Foreign holding companies will be excluded from the ownership structure of economically significant Russian organisations by court decision

The Russian State Duma has adopted a law on so-called "economic seizure of property" facilitating the acquisition of direct control by Russian beneficiaries and the transfer of economically significant Russian organisations to Russian jurisdiction. Such exemptions are not aimed at unjustified infringement of the rights and legitimate interests of foreign holding companies, their participants (shareholders) and other persons.

An "economically significant organisation" means a Russian business entity of significant importance for ensuring Russian economic sovereignty and economic security that is included in a list approved by the Government of the Russian Federation. For inclusion in such a list, a number of criteria are established, applied individually or cumulatively, namely: the total revenue and assets of a group of persons (worldwide) of such an economic entity, the number of employees in such Russian organisations, the amount of taxes (fees) paid to the Russian budget for the previous calendar year. Inclusion in the list is carried out on the proposal of the relevant ministry.

A foreign holding company is a foreign legal entity which is related to foreign states committing “unfriendly” actions against the Russian Federation, Russian legal entities and individuals, and which owns at least 50 per cent of the voting shares (stocks in the charter capital) of an economically significant organisation.

A circumstance for the suspension of the corporate rights of a foreign holding company, in particular, is the actual cessation of termination of the management of the activities of an economically significant organisation by its management bodies, which among other things, may be evidenced, by public statements, termination of essential contracts, and sending of redundancy notices to employees.

Cases involving the suspension of the corporate rights of a foreign holding company fall within the competence of the Arbitration Court of the Moscow Region. Authorized state bodies, other participants (shareholders), and other management bodies of an economically significant organisation may apply to the court. The application shall be considered by the court for a maximum period of one month. The suspension of the corporate rights is carried out for a period no more than until December 31,2024. A court decision is subject to immediate execution, and an appeal of the court decision does not suspend its execution.

From the date of the court's decision, a foreign holding company has no right to participate in meetings, vote, receive dividends, dispose of its participation rights and exercise its other corporate rights. The shares of a foreign holding company are transferred to economically significant organisation itself. The registering authority must reflect in the Unified State Register of Legal Entities the transfer of a share in an LLC no later than one week from the date of the court decision. The actual value of a holding company's share is not paid. Russian beneficiaries have an obligation to purchase such shares. The right of acquisition may be transferred to a business company established in court.

After the expiration of the suspension of corporate rights, a foreign holding company may claim its undistributed shares, provided that it has not received market value compensation for them. In this case, it also has the right to claim the distributed but unpaid dividends.

After signing by the President of the Russian Federation, the law will enter into force 30 days after the date of its official publication.