The matter in brief
How it went
Situation. The client had a sprawling structure of more than 40 legal entities with no unified standards for contract work. Different departments used different contract templates, which led to regular disputes with counterparties.
What we did. We audited the contract forms used across all entities in the group, developed unified templates and a contract approval procedure, and trained the responsible staff in each department to work under the new procedure.
Result. The number of contentious contracts fell threefold in the first year of the new system, and the client’s legal department gained a predictable approval process in place of fragmented practice.
What a compliance system in a group of companies is built on
There is no single compliance law. Russian law has no separate codified statute on compliance. The system is built on the general provisions of the Civil Code (freedom of contract under Article 421 of the Russian Civil Code, form of transaction under Article 434) and on the sector-specific regulation that applies to the particular group of companies.
Sector rules sit on top of the general ones. For a group of several legal entities, you must also take into account the competition law (Federal Law No. 135-FZ), since transactions between affiliated persons may fall under antitrust control; the personal data law (Federal Law No. 152-FZ); and, in certain areas, the anti-corruption law (Article 13.3 of Federal Law No. 273-FZ), which requires organisations to take measures to prevent corruption risks.
Local acts underpin day-to-day work. The company’s own internal documents play the key role: a contract policy, an approval procedure and a matrix of signing authority. These are what turn general statutory rules into a concrete course of action for each department of the group.
What the legal basis of compliance usually includes:
How a compliance system is usually implemented
The process is similar for most groups of companies, whatever the industry. Only the scale changes.
Audit of current practice
Contract templates and approval practice are collected from every entity in the group, to see where differences create real risk rather than mere formal variation between departments.
Developing unified standards
Standard contract forms and an approval procedure are prepared: who approves, within what time, and what to do when a departure from the standard form is needed.
Training the people responsible
Training is given to the staff of the departments that work with contracts directly. Without it, even a well-designed procedure remains a document on paper.
Monitoring and updating
Compliance with the procedure is checked periodically in practice, and templates are updated when legislation changes or new types of transaction appear in the group.
Common mistakes when building a compliance system
“Whatever works” templates. Each department uses its own version of a contract, inherited from a previous lawyer, for years. When a dispute arises, it turns out that the wording in different entities of the group directly contradicts itself.
Approval with no one responsible. Contracts are signed because “that is how it has always been done”, not because a specific employee with the authority to do so has reviewed them.
A procedure exists, but nobody checks it. Standards are approved once and never reviewed. After a couple of years they no longer reflect either new types of transaction or changes in legislation.
Compliance treated as a one-off project. The system is introduced and forgotten, instead of building regular audits of contract work into the group’s ordinary business processes.
Compliance in numbers
Time limits and thresholds worth knowing when building contract compliance.
Risks of fragmented contract practice
Financial losses from typical errors. Contradictory wording in the contracts of different entities in a group is a frequent cause of lost disputes with counterparties: a court reads the contract literally, and sloppy drafting costs more than the saving on legal review.
Personal liability of managers. If the company’s losses arise from the bad-faith or unreasonable actions of its director when concluding a transaction, they can be recovered from the director personally. Article 53.1 of the Russian Civil Code expressly provides for such liability.
Problems in due diligence. Fragmented contract practice slows down and raises the cost of reviewing a company when a business is sold or an investor is brought in. The buyer’s lawyers spend more time analysing contradictory documents, and the risks they find reduce the price of the deal.
Related areas:
A similar situation? Let us discuss the details at a consultation.
Frequently asked questions
How long does due diligence take before an M&A deal?+
From a few weeks to 2-3 months, depending on the scale of the deal and the number of jurisdictions involved.
Can an asset stripping transaction be challenged if several years have already passed?+
The limitation period for such disputes is usually 3 years from the date the injured party learned of the violation, and the exact period depends on the circumstances of the case.
Is this a real case or a generalised example?+
It is a real matter from the firm’s practice. We publish it without company names or the names of the participants, as every client agreement includes a non-disclosure clause.