Amendments to the Civil Code

Amendments to the Civil Code of the Republic of Azerbaijan dated April 3, 2018

Several significant amendments and additions have been made to the Civil Code of the Republic of Azerbaijan, effective since April 25, 2018. Below we summarize some major amendments introduced by these changes to the Civil Code.

According to the changes, a person acting on behalf of a legal entity and members of governing bodies (director, members of executive body and supervisory board) are liable for damages to shareholders and legal entities, if they fail to fulfil to perform or properly perform their duties. These persons are deemed to be liable for damages incurred by a legal entity or a shareholder(s) in the following cases:

·       payments of bonuses to members of governing bodies while the legal entity does not make any profit or payment of bonuses disproportionate to the profit of a legal entity;

·       sale or leasing of the property of a legal entity at significantly lower prices and conditions than the market conditions;

·       conclusion of contracts with related persons to the legal entity that violate the requirements of law or adversely affect the interests of a legal entity;

·       the purchase of goods (works, services) by a legal entity at a higher price than their actual value based on concluded contracts;

·       misappropriation or waste of property of a legal person for the purpose of gaining tangible or intangible property or rights for own benefit, for benefit of related persons to the legal entity or the benefit of other persons;

·       conclusion of unfair contracts in respect to shareholders (stakeholders).

In case of occurrence of or significant suspicion about, the above-mentioned circumstances, a number of persons have the right to investigate these cases on behalf of a legal entity and contracts entered into as a result of the above-mentioned circumstances are recognized as invalid.

Further, the amendments to the Civil Code affected the management and distribution of profits in limited liability companies. According to the amendment, shareholders and members of the executive body of the company cannot be members of the audit commitee. On the other hand members of the board of directors (supervisory board) of the company may be members of the audit committee.

In addition, while according to the previous edition of the Civil Code the duration for distribution of net profit might be determined differently in the charter of a limited liability company, according to the current edition of the Civil Code the net profit should be paid within 1 month from the date of the decision of the general meeting.

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