The State Duma has adopted in the third and final reading amendments to Federal Law No. 160-FZ dated 9 July 1999 “On Foreign Investments in the Russian Federation" (hereinafter the "Foreign Investment Law").
The Law must still be approved by the Federation Council and signed by the President of the Russian Federation. Based on past experience, even if amendments are made, they will be immaterial.
The amendments introduce a new Article 20.1 which stipulates the mechanism for terminating the rights of a foreign investor to buy back assets that it had previously owned in Russia.
When applying the mechanism for terminating the buyback right, foreign investors are understood to mean persons from unfriendly states (legal entities, individuals, foreign organisations that are not legal entities), as well as any legal entities and organisations that are not legal entities controlled by persons from unfriendly states.
A claim for the termination of the buyback right (hereinafter the claim) of a foreign investor may be filed by the following parties (hereinafter the acquirers):
The buyback right termination option applies to shares, participation interests in the charter capitals of limited liability companies and other business assets. A claim may only be filed in respect of buyback options that had been concluded after 22 February 2022.
The Commercial Court of Moscow Region is the competent court that will hear any such claim. The existence of an arbitration clause applicable to the resolution of disputes between contracting parties is not relevant here as the draft law stipulates to all intents and purposes the exclusive competence of the Commercial Court of Moscow Region.
A claim may be filed by:
The procedure for issuing opinions must be determined by the Government of the Russian Federation. We assume that this will be done through an addendum to the existing Resolution No. 295 of the Government of the Russian Federation dated 6 March 2022, which regulates at present the issue of permits by the Government Commission.
The following are the criteria for satisfying a claim:
After 22 February 2022 the foreign investor committed any of the following actions (hereinafter unfriendly actions):
(a) Supported publicly the commission of unfriendly actions against the Russian Federation, Russian citizens or Russian legal entities, advocated the commission of such actions, or
committed actions aimed at discrediting the use of the Armed Forces of the Russian Federation and/or the exercise by the state authorities of the Russian Federation of their functions to protect the interests of the Russian Federation and its citizens, maintain international peace and security, or
disseminated, on the pretext of truthful communication, patently false information on the use of the Armed Forces of the Russian Federation and/or the exercise by the state authorities of the Russian Federation of their functions for the indicated purposes;
(b) Engaged in actions associated with the financing of terrorism, extremism and/or the financing of the proliferation of weapons of mass destruction;
(c) Issued a public statement on the termination and/or suspension of operations in the Russian Federation and/or committed actions (failed to take any action) associated with such a declaration, or did not duly perform their duties, inter alia, arising from corporate and/or other similar contracts, or
committed actions aimed at restricting the conclusion and performance of and/or at cancelling contracts of material significance for the operations performed by the foreign investment asset, facilitated the commission of such actions by another person, inter alia, regarding prohibition on the use in the Russian Federation of intellectual property and/or means of identification, the prohibition, termination or suspension of or imposition of material restrictions on the production (delivery) of goods, the provision of services and/or the performance of work in the Russian Federation.
The actions indicated in this paragraph are deemed to have been committed if they are not attributable to evident economic reasons (grounds) and/or there are grounds for assuming that they are related to compliance by a foreign investor with restrictive measures introduced by foreign states and/or international organisations which are committing unfriendly actions against the Russian Federation, Russian citizens and Russian legal entities;
A foreign investor is entitled, not later than one year after the date of the entry into force of the court decision on satisfying the claim, to file a demand with the purchaser for the payment of compensation. In case of a dispute between the foreign investor and the acquirer on the amount of compensation, the court is entitled:
If the law is finally adopted, it is hard to say how the provision under consideration here will be applied in practice. It looks as if a key role here will be played by the Government Commission. It is unclear how compensation will be calculated and how it will be paid – abroad or to a type C account. The issue as to how extensively the presumption of the law that sanctions compliance constitutes an unfriendly action remains open at present, for sanctions are the law in the countries that approved them, accordingly compliance is a priori binding on persons from such countries.
We will keep you informed of any developments regarding this topic.
