Ministries to be given power to seek suspension of foreigners' rights at major Russian cos - source
MOSCOW. Aug 23 (Interfax) - Russian ministries responsible for the relevant sector will be able to initiate the suspension of "unfriendly" foreign shareholders' corporate rights at economically significant organizations (ESO) through the courts, a source familiar with a draft government resolution to this effect told Interfax.
The Economic Development Ministry drafted the resolution in connection with the passage of federal law No. 470-FZ, which that regulates corporate relations at companies that are economically significant organizations and gave the government the power to compile a list of such Russian organizations. Inclusion in this list, among other things, makes it possible, through the courts, to suspend foreign holding companies' (FHC) corporate rights at these ESOs, such as the right to vote at meetings, receive dividends and dispose of shares or equity stakes, until the end of 2024.
Such procedures can be initiated by direct and indirect co-owners of an ESO, its CEO or a member of its board of directors, as well as by a federal agency authorized to do so by the government.
The resolution drafted by the Economic Development Ministry stipulates that these agencies will be ministries that oversee the business area or sector of the economy of the ESO.
In addition, these ministries, as stipulated in law No. 470-FZ, will be able to initiate a company's inclusion in the ESO list, but they will send their proposals to the Economic Development Ministry rather than directly to the government, a source familiar with the draft rules for including companies in this list told Interfax. The document does not specify the role of this ministry, the source added.
The draft resolution stresses that the proposals from the sectoral ministries must be reasoned and, if necessary, approved by relevant federal agencies, the source said. The ministries will be expected to provide documentary confirmation that companies meet the criteria for being designated an ESO. The draft resolution proposes a list of such documents, including IFRS financial statements for the last completed reporting year, as well as information about average number of employees in this period, etc.
The list is open-ended, so ministries can also cite other data, but in that case they must demonstrate that information recommended by the resolution cannot be used, the source said.
Under law No. 470-FZ, companies that meet a number of criteria can be designated ESOs. Firstly, they must meet one of the following conditions: have total revenue (including legal entities that together with the company are part of the same group) in excess of 75 billion rubles, total assets in excess of 150 billion rubles, paid taxes of at least 10 billion rubles or over 4,000 employees.
Secondly, an ESO or its subsidiary must be either a systemically important credit institution; introduce technologies and software for publicly significant services or participate in the creation and modernization of highly productive and high paying jobs; or be designated a subject of critical information infrastructure or a primary employer of a town as of February 1, 2022.
Thirdly, Russian beneficiaries' share of direct or indirect equity participation in the foreign holding company must be greater than a certain level. Under the general rule, it must exceed 50% or be over 30% if they could determine the decisions of the FHC at the last meeting of management bodies or over 20% if the shareholders of the FHC or the ESO itself are subject to blocking sanctions by "unfriendly" countries or their alliances.
In addition to the possibility of suspending the corporate rights of foreign shareholders, a company's inclusion in the list of ESOs allows its Russian beneficiaries to obtain direct ownership of shares and equity stakes through the courts, as well as directly receive dividend payments.