On 8 September 2022, Presidential Decree No. 618* (the “Decree”) was published which imposes, among other things, restrictions on transactions with participatory interests in Russian limited liability companies (“LLCs”).
The Decree requires permission from the Government Commission for Control of Foreign Investment in the Russian Federation (the “Commission”) for certain transactions and operations involving participatory interests in LLCs.
Permission from the Commission is required to be obtained for transactions entered into by persons associated with states that are engaged in “unfriendly acts” against Russia or persons under their control (“Restricted Persons”):
- with residents of the Russian Federation;
- between themselves; and
- with foreign persons who are not Restricted Persons.
This requirement applies to the following types of transactions or operations:
- transactions entailing the emergence, establishment, change or termination of rights to participatory interests in the charter capital of an LLC (including transactions involving the sale or exchange of participatory interests, contributing participatory interests to the charter capital of a company, etc.); and
- other transactions that result in a person being able to determine the management conditions of an LLC (e.g. corporate agreements in respect of an LLC or share pledge agreements).
The requirements of the Decree do not change the procedure for entering into transactions or operations with stakes in the fuel and energy and financial sectors previously established by Presidential Decree No. 416* dated 30 June 2022 and Presidential Decree No. 520* dated 5 August 2022.
At the same time, Restricted Persons do not include Russian or foreign entities under the control of Russian persons (i.e. ultimate beneficiaries) when the relevant control information has been disclosed to the Russian tax authorities.
The Russian government has been instructed pursuant to the Decree to approve the Commission’s clearance procedure within ten days. Currently, the authorisation procedure has not been approved.
We believe that the procedure for issuing permissions by the Commission will be largely similar to the procedure established by Russian Government Decree No. 295* dated 6 March 2022 for obtaining permissions for transactions with securities (in particular shares of joint-stock companies) and real estate objects.
It should also be noted that the limitations stipulated by the Decree are stricter than similar limitations for transactions in shares of joint-stock companies. In particular, the Decree applies to a wider list of transactions because of different criteria depending on who concludes them. For example, unlike transactions involving LLC participatory interests, transactions in which the subject-matter is shares may be effected between two Restricted Persons without special permission.
We will continue to monitor developments and inform you of any further developments.
Previously, we published alerts on topics related to transactions with Restricted Persons, the performance of obligations to certain foreign counterparties and the prohibition of transactions with shares and participatory interests in certain Russian organisations.
* In Russian
