Important changes on replacing the CEO at companies with foreign participants

A recent court ruling has challenged the established practice ****concerning of how CEOs (sole executive body) are replaced at companies with foreign participants from "unfriendly" countries****.

Recent developments

In case No. A21-5127/2023, the court ruled that the replacement of the CEO of a company that has a Latvian legal entity as a participant was illegal as prior approval from the Government Commission had not been obtained. This decision contradicts the official position of the Ministry of Finance of the Russian Federation (MinFin), which had previously stated that such approval is only necessary when the change impacts the rights of the company’s participants.

The current legal challenge

This court decision has introduced legal uncertainty, as there are differing interpretations of the rules:

• The MinFin contends that approval from the Government Commission is not required if the replacement of the sole executive body (CEO, President, etc.) does not impact the rights of the participants.

• The court viewed the replacement of the sole executive body (CEO) as a transaction that affects the company’s management which, therefore, must be approved by the Government Commission.

Our Approach

Here’s how ****ALRUD**** sees the situation: considering the official clarifications from the MinFin, we believe their position should be adhered to. Under Presidential Decree No. 618, the MinFin is authorized to issue official interpretations. In its Official Clarification No. 3, the MinFin clearly stated that replacing a CEO does not require approval if it does not affect the participants' rights. We’ve consistently supported this approach and continue to do so.

However, given the current legal uncertainty, it is important to evaluate the specific circumstances when replacing a CEO, particularly factors such as:

• Whether the CEO is also a participant in the company

• Whether the company is involved in significant state or socially important projects

What’s Next?

The court’s decision is not final. There is a strong possibility that the Supreme Court will provide further clarity, particularly in light of the MinFin’s recent clarifications.

As a business owner or corporate manager, effectively navigating this uncertainty will help you avoid delays or complications. We recommend evaluating risks on a case-by-case basis and making informed decisions accordingly.

If you have any questions or need assistance with preparing the necessary documents, our team is ready to support you.