New Rules on the Repurchase of Russian Assets by Foreign Investors

A new law has been adopted that significantly changes the regulation of transactions under which foreign investors sold Russian assets after 22 February 2022 while retaining the right to acquire them at a later date.

The principal change is the introduction of a special judicial mechanism allowing the right of a foreign investor to repurchase shares, equity interests and other Russian assets to be terminated. The law also amends certain rules governing international companies and their redomiciliation to Russia.

Transactions Covered by the New Rules

The new mechanism applies to transactions completed after 22 February 2022 under which a foreign investor disposed of shares, equity interests in a Russian company or other business assets in Russia while retaining a right to acquire them subsequently.

The purchaser of the asset may be:

a Russian citizen;
a Russian legal entity;
a foreign legal entity controlled by a Russian citizen and meeting the statutory requirements.

The repurchase right may be provided for in the agreement governing the disposal of the asset, an option to enter into an agreement, an option agreement or another interconnected agreement. The law expressly allows the new mechanism to be applied to agreements governed by foreign law.

The new provisions are therefore primarily relevant to transactions involving the exit of foreign companies from Russian businesses where the foreign owner retained a contractual right to return to the asset at a later date.

Termination of a foreign investor’s repurchase right requires a combination of circumstances specified by law.

One of the required elements concerns the foreign investor’s conduct after 22 February 2022. Relevant conduct includes, in particular:

public support for restrictive measures against Russia or calls for such measures to be introduced;
actions aimed at discrediting the use of the Armed Forces of the Russian Federation or the exercise of powers by Russian state authorities;
financing of terrorism, extremist activities or the proliferation of weapons of mass destruction;
a public announcement of the termination or suspension of business activities in Russia followed by the relevant action or inaction;
improper performance of corporate or other contractual obligations;
actions aimed at restricting the conclusion or performance of, or terminating, agreements material to the operation of the Russian business;
prohibition or restriction of the use in Russia of intellectual property or means of individualisation;
termination, suspension or material restriction of the production or supply of goods, performance of works or provision of services.

In the circumstances specified by law, the economic reasons for such conduct and its possible connection with the foreign investor’s compliance with restrictive measures imposed by foreign states or international organisations must also be assessed.

In addition, at least one of the following conditions must be satisfied:

the agreed repurchase price deviates from the market value of the relevant asset by 25% or more;
following completion of the transaction, the purchaser made additional investments in the acquired asset or related assets, or took other measures in the absence of which the relevant business could have been suspended, materially reduced or discontinued.

Procedure for Termination of a Repurchase Right

A foreign investor’s repurchase right may be terminated by a court decision.

The relevant claim may be brought by:

the purchaser of the Russian asset;
the federal executive authority responsible for regulation in the sector to which the relevant asset relates.

Before bringing a claim, the purchaser must obtain the position of the competent federal executive authority and an opinion of the Government Commission for Control over Foreign Investments in the Russian Federation.

The competent federal executive authority may also bring the claim itself after obtaining approval from the Government Commission.

A claim may be filed before the foreign investor seeks to exercise its repurchase right. This allows the purchaser to initiate proceedings for termination of the right in advance, without waiting for an attempt by the foreign investor to reacquire the asset.

Disputes of this category fall within the jurisdiction of the Arbitrazh Court of the Moscow Region.

The law establishes a special rule for agreements providing for disputes to be referred to a foreign court or to international commercial arbitration seated outside Russia.

The Arbitrazh Court of the Moscow Region may hear a claim for termination of a repurchase right where foreign restrictive measures imposed on a party to the dispute create obstacles to that party’s access to justice.

Compensation to the Foreign Investor

Following termination of the repurchase right, the foreign investor may claim compensation from the purchaser.

Such a claim must be brought within one year from the date on which the court decision terminating the repurchase right becomes final.

When determining the amount of compensation, the court may take into account:

the nature of the foreign investor’s conduct that served as grounds for terminating its right;
the amount of losses associated with such conduct;
the volume of investments made by the purchaser after acquiring the asset, including investments in related business assets.

The amount of compensation may be reduced in light of these circumstances.

Compensation may be denied in full where the foreign investor or its relevant officers engaged in conduct involving the financing of terrorism, extremist activities or the proliferation of weapons of mass destruction and such conduct resulted in administrative or criminal liability.

Changes to the Regulation of International Companies

A separate set of amendments concerns foreign legal entities registered in Russia as international companies.

In particular, the law provides for:

an extension, from one year to two years, of a specific period applicable to compliance with requirements relating to the international company’s registration in its original foreign jurisdiction;
the possibility of taking into account foreign restrictive measures that prevent the completion of corporate procedures in the original jurisdiction;
the authority of the Government Commission to deem the requirement concerning a change in the foreign legal entity’s personal law satisfied where the relevant procedures cannot be completed due to restrictive measures imposed, or threatened to be imposed, against the company, its shareholders, members or beneficial owners;
clarification of the consequences of removing a legal entity from a foreign register as part of redomiciliation, compulsory removal, liquidation or on other grounds;
special transitional provisions for international companies that are in the process of completing the relevant procedures.

The law also extends certain temporary statutory regimes: deadlines established under Federal Law No. 72-FZ are extended to 2027, while certain provisions governing economically significant organisations are extended to 2028.

Implications for Business

The new provisions are particularly relevant to transactions completed after 22 February 2022 in connection with the exit of foreign owners from Russian assets where the right to repurchase those assets was preserved.

The law introduces a specific statutory ground for the judicial termination of a previously agreed repurchase right. Its application will depend on the circumstances of the particular transaction and the foreign investor’s conduct after 22 February 2022. Existing options and other arrangements providing for a foreign investor’s return to a Russian asset will therefore require additional assessment in light of the new rules.

An assessment of whether such a right can be exercised will now need to take into account:

the circumstances of the foreign investor’s exit from the Russian business;
its conduct after 22 February 2022;
the reasons for terminating or restricting its activities in Russia;
any connection between such conduct and foreign restrictive measures;
the relationship between the agreed repurchase price and the market value of the asset;
investments and other measures undertaken by the new owner following acquisition of the business.