Legal analysis whether State privatization vouchers are securities


  • 8 September 2022 14:37

It is widely accepted that government privatization vouchers are securities. However, when analyzing Article 987 of the Civil Code of the Republic of Azerbaijan, which regulates the definition of a security, it may become doubtful whether it is a security.

Thus, according to Article 987.1 of the Civil Code, "a security is a document that confirms the existence of contractual relations between its owner and issuer and the owner's rights arising from that contract."

This arrangement raises the question of whether a contractual relationship has been established between the owner of state privatization vouchers and its issuer.

It is because of this question that in some cases it is disputed whether state privatization vouchers are securities. Thus, there is no written contractual relationship between the state of the Republic of Azerbaijan, which is the issuer of state privatization checks, and the citizen of the Republic of Azerbaijan, who is its owner. However, suggesting that state privatization vouchers are not securities based only on the absence of a written contract causes some hesitation, as well as not being compatible with the legal philosophy of securities accepted worldwide, international theories, and the legislative system of the Republic of Azerbaijan.

In the article, the issue of whether state privatization vouchers are securities was analyzed from a legal point of view, taking into account international theories related to securities and the legislation of the Republic of Azerbaijan as a whole.

1. Analysis of whether the contractual relationship required by Article 987.1 of the Civil Code exists between the state of the Republic of Azerbaijan, which is the issuer of state privatization checks, and the citizen of the Republic of Azerbaijan, who is its owner.

The Civil Code required the existence of a contractual relationship between the issuer and its owner when defining a security. Thus, according to Article 987.1 of the Civil Code, "a security is a document that confirms the existence of contractual relations between its owner and issuer and the owner's rights arising from that contract".

According to Article 389.1 of the Civil Code, a contract is an agreement between two or more persons on the determination, modification or termination of civil rights and duties.

According to Article 405.1 of that Code, "a contract is considered concluded when the parties agree on all the important terms of the contract in the required form."

Again, according to Article 406.1 of the same Code, "A contract can be concluded in any form provided for the conclusion of contracts, provided that this Code does not specify a specific form for that type of contract."

According to Article 329.1 of that Code, "Unless otherwise specified by law, a contract concluded without complying with the formal requirements established by law or by mutual consent of the parties is invalid."

As it is known from here, a contract is an agreement of its parties on all important terms of that contract in an imperative form required by law. If the imperative form of any contract is not regulated by law, that contract can be concluded either verbally or in any form with another expression.

We believe that there is an oral contractual relationship between the state of the Republic of Azerbaijan, which is the issuer of state privatization checks, and the citizen of the Republic of Azerbaijan, who is its owner. Thus, state privatization vouchers were issued and presented by the state to facilitate the use and circulation of the state privatization share (property share) given to every Azerbaijani citizen from the state property by attaching it to a security as a means of payment.

During this process, verbal contractual relations are established between the state and the citizen. Thus, the state issued the check and gave it to the citizen, and the citizen accepted the check. This situation confirms the agreement between the parties, in other words, the conclusion of the contract. Such a result is in accordance with the requirements of the Civil Code and our Constitution. Let's not forget that if the law does not require the conclusion of the contract in written form, then the contract can be concluded verbally.

Also, let's not forget that Article 987.1 of the Civil Code requires not the conclusion of a written contract, but simply the conclusion (existence) of a contract for any document to be considered a security. Therefore, we believe that the contractual relationship required by Article 987.1 of the Civil Code exists between the state of the Republic of Azerbaijan, which is the issuer of state privatization checks, and the citizen of the Republic of Azerbaijan, who is its owner.

2. Analysis of whether the state privatization vouchers meet the mandatory conditions required for any document to be considered a security in the legislation of the Republic of Azerbaijan, taking into account international theories.

In the legal philosophy of securities accepted worldwide, it is said that two basic mandatory conditions are required for any document to be considered a security. The first of these is the drafting of the security in the form established by law, and the second is the confirmation of a security with an economic value, an alienable right (for example, the right of demand, the right of ownership, the right of share, etc.).

However, the question of whether the existence of a contractual relationship between the issuer and its owner is a condition for any document to be considered a security is controversial.

Thus, the "creation" theory, which is one of the accepted international theories regarding securities, states that in order for any document to be considered a security, it is not mandatory to conclude a contract between the issuer and the owner, the most important thing is that the document has an economic value. approval and drafting in the form required by the law.

But in the "contract theory" it is said that in order for any document to be considered a security, it was not enough for the document to be drawn up in the form established by law and to confirm an alienable right with economic value, but also a valid contractual relationship concluded between the parties of that document. and the document must be given to the other party based on that contract.

The third accepted international theory regarding this issue is the "agreement supported by the principle of apparent trust" theory. In that theory, it is stated that a document confirming an alienable right drawn up in a legally defined form and having an economic value is a security, its owner must be considered to have obtained that document from the issuer based on the agreement between them, and the rights of honest third parties must be protected.

According to this third theory, which has more supporters, a document drawn up in compliance with the first two conditions, that is, a document confirming an alienable right in accordance with the form prescribed by law and having an economic value, is a security, and it proves that there is no contractual relationship between the issuer and the owner of the document. should be considered reliable.

Also, according to this theory, even if it is proven that there is no valid contractual relationship between the issuer and the first owner of the security, the rights of subsequent bona fide owners who obtain payment securities (for example, promissory notes) from its first owner in "apparent trust" are also protected. This rule does not apply to investment securities, such as stocks and bonds, to which state appropriation checks also apply. This is an issue related to payment securities being abstract and investment securities being intangible.

When analyzing all legislative acts adopted in our republic regarding securities, we can come to the conclusion that the theory of "agreement supported by the principle of apparent trust" has been adopted in our republic.

Thus, Article 1 of the Law No. 383 dated November 24, 1992 of the Republic of Azerbaijan on "Securities and Stock Exchanges", where the concept of securities was regulated for the first time in the legislation of our republic, stated that "securities give the owner of the security property rights to the issuer or is a monetary document confirming debt relations".

As it is known, in 1992, this Law requires the above-mentioned two conditions for any document to be considered a security, i.e. that the document must be drawn up in a form prescribed by law and that it confirms a right with economic value, but also that it is sufficient considered.

However, the issuer may claim that there is no contractual relationship between him and the owner of the document, but he is obliged to prove this. That is, the issuer must prove that there is no contractual relationship between the issuer and the owner of the document. Let's not forget that the law does not allow the issuer to prove that there is no "written contract" relationship between him and the owner of the document. The law says to prove that there was no contract at all. The contract can be concluded orally.

Therefore, it is an absurd and unscientific approach to suggest that state privatization vouchers are not securities based on the fact that there is no written contract between the issuer and the owner.

Because state privatization vouchers were first approved by the Law of September 29, 1995 [7] on the approval of the "State Program of Privatization of State Property in the Republic of Azerbaijan in 1995-1998" signed by our National Leader Heydar Aliyev. removed.

That is, on September 29, 1995, when state privatization checks were issued, the currently valid Civil Code was not in force, and securities were regulated by Law No. 383 of the Republic of Azerbaijan dated November 24, 1992 on "Securities and Stock Exchanges".

Therefore, if the requirement of Article 987.1 of the Civil Code, which is in force at the moment, for any document to be considered a security, there must be a contractual relationship between the issuer and its owner, is in force on September 29, 1995 and conflicts with the legislative acts regulating this issue. , it will not be possible to apply that requirement retroactively in the face of the imperative norm of Part VII of Article 149 of the Constitution of the Republic of Azerbaijan "The force of normative legal acts that improve the legal status of individuals and legal entities, eliminate or alleviate legal liability shall be applied retroactively".

However, we believe that it does not conflict with Article 987 of the Civil Code and the Law of the Republic of Azerbaijan dated November 24, 1992 on "Securities and Stock Exchanges". Because both legislative acts considered it sufficient to have an oral contractual relationship between the issuer and the owner of the document.

Note that the same regulation is expressed in the same form in Article 987.1 of the Civil Code, which was in force until May 15, 2015. Thus, in that norm, it was stated that "A security paper is a document that confirms any right by observing the specified form, and that right cannot be exercised or transferred to another person without this document. When a security is given to someone else, all rights confirmed by him are transferred".

From this norm, it is clear that in order for any document to be considered a security, the existence of a contractual relationship between the issuer and the owner was not directly required by the Civil Code until May 15, 2015. That is, until May 15, 2015, the Civil Code regulated the concept of a security based on the theory of "contract supported by the principle of trust" and required the existence of two main conditions for any document to be considered a security. The first of these is the preparation of the security in the form prescribed by law, and the second is the confirmation of a right of economic value (for example, the right of demand, the right of ownership, the right of share, etc.) of the security. In the presence of these two conditions, the third condition is the existence of a contractual relationship between the issuer and the owner, and the law has accepted until the contrary is proven. The issuer claiming the opposite of this rule must prove that there is no valid contractual relationship between the owner and him.

As is known, state privatization checks are issued by the state of the Republic of Azerbaijan, which is the issuer, in accordance with the form established by law. In addition, these checks confirm the property share (right) given to citizens from the state property, which has an economic value.

That is, state privatization vouchers meet the mandatory conditions required for securities by both Law No. 383 of the Republic of Azerbaijan dated November 24, 1992 on Securities and Stock Exchanges, and Article 987.1 of the Civil Code.

For this reason, saying that there is no "written contract" relationship between the state of the Republic of Azerbaijan, which is the issuer of state privatization checks, and the citizen of the Republic of Azerbaijan, who is its owner, it is unacceptable to suggest that those checks are not securities.

Based on what has been mentioned, we can say as a summary that the absence of a written contract between the issuer and the owner of the security cannot mean that the contractual relationship has not been established. Because that contract can be concluded with a verbal agreement. State privatization vouchers are an example of this. The main issue is that state privatization checks meet the mandatory conditions required for securities by the legislation of the Republic of Azerbaijan in force at the time of issue.

3. The effect of the rule of Article 987.2 of the Civil Code "any document that is a security shall be directly regulated in the Civil Code and the Law of the Republic of Azerbaijan on Securities Market" on the legal nature of state privatization vouchers.

One of the accepted international theories regarding securities is the need for each state to directly regulate by law which document is a security in its country. According to this theory, each state should directly regulate by law what documents are securities in its country. Documents that are not directly regulated by the law as securities may not be considered securities by analogy, even if they resemble securities. That is, the third mandatory condition required for a document to be considered a security is that the document is clearly stated in the law as a security.

As is known, by the Law of the Republic of Azerbaijan dated September 29, 1995, state privatization checks are clearly and directly regulated as securities.

However, the currently valid requirement of Article 987.2 of the Civil Code states that "Types of securities, mandatory requisites, requirements related to them, securities and securities market relations are determined by this Code and the Law of the Republic of Azerbaijan on the Securities Market [3].

Taking into account the requirements of Article 987.2 of the Civil Code, we can say that the current legislation requires 3 mandatory conditions for any document to be a security. The first of these is a legal approval of that document with economic value, the second is that it is drawn up according to the specified form, and the third is the regulation that it is a security by the Civil Code and the Law of the Republic of Azerbaijan on the Securities Market.

This third condition is reflected in Article 987.2 of the Civil Code. It says that in order for a document to be considered a security, that document must be one of the types of securities defined by the Civil Code and the Law of the Republic of Azerbaijan on the Securities Market. Otherwise, the document is not a security.

In other words, the types of securities listed in the Civil Code and the Law of the Republic of Azerbaijan on the Securities Market in a limited form and which do not belong to these listed types are not considered securities.

It is known that state privatization checks are not stated in the Civil Code and the Law of the Republic of Azerbaijan on Securities Market. Because when the state privatization checks were issued, the Civil Code and the Law of the Republic of Azerbaijan on the Securities Market did not yet exist.

It is also a well-known issue that the state privatization vouchers were issued for the first time with the "I State Program" approved by the Law dated September 29, 1995 on the approval of the "State Program for the Privatization of State Property in the Republic of Azerbaijan in 1995-1998" bearing the signature of our National Leader Heydar Aliyev. adjusted. The 4th paragraph of the 3rd section of that Program, which is in force because it is approved by law, is called "State privatization share", it is stated that "State privatization share consists of 4 (four) checks in the form of nameless, cash securities (to the submitter). The moment it is issued has the same value as a check included in the privatization share (paragraph 4).

It is also known from this norm that the State Program I, based on the authority given to it by the Law of the Republic of Azerbaijan "On Privatization of State Property in the Republic of Azerbaijan" dated 1993, for the first time tied the "state privatization share" to a check, which is a security, and in order to ensure equality stated that all checks have the same (nominal) value at the time of issuance.

Of course, if we remember that the Civil Code came into force on 01.09.2000, and the Law on the Securities Market came into force on a later date, we have to accept that state privatization checks are securities since September 29, 1995, even if it is not stated that they are securities in those legislative acts.

Because the requirement in Article 987.2 of the Civil Code that "types of securities ... are determined by the Civil Code and the Law of the Republic of Azerbaijan on the Securities Market", Part VII of Article 149 of the Constitution of the Republic of Azerbaijan "Improving the legal status of natural and legal entities, legal liability The force of normative legal acts that eliminate or alleviate is applied retroactively" cannot be applied retroactively in front of the imperative norm and other norms.

In addition, Article 1078-4.2 added to the Civil Assembly by the Law of the Republic of Azerbaijan No. 566-IIQD dated December 23, 2003 "On Additions and Amendments to the Civil Code of the Republic of Azerbaijan" states that "securities issued during the privatization of state property types, emission, circulation rules and other issues are determined by this Code and other normative legal, including normative acts".

As it is known from here, in the face of the imperative rule of Article 10.4 of the Constitutional Law on Normative Legal Acts, "when there is a conflict between general and special norms in the same normative legal act, a special norm is applied", the requirement of Article 978.2 of the Civil Code is replaced by Article 1078-4.2 of the Civil Code The part that contradicts the article cannot be applied to state privatization vouchers.

However, in Article 1078-4.2 of the Civil Code, the change made by the Law of the Republic of Azerbaijan No. 135-VQD dated March 4, 2016 states that the types, emission, circulation rules and other issues of securities issued during the privatization of state property can also be determined by normative acts. we believe that it can cause problems in practice.

In addition, the above-mentioned international theory states that any document that is a security is regulated by law. That is, international theories refrain from assigning such a type of security to normative legal acts that do not have the force of law.

As is known, by the Law of the Republic of Azerbaijan dated September 29, 1995, state privatization checks are clearly and directly regulated as securities.

Conclusion: The answers of the legal analysis related to the questions posed in the article are mainly expressed in the relevant sections. However, we think it would be useful to mention the following as a summary

State privatization checks are securities, and the legal basis for their issuance is "state privatization share" regulated by the Law of the Republic of Azerbaijan "On the Privatization of State Property in the Republic of Azerbaijan" adopted in 1993.

Article 18 of that Law defines "Privatization share" and states that "this share is a free share of the privatized state property given to every citizen of the Republic of Azerbaijan".

Article 10 of that Law states that "the amount of the privatization share, the terms of its issuance and the rules for its use are determined by the State Program on Privatization."

With the I State Program of September 29, 1995, which was the first State Program on the privatization of state property adopted in our republic, Great Leader Heydar Aliyev declared his independence from the socialist regime and made a special effort to give the state property of our Republic to its true owner, the people (citizens) of the Republic of Azerbaijan without compensation.

By the Law of the Republic of Azerbaijan dated September 29, 1995, it is clearly and directly regulated that state privatization vouchers are securities.

Summary:

Taking into account the accepted legal philosophy of securities, international theories in this field, the legislation of the Republic of Azerbaijan, we can say that any document can be considered a security due to the existence of 3 main conditions. The first is that the security is drawn up in a statutory form, the second is that the security confirms an economically valuable, alienable right (such as a claim, property right, share right, etc.), and the third is that the document is directly regulated by law.

As it is known, the state privatization checks were drawn up by the emmitent the Republic of Azerbaijan in the form prescribed by law (condition 1 has been met), confirmed the right of citizens to the state privatization share with economic value from state property (condition 2 has been met), . The Law of the Republic of Azerbaijan of September 29th of 1995 clearly and directly regulates the existence of a security (condition 3 has been met). For this reason, we can say that state privatization checks have been a security since September 29, 1995.

The absence of a written agreement between the emmitent of state privatization checks and its owner cannot affect the essence of these documents. Thus, none of the three accepted international theories on securities ("creation" theory, "contract" theory and "contract based on the principle of trust in appearance") states that in order for any document to be considered a security it is necessarily required that the owner and emmitent conclude a written contract. Thus, one of these theories ("creation" theory) does not require the existence of a contract at all, while the other two require the existence of a contractual relationship in general, rather than a written contract. In general, a contract does not mean that a relationship has not been established, because the contract can be concluded through an oral agreement. State privatization checks are an example of this. , state privatization checks were emmited by the state in order to facilitate the use and circulation of the state privatization share (property share) issued to each Azerbaijani citizen as a means of payment. During the process, an oral contract was established between the state and the citizen. That is, the state issued a check and gave it to the citizen, and the citizen accepted the check. This situation confirms the existence of an agreement between the parties, in other words, the conclusion of the contract.

Mubariz Yolchiyev

Associate Professor of Law Faculty of Baku State University, Member of the Bar Association, lawyer

Sarvar Suleymanli

Baku State University Faculty of Law, Associate Professor of Civil Law Department

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