Under new rules entering into force on July 13, 2021, a company, including a non-public joint-stock company and a limited liability company, acting as a borrower, shall have the right to conclude a convertible loan agreement providing for the right of the lender, instead of claiming the return of all or part of the loan amount and interest upon the maturity date and (or) other circumstances indicated in the agreement, to demand the increase of the company’s authorized capital, increasing the par value and size of the share of the lender.
Banks, financial organizations and strategic companies cannot act as the borrowers under the convertible loan agreements. The lenders can be the shareholders or third parties, unless otherwise provided by the company’s charter.
Conclusion of convertible loan agreement requires its approval by unanimous vote of the general meeting of shareholders in the joint-stock company. The same requirement is applicable to LLCs, while the decision shall be certified by a notary.
The lender shall decide on the conversion of the loan into authorized capital within 3 months from the maturity date of the loan unless a shorter period is set in the agreement. In case the lender opts for loan repayment the interest under the loan will not be due.
NAZALI TAX & LEGAL