How to identify individuals’ affiliations and the risks associated with them

Affiliated individuals are those who have the potential to influence the activities of other organizations or individuals. These can include major transactions, changes in personnel, or the development of a strategic plan. The term “affiliation” originated in Russia in 1991 with the enactment of the “Competition Law,” which was subsequently updated in 2006.

In legal practice, there is a distinction between legal and de facto affiliations. Under current legislation, individuals or establishments are considered affiliated if they meet any of the following criteria:

• Members of the organization’s governing body
• Relatives or associates of the management
• Members of executive boards, such as the board of directors
• Sole proprietors
• Individuals or entities belonging to the same business group
• Shareholders with more than 20% ownership

It is important to note that the specific criteria for affiliation may vary depending on the context and jurisdiction. Therefore, it is essential to consult with legal experts to determine the relevant regulations and guidelines for each case. The most significant criterion for determining group membership is shared affiliation. This concept should be interpreted broadly, such that if A is related to B and B is also related to C, then A, B, and C are considered to be part of the same group.

Actual group affiliation is determined on a case-by-case basis by the court, based on the unique circumstances of each situation. To establish group affiliation, it is necessary to demonstrate that one individual has influenced another, even if there is no formal relationship between them.

Group affiliation can be a source of dispute in various contexts, including corporate law and bankruptcy proceedings. In corporate cases, transactions made by interested parties that have not received approval from the relevant management bodies may be challenged. In bankruptcy proceedings, issues related to including claims in the bankruptcy register and imposing subsidiary liability may arise. Affiliation in itself is not necessarily a negative factor, but interaction with affiliated parties may lead to a violation of antimonopoly regulations. There are some exceptions, such as control relationships between parent and subsidiary companies.

When dealing with affiliated organizations, it is essential to maintain independence in decision-making. Coordinating actions between these parties could result in fines and criminal charges for officials. It is crucial to consider the potential consequences of transactions with affiliated entities, including those that may arise during bankruptcy proceedings.

Additionally, affiliation impacts the priority of claims in bankruptcy proceedings, reducing it if a related party provided financing during the debtor’s financial difficulties. Inclusion in the bankruptcy registry may be denied entirely if the basis for the claim is an agreement for debt repayment to an external creditor through an arrangement with the debtor. There are also risks associated with subsidiary liability. In these cases, it can be assumed that the related party to the unprofitable transaction knew that it would harm the debtor and entered into the transaction with its consent.

To establish legal affiliation, evidence of the individual’s involvement as a shareholder or member of the management of the company is required. This may include an extract from the Unified State Register of Legal Entities, certificates of directors and shareholders, or a list of related parties, which some companies must submit annually. The actual affiliation can be demonstrated by showing the existence of control by one person over another, a shared warehouse for the companies, a shared legal address, similarities in the lists of management or employee members, or specific legal relationships between them that would be inaccessible to independent parties. These can include unsecured loan transactions or the rental of property under non-market conditions.