Liquidation: new simplified procedure and counter-sanctions regime impact

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