Russian counter measures. Recent developments (7 April updates)

 

Russia has adopted a number of measures in response to sanctions introduced by the US, EU and other states. The measures are mainly established in the presidential and governmental decrees, as well as certain legal initiatives (please refer to Legal Alerts dated 2 March and 11 March for more information on the previously introduced measures).

At the same time Russia is actively adopting measures aimed at facilitating the consequences of sanctions for the Russian market. Moreover, some newly adopted measures are clarifying the previous ones.

Finally, a draft law on extrernal administration of companies that suspended their operations in Russia has been proposed, however, it has not yet been introduced to the State Duma.

RUSSIAN COUNTER MEASURES

  1. Ban on transactions involving real estate lifted

On 17 March 2022 subcommittee of the Governmental Commission for Control of Foreign Investment decided to authorize the following transactions involving individuals: 1

►Allow residents to sell real estate to non-residents associated with states that commit unfriendly actions (as defined by the Government).

►Allow residents to purchase real estate from non-residents associated with unfriendly states. At the same time, funds for such transactions will have to be credited to a type “C” account as provided by Decree of the President No. 95 dated 5 March 2022.

►Allow residents to conclude agreements on participation in shared construction, fulfill obligations under agreements on participation in shared construction, which are concluded with non-residents associated with unfriendly states.

  1. New measures on currency transactions introduced

On 18 March 2022 President adopted Decree No. 126 dated 18 March 2022 “On additional temporary economic measures for securing financial; stability in currency regulation”. 2 The new decree authorizes the Central Bank of Russia (CBR) to adopt regulation that would determine the sum of transaction for:

►advance payment by residents in favor of foreign legal entities and non-resident individuals under contracts, the list of types of which is to be determined by the CBR;

►transfer of funds from accounts of foreign entities incorporated in unfriendly states (as defined by the Government) opened with Russian credit institutions to the accounts of foreign entities – non-residents not incorporated in unfriendly states.

►transfer without opening a bank account of electronic funds by residents of unfriendly states to foreign entities not incorporated in unfriendly states;

►transfer without opening a bank account of electronic funds by foreign entities not incorporated in unfriendly states to the banks incorporated in unfriendly states;

►acquisition of foreign currency in the domestic foreign exchange market by legal entities – non-residents.

Banks against which foreign sanctions have been imposed are now entitled to fulfill foreign exchange obligations to Russian legal entities under bank account or ruble deposit agreements in an equivalent amount. The rule is valid until 1 September 2022. The amount is calculated according to the exchange rate established by the CBR at the date of execution.

Residents can pay for shares, participatory interests, deposits in nonresident entities only once authorized by the CBR. This ban does not extend to Russian individuals, credit organizations, and state development corporation “VEB.RF”.

Russian participants of foreign economic activity can request the CBR not to sell 80% of foreign currency.

The CBR should adopt relevant regulation within 10 days from publication of the Decree.

  1. New clarifications on implementation of the counter measures published

On 4 April 2022 the CBR published clarifications on application of decrees issued by the President.

►Part of the foreign exchange earnings is to be sold under all foreign trade agreements under which goods are transferred, work performed, services provided to non-residents.3

►Authorized banks are to monitor whether the rule is observed.

►If the Russian debtor fulfils this obligation under the interim procedure and a foreign creditor recognizes this as a default, the domestic creditor cannot consider such recognition as grounds for applying the cross-default condition on other obligations of the debtor.

  1. Russian Chamber of Industry and Commerce restricted issuing force majeure statements.

On 22 March 2022 Russian Chamber of Industry and Commerce published a letter recommending suspension of force-majeure statements in following cases that relate to agreements between Russian partners: 4

►the applicant (a domestic manufacturer of equipment, electronics or other complex goods) failed to deliver the goods to the Russian counterparty;

►the violation of the contract occurred since foreign suppliers refused to transfer to the applicant the components necessary for production because of the sanctions;

►the components are not produced in Russia.

According to the letter, the regime will remain effective until the law that would qualify sanctions as force majeure becomes adopted. Currently three draft laws are supposedly considered by the Russian Government, Duma and CBR. No text has been made available yet.

  1. Government legalized parallel import.

On 29 March 2022 the Russian Government issued Resolution authorizing importation of original foreign goods marketed abroad without approval of the title holder. 5

The Ministry of Industry and Trade is to issue a list of products targeted by the new regulation.

RUSSIAN MEASURES AIMED AT BUSINESS SUPPORT

  1. Government to suspend inspections for the IT sector

On 24 March 2022 Russian Government issued resolutions imposing a moratorium on any planned inspections of Russian IT companies through the year 2024. 6

This regulation comes as implementation of Federal Law “On Amending Certain Legislative Acts” No.46-FZ dated 8 March 2022 introducing a package of measures aimed at facilitating business operations potentially targeted by sanctions (for more information on this law please refer to our legal alert dated 11 March 2022).

  1. Subsidized loans for systemic companies introduced

On 17 March 2022 Russian Government introduced rules for providing loans at a preferential rate for systemic companies. 7

The rate will equal 11 % p.a. and apply to loans provided in 2022 (with a contract concluded not earlier than on 17 March) for a maximum of 12 months for working capital financing.

In order to qualify for the subsidized loan, the company must comply with the following requirements:

►The entity is not a small or medium-sized enterprise;

►The entity is a Russian tax resident;

►The entity is not undergoing reorganization (subject to certain exceptions) or liquidation; it has not suspended its operations in Russia. If the entity is a reseller, it must be fully operational;

►The entity is not undergoing bankruptcy proceedings;

►The entity kept at least 85 % of the average headcount of staff (compared to the first day of the month preceding the date of concluding the loan agreement).

The government provided for a list of activities qualified as systemic. It includes manufacturers, namely of textiles, chemicals, food products, medicine, rubber and plastics, electric equipment, furniture, resellers except for those selling cars and motorcycles, and a variety of wholesalers.

  1. Moratorium for bankruptcy introduced

Starting from April 1 bankruptcy proceedings can no longer be initiated upon petition of the creditors, according to Resolution of the Government dated 28 March 2022 No. 497. The suspension targets entities and individuals including individual entrepreneurs.

The moratorium will remain effective for six months.

PROPOSED LEGAL INITIATIVES

  1. Draft law on external administration of foreign companies prepared

On 7 March 2022 Russian political party United Russia (Yedinnaya Rossiya) announced it had prepared a draft law aimed at external administration of foreign companies that suspended their activities in Russia.

The draft law has not yet been introduced to the State Duma.

We were provided with a copy of the text of the draft law. It provides for the following:

I – Targeted Entities

An entity can be subject to external administration if the following conditions are simultaneously met:

►A person associated with unfriendly states (as defined by the governmental decree, including the US, UK, and members of the EU) including through their citizenship incorporation, place of business or profit is a controlling person or holds at least 25 per cent of (voting) shares of the company; and

►Balance value of the assets of the company as of the latest reporting date exceeds 1 billion rubles and / or average headcount of staff exceeds 100 employees.

External administration can be introduced if one of the grounds below applies:

►The company’s executive officer, other executive bodies and / or shareholders de facto stopped managing the company in violation of the Russian law. E.g., if:

+mentioned persons left Russia after 24 February leaving the company unmanaged, or

+committed other actions / omissions that led to substantial decrease in company’s assets’ value and / or its inability to perform its obligations, cessation of its activity in violation of Russian laws may suggest.

►Mentioned persons’ behavior may lead to a company ceasing or terminating its activities, or bankruptcy.  E.g., if:

+mentioned persons made public statements about said companies stopping their activities without apparent economic grounds for such cessation, or

+notified more than a third of its employees on layoffs, or

+terminated agreements with organizations of substantial importance for the activity of the company.

External administration will be appointed for a term of up to six months with an option of early termination of such external administration.

A draft law also provides that the Government can determine other grounds for appointing external administration.

II – External Administrators

►State Development Corporation VEB.RF; or

►Deposit Insurance Agency of Russia – for financial organizations.

III. Filing a request on external administration

Member of the Board of Directors or an official of the executive branch of the government can file such a request.

The court initiates proceedings within one business day from the date of filing. The court can also provide for interim measures, if requested, prohibiting transactions with the company’s assets exceeding 5 percent of the balance value of the company, terminating employees, terminating substantial contracts, dispose of the company’s shares.

The court should review the request not earlier than five business days and not later than seven business days from the date of initiating the proceeding.

Before the date of the hearing the company’s managers or shareholders can request cancellation of external administration due to the company resuming its operation. Particularly, in case mentioned persons intend to alienate the shares or place them in trust. The company cannot file this request for a second time.

IV – Consequences for establishing external administration

►Powers of the manager of the company are transferred to external administration;

►Powers of other governing bodies are suspended;

►Powers of attorney issued by the company become invalid;

►Company’s obligations on filing for bankruptcy are suspended;

►Company’s resolutions on its voluntary liquidation, reorganization, dividend payment, shares acquisition, amending the charter and on giving the general manager obligatory instructions become invalid;

►Request of the shareholder on payment of the actual price of the share is denied;

►Provisions of the charter limiting the powers of the general manager in comparison with the law, particularly requiring authorization from other corporate bodies;

►Unilateral termination or modification of the contract out of court is not allowed. The party can file a claim to the court requesting termination or modification of the contract under provisions of Article 450 clause 2 of the Russian Civil Code (substantial violation of the contract or other grounds provided by the law);

►Termination of exclusive rights of the company is not allowed in case the owners of such exclusive rights are foreign persons related to unfriendly states. Royalty is not paid while the company is governed by external administration.

Liability of external administration can be invoked only in cases of wrongful misconduct or gross negligence. Since no clarification is proposed, we suppose such misconduct and negligence will be left to courts’ discretion.

V – Bidding and creditors’ register.

The draft law establishes a procedure for maintaining the register of creditors’ claims and the bidding procedure. The register is maintained by the external administration, it also decides to include or refuse to include creditors in this register.

VI – Procedural issues.

State Arbitration Court of Moscow is the competent court for all disputes arising out of relations regulated by this draft law.

The judgments are subject to immediate execution; they can be appealed within 14 working days; such an appeal does not stop execution.

The parties are notified at their last known location, telephone, email address. In case such information is unavailable the person is considered as notified through publication of an update on the official website of state arbitration courts.

  1. Draft law amending liability for nonperformance of civil law obligations introduced

On 22 March 2022 draft law amending certain legislative acts was introduced to the State Duma. The law particularly provides for new consequences if performing obligations becomes impossible due to the sanctions. 5

According to the draft law a person who failed to perform its obligation due to sanctions and managed to prove impossibility of such performance is not considered as liable. Consequences for enforcing security measures will not generally apply.

Additionally, a counterparty is entitled to unilaterally withdraw from the agreement if the other party has failed to perform or duly perform its obligation due to the sanctions.

At the same time, those amendments will not apply to persons who facilitated introduction of sanctions (the concept is not explained in the draft law).

Moreover, the draft law establishes new rules for the validity of license agreements. Under the proposed rule, the agreement, authorizing Russian persons to use intellectual property, will be automatically prolonged for the period of sanctions, unless such Russian persons notify their counterparties of the refusal to renew the agreement.

The date of the first reading of the draft law has not yet been scheduled.

  1. Draft law providing liability for compliance with sanctions introduced to the State Duma

On 7 April 2022, a group of Russian senators and deputies introduced to Russian State Duma the draft law No.102053-8 aimed at criminalizing the implementation of foreign sanctions in Russia. 6 This draft law proposes to amend Article 201 of Russian Criminal Code related to the abuse of power by an individual performing managerial functions in a commercial or other organization (Article 201 of Russian Criminal Code expressly specifies that a individual performing managerial functions is the General Director, a member of the management board and/or the Board of Directors or the individual, who performs on a permanent or temporary basis organizational and administrative or administrative and economic functions in the organization pursuant to a special authorization).

The draft law provides that the abuse of power committed by the manager of a commercial or other organization for the purpose of implementing the decisions of a foreign state, a union of foreign states or an international organization regarding the introduction of sanctions against Russia shall be punished by a fine the amount up to RUB 1,000,000.00 or in the amount of the salary or any other income of the condemned manager for a period up to 5 years or without such fine, or corrective labor for a period up to 5 years with deprivation of right to occupy certain offices or perform certain activity for a period up to 3 years or without such deprivation, or imprisonment for a period up to 10 years with deprivation of right to occupy certain offices or perform certain activity for a period up to 3 years.

No date of examination of the draft law in first reading has been defined so far.

We are actively following the developments related to those issues  and are fully prepared to advise our clients.

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