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New Rules on Suspension of Rights of Foreign Shareholders in Russian Economically Significant Organizations

DATE: August 31, 2023 | AUTHOR: AT

Federal Law No. 470-FZ “On Regulatory considerations of сorporate relations in companies that are Economically Significant Organizations” (the “Law”) dated 04.08.2023 will come into force on 04 September 2023.

The purpose of the new Law, as provided in its text, is to protect the rights of Russian citizens and entities, ensure national defense and security in the face of non-friendly actions by the US and its allies.

The procedure set forth by the Law will allow controlling persons of those Russian companies that are held through foreign holdings, including those with listings on foreign exchanges, to de facto redomicile such holdings into Russia, regardless of any obstacles for such re-domiciliation, that may exist in the jurisdictions of incorporation of the foreign holding companies, including due to sanctions.

The Law applies to economically significant organizations (ESO) – Russian companies that are essential for ensuring the economic sovereignty and economic security of the Russian Federation, are included in the relevant list by Russian Government. The list of ESO companies will be compiled by the Russian Government based on the following criteria:

1.  Quantitative criteria:

  • the total revenue for the last reporting period over RUB 75 billion (equals to 779.678.250 USD); or
  • more than 4.000 employees; or
  • the total value of assets for the last reporting period over RUB 150 billion (equals to 1.559.356.500 USD); or
  • taxes paid to the budget for the previous calendar year is at least RUB 10 billion (equals to 103.957.100 USD).

2.  Strategic criteria:

The Company is engaged in one of the following areas:

  • the operation of the critical information infrastructure,
  •  the implementation of technology or software for publicly important services,
  • the creation and modernization of high-productivity or high-paying jobs, or is
  • a city-forming organization, or
  • a systematic financial organization (banks belong to such organizations).

3.     Shareholding criteria:

The amount of direct and (or) indirect participation of Russian beneficiaries in a foreign holding company, which owns at least 50% of the shares of ESO, is:

  • more than 50%, or
  • more than 30% with the opportunity to determine the decision of the supreme management body of the company, or
  • more than 20%, if restrictive measures of a blocking nature are applied to the shareholders of the company or to ESO itself.

Companies included in ESO list may be subject to suspension of corporate rights of a Foreign Shareholder for non-performance of their duties as shareholders of ESO or other actions which lead to suspension/termination of ESO activities. Such suspended corporate rights include:

✓ voting rights;

✓ pre-emptive rights;

✓ right to transfer shares in ESO;

✓ right to receive dividends.

Corporate rights of a Foreign Shareholder are suspended for a certain term provide by the court which cannot be longer than December 31, 2024.

Once the corporate rights are suspended shares of the Foreign Shareholder will be transferred to ESO and will become treasury shares of ESO. Further, within 3 months the Russian qualifying beneficiaries shall become direct shareholders in ESO pro rata to their initial shareholding in ESO. If the Foreign Shareholder is a public company, the ESO may be forced to be reorganized into a public joint-stock company by the court.

The Foreign Shareholder may require compensation for its share based on a fair market value, which procedure on payment will be separately established by the Russian Government.  Once the issues which led to suspension of rights are cured by the Foreign Shareholder, it may be reinstated in its corporate rights via claim brough to a court.

The decision on suspension of rights is passed by the Arbitration Court of the Moscow Region upon the claim of (i) the federal authority appointed by the Government, (ii) any direct shareholder of the ESO, (iii) a CEO/board member of the ESO, or (iv) any Russian beneficiary.

We will keep you updated on this matter.

If you have any questions on this topic, you may contact our lawyers: Asiyat Kulterbaeva  and Drezin Mark

Российская экономика__5


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