Once again on legal entities — non-owners

Abstract

The author scrutinizes the Russian legislation which still provides for the existence and participation in civil relations of legal entities established by governmental units which do not formally exercise a right of ownership in respect of the property allocated to them. Such entities include unitary enterprises, autonomous and budgetary institutions. Such legal arrangements allow restriction or complete exclusion of their responsibility vis-àvis their creditors, thus granting an unjustified legal protection advantage to the public property. To combat such situations, the foreign case law uses such instruments as lifting the corporate veil (piercing the corporate veil in American law, Haftungsdurchgriff in continental European, predominantly German corporate law). It enables creditors of a legal entity to gain direct access to the personal assets of the owners (shareholders, founders) who have misused the corporative cover. However, at the same time lifting the corporate veil means destruction of the legal arrangement itself which leads to the unduly increase of risks of participation in economic relations. Consequently, the use of such a mechanism of protection must be a rare exception, rather than a general rule. Moreover, as it appears from its symbolic name, it is originally applicable to corporations — private owners. Unitary state “corporations” and public law “companies”, being formally owners of their properties, in practice are fully controlled by their founders, are not subject to the bankruptcy procedure and have the right to freely transfer their property free from any encumbrances to their founders. It leads to creation of new problems for their creditors, and their legal status de facto does not correspond to the requirements of a free market economy. Their creation was a result of uncritical adoption of foreign (mostly Anglo-American) approaches. As a conclusion, the author substantiates the necessity to elaborate some legal constructions appropriate to the free market economy standards to enhance sound management and use of the state and municipal property.

Keywords:

autonomous institution, budgetary institution, unitary enterprise, public corporation, state corporation, pecuniary liability, creditors, civil relations, Civil Code