The conditions of transactions involving a disposal of shares and membership interests of Russian companies by "hostile" non-residents and a payment of dividends by Russian JSCs and LLCs to foreign shareholders and participants have been published

Pepeliaev Group advises that the Government Commission for Monitoring the Implementation of Foreign Investments in Russia (the “Legal Commission”) has established a list of conditions for the carrying out (performance) of transactions (operations) aimed at the disposal of securities, including shares and membership interests in (contributions to) the issued capitals of Russian legal entities, with the participation of "hostile" non-residents and persons under their control, as well as payments of profit (dividends) by Russian legal entities to foreign members (shareholders), compliance with which will be assessed when the authorised entity makes decisions on whether to issue (refuse to issue) permits for the implementation of relevant transactions (operations).

Please be reminded that the Russian President’s Decrees No. 618[1] dated 8 September 2022 and No. 81 dated 1 March 2022[2] (the “Decrees”) have introduced restrictions on carrying out transactions (operations) that result in ownership title to securities arising, and transactions (operations) which directly and/or indirectly entail the establishment, modification or termination of rights of ownership, the use and/or disposal of membership interests, as well as other rights which allow for conditions to be determined subject to which Russian LLCs should manage and/or pursue their entrepreneurial activities if these transactions are entered into involving “hostile” non-residents[3] (with certain exceptions). Such transactions are possible if permission to that effect has been obtained from the Government Commission.

An extract from Minutes No. 118/1of the meeting of the subcommittee of the Legal Commission dated 22 December 2022 published on 30 December 2022 on the website of the Ministry of Finance of the Russian Federation (the “Extract from the Minutes”) contains a number of conditions, compliance with which will be taken into account by the regulator when deciding how to resolve the matter of permission for transactions (operations) aimed at disposing of shares and membership interests in the issued capitals of Russian legal entities by “hostile” non–residents. Such conditions are:

1. the availability of an independent assessment of the market value of the assets;

2. the sale of assets at a discount of at least 50% of the market value of the relevant assets indicated in the asset valuation report;

3. the establishment of key performance indicators for new shareholders (owners) in the transaction documentation;

4. the availability of payment by instalments for 1-2 years and/or an obligation to voluntarily send funds to the federal budget in the amount of at least 10% of the amount of the transaction (operation) being carried out.

In addition, the Extract from the Minutes contains conditions for passing decisions to issue permits for Russian JSCs and LLCs to pay profits (dividends) to foreign participants (shareholders).

Please be reminded that the Russian President’s Decrees No. 95 dated 5 March 2022[4] and No. 254 dated 4 May 2022[5] established a special procedure for the payment of dividends by a JSC and the distribution of an LLC's profit in favour of foreign participants (shareholders). When distributing the profits of an LLC and paying dividends to a JSC in the amount of more than RUB 10 million accounts of type "C” are to be used. A different procedure for the payment of dividends and distributed profits is possible only with the permission of the Russian Central Bank (in respect of credit institutions and non-credit financial organisations) or the Russian Ministry of Finance in agreement with the Russian Central Bank (in respect of other debtors).

According to the Extract from the Minutes, the conditions for passing decisions to issue permits for the payment of profits (dividends) to foreign creditors are:

1. the amount of paid profit (dividends) is not more than 50% of the amount of net profit for the previous year;

2. the results of a retrospective analysis of the payment of profits (dividends) for previous periods are taken into account;

3. there is a willingness of foreign participants (shareholders) to continue commercial activities in Russia;

4. the positions of the federal executive authorities and the Russian Central Bank on the assessment of the significance of the company’s activities and the impact of the activities carried out by the company on the technological and industrial sovereignty of Russia, and the socio-economic development of Russia (constituent entities of the Russian Federation) have been taken into account;

5. federal executive authorities have established quarterly key performance indicators for the company;

6. it is possible to pay dividends on a quarterly basis, provided that the established key performance indicators are met.

What to think about and what to do

The Extract from the Minutes is not direct permission to make transactions (operations) and payments that meet the conditions set forth in it. Even if a transaction (operation) or payment is in full compliance with such conditions, it remains necessary to obtain the permits specified in the relevant decrees for such a transaction (operation) or payment to be carried out.

On the other hand, we believe that the non-compliance of a transaction (operation) or payment with the conditions set out in the Extract from the Minutes is highly likely to be the basis for a refusal to issue the necessary permission.

We recommend adhering to the criteria established by the Legal Commission when working out the terms of transactions (operations) for the disposal of shares or membership interests of Russian companies by “hostile” non-residents or persons under their control and the payment of dividends by Russian JSCs and LLCs to foreign members (shareholders).

At the same time, the Extract from the Minutes does not contain a rule that compliance with the conditions set out in the Extract is strictly mandatory. On the contrary, the Extract states that the regulator will, "as a rule", proceed from the expediency of establishing the conditions listed in the Extract for the carrying out (performance) of transactions (operations) and payments. This means that a deviation from the criteria indicated in the Extract from the Minutes is not excluded; nonetheless, this will require convincing justification.

Help from your adviser

Pepeliaev Group’s specialists are keeping up to date with the latest developments in corporate legislation and have extensive experience in providing support within the scope of statutory corporate procedures.

The range of services of Pepeliaev Group includes legal support for various aspects of companies' activities related to corporate legislation, including advising on the implementation of corporate procedures taking into account the provisions of anti-sanctions legislation, legal support of the procedure for obtaining permission from the Legal Commission for transactions requiring such permission, and so on.

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[1] T he Russian President’s Decree No. 618“On the special procedure for specific types of transactions (operations) to be carried out (performed) between certain parties” dated 8 September 2022. 

[2] The Russian President’s Decree No. 81 “On additional temporary measures of an economic nature to secure financial stability of the Russian Federation” dated 1 March 2022.

[3] The list of “hostile states” is set out in Directive No. 430-r of the Russian Government dated 5 March 2022.

[4] The Russian President’s Decree No. 95 “On the temporary procedure for performing obligations to certain foreign creditors” dated 5 March 2022.

[5] The President’s Decree No. 254 “On the temporary procedure for performing financial obligations to specific foreign creditors in the area of corporate relationships” dated 4 May 2022.