Rolf Group International Financial Reporting ... - Irish Stock Exchange

uncertainty with respect to many of the legal and business decisions that Rolf’s management make. Many
of these risks do not exist in countries with more developed legal systems:
. since 1991, Soviet law has been largely, but not entirely, replaced by a new legal regime as
established by the 1993 Federal Constitution, the Civil Code and by other federal laws, and by
decrees, orders and regulations issued by the President, the Government and federal ministries
which are, in turn, complemented by regional and local rules and regulations. There may be
inconsistencies between such laws, presidential decrees, state resolutions and ministerial orders, and
between local, regional and federal legislation and regulations;
. decrees, resolutions and regulations may be adopted by state authorities and agencies in the absence
of a sufficiently clear constitutional or legislative basis and with a high degree of discretion. There is
a risk that the state may arbitrarily nullify or terminate contracts, withdraw licences, conduct sudden
and unexpected tax audits, initiate criminal prosecutions and civil actions and use immaterial
defects in accounting or share issues and registration as pretexts for court claims and other demands
to liquidate companies or invalidate such issues and registrations and/or to void transactions;
. substantial gaps in the regulatory structure may be created by the delay or absence of regulations
implementing certain legislation;
. there is a lack of judicial and administrative guidance on interpreting applicable rules and judicial
decisions carry limited weight as precedents;
. the Russian Federation has a judiciary with limited experience in interpreting and applying
market-oriented legislation and which is vulnerable to economic and political influence; and
. the Russian Federation has weak enforcement procedures for court judgments and there is no
guarantee that a foreign investor will obtain effective redress in a Russian court.
The independence of the judicial system and its immunity from economic, political and nationalistic
influences in the Russian Federation remains largely untested. The court system is understaffed and
under-funded. Judges and courts in the Russian Federation are generally inexperienced in the area of
business and corporate law. In addition, most court decisions are not readily available to the public. The
enforcement of court judgments can in practice be very difficult in the Russian Federation. All of these
factors make judicial decisions in the Russian Federation difficult to predict and effective redress
uncertain. Additionally, court claims are often used to further political aims. Rolf may be subject to these
claims and may not be able to receive a fair hearing. Additionally, court judgments are not always
enforced or followed by law enforcement agencies.
Unlawful or arbitrary government action in Russia may have an adverse effect on Rolf’s business
State authorities have a high degree of discretion in Russia and at times exercise their discretion
arbitrarily, without conducting a hearing or giving prior notice, and sometimes illegally. Moreover, the
state also has the power in certain circumstances, by regulation or act, to interfere with the performance
of, nullify or terminate contracts. Unlawful or arbitrary state actions have included withdrawal of
licences, sudden and unexpected tax audits, criminal prosecutions and civil actions. Federal and local
government entities have also used immaterial defects in matters relating to financing documentation as
pretexts for court claims and other demands to invalidate such activities and/or to void transactions, often
for political purposes. Unlawful or arbitrary state action, if directed at Rolf, could have a material adverse
effect on its business, financial condition, results of operations or prospects.
Difficulty in enforcing Rolf’s rights in Russia may have an adverse effect on Rolf’s financial condition,
results, operations and prospects
The current status of the Russian legal system makes it uncertain whether Rolf would be able to enforce
its rights in disputes with any of its contractual counterparties. Furthermore, the dispersion of regulatory
power among a number of state agencies in the Russian Federation has resulted in inconsistent or
contradictory regulations and unpredictable enforcement. The Government has rapidly introduced laws
and regulations and has changed its legal structure in an effort to make the Russian economy more
market-oriented, resulting in considerable legal confusion. No assurance can be given that local laws and
regulations will become stable and more consistent in the future. Rolf’s ability to operate in the Russian
Federation could be adversely affected by difficulties in protecting and enforcing its rights and by future
changes to local laws and regulations. Further, its ability to protect and enforce such rights is dependent
on the Russian courts, which are underdeveloped, inefficient and, in places, corrupt. Judicial precedents
generally have no binding effect on subsequent decisions.
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