Client Alert On New Rules On Related Party Transactions For All Azerbaijani Companies

Previously, similar regulations existed only for issuers of investment securities (company shares and bonds) and banks. The new rules apply to any transaction or series of related transactions between a legal entity and a related party with respect to such legal entity.

In general, the term "related party" is defined quite broadly and includes the following:

The chairmen and members of the management and supervisory boards of a company Heads of divisions, branches and departments of the company Relatives of persons listed under items 1 and 2 above Shareholders of the company (whether legal entities or individuals) holding (whether directly or indirectly) at least 10 percent of the shares in the company Legal entities in which persons listed under items 1, 2 and 4 above (whether directly or indirectly) hold shares Legal entities in which the company in question holds at least 20 percent of the shares Persons (whether legal entities or individuals) holding (whether directly or indirectly) at least 20 percent of the shares in entities listed under items 4 and 6 abov Chairs of the management and supervisory boards of legal entities listed under items 4 and 6 above. In the event that the value of a related party transaction is equal to or exceeds five percent of the relevant company's assets, such transaction may be entered into based on the opinion of an independent auditor engaged by the company and a resolution of the general meeting of its shareholders adopted by a simple majority. A shareholder of the company who is a related party in relation to the transaction in question may not cast a vote during the general meeting of shareholders. The scope of the opinion to be given by the independent auditor remains unclear.

If the value of the related party transaction is less than five percent of the company's assets, such transaction must be approved by either the general meeting of shareholders, the supervisory board or the management board of the company, in accordance with the charter of the company. For this purpose, a member of the supervisory board or the management board of the company or a...