Federation of 21.12.2017 N 53 On certain issues related to bringing persons controlling the debtor to responsibility in bankruptcy), unable to satisfy creditors' claims, opens up the possibility of bringing the specified person to subsidiary liability in bankruptcy proceedings of the debtor and the corresponding replenishment of the bankruptcy estate ^{[9, p. 63–70]}. By virtue of clause 3 of Article 53.1 of the Civil Code of the Russian Federation, persons who have the actual ability to determine the actions of a legal entity, including those who are able to give instructions to its participants and members of management bodies, in case of unreasonable and unfair behavior, are also liable to the controlled legal entity itself, namely, they are responsible for losses caused by its fault to this legal entity.

As a result of the observed blurring of boundaries between organizations and their founders in both public and private law ^{[7, p. 13–17]}, public-law supervision and the probable private-law liability of beneficial owners to creditors when "removing the corporate veil" ^{[10, p. 7–10]} pushes such not only to be content with the benefits of the actual (indirect, implicit, or withdrawn from the first blow) control over the organization’s actions but also raise the question of legal guarantees in the possibility of performing a number of direct powers in relation to the controlled entity (both for the purpose of conscientious maximization of benefits and reasonable minimization of risks).

In practical terms, this issue manifested itself in the attempts of the final beneficiaries who are not direct shareholders (participants) of controlled organizations, to make double indirect and quasi-indirect claims based not on the right to participate in such organizations but on a clear interest in their economic condition, bypassing the intermediate links of the chain of control. Despite some inconsistency of practice and the presence of a number of "refusal" decisions based on sub-clause 7 of Clause 1 of Article 148 of the APC of the Russian Federation (the statement of claim was signed by a person who does not have the right to sign it, the Decision of the Arbitration Court of the East Siberian District of 09.06.2020 N F02-1793/2020 in the case N A74-3619/2018) or motivated by a formal reference to the fact that the violation of the economic interests of the ultimate beneficiaries of a legal entity is not attributed by law to the grounds for invalidating the decision of the general meeting of participants of this legal entity (the Decision of the Arbitration Court of the Krasnodar Territory dated 07.12.2017 in the case N A32-31503/2017, A32-35860/2017), with the appearance of landmark acts by the Supreme Court of the Russian Federation for the area under consideration (Definitions of the Judicial Board for Economic Disputes dated 31.03.2016 in case N 305-ES15-14197, A40-104595/2014; dated 27.05.2016 N 305-ES15-16796 in case N A40-95372/2014), it can be considered that the judicial community has been given a signal about the possibility of a generally positive attitude so that the final beneficiaries can challenge the decisions of the general meetings of participants organizations that are indirectly controlled by them and demand invalidation of transactions made by such organizations.

Considering that, as a general rule, the percentage threshold of the share of final participation in a legal entity for recognizing the owner of the corresponding share as the beneficial owner is only 25%, and that control may be purely factual (not involving either direct or indirect legal participation in the organization), it may well turn out that in some specific situation, the beneficial owner cannot protect their reasonable property or managerial interest through the executive bodies of conduit organizations or actual influence on their nominal participants. Therefore, situations in which the final beneficiaries seek to exert direct legal influence on the controlled organization are not far-fetched. The presented judicial approach, allowing "double indirect" or "derivative" claims, looks reasonable and logical, which is why it finds (although not without reservations) some support in the doctrine ^{[2, c. 92-103; 12, p. 11]}.

At the same time, the lack of a clear legal justification for the position on recognizing the material right of the final beneficiary, who formally does not have a legal connection with the actually controlled organization, to an indirect or quasi-indirect claim is alarming. In the absence of norms on the existence of such a right and the discovery of the need for a participant in private relations in legal regulation, the use of such a traditional means of overcoming regulatory lacunae as analogy suggests itself. In the context of the message that the violated private law should be protected, including by adapting the available legal tools to modern conditions and needs of civil turnover, including the application by courts of the norms of legislation by analogy (Resolution of the Federal Antimonopoly Service of the North-Western District of 10.12.2012 in case N A42-2283/2009), probably due to the proper motivation of the legality of decisions taken in favor of the beneficiaries of the decisions may be references to the rules for the application of civil legislation by analogy (according to paragraph 2 of the Resolution of the Plenum of the Supreme Court of the Russian Federation of 19.12.2003 N 23 [ed. of 23.06.2015] On the judicial decision, the decision is lawful even if it is based on the application, if necessary, of the analogy of the law or the analogy of law). Moreover, consistent use of analogy in resolving relevant disputes may contribute to the adoption of adequate (closing the gap) changes in the current civil legislation, as it is believed that the analogical framing of strategic changes contributes to understanding and creates their legitimacy ^{[14, p. 1701–1716]}.

Expanding the idea of the right of the beneficial owner of an organization to influence its activities not only by involving all the necessary links in the legal chain of influence but also by directly bypassing conduits, it is based on the analogy of the law (Article 6 of the Civil Code of the Russian Federation) that attempts are made by the final beneficiaries to request information from controlled legal entities about their financial and economic activities. It would seem that in the light of the similarity of the logic of legal reasoning carried out by the beneficiary when presenting double indirect claims and claims for the reclamation of information and documents, the above judicial approach should also apply to the latter, especially given that here we are not talking about removing the corporate veil, but about a kind of "corporate striptease," where the beneficiary themself publicly reveals their figure ^{[8, pp. 365–370]}. However, if there are examples of the courts' negative attitude to such attempts, there are currently no acts that would be adopted in favor of the beneficial owner.

By denying the final beneficiaries of an organization to satisfy the requirements for requesting documents from this organization, the courts consider the legislator's silence about the relevant protective instrument of the beneficiary qualified (when the absence of a rule directly applicable to a new case does not mean there is a gap, but suggests that the sought remedy is not available at all) ^{[15, p. 481–521]}, they proceed from the fact that only its direct participants, who implement it in defense of their corporate rights (but not third parties, even controlling them, etc.), can have the right to file a claim for the recovery of documents from a limited liability company, which excludes the need to apply Article 6 of the Civil Code of the Russian Federation; at the same time, the argument about the need to the beneficiary's receipt of the requested information to prevent possible subsidiary liability for the debts of the controlled person is also rejected with reference to the fact that the current legislation does not provide for the possibility of judicial protection against an alleged or possible future violation of the law (Resolution of the Seventh Arbitration Court of Appeal of 24.07.2019 N 07AP-6103/2019 in case N A45-728/2019). Strictly speaking, reasoning in this way, the courts state that there is no way to protect the right of the final beneficiary to information but the right to information as such.

In one of the cases, the court reasoned the refusal to satisfy the claim of the beneficial owner (participant of the respondent's participant) for the provision of documents and information by the fact that in the corporate legal sphere (to which the dispute on the provision of information at the request of the participant of the corporation belongs), there is no normatively fixed concept of "beneficial owner," and the definition provided in the Federal Law from 07.08.2001, No. 115-FZ, applicable only for public-law purposes of this law. At the same time, the court did not agree with the statement about the possibility of filling the corporate-legal gap by applying the norms of this law by analogy, as the corporate legal relations of the company and its participants on the issue of providing documents of the company's activities are not similar to the relations on the implementation of operations with money or other property (The decision of the Arbitration Court of the Khanty-Mansiysk Autonomous Okrug-Yugra dated 10.04.2019 in case N A75-2735/2019). Interestingly, the reverse extension of this approach to situations with double indirect and quasi-indirect claims will lead to a similar conclusion that the final beneficiaries do not have the right to present them, which contradicts the previously stated position of the Supreme Court of the Russian Federation.

At the moment, it is difficult to predict whether the signal indicated in the rulings above of the Supreme Court of the Russian Federation on 31.03.2016 in the case of N 305-ES15-14197, A40-104595/2014 and 27.05.2016 N 305-ES15-16796 in the case of N A40-95372/2014 will be perceived by lower courts everywhere and unequivocally positively, whether the analogical implementation will publicly strengthen the legal concept of "beneficial owner" in the structure of the private legal status of legal entities and whether the increase in cases of acceptance for consideration on the merits of indirect and quasi-indirect (derivative, double indirect) claims of beneficial owners of legal entities will lead to appropriate regulatory changes. It is possible that objections expressed in the literature to the inclusion of actual beneficiaries in the circle of "indirect plaintiffs" will be heard as creating uncertainty about who and under what circumstances has the right to go to court on behalf of a legal entity, which, in turn, may lead to inconsistencies in the actions of the participants of the organization and their executive bodies, to the violation of the organizational unity of the legal entity and, in addition, will provide the courts with excessively broad discretionary powers ^{[4, p. 48–65]}.

It is quite possible that in the relevant disputes, as well as in the qualification of attempts by the final beneficiaries to obtain information about a controlled entity, a formal approach will prevail, and the assessment of the absence of rules on the concept of the beneficial owner of a legal entity and its rights concerning a controlled organization will be strengthened as a qualified silence of the legislator. In addition, the courts, which, before the appearance of the "probeneficial" position of the Supreme Court of the Russian Federation, proceeded from the absence of the ultimate beneficiaries of legal entities that are not participants in such, the substantive right to bring indirect and quasi-indirect (derivative, double indirect) claims (Resolution of the Arbitration Court of the North-Western District of 20.01.2016 in case N A13-3371/2015). They could also rely on the relevant opinion of the highest judicial instance, according to which the dependence of the subsidiary company of the parent company itself does not empower the shareholders of the latter to challenge the decisions of the management bodies of the subsidiary (the definition of the Supreme Court of the Russian Federation of 28.06.2012 N YOU-2919/12 in the case N A56-55612/2008).

But be that as it may, it seems quite evident that, according to the well-known legal maxim de similibus ad similia eadem ratione procedendum est (from similarity to similarity, we must follow the same rule) ^{[13, p. 124–145]}, the answer to the question of the right of the final beneficiary of the organization to a claim should receive a similar response both in the context of protecting their interest in challenging transactions and (or) decisions of the governing bodies of a controlled organization and (or) collecting losses in its favor, and in relation to a broad (in terms of the number of signs) and deep (in terms of the materiality of signs) similar need for the beneficiary to obtain documents and information about the organization's activities.