16 Feb 2023 10:47

Bill on tightening law on foreign investment in strategic enterprises adopted in first reading

MOSCOW. Feb 16 (Interfax) - The Russian State Duma in the first reading has adopted a bill that simplifies the procedure for the Russian Federation to recover property from unscrupulous foreign investors as part of the law on investments in strategic business entities.

The government submitted document No. 260065-8 to parliament at the end of December 2022.

According to the current legislation on foreign investments in strategic enterprises (No. 57-FZ), transactions effected in violation of the requirements of the law are deemed null and void, meaning if said transactions are effected without prior approval from the government commission on monitoring foreign investment. The court, as based on a claim from the Federal Anti-monopoly Service (FAS), once a transaction has been recognized as void, may also apply to said transaction the consequences stipulated in the Civil Code, Article 167 paragraph 2, which is bilateral restitution. Specifically, the parties to an invalid transaction must return the property, or its value, transferred under said transaction to the other party.

Moreover, the law on foreign investments stipulates a special measure that deprives a foreign investor of the right to vote at the annual general shareholders' meeting without depriving said foreign investor of its right to the shares themselves.

The bill was passed in the first reading, and it bypasses the Civil Code by directly stipulating in the law on foreign investments the possibility to recover, via the courts, shares and property of a strategically important enterprise, or income received by a foreign investor from effecting the deal in question, if the deal is recognized as void owing to the foreign investor's bad faith. Moreover, the bill stipulates the possibility of claims by a strategically important enterprise for judicial recovery from a foreign investor of losses, including lost profits, incurred by said enterprise, as well as compensation for damages caused to said enterprise's property. When resolving the issue of recovering property for the benefit of the state, it is necessary to take into account the presence or absence of risks of continuation or occurrence of a threat to the defense and security of the state.