13 Nov 2023 14:29

Russian govt sets rules for compensating foreigners for freezing rights in economically significant organizations

MOSCOW. Nov 13 (Interfax) - Compensating foreign holding companies (FHC) in the event of freezing their corporate rights in economically significant Russian organizations (ESO) will depend on the market value of shares not distributed among Russian owners, according to a published government resolution.

Resolution No. 1835 was posted on the official portal of legal information on Friday.

Drafting the resolution was required in connection with implementing federal law No. 470-FZ, which introduces the concept of ESO and grants the government the authority to create a list of these organizations. Inclusion in the list specifically allows, through the courts, temporarily suspending until the end of 2024 the corporate rights of foreign holdings in relation to ESO, for example, to vote at meetings, receive dividends, and dispose of shares and stakes.

Including a company in the ESO list also allows its Russian beneficiaries to obtain shares and stakes in direct ownership through the courts. However, if some of the assets remain undistributed after the procedure, then they are transferred to the ESO, and the FHC has the right "at any time during the period of suspension" of its rights to demand that the Russian organization compensate for them "at market value". If a foreign holding does not apply for such compensation, then the shares in the capital of the Russian structure are returned to it once the freeze of its corporate rights in the ESO expires.

Published compensation rules stipulate that compensation is paid "at the market value" of the shares/stakes not distributed among the direct beneficiaries of the ESO. The value is determined based on the assessment on the date of entry into force of the court decision to suspend a FHC's corporate rights in an economically significant organization.

In this case, compensation is paid by accounting for the current restrictions on settlements with foreigners.