Andrey Zharskiy

On August 18, the AEB Legal Committee held a webinar “Crisis Update: Sanctions and Countermeasures. Interim Management: Implications for Companies and Personnel”. Andrey Zharskiy, AEB Finance and Investments Committee Chair, ALRUD Partner, spoke on the topic “Interim Management under President’s Decrees: General Implications and Risks”. Margarita Egiazarova, Senior Associate in the Labour and Employment Practice at ALRUD, covered the implications for CEOs and top management. More details of the webinar are available at the organiser’s website.

On July 27, our firm held a webinar dedicated to the comprehensive summary of the most recent regulatory risks that foreign investors from “unfriendly jurisdictions” encounter in Russia. At the webinar our team provided participants with valuable practical advice and clarifications, shared their expertise on the example of Unipro, Fortum, Carlsberg and Danone cases and covered the following topics: {{•}} Regulatory update; {{•}} New presidential decrees on interim administration; {{•}} New requirements of Governmental Subcomission. The speakers of the webinar were: German Zakharov, Partner and Head of Competition/Antitrust Practice, Andrey Zharskiy, Partner and Head of Corporate / M&A Practice, Margarita Egiazarova, Senior Associate in the Labour and Employment Parctice. More information on the services and expertise of ALRUD's team can be found here.

We are pleased to share with you the following updates related to liquidation of companies. 1. Simplified liquidation procedure On 07 June 2023 the Russian parliament approved the draft law1 allowing the shareholders of small and medium-size enterprises to liquidate their business within a simplified procedure. Suggested changes: Timing. The whole liquidation process under the new procedure will take 3 months instead of usual 7-12 months as per the existing liquidation rules; Liquidation process is expected to be simplified for certain entities. Shareholders will need to sign and submit a single application instead of 3 applications under standard procedure. All other steps (such as notification of liquidation in mass media) will be made by the registration office. Who is eligible? According to the draft law, any legal entities matching all the following criteria simultaneously will be able to apply for the simplified liquidation: Included in the register of small and medium-size enterprises; Not paying VAT or exempt from its calculation and payment; Not in bankruptcy and no signs of bankruptcy from the Russian law perspective; All payments due to dismissed employees are made in full; Settlements with creditors are made in full; No unsettled tax and other state-related obligations; There are no records2 on non-reliable information about the company in the register; No real estate or vehicles owned; Not in already launched standard liquidation reorganization or administrative exclusion from the register. When to expect? According to the draft law, the new provisions shall come into effect starting from 1 July 2023. 2. Counter-sanctions regime impact on standard or simplified liquidation Decree of the President No. 618 dated Sep-tember 08, 2022 (“Decree 618”) introduced the obligation to get approval of the Government Commission for the control of foreign investment in the Russian Federation (the “Government Commission”) when persons from so-called “unfriendly” states3 (states that introduced or supported sanctions against Russia) or under control of persons from “unfriendly” states cease to own shares in a Russian company. Another decree of the President No. 737 dated 15 October 2022 (“Decree 737”) introduced the obligation to get approval of the Government Commission for distribution of the liquidation proceeds to shareholders in case the sum exceeds 10 million RUB per month. Possibility to launch liquidation without approval of the Government Commission As of today, we see that it is practically possible to launch liquidation without approval of the Government Commission under Decree 618 in case liquidation proceeds do not exceed 10 million RUB (otherwise, approval under Decree 737 is required). We also see that there are different interpretations regarding the necessity to get approval under Decree 618, and we cannot exclude the risk that there may arise certain difficulties with launching the liquidation (due to the position of the Russian notaries and authorities), or that the Russian authorities can issue clarifications stating that the approval under Decree 618 is required in all cases. As of today, though, we have many successful cases when liquidation without approval under Decree 618 was launched with no issues. The main risk we see here is that in the middle of the liquidation the necessity of getting the approval may arise, and in that case it would be necessary to either get the approval or cancel the liquidation. № 164662-8 on amendments to the Federal Law 'On state registration of legal entities and individual entrepreneurs' and article 3 of the Federal Law 'On limited liability companies'. Record made by the registration office meaning that certain information in the register is not actual or is fake/non-reliable. Including USA, European Union Member States, UK, Japan. Please refer to the full list via the below links: http://static.government.ru/media/files/wj1HD7RqdPSxAmDlaisqG2zugWdz8Vc1.pdf, and http://static.government.ru/media/files/0s7FsWoReCQYAOhYkh0iM9U3QJLmHHKo.pdf

In 2023 Russian real estate market continues its transformation. Some tenants are looking for ways to exit leases early. According to our experience, it’s a complex process that requires assessing legal risks, making financial decisions, conducting negotiations, etc. ALRUD experts have created a checklist that will guide you through lease termination process, making it smoother and safer for the company.

On May 23, 2023, the Association of European Businesses (AEB) held a conference «“M&A Deals in Russia: Through Difficulties to 'Completion'». The conference was organized by the AEB Finance and Investments Committee, chaired by Andrey Zharskiy, Partner of Corporate and M&A Practice in ALRUD, with the sponsorship support from ALRUD. Alexander Zharskiy, Partner, Head of Corporate and M&A Practice in ALRUD, moderated the first session which focused on the M&A market results, trends, and forecasts for 2023. Alexander Kleschev, Senior Associate of Corporate and M&A Practice in ALRUD, spoke at the second session on financial issues in M&A transactions. More information about the event can be found here.

On April 25, 2023 the President of the Russian Federation signed Decree No. 302 “On the Interim Administration of Certain Assets” (“Decree No. 302”)1, introducing a new mechanism for interim administration of certain assets in Russia (“Interim Administration”). Decree No. 302 became effective immediately on April 25, 2023. {{1.}} Grounds for and scope of Interim Administration {{1.1}}In accordance with Decree No. 302, the Interim Administration can be established in case of: {{(A)}} deprivation of ownership and (or) property rights to the assets; OR {{(B)}} limitation of ownership and (or) property rights to the assets; OR {{(C)}} a threat of such deprivation or limitation; OR {{(D)}} a threat to national, economic, energy, or other types of national security or to the defense capability of the Russian Federation. The Interim Administration may be applied in case said ownership and (or) property rights to the as-sets belong to the Russian Federation and (or) Russian individuals and (or) legal entities, while the assets are located in the territory of “unfriendly” states (being foreign countries that imposed sanc-tions against Russia, its citizens, or legal entities)2. {{1.2.}} Interim Administration may be implemented over the following assets: {{(A)}} movable and immovable property; {{(B)}} securities and shares in authorized capital of Russian legal entities; and {{(C)}} property rights. {{1.3.}} To be exposed to the risk of implementation of Interim Administration the assets must simultaneously comply with all the following criteria: {{(i)}} to be located within the territory of the Russian Federation; and {{(ii)}} to belong to or to be under control of a foreign person associated with an “unfriendly” state3. NB! The assets are subject to Interim Administration upon inclusion in a special list approved by the President of the Russian Federation. We understand that the Interim Administration is introduced up-on entrance into force of such list (i.e. effective date of the Presidential Decree with the relevant list of assets4). Note that in contrast to, for instance, federal laws, the Presidential Decrees usually be-come available to the public at the date of their official publication. Thus, it is extremely important to monitor the changes regularly to be aware of imposition of the Interim Administration in respect of any new assets. {{2.}} Interim Administration mechanism {{2.1.}} According to Decree No. 302, the Federal Agency for State Property Management (“Rosimush-chestvo”) is appointed as the institution performing functions of an interim administrator. Rosimush-chestvo may be replaced by any other person by a separate Presidential Decree5. {{2.2.}} Rosimushchestvo has all property rights to the aforementioned assets. At the same time, Rosimush-chestvo only operates and exploits the assets and has no right to dispose of them. In other words, the asset owners will be temporarily deprived of the rights of possession and use over the affected as-sets. {{2.3.}} Expenses incurred during Interim Administration are compensated only from revenues received as a result of asset administration. {{2.4.}} Rosimushchestvo is responsible for ensuring the inventory and safekeeping of the assets handed over under the Interim Administration. {{2.5.}} Interim Administration can only be terminated by a relevant act of the President of the Russian Fed-eration. {{3.}} Assets under Interim Administration The Interim Administration has been already established over the following companies listed in De-cree No. 302: 83.73% of shares of Unipro PJSC, owned by Uniper SE; and 98.2295‬% of shares of Fortum PJSC, owned by Fortum Russia B.V. and Fortum Holding B.V., which are subsidiaries of Fortum Oyj. Please note that the list of assets subject to the Interim Administration is expected to be monitored and updated by Russian authorities from time to time. {{4.}} Impact and risk assessment {{4.1.}} The criteria for introduction of Interim Administration are quite vague, so that the mechanism can be utilized by the Russian state authorities as an urgent measure in response to any deprivation or even threat of deprivation of any property rights of Russia or Russian persons to the assets abroad. {{4.2.}} It is relatively hard to expect how the assets subject to the Interim Administration will be chosen. Formally speaking, the wording of Decree No. 302 allows to establish Interim Administration over any assets belonging to any foreign persons from “unfriendly” states (or even foreign states themselves) or persons under their control. {{4.3.}} Meanwhile, so far Decree No. 302 is applied point-by-point only to certain assets which are under control of governments of “unfriendly” states (Germany and Finland). The analysis of the current cir-cumstances allows us to conclude that the following issues might be taken into account by the Russian authorities while choosing targets for Interim Administration: {{(A)}} Unipro and Fortum are companies which are important for the economy and energy security of Russia , which is also confirmed by the fact that they were already included in the list of companies the transactions with shares of which are subject to prior presidential approval under Decree No. 520 of August 05, 2022 (which is, in fact, the most complicated clearance procedure); {{(B)}} Unipro and Fortum are controlled by the governments of “unfriendly” states; {{(C)}} “unfriendly” states nationalized or took control over the companies being the shareholders of Russian companies, or their assets (e.g. Uniper SE was nationalized by Germany earlier in 2022); {{(D)}} the shareholders of the companies publicly announced their exit from the Russian market and (or) suspended management and (or) control over Russian assets. {{4.4.}} We think that the risk of introduction of Interim Administration over a particular asset should be as-sessed taking into account the abovementioned complex of factors (most of which have purely discre-tional nature). However, it should also be kept in mind that formally any assets under control of per-sons associated with “unfriendly” states can be targeted by the new Interim Administration mecha-nism. You can download English translation of the Decree No. 302 following the link. The list of “unfriendly” states was approved by the Russian Government Decree No. 430-r on March 05, 2022. Means any foreign citizen / foreign legal entity related to “unfriendly” states (i.e., that has citizenship or is a resident of at least one of such states, or place of their registration, place of preferential conduct of economic activities, or place of pref-erential extraction of profits from activities is at least one of these states), as well as any other foreign person that is under control of the above-mentioned foreign citizen or foreign legal entity. In practice, the Presidential Decrees providing for restrictive measures are effective from the date of their official publica-tion that is expressly stated therein. To date, it is not clear who such person may be. Probably, it can be a state corporation VEB.RF as proposed in 2022 during discussion of similar draft law “On External Administration for Entity Management”.

ALRUD team developed and implemented viable solution aiming at suspension of Russian operations of an international manufacturer and wholesaler of industrial goods for the wood-processing sector. The project was handled by an interdisciplinary team of lawyers, who, based on a strategic analysis of the rapidly changing circumstances, supported the client in a large-scale dismissal of employees, replacement of top management, restructuring of financial funds, termination of commercial contracts with counterparties and optimisation of the overall presence in Russia. ALRUD employment practice experts defended the company in a conflict with an employee and represented the employer during an unscheduled inspection by the State Labour Inspectorate. The project was run by Margarita Egiazarova, Senior Associate, PhD. Leading Partner - Andrey Zharsky, Partner, PhD in Law, Advocate in Russia, Solicitor in England and Wales. ALRUD team consisted of lawyers from the Labour Law, Data Protection & Cyber Security, Tax, Corporate and Commercial law practices.

Starting from February 2022, the President of Russia has adopted several decrees restricting conclusion and performance of transactions involving foreign entities and individuals. In most cases such transactions now require approval from a special governmental commission. Today the Russian Ministry of Finance published draft law No. 02/04/03-23/00136901 on making amend-ments to the Russian Code of administrative offences that introduce liability for breach of counter-sanctions measures aimed at ensuring of financial stability of the Russian Federation (hereinafter the “Draft law”). Please find below a brief overview of the Draft law. 1. Consequences of violation of the counter-sanction measures in accordance with the Draft law As follows from the Draft law, in case of non-compliance with the counter-sanctions measures (e.g. in case of conclusion of transactions in breach of the counter-sanctions), (1) citizens, (2) individuals car-rying out entrepreneurial activities without establishing a legal entity, and (3) legal entities will be fined in the amount from 20% to 40% of the transaction amount carried out in breach of the measures (failure to conclude transactions in breach of the counter-sanctions measures is proposed to be treated on the same basis as the transaction carried out in non-compliance with the measures). It is also proposed to extend similar liability to officials (including company officials), but to limit it to RUB 30,000. In cases when non-compliance with the counter-sanction measures does not have monetary value (e.g., making a gift), it is proposed to impose an administrative fine on individuals in the amount from RUB 4,000 to RUB 5,000, on officials - in the amount from RUB 40,000 to RUB 50 000, and on legal entities - in the amount from RUB 800,000 to RUB 1,000,000. 2. Persons and entities that cannot be brought to administrative liability in accordance with the Draft law The annotations to the Draft law specify that the administrative liability established by this article shall not apply to Russian residents which are credit institutions and entities engaged in insurance business. The Draft law also provides several exceptions when liability shall not apply. According to the text of the Draft law, if it is adopted, it becomes effective from 01 January 2024. We would like to draw your attention to the fact that this Draft law is a very early version. Between 22 March 2023 and 11 April 2023 it will be under public discussion, with several more stages of consideration ahead, so by the final stage of consideration the Draft law may change significantly. Please kindly let us know if you have any questions about this Draft law and its impact on your business.

ALRUD experts successfully represented the interests of the owner of the historic building “Akter Gallery ” in the center of Moscow (shopping and office complex) supporting a transaction to lease the entire retail part of the building to Gloria Jeans. The Gloria Jeans is one of Russia's largest clothing retailer with over 600 stores in more than 300 cities, as well as its own factories in Russia and development and production centres in the Asia-Pacific region. The Gloria Jeans new flagship store in “Akter Gallery” will occupy almost 5,000 square metres over three floors and become the largest store in the retailer’s chain. Previously ALRUD team represented the owner’s interests on entering into lease agreement with H&M, was involved in settlement of disputes with the tenant and supported the closure of an H&M store and the termination of the lease agreement. ALRUD team was headed by Real Estate Partner Andrey Zharskiy and included Of Counsel Stanislav Veselov and Associate Sabina Idrisova.

Dear Ladies and Gentlemen! In the course of regular updates on Russian counter-sanctions, we would like to provide you with information on Decree of the President of the Russian Federation dated March 3, 2023 No. 138 “On Additional Temporary Economic Measures Related to Circulation of Securities” (“Decree No. 138”).