New Russian presidential decree may halt the divestment of Russian limited liability companies (LLC's)
12 September 2022
Many EU companies are currently analysing the possibilities of divesting their Russian activities following the war in Ukraine and the extensive sanctions against Russia. However, a novel Russian presidential decree may hinder such divestments and potentially "lock" EU and other foreign companies currently operating in Russia.
On Friday 8 September 2022, a new Russian presidential decree (Presidential decree no. 618 "On a Special Procedure for the Execution (Implementation) of Specific Kinds of Transactions between Certain Individuals" (the "Presidential Decree")) was adopted and entered into force, which has the potential to entail fundamental changes in EU and other foreign companies' opportunities to divest their Russian activities.
In short, the Presidential Decree prescribes a special procedure for transactions involving Limited Liability Companies ("LLC"s), most notably introducing a requirement to obtain approval from the Russian Government Commission on Monitoring Foreign Investments before executing transactions covered by the Presidential Decree.
The rules resemble the existing rules setting out similar requirements for transactions involving joint stock companies and will apply both to new transactions and to the closing/execution of transactions that have already been agreed upon before the adoption of the Presidential Decree.
According to the official website of the Kremlin, the special procedure applies to all transactions which entail direct or indirect establishment, change or termination of the rights of ownership, use or disposal of interest in the equity capital of limited liability companies (with the exception of the equity capital of lending organisations and non-lending financial organisations) or other rights which allow for determining conditions for managing such limited liability companies or conditions for their business activities.
The rules apply to transactions by and between foreign persons of "unfriendly" states and (i) Russian residents, (ii) other persons of "unfriendly" states and (iii) foreign persons who are not foreign persons of "unfriendly" states.
At the time of this Insight, the procedure for granting approvals under the Presidential Decree is yet to be determined. However, further details of the procedure are to be approved by the Government of the Russian Federation no later than 18 September 2022.
The Presidential Decree is still very new, and the practical implications are yet to be discovered in full. However, the Presidential Decree has the potential to effectively block the divestment of Russian subsidiaries by EU and other foreign companies, placing many companies in a difficult position.
Read the Presidential Decree (in Russian)
In short, the Presidential Decree prescribes a special procedure for transactions involving Limited Liability Companies ("LLC"s), most notably introducing a requirement to obtain approval from the Russian Government Commission on Monitoring Foreign Investments before executing transactions covered by the Presidential Decree.
The rules resemble the existing rules setting out similar requirements for transactions involving joint stock companies and will apply both to new transactions and to the closing/execution of transactions that have already been agreed upon before the adoption of the Presidential Decree.
According to the official website of the Kremlin, the special procedure applies to all transactions which entail direct or indirect establishment, change or termination of the rights of ownership, use or disposal of interest in the equity capital of limited liability companies (with the exception of the equity capital of lending organisations and non-lending financial organisations) or other rights which allow for determining conditions for managing such limited liability companies or conditions for their business activities.
The rules apply to transactions by and between foreign persons of "unfriendly" states and (i) Russian residents, (ii) other persons of "unfriendly" states and (iii) foreign persons who are not foreign persons of "unfriendly" states.
At the time of this Insight, the procedure for granting approvals under the Presidential Decree is yet to be determined. However, further details of the procedure are to be approved by the Government of the Russian Federation no later than 18 September 2022.
The Presidential Decree is still very new, and the practical implications are yet to be discovered in full. However, the Presidential Decree has the potential to effectively block the divestment of Russian subsidiaries by EU and other foreign companies, placing many companies in a difficult position.
Read the Presidential Decree (in Russian)
