You are here

Belarus to introduce English law elements

The new draft decree on Hi-Tech Park in Belarus promises a lot of innovations, including elements of English law, which will foster business development, especially in the IT sector, which has blossomed in this former Soviet country.

Russia’s experience in English law

It cannot be said that Belarus is immediately ready to switch to the use of British law in investment disputes, but the situation unambiguously requires the harmonization of national binding and corporate law with the standards most often used by international investors. In Europe, these are exactly the standards of English law.

The entrepreneur makes a choice in favor of the country where the law protects their interests and is clear to investors. If the legislation is incomprehensible and non-standard, the investor feels uncertainty and is likely to choose some other country.

Russia earlier than Belarus felt this competition of legal systems. The most frequently applicable foreign law for transactions in the Russian investment market was English law, and the most popular jurisdiction was Cyprus, followed by the United States (Delaware and California law).

Russia has drawn conclusions. Today, it has already implemented into legislation a number of the most common institutions of English law, including Indemnity (rules for reimbursement of property losses), Warranties and Representations (guarantees and assurances about the circumstances of transaction participants), flexible corporate agreements, options, escrow accounts for settlements and others.

In international investment, these instruments today are considered incoterms: they are unified and understandable for entrepreneurs of all countries. If they come into force in Belarus, the foreign player will understand the rules of the game as a whole clearly.

It is not very profitable for an investor to invest in Belarusian projects (start-ups) outside of Belarus, because of large expenses. It is profitable for them to invest in line with Belarusian national legislation, in Belarus itself. Therefore, it is necessary to make the legislation more or less understandable.

Belarus needs to keep up with the times in its legislation. And it can

Information infrastructure of states plays an increasing role, on an equal basis with roads or energy systems. "From the banking to tax systems big world companies today require instant financial transactions and the ability to work with the most modern payment tools from PayPal to bitcoins, which Belarus cannot fully operate because of legal limitations or absence of such terms as Bitcoin in its legislation.

Although there are no statistics yet, Russian lawyers engaged in mergers and acquisitions already note that the number of transactions involving investments under Russian law has become significantly higher after English law institutes were introduced into the legislation of the Russian Federation.

The Russian Civil Code now has a foreign instrument called "estoppel" - this is when a transaction with a legal defect cannot be recognized as invalid or incomplete if the parties started to execute it (or have already executed). Such an approach positively affects the stability of economic turnover, lawyers say.

Russia implemented another tool called judicial penalty for failure to comply with a court decision. Prior to that, all decisions were divided into realizable and unrealizable. For example, the court orders to transfer some property, the organization does not transfer it and it is virtually impossible to force it to do so. In the UK, if one does not comply with the court's decision, the court fines you. The further you don't comply, the more the fine gets. Not to execute the court decision becomes economically unprofitable.

What could Belarus adopt from English law: convertible loans and non-competition agreements

What could be useful in Belarus from English law is a convertible loan and an agreement on non-competition.

To understand the nature of the convertible loan, let's consider this institution in comparison with equity investments - a simpler tool for attracting financing from the point of view of Belarusian law.

Equity investments are investments received by the company as a result of the investor's acquisition of a share of property in it at a price agreed at the time of the transaction. In the future, the investor profits like any other business owner: though the distribution of profits, the sale of their package to new investors, the distribution of assets in the event of liquidation of the company or exiting from it at the right time.

Often it happens, however, that it's more mature companies, not startups, that find it easier to attract equity investments. Therefore, at the early stages of the activity, a convertible loan can become an optimal way for Belarusian startups to attract investments.

The essence of the convertible loan is that instead of a standard refund of the amount and interest received under the agreement, the loan can be converted into shares of the borrower company following the results of the subsequent round of investments. This is what the investor expects.

Decree on HTP 2.0 may also provide for the possibility of concluding non-competition agreements with employees.

The idea of ​​non-competition agreements is understandable: to restrict an employee's scope of other jobs in the same industry, since moving to another similar employer may result in disclosure of some corporate information from the previous employer. Thus, the employer tries to protect themselves first of all from the leakage of information, which is of commercial value.

According to Belarus' Labor Code, to date, non-competition agreements are recognized as invalid as they worsen the position of an employee in comparison with the law.

But, despite this, in practice many companies do conclude agreements with their employees of this kind by including the relevant provision in the employment contract. Moreover, employees in Belarus observe it.

Conclusion

What Belarus now requires is general openness (the same five-day visa-free regime could be extended - and it probably will - to 30 days) and representatives of state bodies need to be customer-oriented and encourage entrepreneurship.

If Belarus wants to develop the potential in high technologies, it is necessary to move ahead in the direction of English law.

The good news is that Belarus can do many things from scratch almost immediately since we are not limited by the speed and scope of the EU or other international organizations, for example.

The second good news is that the business community is ready to actively cooperate with the state in this part and the state, in fact, does not need any additional financial investments for incentives.

What English law elements are due in Belarus' legislation?