Russia plans at the end of this week to adopt a “Law on External Administration in the Management of Organisations”, which will pave the way for the nationalisation of foreign businesses leaving Russia, without paying a fair and market-oriented price and without any real generally accepted legal basis.
Formally, the new law will be applicable to companies registered in Russia: (i) which are related to foreign natural or legal persons that engage in “unfriendly” conduct towards Russia and that own at least 25% of the voting rights or shares of the companies; and (ii) whose assets have a balance sheet value of more than RUB 1 billion and/or (iii) whose average number of employees is more than 100.
THE NATIONALISATION OF FOREIGN BUSINESSES IN RUSSIA IS PLANNED TO BE CARRIED OUT IN SEVERAL STAGES:
- upon application to a court for the appointment of an external administrator for a relevant undertaking, the court will within 1 business day impose interim measures of protection which will substantially paralyse the conduct of business, payments, asset disposals, etc.;
- thereafter, within 5-7 business days, an external administrator will be appointed, whose functions will be carried out by different institutions of the Russian State depending on the nature of a company’s activities, and who will fully take over the management of companies;
- following the appointment of an administrator, procedures similar to those for bankruptcy will be implemented – lists of creditors will be drawn up and assets will be inventoried and then realised;
- the assets of the nationalised companies will be contributed to the capital of new legal entities which will be realised thereafter.
It is important to note that when companies are placed under administration, prior decisions by the relevant bodies of a company regarding payment of dividends, the purchase/sale of shares, liquidation, reorganisation or amendment of the articles of association will automatically and retroactively lose force. In this context, it is crucial to complete the execution of transactions already effected as soon as possible in order to minimise the practical difficulties that their retroactive cancelation would cause.
Lithuania and Russia have concluded a treaty on investor protection. Under the treaty, both countries commit to respect investments that investors from the other country make in their own country and to guarantee full protection and security for such investments. Should Russia decide to nationalise businesses of Lithuanian natural or legal persons, that may also constitute a breach of this international treaty. In such a case, investors who lose a business have the right to claim compensation from Russia for the damages incurred. If such a dispute cannot be settled amicably within six months, the investor has the right to refer the matter to international arbitration tribunals (the Stockholm Chamber of Commerce or the International Chamber of Commerce in Paris, or UNCITRAL arbitration as well) for a final and binding decision.
BELARUS
To our knowledge, no similar draft law has been registered in Belarus yet, though there is a risk that that could be done soon. It is therefore advisable to assess scenarios of possible nationalisation of businesses in that jurisdiction as well, according to similar criteria, and to take measures to manage any such risks.
